<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 18, 1997
REGISTRATION NO. 333-37373
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
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>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED NOVEMBER 18, 1997
PROSPECTUS
$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.
<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's subsidiaries currently do not have any indebtedness outstanding. 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'). In accordance with such Securities Purchase Agreement, at
the first closing thereunder, NTT invested $40 million of the total $100 million
Strategic Equity Investment, and will invest the remaining $60 million at a
second closing which will occur immediately prior to consummation of the
Offerings. See 'Certain Transactions--The Strategic Equity Investment.' Prior to
the first closing of the Strategic Equity Investment, the original members of
Teligent, L.L.C. made additional cash contributions to Teligent, L.L.C. in the
aggregate amount of $60 million (the 'Additional Sponsor Cash Contributions').
In addition, prior to such first closing of the Strategic Equity Investment,
Associated agreed to contribute to Teligent the business and operations of its
wireless competitive access provider in Los Angeles, California (the 'ACLA
Contribution' and, together with the Additional Sponsor Cash Contributions, the
'Additional Sponsor Equity Contributions') and, in consideration of such
agreement, received a 1% increase in its member interest in Teligent, L.L.C.
Completion of the ACLA Contribution is subject only to receipt of certain
routine state regulatory approvals and is not a condition to consummation of the
Offerings. Consummation of the Offerings is conditioned on completion of the
Reorganization and the second closing 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; and (iii) 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 the Strategic Equity Investment of $100 million in the Company.
On November 13, 1997, at a first closing, NTT, through its indirect wholly owned
subsidiary NTTA&T Investment Inc. ('NTTA&T'), invested $40 million of the total
$100 million Strategic Equity Investment. Prior to such first closing of the
Strategic Equity Investment, the original members of Teligent, L.L.C. made
additional cash contributions to Teligent, L.L.C. in the aggregate amount of $60
million. In addition, prior to such first closing of the Strategic Equity
Investment, Associated agreed to make the ACLA Contribution, and, in
consideration of such agreement, received a 1% increase in its member interest
in Teligent, L.L.C. Completion of the ACLA Contribution is subject only to
receipt of certain routine state regulatory approvals and is not a condition to
consummation of the Offerings.
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 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
6
<PAGE>
upgrades. The Company believes that this ability will represent an additional
advantage relative to fiber-based CLECs which frequently resell the last mile
local loop from the ILEC.
Flexible Information Systems. Teligent is designing, acquiring and
integrating advanced flexible information systems to support billing, customer
care, provisioning and maintenance operations. These information systems will be
based on current technologies and platforms to meet current and anticipated
customer demands, including service bundling, integrated billing and flexible
pricing. Teligent expects that its information systems will give it the
capability to adapt quickly and flexibly to changing market conditions and new
customer requirements. The Company believes that legacy systems have
historically constrained the industry's ability to provide customized offerings
and new service features to customers on a timely basis.
Experienced Management and Sponsors. Teligent's management team, led by
Alex J. Mandl, formerly President and Chief Operating Officer of AT&T
Corporation ('AT&T'), has significant senior management experience at leading
telecommunications companies including MCI Communications Corporation, PCS
PrimeCo, L.P., MFS Communications Company, Inc. and UUNET Technologies, Inc. as
well as other competitive providers and start-up businesses. This includes
extensive experience in the operational, technical, sales, marketing, financial
and regulatory areas. Teligent believes that its senior management team has been
and will be critical in attracting high quality managers, salespeople and
engineers needed to execute its business plan. See 'Management.' Teligent's
sponsors, Associated and Telcom Ventures, both have extensive experience in
pioneering wireless telecommunications businesses. NTT, the world's largest
telecommunications carrier, has extensive local telecommunications and wireless
network experience and has agreed to enter into a technical services agreement
with Teligent to assist Teligent in designing and managing its network and
deploying advanced services.
BUSINESS STRATEGY
Teligent's goal is to be a premier facilities-based provider of voice,
data, video and Internet services to small and medium-sized businesses. The
Company intends to leverage its ability to provide cost-effective, high
bandwidth connectivity in order to offer an integrated package of local and long
distance telephone service, high-speed data connectivity, Internet access and
videoconferencing. The Company is implementing the following initiatives to
achieve this objective:
Target Small and Medium-Sized Businesses. Teligent plans to focus its
primary marketing efforts on small and medium-sized businesses with 5 to 350
telephone lines. The Company expects to attract these customers through both a
direct sales effort and indirect sales channels by offering (i) an integrated
package of telecommunications services, (ii) competitive pricing, (iii) high
quality and responsive customer service and (iv) high bandwidth services which
may be difficult to obtain from other telecommunications providers. Teligent
also intends to selectively pursue sales opportunities with larger businesses
when its value proposition and its service offerings are competitively
advantaged.
End User Focus. Teligent intends to approach its target market by offering
services directly to end users, as opposed to positioning itself as a 'carrier's
carrier' offering wholesale network capacity. By deriving the majority of its
revenues from providing local switched voice and data communications services
directly to end user customers, Teligent believes that it will (i) establish a
sustainable and broad base of its own customers, thereby minimizing the risk of
generating substantial revenues from a limited number of sources, (ii) maximize
revenues and profitability by accessing the higher priced retail market and
(iii) achieve competitive differentiation based on high quality service that is
responsive to the customer.
Develop Brand Awareness. Teligent will seek to position itself as a high
quality service provider by offering network reliability complemented by quality
customer support. The Company is designing its marketing campaign to reflect
these objectives and intends to build its reputation by (i) working closely with
its customers to develop services tailored to their particular needs and (ii)
targeting advertising and promotion efforts in its coverage areas, gradually
expanding to mass media with market-wide and potentially nationwide coverage.
The Company also believes that its speed to market advantage will assist its
branding campaign, by enabling it to be one of the first widely available
facilities-based competitors in a market.
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
7
<PAGE>
reduce their prices as increased competition begins to erode their market share.
The Company believes that it will be able to remain competitive if market prices
decline because of its lower expected network cost. The Company also expects to
price its bundled long distance service at a discount to market prices as a
further incentive to attract potential customers and to broaden its revenue
base.
Rapid Deployment. Teligent intends to take advantage of its network
flexibility and lower incremental capital requirements in order to quickly
roll-out and penetrate its market areas. Teligent believes that this rapid
deployment should allow it to become one of the first significant
facilities-based competitors in many parts of its market areas. The Company
believes that this rapid deployment should enable it to establish a level of
market penetration which will further enhance the Company's relative cost
advantage, attract additional customers and further enhance its brand
reputation.
Exploit Future Growth Opportunities. Teligent intends to continue building
on the capabilities of its networks to expand its target market and service
offerings. Such expansion may include targeting residential customers in
multiple dwelling units as well as international opportunities, either through
joint ventures or by direct entry.
COMMERCIAL ROLL-OUT
Teligent is preparing to offer an integrated package of services including
local and long distance telephone services, high speed data connectivity,
Internet access and videoconferencing. Teligent is licensed by the FCC to
operate point-to-point and point-to-multipoint 24 GHz fixed wireless local
systems in 74 market areas, covering over 700 municipalities in the United
States, which licenses include 320-400 MHz of spectrum in 27 of the 35 most
populous market areas in the United States, and at least 80 MHz of spectrum in
47 other major market areas. See 'Risk Factors--Relocation of Licenses to 24
GHz; Pending FCC Petitions' and 'Regulation.' The Company intends to deploy its
24 GHz fixed wireless point-to-multipoint broadband networks to provide last
mile connectivity in these licensed market areas. These networks may also
include point-to-point links and resold local loops where economically
attractive or strategically desirable. The Company has deployed a point-to-
multipoint system in Richardson, TX on a trial basis.
The Company plans to begin to begin Phase I Deployment efforts in Dallas,
TX, Los Angeles, CA and Washington, DC during the fourth quarter of 1997. The
objectives of Phase I Deployment will involve the deployment and testing of
equipment from multiple network equipment providers, including Northern Telecom,
Inc. ('Nortel'), Lucent Technologies, Inc. ('Lucent'), P-Com Inc. ('P-Com'),
Netro Corporation ('Netro') and Broadband Networks Inc. ('BNI'). At the same
time, the Company will continue to be engaged in acquiring building access
rights, obtaining interconnection agreements, deploying switches, commencing
marketing activities and making other operational arrangements for commencing
commercial service in other markets. Phase I Deployment is currently targeted
for completion late in the second quarter of 1998.
Following Phase I Deployment, Teligent plans to begin rolling-out its
integrated package of services. The Company intends to offer such commercial
service in at least 10 market areas by the end of 1998 and 30 by the end of
1999, and subsequently in all of its 74 currently licensed market areas. The
Company's ability to provide commercial service on a widespread basis and to
generate positive operating cash flow will depend on its ability to, among other
things, (i) develop its operational and support systems, (ii) acquire building
access for its operations, (iii) obtain state authorizations to operate as a
CLEC and an IXC in its market areas and any other required local authorizations,
(iv) commercialize its 24 GHz point-to-multipoint technology on a market-by-
market basis, (v) attract and retain an adequate customer base, (vi) raise
additional capital, (vii) attract personnel and (viii) enter into and implement
interconnection agreements with ILECs. Teligent intends to prioritize markets
for roll-out based on a variety of factors including (i) market size,
demographics and topography, (ii) expected market competition and pricing, (iii)
proximity to other markets and (iv) local regulatory environment.
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.'
8
<PAGE>
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, which
acquired a 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. In each case, the number of shares of Common Stock to be received by each
member of Teligent, L.L.C. pursuant to the Reorganization will be proportionate
to such member's percentage interest in Teligent, L.L.C. immediately prior to
the Reorganization. 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.' In connection with the Reorganization, the stockholders
of the Company immediately after the consummation of the Reorganization, other
than the FirstMark Sole Stockholder, will enter into a Stockholders Agreement
which will provide for the continuation of certain rights and obligations of the
parties thereto with respect to their ownership interest in, and the governance
of, the Company, as were applicable under the Amended and Restated Limited
Liability Company Agreement of Teligent, L.L.C. which was entered into at the
First Closing pursuant to the NTT Purchase Agreement. See 'The Strategic Equity
Investment' below and 'Certain Relationships and Related
Transactions--Stockholders Agreement.'
The Additional Sponsor Equity Contributions. Prior to the First Closing
under the NTT Purchase Agreement (see 'The Strategic Equity Investment'
immediately below), the original members of Teligent, L.L.C. made additional
cash capital contributions to Teligent, L.L.C. in the aggregate amount of $60
million (the 'Additional Sponsor Cash Contributions'). In addition, prior to
such First Closing Associated 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') and, in
consideration of such agreement, received a 1% increase in its member interest
in Teligent, L.L.C. Completion of the ACLA Contribution is subject only to
receipt of certain routine state regulatory approvals and is not a condition to
consummation of the Offerings. Neither the original members of Teligent, L.L.C.
nor Associated will, as a result of the Additional Sponsor Equity Contributions,
receive any equity securities of the Company in addition to the number of shares
of Common Stock received by them pursuant to the Reorganization, which, as noted
immediately above under 'The Reorganization,' will reflect the percentage
interest of each such member in Teligent, L.L.C. immediately prior to the
Reorganization.
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'), which occurred on November
13, 1997 NTT, through NTTA&T purchased 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, through
NTTA&T, 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
9
<PAGE>
Strategic Equity Investment is subject to the satisfaction or waiver of certain
conditions, including, in the case of the Second Closing, the termination or
expiration of the applicable waiting period under the Hart-Scott-Rodino
Antitrust Improvement Act of 1976, as amended (the 'HSR Act'), which termination
has occurred. The Second Closing is expected to occur immediately prior to the
consummation of the Offerings. Consummation of the Offerings is conditioned on
the completion of the Second Closing. 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 for 80 MHz of additional spectrum covering a population of approximately 9.4
million (approximately 7% of the total population covered by the Company's
licenses), 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. These Boston and New York licenses were
for 320 MHz and 240 MHz, respectively, and cover a population of approximately
12.6 million (approximately 10% of the total population covered by the Company's
24 GHz licenses). The grant of such licenses may, for limited time periods, be
subject to petitions for reconsideration. The Company has other licenses for 80
MHz of spectrum in each of New York and Boston, the grants of which are not
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. The licenses contributed
by MSI, including the New York and Boston licenses described immediately above,
cover a population of approximately 91.9 million, which is approximately 71% of
the population covered by all of the Company's 24 GHz licenses. The licenses
contributed by DSC cover a population of approximately 83.3 million, which is
approximately 64% of the population covered by all of the Company's 24 GHz
licenses. Most of the licenses contributed by MSI and DSC are for the same
markets, but there are some differences in the markets for which each company
contributed 24 GHz licenses. Accordingly, the aggregate population covered by
the licenses contributed by the two companies is approximately 95.3 million, or
approximately 73.3% of the total population covered by all of the Company's 24
GHz licenses. 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 assignment of certain licenses held
by certain of the Company's members or affiliates to the Company, the grant of
which may be subject to petitions for reconsideration for limited periods (see
'Certain Transactions--The FirstMark Acquisition' and 'Company History and
Sponsorship'), (c) the grant by the FCC of certain other applications to provide
24 GHz wireless services in Boston, MA and New York, NY ((a), (b) and (c),
collectively, the 'License Transactions') and (d) the Additional Sponsor Equity
Contributions, 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
Additional paid-in capital(6)..................... 24,058 232,905 103,495 360,458
Deficit accumulated during the development
stage........................................... (92,458) 21,680(7) -- (70,778)
--------- ---------- --------------- -----------
Subtotal.......................................... (68,400) 255,048 103,550 290,198
Notes receivable from Executive(6)................ (11,750) -- -- (11,750)
--------- ---------- --------------- -----------
Total stockholders' equity.......................... (80,150) 255,048 103,550 278,448
--------- ---------- --------------- -----------
Total capitalization................................ $ (41,650) $ 216,548 $ 503,550 $ 678,448
--------- ---------- --------------- -----------
--------- ---------- --------------- -----------
</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, $33.0 million relating to
the conversion of CARs and Appreciation Units into stock options, $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 following summary financial data 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, as of and for the period March 5, 1996
(date of inception) to September 30, 1996, 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, for the period March 5, 1996 (date of inception) to
September 30, 1996, 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, 1996
---------------------- ------------------ ----------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................. $ 1,386 $ 2,914 $ 816
Costs and expenses:
Cost of wireless communications
services............................. 1,625 2,875 374
Sales, general and administrative...... 9,582 25,551 5,230
CARs and Appreciation Units(1)......... 2,778 51,935 --
Depreciation and amortization.......... 164 306 61
-------- -------- --------
Total costs and expenses............. 14,149 80,667 5,665
-------- -------- --------
Operating loss........................... (12,763) (77,753) (4,849)
Interest expense and loan fees, net...... (870) (1,072) --
-------- -------- --------
Net loss(1).............................. $(13,633) $(78,825) $ (4,849)
-------- -------- --------
-------- -------- --------
<CAPTION>
DECEMBER 31, 1996 SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
---------------------- ------------------ ----------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash..................................... $ 1,303 $ 5,808 $ 309
Property and equipment, net.............. 3,545 6,956 2,340
Total assets............................. 5,145 24,318 3,075
Working capital (deficit)................ (6,930) (51,309) (2,651)
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 19,288
Deficit accumulated during the
development stage.................... (13,633) (92,458) (4,849)
-------- -------- --------
Subtotal............................... 10,425 (68,400) 14,439
Notes receivable from Executive........ (14,000) (11,750) (14,750)
-------- -------- --------
Total members' deficit............... $ (3,575) $(80,150) $ (311)
-------- -------- --------
-------- -------- --------
<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, 1996
---------------------- ------------------ ----------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
OTHER DATA:
Modified EBITDA(2)....................... $ (8,821) $(23,262) $ (4,788)
Cash used in operating activities........ (6,047) (22,508) (1,578)
Cash used in investing activities........ (3,709) (9,487) (2,401)
Cash provided by financing activities.... 11,058 36,500 4,288
Ratio of earnings to fixed charges(3).... -- -- --
<CAPTION>
MARCH 5, 1996
(DATE OF INCEPTION) TO
SEPTEMBER 30, 1997
----------------------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................. $ 4,300
Costs and expenses:
Cost of wireless communications
services............................. 4,500
Sales, general and administrative...... 35,133
CARs and Appreciation Units(1)......... 54,713
Depreciation and amortization.......... 470
--------
Total costs and expenses............. 94,816
--------
Operating loss........................... (90,516)
Interest expense and loan fees, net...... (1,942)
--------
Net loss(1).............................. $(92,458)
--------
--------
MARCH 5, 1996
(DATE OF INCEPTION) TO
SEPTEMBER 30, 1997
----------------------
<S> <C>
OTHER DATA:
Modified EBITDA(2)....................... $(32,083)
Cash used in operating activities........ (28,554)
Cash used in investing activities........ (13,196)
Cash provided by financing activities.... 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, 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
(Footnotes continued on next page)
14
<PAGE>
(Footnotes continued from previous page)
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, the period March 5, 1996 (date of inception) to September 30,
1996, and for 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, 4.9 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's subsidiaries currently do not
have any indebtedness outstanding. 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.'
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.
</TABLE>
16
<PAGE>
<TABLE>
<S> <C>
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 , 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
</TABLE>
17
<PAGE>
<TABLE>
<S> <C>
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.'
18
<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.
19
<PAGE>
Based on the Company's current business plan, the Company believes that the
net proceeds of the Offerings, the Additional Sponsor Cash Contributions, the
Strategic Equity Investment and anticipated Vendor Financing will be sufficient
to satisfy its capital requirements through December 2000.
The Company expects that its capital requirements after December 2000 will
require it to obtain additional financing, which may include commercial bank
borrowings, additional vendor financing or the sale or issuance of equity and
debt securities either through one or more offerings or to one or more strategic
investors. In addition, if (i) the Company's development plans or projections
change or prove to be inaccurate, (ii) the net proceeds of the Offerings, the
Additional Sponsor Cash Contributions, the Strategic Equity Investment and
anticipated Vendor Financing, together with other, then-existing, financial
resources, prove to be insufficient to satisfy the Company's capital
requirements through December 2000, (iii) the Company purchases spectrum at
auction or makes any acquisitions or (iv) the Company accelerates implementation
of its network roll-out, the Company may be required to obtain additional
financing earlier than anticipated.
There can be no assurance that the Company will be successful in raising
sufficient additional capital on terms that it will consider acceptable, that
the terms of such indebtedness or other capital will not impair the Company's
ability to develop its business, or that the Company's liquid capital from all
of its sources will be available in sufficient amounts to service its debt.
Failure to raise sufficient funds may require the Company to modify, delay or
abandon some of its planned future expansion or expenditures, which could have a
material adverse effect on the Company's business, financial condition and
results of operations, including the Company's ability to make principal and
interest payments on its indebtedness, including the Notes. In addition, the
Indentures will contain, and other debt instruments governing existing and
future indebtedness contain, or may contain, covenants that limit the
operational and financial flexibility of the Company. See 'Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources.'
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE INDEBTEDNESS
The Company will be highly leveraged following the Offerings. On a pro
forma basis after giving effect to the Offerings, the Additional Sponsor Equity
Contributions and the Strategic Equity Investment and the application of net
proceeds therefrom as if they occurred on September 30, 1997, the Company would
have had approximately $400.0 million of outstanding indebtedness as of
September 30, 1997, the Company's total debt as a percentage of capitalization,
excluding the value of the licenses contributed pursuant to the License
Transactions and excluding the ACLA Contribution, would have been 60% 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
20
<PAGE>
indebtedness, and there can be no assurance that refinancing will be available,
or available on reasonable terms. If the Company were unable to obtain adequate
financing or refinancing on satisfactory terms, it would have to consider
various other options such as the sale of certain assets or additional equity to
meet its debt service requirements or other options available to it under law.
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.
21
<PAGE>
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.'
22
<PAGE>
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 the members of Teligent, L.L.C.
(other than the FirstMark Sole Stockholder) 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 NTTA&T) 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
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telecommunication markets. For example, the Telecommunications Act will permit
the RBOCs eventually to compete fully in the provision of long distance services
upon the satisfaction of certain statutorily mandated criteria. The
Telecommunications Act generally requires ILECs to provide competitors with
interconnection and nondiscriminatory access to the local exchange network on
more favorable terms than have been available in the past. Such interconnection
and the terms thereof are subject to negotiation with each ILEC, however, which
may involve considerable delays. Moreover, such interconnection may not
necessarily be obtained on terms and conditions that are favorable to the
Company. Although the Company may petition the proper state regulatory agency to
arbitrate disputed issues, there can be no assurance that the Company will be
able to obtain favorable interconnection agreements. Also, there can be no
assurance that any interconnection agreements will actually be implemented or
enforced in a favorable manner. To date, the Company has successfully negotiated
comprehensive interconnection agreements with five ILECs and a Resale Agreement
with another for an additional state. In addition, it is currently negotiating
comprehensive interconnection agreements with these and several other ILECs for
numerous states. The Company has not resorted to arbitration with respect to its
interconnection negotiations as of this date.
As required by the Telecommunications Act, the FCC adopted in August 1996
new rules implementing the interconnection and resale provisions of the
Telecommunications Act (the 'Interconnection Order'), which are intended to
remove or minimize regulatory, economic and operational impediments to full
competition for local services, including switched local exchange service. A
number of parties appealed the Interconnection Order in Federal court seeking to
vacate some or all of the rules adopted therein. In a July 18, 1997 decision,
the United States Court of Appeals for the Eighth Circuit vacated significant
portions of the Interconnection Order, including its provisions governing the
pricing of local telecommunications services and unbundled network 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,
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financial condition and results of operations. Further, there can be no
assurance that the Company will be able to comply with additional applicable
laws, regulations and licensing requirements or have sufficient resources to
take advantage of the opportunities which may arise from this dynamic regulatory
environment.
RADIO FREQUENCY EMISSION CONCERNS
The use of wireless equipment may pose health risks to humans due to radio
frequency ('RF') emissions from the radio/antenna unit. Any allegations of
health risks, if proven, could result in liability on the part of the Company.
If Teligent were held liable in any product liability suit, such liability could
have a material adverse effect on the financial condition of the Company,
including its ability to make principal and interest payments on its
indebtedness, including the Notes. Concerns over RF emissions also may have the
effect of discouraging the use of wireless communications devices, such as the
radio/antenna unit to be used with the Company's systems. See '--Emerging
Market; Uncertain Commercial Acceptance of 24 GHz Services.' These concerns
could have a material adverse effect on the Company's business, financial
condition and results of operations. The FCC recently adopted new guidelines and
methods for evaluating the environmental effects of RF emissions from
FCC-regulated transmitters, including wireless antennas. The updated guidelines
and methods generally are more stringent than those previously in effect. The
Company expects that the wireless equipment to be provided by its vendors will
comply with applicable FCC guidelines. The FCC also incorporated into its rules
provisions of the Telecommunications Act which preempt state or local government
regulation of personal wireless services facilities based on RF environmental
effects, to the extent such facilities comply with the FCC's rules concerning
such RF emissions.
CONTROL BY PRINCIPAL STOCKHOLDER; POTENTIAL CONFLICTS OF INTEREST
After giving effect to the Transactions and the Offerings, Associated will
own 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.
30
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the Notes Offering are estimated to be
approximately $385.0 million, and the net proceeds to the Company from the
Equity Offerings are estimated to be approximately $103.6 million ($119.5
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.
31
<PAGE>
UNAUDITED PRO FORMA BALANCE SHEET
The unaudited pro forma balance sheet set forth below is presented (i) as
of September 30, 1997 on an actual basis, (ii) to show pro forma adjustments
resulting from the Transactions and the application of net proceeds therefrom as
described under 'Use of Proceeds,' (iii) to show pro forma adjustments resulting
from the Offerings and the application of the net proceeds therefrom as
described under 'Use of Proceeds,' and (iv) as of September 30, 1997 on a pro
forma basis as adjusted to give effect to the Transactions and the Offerings and
the application of the net proceeds therefrom as described under 'Use of
Proceeds,' each case as if the same occurred on September 30, 1997, subject to
the assumptions and adjustments in the accompanying notes to the unaudited pro
forma balance sheet.
The unaudited pro forma balance sheet should be read in conjunction with
the financial data appearing under 'Selected Financial Data,' the Financial
Statements contained elsewhere herein and the discussion of the Transactions
under 'Certain Transactions.' The unaudited pro forma balance sheet does not
purport to be indicative of the financial position of the Company that might
have been obtained had these events actually then occurred or of the Company's
future financial position.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
--------------------------------------------------------------
ADJUSTMENTS ADJUSTMENTS
FOR THE FOR THE
ACTUAL TRANSACTIONS(1) OFFERINGS(2) AS ADJUSTED(3)
-------- ------------------- ------------ --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 5,808 $ 119,619 $419,550 $544,977
Other current assets................................... 5,581 (2,432) -- 3,149
-------- ------------------- ------------ --------------
Total current assets..................................... 11,389 117,187 419,550 548,126
Restricted cash(4)....................................... -- -- 69,000 69,000
Property and equipment, net.............................. 6,956 685 -- 7,641
Licenses................................................. -- 49,853 -- 49,853
Payment to wireless communications company(5)............ 5,570 (5,570) -- --
Other assets............................................. 403 (203) 15,000 15,200
-------- ------------------- ------------ --------------
Total Assets............................................. $ 24,318 $ 161,952 $503,550 $689,820
-------- ------------------- ------------ --------------
-------- ------------------- ------------ --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, accrued payroll and other current
liabilities......................................... $ 6,298 $ 118 $ -- $ 6,416
Revolving line of credit(6)............................ 38,500 (38,500) -- --
Accrued CARs and Appreciation Units.................... 17,899 (17,899)(7) -- --
-------- ------------------- ------------ --------------
Total current liabilities................................ 62,697 (56,281) -- 6,416
Accrued CARs and Appreciation Units...................... 36,815 (36,815)(7) -- --
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).......................... 24,058 232,905 103,495 360,458
Retained earnings (deficit accumulated) during the
development stage................................... (92,458) 21,680(7) -- (70,778)
-------- ------------------- ------------ --------------
Subtotal............................................... (68,400) 255,048 103,550 290,198
Notes receivable from Executive(8)..................... (11,750) -- -- (11,750)
-------- ------------------- ------------ --------------
Total Stockholders' equity............................... (80,150) 255,048 103,550 278,448
-------- ------------------- ------------ --------------
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.' The current
and long term portions of the accrued CARs and Appreciation Unit liabilities
are calculated in accordance with the vesting of the underlying CARs and
Appreciation Units.
(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, $33.0 million relating to
the conversion of CARs and Appreciation Units into stock options, $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 following selected financial data 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, as of and for the
period March 5, 1996 (date of inception) to September 30, 1996, 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, for the period March 5, 1996 (date of
inception) to September 30, 1996, 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 MARCH 5, 1996
(DATE OF INCEPTION) TO NINE MONTHS ENDED (DATE OF INCEPTION) TO (DATE OF INCEPTION) TO
DECEMBER 31, 1996 SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 SEPTEMBER 30, 1997
---------------------- ------------------ ---------------------- ----------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues...................... $ 1,386 $ 2,914 $ 816 $ 4,300
Costs and expenses:
Cost of wireless
communications
services................. 1,625 2,875 374 4,500
Sales, general and
administrative........... 9,582 25,551 5,230 35,133
CARs and Appreciation
Units.................... 2,778 51,935 -- 54,713
Depreciation and
amortization............. 164 306 61 470
---------- ---------- ---------- ----------
Total costs and
expenses............... 14,149 80,667 5,665 94,816
---------- ---------- ---------- ----------
Operating loss................ (12,763) (77,753) (4,849) (90,516)
Interest expense and loan
fees, net................... (870) (1,072) -- (1,942)
---------- ---------- ---------- ----------
Net loss(1)................... $(13,633) $(78,825) $ (4,849) $(92,458)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
<CAPTION>
DECEMBER 31, 1996 SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
---------------------- ------------------ ----------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash.......................... $ 1,303 $ 5,808 $ 309
Property and equipment, net... 3,545 6,956 2,340
Total assets.................. 5,145 24,318 3,075
Working capital (deficit)..... (6,930) (51,309) (2,651)
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 19,288
Deficit accumulated during
the development stage.... (13,633) (92,458) (4,849)
---------- ---------- ----------
Subtotal.................... 10,425 (68,400) 14,439
Notes receivable from
Executive................ (14,000) (11,750) (14,750)
---------- ---------- ----------
Total members' deficit... $ (3,575) $(80,150) $ 311
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
MARCH 5, 1996 MARCH 5, 1996 MARCH 5, 1996
(DATE OF INCEPTION) TO NINE MONTHS ENDED (DATE OF INCEPTION) TO (DATE OF INCEPTION) TO
DECEMBER 31, 1996 SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 SEPTEMBER 30, 1997
---------------------- ------------------ ---------------------- ----------------------
(DOLLARS IN THOUSANDS)
OTHER DATA:
<S> <C> <C> <C> <C>
Modified EBITDA(2)............ $ (8,821) $(23,262) $ (4,788) $(32,083)
Cash used in operating
activities.................. (6,047) (22,508) (1,578) (28,554)
Cash used in investing
activities.................. (3,709) (9,487) (2,401) (13,196)
Cash provided by financing
activities.................. 11,058 36,500 4,288 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, 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, the period March 5, 1996 (date of inception) to September 30, 1996
and for 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, $4.9 million, and $90.0 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.
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Sales and Marketing Costs. Teligent intends to employ a significant direct
sales force to focus on the end user. The salespeople will have performance
incentives through a structure that will link a significant portion of each
person's compensation to the actual revenue produced by that individual.
Particularly in the first few years, the sales force will target the specific
geographic areas covered by newly constructed base station sites. As the
network's geographic coverage expands, Teligent expects it will broaden its
marketing and advertising activities. In addition, to enhance profitability and
maximize benefits of network architecture, salespeople will be encouraged to
maximize penetration in 'on net' buildings that already have installed CPE. The
Company also intends to use alternate or indirect channels of distribution,
including a sales agent program.
Software and Development Costs. The Company expects to incur significant
costs for rights to the software used within the wireless local loop, switching
and network management portions of its network. The Company will incur
significant software-related costs as it builds and maintains its advanced
information systems to support functions such as billing and customer care.
DEPRECIATION AND AMORTIZATION
The Company depreciates and amortizes its property and equipment using the
straight line method over the estimated useful life of the assets ranging from
five to ten years for equipment and the lesser of seven years or the lease term
for leasehold improvements. Licenses are amortized over a period up to fifteen
years.
CAPITAL EXPENDITURES
The Company's principal capital expenditure requirements involve the
purchase and installation of CPE, base stations, network switches and switch
electronics and network operations center expenditures.
Customer Premise Equipment. The purchase and installation of CPE is the
largest single capital expense component in Teligent's business plan, and
represents a success-based capital expenditure. Success-based capital
expenditures afford Teligent greater flexibility in its business plan and reduce
the risk of deploying equipment and capital which are not associated with
customers and revenues. While a certain amount of equipment must initially be
installed at each base station, the majority of the equipment (and cost) will
depend upon the number of customers acquired. As more customers are loaded onto
a given base station area, the initial base station equipment will be augmented
with additional sectors, radios, antennas and modems to meet customer demand.
The Company's CPE costs include an integrated radio/antenna unit, modem(s),
power supply, multiplexer and router equipment, line interface cards, and cables
and installation materials. Portions of the CPE costs can also be shared among
multiple customers in the same building, thereby reducing the capital
expenditures required per customer. In addition, in the event of customer churn,
the Company's CPE can be redeployed at other customer premises thereby reducing
stranded assets.
Base Station Site. A base station will be able to serve customers within a
360-degree coverage area, subject to lines of sight. Teligent expects its
average coverage radius will be approximately three miles (five kilometers),
depending on local conditions. A base station will typically comprise four to
eight sectors, each of which cover a radial section of the service area
depending on coverage and capacity requirements. Each sector requires one or
more radio/antenna units and modems, depending on the system deployed.
Construction costs per base station are typically higher than are construction
costs per customer site. The Company expects that its sites will typically be
built on top of buildings as opposed to towers constructed by the Company.
Base Station to Switch Transport. Teligent will transport traffic between
its base stations and switching sites. To the extent the Company uses wireless
transport rather than leased fiber, it will incur capital expenditures as
opposed to operating costs.
Switching. Switching costs include traditional circuit-based switches,
line cards for interfacing with the backhaul networks and with the networks of
other carriers, packet- and cell-based switching systems, such as ATM and Frame
Relay switches, power systems, and environmental maintenance equipment. The
Company expects to eventually deploy a switch in each of its markets and be able
to add increased switching capacity by adding more ports. Accordingly, the cost
structure for switches is expected to have both a fixed and variable cost
component.
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BUSINESS DEVELOPMENT, CAPITAL EXPENDITURES AND ACQUISITIONS
From inception through September 30, 1997, expenditures for property and
equipment total $7.4 million. In addition, the Company has incurred significant
other costs and expenses in the development of its business and has recorded
cumulative losses from inception through September 30, 1997 of approximately
$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 COMPARED TO THE PERIOD MARCH 5, 1996
(INCEPTION) TO SEPTEMBER 30, 1996
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.
For the period March 5, 1996 (date of inception) to September 30, 1996, the
Company generated revenues of $816,000 from services provided to MSI and DSC,
including $746,000 of other services and $70,000 of management fees.
For the nine months ended September 30, 1997, 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.
For the period March 5, 1996 (date of inception) to September 30, 1996, the
Company incurred operating expenses (other than interest expense) of $5.7
million, including $374,000 relating to the cost of wireless communications
services and $5.2 million of sales, general, and administrative expenses,
primarily due to payroll and consulting costs relating to the commencement of
operations.
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.'
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LIQUIDITY AND CAPITAL RESOURCES
Unlike other new wireless entrants that have expended considerable capital
to acquire licenses, the majority of Teligent's licensed spectrum was
contributed by MSI and DSC, and Teligent has no outstanding balance sheet
liabilities for license purchases. The development of the Company's business and
deployment of its services and systems will require significant capital to fund
capital expenditures, working capital, debt service and operating losses. The
Company's principal capital expenditure requirements involve the purchase and
installation of CPE, base stations, network switches and switch electronics and
network operations center expenditures. The Company intends to offer its
integrated package of services in at least 10 market areas by the end of 1998
and 30 by the end of 1999, and subsequently in all of its 74 currently licensed
market areas. The Company currently forecasts that its capital requirements from
March 5, 1996 (inception) through December 2000 will be approximately $1
billion. 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.
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The obligations of Nortel and the Company under the Equipment Purchase
Letter of Intent and the Financing Commitment Letter are subject to numerous
conditions, including the negotiation, execution and delivery of definitive
documentation with respect to the matters described therein. There can be no
assurance that the parties will be able to reach agreement on the terms of such
definitive documentation. In addition, the Financing Commitment Letter is
subject to, among other things, the completion of Nortel's due diligence review
and the absence, as determined by Nortel in its reasonable discretion, of (i)
material adverse changes in the U.S. financial or capital markets generally, or
in the loan syndication market for comparable facilities and (ii) any material
adverse change in the business, condition (financial or otherwise), operations,
performance, prospects or properties of the Company and its subsidiaries, taken
as a whole. See 'Description of Certain Indebtedness.'
HISTORICAL CASH FLOWS
To develop its networks, the Company has historically relied upon several
sources for its cash flow. The Company received cash contributions of
approximately $9.1 million from MSI and DSC. MSI and DSC also lent $15.0 million
to Alex J. Mandl in connection with his employment by the Company for the
Company's benefit. 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 $2.7 million and cash of $1.3 million and $309,000 at
December 31, 1996 and September 30, 1996, respectively. The increase in the
working capital deficit from September 30, 1996 and 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 $3.1 million and $5.1 million as
of September 30, 1996 and December 31, 1996, respectively, to $24.3 million at
September 30, 1997. Property and equipment, net of accumulated depreciation,
comprised $2.3 million of total assets at September 30, 1996, $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 $1.6 million and $6.0 million for
the period March 5, 1996 (date of inception) to September 30, 1996 and the
period March 5, 1996 (date of inception) through December 31, 1996,
respectively, 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 $2.4 million and $3.7
million for the period March 5, 1996 (date of inception) to September 30, 1996
and the period March 5, 1996 (date of inception) to December 31, 1996,
respectively, 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 (date of inception) to September 30, 1996 and the period March 5,
1996 (date of inception) to December 31, 1996 were $4.3 million and $11.1
million, respectively, consisting of capital contributions from MSI and DSC of
$4.3 million and $9.1 million, respectively, and borrowings under the Revolving
Credit Agreement of $2.0 million for the period March 5, 1996 (date of
inception) to December 31, 1996. 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 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
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granted 24 GHz licenses in Boston, MA and New York, NY pursuant to certain
applications previously filed by MSI with the FCC. These Boston and New York
licenses were for 320 MHz and 240 MHz, respectively, and cover a population of
approximately 12.6 million (approximately 10% of the total population covered by
the Company's 24 GHz licenses). The grant of such licenses may, for limited time
periods, be subject to petitions for reconsideration. The Company has other
licenses for 80 MHz of spectrum in each of New York and Boston, the grants of
which are not 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. The
licenses contributed by MSI, including the New York and Boston licenses
described immediately above, cover a population of approximately 91.9 million,
which is approximately 71% of the population covered by all of the Company's 24
GHz licenses. The licenses contributed by DSC cover a population of
approximately 83.3 million, which is approximately 64% of the population covered
by all of the Company's 24 GHz licenses. Most of the licenses contributed by MSI
and DSC are for the same markets, but there are some differences in the markets
for which each company contributed 24 GHz licenses. Accordingly, the aggregate
population covered by the licenses contributed by the two companies is
approximately 95.3 million, or approximately 73.3% of the total population
covered by all of the Company's 24 GHz licenses. 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.
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 the
Company licenses for four 24 GHz channels in each of New York and Boston
pursuant to applications that previously had been filed by MSI and FirstMark.
These Boston and New York licenses, described in further detail immediately
above, were for 320 MHz in each market, 80 MHz in New York granted pursuant to
an application that had been filed by FirstMark and the remainder pursuant to
applications that had been filed by MSI.
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.
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BUSINESS STRATEGY
Teligent's goal is to be a premier facilities-based provider of voice,
data, video and Internet services to small and medium-sized businesses. The
Company intends to leverage its ability to provide cost-effective, high
bandwidth connectivity in order to offer an integrated package of local and long
distance telephone service, high-speed data connectivity, Internet access and
videoconferencing. The Company is implementing the following initiatives to
achieve this objective:
Target Small and Medium-Sized Businesses. Teligent plans to focus its
primary marketing efforts on small and medium-sized businesses with 5 to 350
telephone lines. The Company expects to attract these customers through both a
direct sales effort and indirect sales channels by offering (i) an integrated
package of telecommunications services, (ii) competitive pricing, (iii) high
quality and responsive customer service and (iv) high bandwidth services which
may be difficult to obtain from other telecommunications providers. Teligent
also intends to selectively pursue sales opportunities with larger businesses
when its value proposition and its service offerings are competitively
advantaged.
End User Focus. Teligent intends to approach its target market by offering
services directly to end users, as opposed to positioning itself as a 'carrier's
carrier' offering wholesale network capacity. By deriving the majority of its
revenues from providing local switched voice and data communications services
directly to end user customers, Teligent believes that it will (i) establish a
sustainable and broad base of its own customers, thereby minimizing the risk of
generating substantial revenues from a limited number of sources, (ii) maximize
revenues and profitability by accessing the higher priced retail market and
(iii) achieve competitive differentiation based on high quality service that is
responsive to the customer.
Develop Brand Awareness. Teligent will seek to position itself as a high
quality service provider by offering network reliability complemented by quality
customer support. The Company is designing its marketing campaign to reflect
these objectives and intends to build its reputation by (i) working closely with
its customers to develop services tailored to their particular needs and (ii)
targeting advertising and promotion efforts in its coverage areas, gradually
expanding to mass media with market-wide and potentially nationwide coverage.
The Company also believes that its speed to market advantage will assist its
branding campaign, by enabling it to be one of the first widely available
facilities-based competitors in a market.
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.
46
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TELIGENT'S COMPETITIVE ADVANTAGES
Teligent believes that a number of factors will provide it with significant
competitive advantages in offering telecommunications services, including lower
network cost, success-based capital expenditures, speed to market, high
bandwidth capacity and flexibility, high quality service and network control,
flexible information systems and experienced management and sponsors.
Lower Network Cost. Teligent expects that its incremental capital required
for launching service in a market and for connecting each customer will be lower
than that of its competitors. Unlike copper- and fiber-based systems that
require installation and maintenance of a significant amount of wire and cable,
the Company's systems will have no physical wires to install and maintain
between the customer's radio equipment and the base station. As a result,
Teligent expects to enjoy a lower network cost structure than these systems. The
majority of Teligent's capital expenditures will consist of electronics, which
tend to decline in cost through time as economies of scale are achieved.
Teligent expects to benefit from its radio frequency band (24 GHz), which allows
communication with customer premise equipment at a greater distance than higher
frequency bands. In addition, point-to-multipoint networks provide more
efficient equipment utilization than the point-to-point systems currently used
by other fixed wireless providers, as transmissions from multiple customer
antennas can be concentrated at a single base station. The Company expects that
its average coverage radius of a base station will be approximately three miles
(five kilometers), depending on local conditions. Teligent also believes that
its anticipated lower cost structure should allow it to economically access
smaller buildings and more customers than fiber-based systems, and enjoy more
pricing flexibility than copper-based systems.
Success-Based Capital. Teligent's networks are designed to be not only
lower cost, but also lower risk, due to the significant variable component of
the Company's planned capital expenditures. Teligent expects to 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.
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<PAGE>
Flexible Information Systems. Teligent is designing, acquiring and
integrating advanced flexible information systems to support billing, customer
care, provisioning and maintenance operations. These information systems will be
based on current technologies and platforms to meet current and anticipated
customer demands, including service bundling, integrated billing and flexible
pricing. Teligent expects that its information systems will give it the
capability to adapt quickly and flexibly to changing market conditions and new
customer requirements. The Company believes that legacy systems have
historically constrained the industry's ability to provide customized offerings
and new service features to customers on a timely basis.
Experienced Management and Sponsors. Teligent's management team, led by
Alex J. Mandl, formerly President and Chief Operating Officer of AT&T, has
significant senior management experience at leading telecommunications companies
including MCI Communications Corporation, PCS PrimeCo, L.P., MFS Communications
Company, Inc. and UUNET Technologies, Inc. as well as other competitive
providers and start-up businesses. This includes extensive experience in the
operational, technical, sales, marketing, financial and regulatory areas.
Teligent believes that its senior management team has been and will be critical
in attracting high quality managers, salespeople and engineers needed to execute
its business plan. See 'Management.' Teligent's sponsors, Associated and Telcom
Ventures, both have extensive experience in pioneering wireless
telecommunications businesses. NTT, the world's largest telecommunications
carrier, has extensive local telecommunications and wireless network experience
and has agreed to enter into a technical services agreement with Teligent to
assist Teligent in designing and managing its network and deploying advanced
services.
TELIGENT'S NETWORK ARCHITECTURE
The Company intends to deploy its own 24 GHz fixed wireless
point-to-multipoint broadband local networks to provide last mile connectivity
in its licensed market areas. Prior to commercial deployment of the
point-to-multipoint networks, and where otherwise economically attractive, the
networks may also include point-to-point links and resold local services. The
Company believes that this flexibility will allow it to accommodate new
customers quickly, as well as expand its addressable customer base. Teligent
also expects to offer long 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.
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<PAGE>
Additionally, as customers are added and the backhaul capacity requirements
increase, some of the wireless links initially deployed may be replaced with
additional fiber-based facilities. In such cases, the wireless equipment may be
redeployed elsewhere in the network, in order to reduce stranded assets.
Teligent expects to deploy digital voice switches and data switches in each
of its principal market areas. Such voice and data switches will consist of
traditional circuit-based systems as well as more advanced packet and cell-based
switching systems. These switching systems will be engineered to provide
interconnection of customer traffic with other local exchange networks, long
distance networks and the Internet, as well as with other locations the customer
may have within the Teligent network.
The Company plans to have a central Network Operation Center ('NOC') which
will monitor its networks 24 hours a day, seven days a week and provide
real-time alarm, status and performance information. The Company intends to
build a back-up NOC facility to further enhance network reliability. The NOC
will provide customers remote circuit provisioning to ensure service
availability. At the NOC, the network will be managed and maintained on an
end-to-end basis using an integrated Network Management System ('NMS'). The NMS
will allow the Company to monitor various network elements to ensure consistent
and reliable performance. This monitoring capability will be designed to allow
the Company to plan for and conduct preventative maintenance activities in order
to avoid network outages and to respond promptly to any network disruption that
might occur. Teligent's NOC will be designed to permit enhancements such as
providing end customers with the capability to manage their segments of the
network.
DEPLOYMENT STRATEGY
Teligent intends to build out and commercialize its networks based upon the
following strategy:
Integrated Market Research and Base Station Site Optimization. Within each
market area, Teligent will conduct market research and identify and target
specific geographic areas with favorable customer characteristics. 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
49
<PAGE>
license areas, (iii) end user density within license areas and (iv) competitive
landscape. In order to gain market share, the Company intends to competitively
price its service by leveraging the network cost advantages which it expects to
achieve as it acquires customers. Over time, if and when Teligent builds market
share and develops its brand, the Company plans to increase its emphasis on the
value of a single source provider and the quality of its customer care.
Sales Force/Customer Care. Teligent's goal is to complement its full array
of services for small to medium-sized businesses with a level of customer
service and sales professionalism significantly higher than that of its
principal competitors. The Company seeks to recruit salespeople with successful
experience in competitive telephony businesses, including individuals with
backgrounds in CLECs, competitive long distance, telecommunications equipment
and data services. The salespeople will have performance incentives through a
structure that ties a significant portion of their compensation to the actual
revenue they produce. In addition, salespeople will be encouraged to maximize
penetration in 'on net' buildings. The sales force will be trained to sell the
Company's full product line of local, long distance, Internet and data services.
This ability to bundle multiple services is intended to attract customers
looking for a single point of contact for their telecommunications needs.
Teligent will emphasize responsive, proactive service allowing small and medium-
sized businesses access to seven day, 24 hour in-house technical support.
Marketing. The Company plans to supplement its direct sales force through
various marketing plans, including direct mail, partnership marketing (in
specific buildings or associated properties) and targeted advertising and
promotion efforts in Teligent's coverage areas. In addition, the Company intends
to use alternate or indirect channels of distribution, including an active sales
agent program. Efforts in the initial years are expected to consist of direct
mailings, highly localized advertising, inbound telemarketing, an Internet web
page and select promotional events. Teligent anticipates that, over time,
marketing and advertising will be expanded to mass media with market-wide and
potentially nationwide coverage, outbound telemarketing and select indirect
sales channels such as resellers, agents and other partnerships.
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
50
<PAGE>
from other CLECs where it can use such facilities to penetrate the market more
quickly and/or cost efficiently. As the Company extends its wireless local
service to such buildings, it intends to migrate these customers to its own
facilities.
The Company plans to begin Phase I Deployment efforts in Dallas, TX, Los
Angeles, CA and Washington, DC during the fourth quarter of 1997. The Company
currently provides commercial Internet access through a fixed wireless
point-to-point broadband system in 31 markets and has deployed a
point-to-multipoint system in Richardson, TX on a trial basis.
END USER SERVICES
The Company plans to offer an integrated package of services including
local and long distance services (domestic and international) as well as
Internet services, frame relay, voice mail, conference bridges,
videoconferencing, advanced fax management, integrated single number service,
call screening, call forwarding and other advanced telecommunications services.
Local Exchange Services. Teligent intends to provide a complete range of
local exchange services by developing and implementing its own nationwide
network of central office class switches and related hardware and software.
These services are expected to include basic local services, access to long
distance and intra-LATA switched and dedicated lines, direct inward dialing
('DID'), Digital PBX, Centrex and custom calling services.
Long Distance. As a complement to its local exchange services, Teligent
also plans to offer long distance services as part of a product bundle to its
customers through resale agreements with national long distance companies. These
long distance services will include domestic intrastate, interstate and
international calling, toll-free services (800, 888), calling card, and
conference call bridging and other enhanced services. When the Company's
coverage area spans multiple LATAs, it plans to use its own facilities to
provide inter-LATA long distance service.
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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<PAGE>
24 GHZ WIRELESS LICENSES
The Company is licensed by the FCC to operate point-to-point and
point-to-multipoint 24 GHz fixed wireless systems in 74 Standard Metropolitan
Statistical Areas ('SMSAs'), covering over 700 municipalities in the United
States, including 320-400 MHz of spectrum in 27 of the 35 most populous market
areas in the United States, and at least 80 MHz of spectrum in 47 other major
market areas. See 'Risk Factors--Relocation of Licenses to 24 GHz; Pending FCC
Petitions.' The following chart lists the Company's license areas in descending
order of size based on the estimated 1994 population of the market (based on
U.S. Census Bureau data and Claritas Inc. data), the Company's licensed spectrum
bandwidth in each market area and the estimated 1994 number of business
employees in each market area (based on American Business Information Inc.
data).
<TABLE>
<CAPTION>
BUSINESS
SMSA BANDWIDTH EMPLOYEES IN
RANK MARKET AREAS (MHZ) POPULATION MARKET AREA
- ---- -------------------- --------- ----------- ------------
<S> <C> <C> <C> <C>
1 New York, NY 400 9,434,000 3,597,000
2 Los Angeles, CA 400 9,132,000 3,229,000
3 Chicago, IL 400 7,538,000 3,113,000
4 Philadelphia, PA 320 4,913,000 1,701,000
5 Detroit, MI 400 4,322,000 1,517,000
6 Dallas, TX 400 4,302,000 1,729,000
7 Houston, TX 400 3,925,000 1,471,000
8 Washington, DC 400 3,850,000 1,693,000
9 San Francisco, CA 320 3,814,000 1,629,000
10 Boston, MA 400 3,194,000 1,436,000
12 Atlanta, GA 400 3,015,000 1,236,000
13 San Diego, CA 320 2,674,000 908,000
15 Minneapolis, MN 400 2,586,000 1,271,000
17 St. Louis, MO 400 2,473,000 893,000
18 Baltimore, MD 320 2,435,000 762,000
19 Phoenix, AZ 400 2,309,000 894,000
20 Seattle, WA 400 2,135,000 894,000
21 Pittsburgh, PA 400 2,100,000 665,000
22 Denver, CO 80 2,069,000 890,000
23 Miami, FL 400 2,058,000 768,000
24 Tampa, FL 400 2,016,000 698,000
26 Cleveland, OH 320 1,848,000 803,000
27 Portland, OR 320 1,573,000 618,000
28 San Jose, CA 240 1,541,000 643,000
29 Cincinnati, OH 240 1,510,000 578,000
30 Kansas City, MO 320 1,509,000 643,000
31 Sacramento, CA 320 1,482,000 442,000
32 Milwaukee, WI 320 1,469,000 660,000
33 San Antonio, TX 320 1,402,000 435,000
35 Indianapolis, IN 320 1,333,000 551,000
36 Columbus, OH 160 1,302,000 586,000
37 Salt Lake City, UT 80 1,214,000 499,000
38 Orlando, FL 80 1,206,000 573,000
39 Buffalo, NY 80 1,201,000 442,000
40 New Orleans, LA 80 1,178,000 469,000
41 Hartford, CT 80 1,154,000 540,000
43 Nashville, TN 80 1,060,000 508,000
<CAPTION>
BUSINESS
SMSA BANDWIDTH EMPLOYEES IN
RANK MARKET AREAS (MHZ) POPULATION MARKET AREA
- ---- -------------------- --------- ----------- ------------
<S> <C> <C> <C> <C>
44 Norfolk, VA 80 1,040,000 321,000
45 Rochester, NY 80 1,038,000 444,000
46 Memphis, TN 80 1,034,000 470,000
47 Jacksonville, FL 80 1,009,000 433,000
48 Oklahoma City, OK 80 977,000 434,000
49 Greensboro, NC 80 963,000 486,000
50 Louisville, KY 80 931,000 414,000
51 West Palm Beach, FL 80 931,000 316,000
52 Las Vegas, NV 80 931,000 445,000
53 Birmingham, AL 80 905,000 386,000
54 Austin, TX 80 884,000 396,000
55 Honolulu, HI 80 881,000 344,000
56 Dayton, OH 80 864,000 389,000
57 Albany, NY 80 851,000 377,000
58 Charlotte, NC 80 840,000 467,000
60 Richmond, VA 80 792,000 369,000
61 Tulsa, OK 80 788,000 321,000
62 Raleigh, NC 80 788,000 385,000
63 Fresno, CA 80 734,000 240,000
65 Tucson, AZ 80 717,000 280,000
66 Allentown, PA 80 713,000 269,000
68 Ventura, CA 80 694,000 223,000
69 Syracuse, NY 80 681,000 298,000
70 Akron, OH 80 680,000 284,000
71 Greenville, SC 80 674,000 301,000
72 El Paso, TX 80 663,000 209,000
75 Omaha, NE 80 631,000 304,000
78 Wilmington, DE 80 609,000 291,000
79 Albuquerque, NM 80 592,000 272,000
80 Springfield, MA 80 581,000 235,000
82 Baton Rouge, LA 80 562,000 218,000
84 Charleston, SC 80 545,000 197,000
86 New Haven, CT 80 528,000 227,000
87 Stockton, CA 80 522,000 165,000
97 Newport News, VA 80 470,000 170,000
120 Santa Barbara, CA 80 378,000 134,000
135 Trenton, NJ 80 330,000 165,000
----------- ------------
TOTAL 130,027,000 51,663,000
----------- ------------
----------- ------------
</TABLE>
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COMPETITION IN THE TELECOMMUNICATIONS INDUSTRY
LOCAL TELECOMMUNICATIONS MARKET
Competition from ILECs. The local telecommunications market is intensely
competitive for newer entrants and currently is dominated by the RBOCs and other
ILECs. The Company has not begun to market its point-to-multipoint wireless
local broadband services to potential customers on a widespread basis and is
currently providing point-to-point services on a limited basis. The Company has
not obtained significant market share in any of the areas where it offers its
services or intends to offer services, nor does it expect to do so in the near
future given the size of the local telecommunications market, the intense
competition therein and the diversity of customer requirements. In each market
area in which the Company is authorized to provide services, the Company
competes or will compete with several other service providers and technologies.
Many of the Company's competitors have long-standing relationships with
customers and suppliers in their respective industries, greater name recognition
and significantly greater financial, technical and marketing resources than the
Company. The Company expects to compete on the basis of local service features,
quality, price, reliability, customer service and rapid response to customer
needs while bundling local resold long distance and Internet access. The Company
faces significant competition from ILECs, such as the RBOCs. The ILECs have long
standing relationships with their customers, have significant name recognition
and financial resources, have the potential to subsidize competitive services
with revenues from a variety of business services, and benefit from existing
state and federal regulations that favor the ILECs over the Company in certain
respects. Regulatory decisions and recent legislation, such as the
Telecommunications Act, have reduced barriers to entry into new segments of the
industry. In particular, the Telecommunications Act, among other things, (i)
enhances local exchange competition by preempting laws prohibiting, or that have
the effect of prohibiting, competition in the local exchange market, by
requiring ILECs to provide fair and equal standards for interconnection and by
requiring ILECs to unbundle their facilities and services and (ii) permits an
RBOC to compete in the inter-LATA long distance service market outside of its
local territory immediately, and within its local service territory on a
state-by-state basis once certain market-opening requirements are implemented
and entry is determined to be in the public interest. The Company believes that
these requirements of the Telecommunications Act promote greater competition and
will help provide opportunities for broader entrance into the local exchange
markets. However, as ILECs face increased competition, regulatory decisions are
likely to provide them with increased pricing flexibility, which in turn may
result in increased price competition. There can be no assurance that such
increased price competition will not have a material adverse effect on the
Company's business, financial condition and results of operations. Nor can there
be any assurance that substantial local exchange competition will develop in the
near future.
A number of companies are developing enhancements to increase the
performance of ILECs' copper wire based legacy networks. These generally consist
of digital subscriber line products, such as ADSL, HDSL and VDSL. There can be
no assurance that the Company will be able to compete effectively with these
enhancements.
Competition from New 24 GHz and Other Fixed Wireless Service
Providers. The Company also faces potential competition from new entrants to
the 24 GHz fixed wireless market, including ILECs, CLECs and other leading
telecommunications companies. In the Relocation Order, the FCC announced that it
will conduct a rulemaking proceeding to devise rules for the issuance of
licenses for up to five 80 MHz channels in the 24 GHz spectrum band in each
market except for those licenses already issued to the Company and other
previous 18 GHz licensees. See 'Regulation.' The grant of additional fixed
wireless authorizations by the FCC in the 24 GHz band could result in increased
competition and diminish the value of the Company's existing fixed wireless
authorizations. The Company believes that any additional 24 GHz licenses will be
made available through an auction. The Company believes that, assuming that
additional authorizations are made available by the FCC, additional entities
having greater resources than the Company could acquire authorizations at
auctions from the FCC to provide telecommunications services in the 24 GHz band.
See 'Regulation.'
The Company will also face competition from other terrestrial fixed
wireless services, including MMDS, 28 GHz LMDS and 38 GHz wireless
communications systems, 2.8 GHz Wireless Communications Service ('WCS'), FCC
Part 15 unlicensed wireless radio devices, and other services that use existing
point-to-point wireless channels on other frequencies. Additionally, other
companies have filed applications for global
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
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government users, cable operators will be required to spend significant time and
capital in order to upgrade their existing networks to a more advanced hybrid
fiber coaxial network architecture. However, there can be no assurance that
cable modems will not emerge as a source of competition to the Company's
Internet business. Further, Internet access services based on existing
technologies such as ISDN and, in the future, on such technologies as ADSL and
HDSL will likely provide additional sources of competition to the Company's
Internet access services. Additionally, the Company believes that many ILECs and
CLECs already are promoting other Internet access services.
LONG DISTANCE TELECOMMUNICATIONS MARKET
The long distance market has relatively insignificant barriers to entry,
numerous entities competing for the same customers and a high (and increasing)
average churn rate as customers frequently change long distance providers in
response to the offering of lower rates or promotional incentives by
competitors. The Company will compete with major carriers such as AT&T, MCI,
Sprint and WorldCom, as well as other national and regional long distance
carriers and resellers, many of whom own substantially all of their own
facilities and are able to provide services at costs lower than the Company's
expected costs since the Company will generally lease its access facilities. The
Company believes that the RBOCs also will become significant competitors in the
long distance telecommunications industry after 1998. See 'Regulation--Federal
Legislation.' ISPs also will compete in this market. The Company believes that
the principal competitive factors affecting its market share will be pricing,
customer service, accurate billing, clear pricing policies and, to a lesser
extent, variety of services. The ability of the Company to compete effectively
will depend upon its ability to maintain high quality, market-driven services at
prices generally perceived to be equal to or below those charged by its
competitors. To maintain its competitive posture, the Company believes that it
must be in a position to reduce its prices in order to meet reductions in rates,
if any, by others. Any such reductions could adversely affect the Company. In
addition, ILECs have been obtaining additional pricing flexibility. This may
enable ILECs to grant volume discounts to larger long distance companies, which
also would put the Company's long distance business at a disadvantage in
competing with larger providers.
VENDOR EVALUATION
The Company has the ability to source key network components from a number
of equipment vendors. The Company has initiated a process of evaluating
competing products of several vendors. In July 1997, the Company issued a
Request for Proposal for the Company's 24 GHz telecommunications network,
including radio access and transmission equipment, switching and network
management products and services. The Company has received and is evaluating
proposals from several telecommunication infrastructure integrators and
manufacturers, including Nortel, Lucent, Ericsson and Hughes Network Systems. In
support of this effort, the Company has entered into agreements with
manufacturers specializing in radio access and transmission equipment, including
P-Com, Netro and BNI, and is in discussions with Bosch, to provide technology
trials of 24 GHz point-to-multipoint equipment. These trials will form part of
the Company's Phase I Deployment during the fourth quarter of 1997 and the first
and second quarter of 1998. The Company has entered into the Equipment Letter of
Intent with Nortel which outlines the principal terms and conditions for the
purchase of certain telecommunications equipment, software and services. See
'Description of Certain Indebtedness.'
INTELLECTUAL PROPERTY
The Company uses the name 'Teligent' as its primary business name and
servicemark. It is the owner of U.S. Reg. No, 1,893,005 - TELIGENT, which was
issued on May 9, 1995, to Creative Integrated Systems, Inc. for various items of
communication equipment, based on use in commerce since January 6, 1994. The
Company has licensed Creative Integrated Systems, Inc. to continue using the
mark in connection with communications equipment.
On April 7, 1997, the Company filed applications to register its name and
logo design in the United States Patent and Trademark Office for 'land based and
satellite communications services.' First action on the applications is expected
in late 1997 or early 1998. The Company reasonably believes that the
applications will mature to registration, but there is no assurance until the
registrations actually issue.
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The Company relies upon a combination of licenses, confidentiality
agreements and other contractual covenants, to establish and protect its
technology and other intellectual property rights. The Company currently has no
patents or patent applications pending. There can be no assurance that the steps
taken by the Company will be adequate to prevent misappropriation of its
technology or other intellectual property or that the Company's competitors will
not independently develop technologies that are substantially equivalent or
superior to the Company's technology. Moreover, although the Company believes
that its business as currently conducted does not infringe upon the valid
proprietary rights of others, there can be no assurance that third parties will
not assert infringement claims against the Company or that, in the event of an
unfavorable ruling on any such claim, a license or similar agreement to utilize
technology relied upon by the Company in the conduct of its business will be
available to the Company on reasonable terms.
EMPLOYEES
As of September 30, 1997, the Company had a total of 108 employees. The
Company is not a party to any collective bargaining agreements. The Company
believes its relations with its employees to be good.
PROPERTIES
Teligent's principal executive offices consist of approximately 53,000
square feet held under a lease, located in Vienna, VA. The lease expires on
March 1, 2002. Teligent has exercised an option to add an additional 22,000
square feet. The Company believes that these facilities are adequate for its
needs at the present time.
The Company will lease the space necessary to site equipment to provide its
wireless broadband services in and around each of its licensed areas. See 'Risk
Factors--Distance and Weather Limitations; Line of Sight; Building Access' and
'--Management of Growth.'
See Note 5 to the Financial Statements for additional information regarding
future minimum lease commitments.
LEGAL PROCEEDINGS
Other than license and regulatory proceedings described under 'Risk
Factors--Government Regulation' and 'Regulation,' the Company is not currently a
party to any legal proceedings, which, individually or in the aggregate, the
Company believes will have a material adverse effect on the Company's financial
condition or results of operations.
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TELECOMMUNICATIONS INDUSTRY OVERVIEW
The current telecommunications landscape is being reshaped by the
convergence of at least four major trends: (i) deregulation of the growing $100
billion market for business and residential 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.
See 'Risk Factors--Restrictions on Foreign Ownership.'
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................................ 42 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, Dell
Computer Corporation, Forstmann Little & Co. and NextLevel Corporation.
Kirby G. Pickle, Jr., has served as President and Chief Operating Officer
since February 1997. Prior to that, Mr. Pickle served as Executive Vice
President of MFS Communications Company, Inc. and President and Chief Operating
Officer of one of its subsidiaries, UUNET Technologies, Inc. Earlier, as
President and COO of MFS Intelenet, Inc. Mr. Pickle managed three businesses
that generated a majority of MFS' revenues. Prior to his service for MFS, Mr.
Pickle was a Vice President at US Sprint (now known as Sprint), a regional sales
manager for MCI Communications Corporation, Inc. and held various management
positions at AT&T.
Laurence E. Harris has been Senior Vice President and General Counsel since
December 1996. Prior to joining the Company, Mr. Harris served as Senior Vice
President of Law and Public Policy for MCI Communications Corporation. Earlier,
Mr. Harris was President and Chief Operating Officer of Metromedia
Telecommunications, Inc. and CRICO Communications, a privately-held paging
company. Mr. Harris also
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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
including public fundraising activities. Prior to that, Mr. Schwartz performed
consulting work in the communications industry including satellite, cable
television, and wireless telecommunications companies.
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<PAGE>
Scott G. Bruce has been Secretary of the Company since its inception in
March 1996. Mr. Bruce is also General Counsel and Secretary of Associated and
served as the Company's General Counsel until December 1996. Mr. Bruce has
experience in the fields of corporate mergers and acquisitions and securities
law. Between 1987 and 1992, he was a corporate attorney at Wolf, Block, Schorr
and Solis-Cohen in Philadelphia. Earlier, he worked in the New York office of
Touche Ross & Co., the predecessor to Deloitte & Touche LLP.
Myles P. Berkman has been a Director of the Company since its inception in
March 1996. Mr. Berkman is Chairman, President and Chief Executive Officer of
Associated, positions he has held since 1994. In addition to owning a majority
interest in the Company through MSI, Associated is engaged in the development of
wireless location services, and has operations and interests in international
wireless telephony, radio broadcasting and cable television. From 1979 to 1994,
Mr. Berkman was the President and Chief Operating Officer of Associated
Communications Corporation ('ACC'), the parent corporation of Associated prior
to 1995, and a publicly traded company. Mr. Berkman developed ACC into one of
the largest U.S. cellular operators at the time of its sale to SBC
Communications, Inc. Mr. Berkman is the father of William H. Berkman and David
J. Berkman, each of whom is also a Director of the Company.
David J. Berkman has been a Director of Teligent since its inception in
March 1996. Since 1994, Mr. Berkman has served as the Executive Vice President
and a Director of Associated. From 1993 to 1994, Mr. Berkman was Executive Vice
President and a member of the Board of Directors of ACC. Prior to 1994, Mr.
Berkman was Vice President of ACC. He is a member of the board of directors of
Teletrac, Inc. and a former member of both the Board of Directors and the
Executive Committee of the Cellular Telephone Industry Association. Mr. Berkman
also serves as Vice Chairman of the Board of Directors of Portatel del Sureste,
S.A. de C.V., a Mexican cellular telephone company controlled by Associated.
David J. Berkman is the son of Myles P. Berkman and the brother of William H.
Berkman, each of whom is also a Director of the Company.
William H. Berkman has been a Director of Teligent since its inception in
March 1996. Mr. Berkman is currently President of MSI, a subsidiary of
Associated. Since June 5, 1997, Mr. Berkman has served as an Assistant Secretary
of Associated. Before joining Associated, Mr. Berkman held several executive
positions at The News Corporation, Ltd. William H. Berkman is the son of Myles
P. Berkman and the brother of David J. Berkman, each of whom 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 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
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<PAGE>
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.
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.
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<PAGE>
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.
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.
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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.
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
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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 and its stockholders have approved the Teligent, Inc. 1997
Stock Incentive Plan, which will become effective upon consummation of the
Equity Offerings (the 'Stock Plan'), and which is intended to facilitate the
ownership of the Company's stock by officers, other employees, directors and
consultants of the Company, thereby aligning their interests with those of the
Company's stockholders and to assist the Company in attracting, motivating and
retaining executive personnel and key employees. The maximum number of shares of
Class A Common Stock which will initially be authorized and reserved for
issuance pursuant to the Stock Plan will be equal to the sum of (i) the actual
number of shares issuable upon exercise of all Conversion Options plus (ii) an
additional number of shares equal to 3.5% of the sum of (x) the actual number of
shares issuable upon exercise of all Conversion Options plus (y) the total
number of shares of Common Stock issued and outstanding immediately following
consummation of the Equity Offerings. 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 authorized for issuance pursuant to
awards 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
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in the aggregate exceed 20% of the total number of shares of Common Stock
authorized for issuance under the Stock Plan. The Stock Plan provides that the
Board of Directors 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 422 or 162(m)
of the Internal Revenue Code of 1986, as amended (the 'Code'), or in order for
the Plan to continue to comply with the rules and regulations of any exchange or
other trading market on which the shares of Class A Common Stock are traded,
shall be effective unless the same shall be approved by the requisite vote of
the stockholders of the Company. The Stock Plan provides that it will be
administered by the Company's Board; provided that the Company's Board may
establish one or more committees (a 'Committee') which may, to the extent set
forth in the resolutions establishing such Committee or Committees, be
authorized to grant awards under the Stock Plan to, and administer such awards
with respect to, those participants who are subject to Section 16 of the
Exchange Act with respect to the Company ('Section 16 Participants') or who are
executive officers of the Company. Any such Committeee that is authorized to
grant awards to Section 16 Participants (a 'Section 16 Committee') shall, to the
extent necessary to comply with Rule 16b-3 promulgated under the Exchange Act,
be comprised of two or more 'non-employee directors' within the meaning of such
Rule, and any such Committeee that is authorized to grant awards to executive
officers of the Company (which may or may not be the same Committee as the
Section 16 Committee) shall, to the extent necessary to comply with Section
162(m) of the Code, be comprised of two or more 'outside directors' within the
meaning of such Section. In the case of grants of Awards to participants who are
neither Section 16 Participants nor executive officers of the Company, the
Company's Board in its discretion may delegate to a Committee or to members of
the Company's management the authority, subject to such guidelines as the
Company's Board may approve from time to time and to ratification by the
Company's Board, to make grants of awards to, and administer such awards with
respect to, such participants. The Board shall have the authority, in its sole
discretion, subject to and not inconsistent with the express provisions of the
Plan, to exercise all the powers and authority either specifically granted to it
under the Plan or necessary or advisable in connection with the administration
of the Plan.
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'). Stock
appreciation rights ('SARs') may be granted under the Stock Plan, either
independently of an Option or in tandem with an Option other than a Conversion
Option. The Stock Plan provides that Options shall be 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 authorized 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 to be 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. In each case,
the number of shares of Common Stock to be received by each member of Teligent,
L.L.C. pursuant to the Reorganization will be proportionate to such member's
percentage interest in Teligent, L.L.C. immediately prior to the Reorganization.
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
Prior to the First Closing under the NTT Purchase Agreement (see 'The
Strategic Equity Investment' immediately below), the original members of
Teligent, L.L.C. made additional cash contributions to Teligent, L.L.C. in the
aggregate amount of $60 million. In addition, prior to such First Closing,
Associated agreed to make the ACLA Contribution and, in consideration of such
agreement, received a 1% increase in its member interest in Teligent, L.L.C.
Completion of the ACLA Contribution is subject only to receipt of certain
routine state regulatory approvals and is not a condition to consummation of the
Offerings. Neither the original members of Teligent, L.L.C. nor Associated will,
as a result of the Additional Sponsor Equity Contributions, receive any equity
securities of the Company in addition to the number of shares of Common Stock
received by them pursuant to the Reorganization, which, as noted immediately
above under 'The Reorganization,' will reflect the percentage interest of each
such member in Teligent, L.L.C. immediately prior to the Reorganization.
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, which occurred on
November 13, 1997, NTT, through NTTA&T, purchased 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).
At the Second Closing, NTT, through NTTA&T, 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 NTTA&T's price per share would be in the Second Closing, then NTT is
entitled to receive additional shares of Series B-3 Common Stock
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such that its price per share in the Second Closing equals the price per share
in the Equity Offerings. Based on the initial public offering price range of
$19.00 to $22.00 per share, no such adjustment would be required. The Second
Closing is subject to the satisfaction or waiver of certain conditions,
including the termination or expiration of the applicable waiting period,
including any extension thereof, under the HSR Act, which 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 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 immediately prior to the consummation of the Equity
Offerings, the Company will enter into a Stockholders Agreement with NTTA&T and
the other stockholders of the Company (other than the FirstMark Sole
Stockholder) as of such time, 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 NTTA&T have entered
into a Registration Rights Agreement dated as of September 30, 1997 (the
'Registration Rights Agreement'). The Registration Rights Agreement provides
that NTTA&T may demand registration (each, a 'Demand Registration') of the
shares of Common Stock received by NTTA&T pursuant to the Reorganization ('NTT
Registrable Securities') at any time after the six month anniversary after the
consummation of the Equity Offerings (subject to a maximum of three Demand
Registrations in total), provided such demand is (i) made by holders of at least
20% of the outstanding NTT Registrable Securities or (ii) with respect to NTT
Registrable Securities the aggregate offering price of which, net of
underwriting discounts and commissions, is not less than $20 million. Upon such
request, the Company is required to use its reasonable best efforts to register
under the Securities Act, subject to certain holdback periods, NTT Registrable
Securities held by the requesting holders and any other holders who desire to
sell Common Stock pursuant to such Demand Registration. In addition, the
Registration Rights Agreement provides that, subject to certain limitations,
holders of NTT Registrable Securities may participate in any registration of
Common Stock by the Company under the Securities Act (other than on Form S-4 or
S-8 under the Securities Act) (each, a 'Piggyback Registration'). Holders of NTT
Registrable Securities also have the right, subject to certain holdback periods
and other limitations, after the six month anniversary of the consummation of
the Equity Offerings to demand that the Company effect a registration on Form
S-3 under the Securities Act, if available, (a 'Form S-3 Registration') of all
or part of their NTT Registrable Securities, so long as the anticipated
aggregate offering price for such NTT Registrable Securities is in excess of $10
million.
Under the Registration Rights Agreement, the Company is required to pay all
registration expenses (other than underwriting discounts and commissions and
fees and disbursements of counsel of the selling stockholders) with respect to
all required Demand Registrations and Form S-3 Registrations and up to three
Piggyback Registrations. Under the Registration Rights Agreement, the Company is
required to indemnify the selling stockholders, and the Company may request as a
condition to effecting any registration indemnification from the selling
stockholders, against certain liabilities in respect of any registration
statement covered by the agreement.
NTTA&T 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
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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 was entered into at the First Closing
pursuant to the NTT Purchase Agreement (the 'Amended LLCA') prior to the
consummation of the Equity Offerings, the Company will enter into a Stockholders
Agreement (the 'Stockholders Agreement') with NTTA&T and the other stockholders
of the Company (other than the FirstMark Sole Stockholder) 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, NTTA&T 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 NTTA&T,
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 NTTA&T 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 NTTA&T, respectively, have the right to elect a
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member of the Company's Board, the Company will afford to representatives of the
Telcom Stockholder and NTTA&T, 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 NTTA&T 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 NTTA&T 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 NTTA&T is entitled to elect a member of the
Company's Board, NTTA&T will have the right, at its expense, to secund to the
Company employees of NTTA&T 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'). NTTA&T'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
NTTA&T'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 NTTA&T 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 NTTA&T to benefit from secunding the Secunded Employees, in the
Stockholders Agreement the Company will grant to NTTA&T and its affiliates a
non-exclusive, perpetual, irrevocable, royalty free right and license to use,
solely in the business of NTTA&T 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 NTTA&T and the Telcom Stockholder, respectively, if a
Consultation Event occurs even though NTTA&T 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 NTTA&T 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).
76
<PAGE>
The Stockholders Agreement will also provide for certain rights and
obligations relating to the Company's compliance with the foreign ownership
restrictions under the Communications Act of 1934 and the rules, regulations and
decisions of the FCC. See 'Description of Capital Stock--Restriction on Foreign
Ownership.'
LOANS TO EXECUTIVE OFFICERS
Mr. Mandl is obligated to 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 'piggy-back' rights are subject
to a customary underwriter's 'cutback' whereby all shares of Common Stock to be
sold by the Company will first be included in the applicable registration
statement and thereafter all other shares requested to be included in such
registration statement will be subject to exclusion on a pro rata basis. The
FirstMark Sole Stockholder will have no right to sell any FirstMark Sole
Stockholder Registrable Securities in the Equity Offerings. Commencing on the
first anniversary of the consummation of the Equity Offerings, the FirstMark
Sole Stockholder is entitled to one demand registration under the Securities Act
in respect of FirstMark Sole Stockholder Registrable Securities, provided such
demand registration right shall apply only if the amount of FirstMark Sole
Stockholder Registrable Securities to be registered constitutes at least 50% of
the greatest amount of FirstMark Sole Stockholder Registrable Securities owned
by the FirstMark Sole Stockholder at any time and has an anticipated aggregate
offering price (before underwriters' fees, commissions and discounts) of at
least $10,000,000. In the FirstMark Agreement, the FirstMark Sole Stockholder
has agreed not to engage, directly or indirectly, in any business which provides
or proposes to provide in the United States digital electronic message services
in the 18 GHz frequency band or such other frequency band to which digital
electronic message services are relocated by the FCC, or which provides fixed
wireless voice, video or data transmission services in any frequency band in
Canada.
77
<PAGE>
ASSOCIATED
Associated owns, operates and invests in a variety of communications
activities and enterprises that may be in competition with the Company. In
addition, Associated agreed to make the ACLA contribution, and in consideration
of such agreement received a 1% increase in its member interest in Teligent
L.L.C. 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.'
78
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of September 30,
1997, on a pro forma basis after giving effect to the Transactions, with respect
to the beneficial ownership of each class of the Company's Common Stock, before
and after giving effect to the Equity Offerings (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>
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-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>
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
Corporation .................. -- -- -- -- -- -- 5,783,400 100.0 5,783,400
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>
PERCENTAGE OF
VOTING
POWER
OUTSTANDING(9)
-------------------
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.
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CERTAIN COVENANTS
Set forth below are certain covenants contained in the Indentures:
Limitation on Debt. The Company will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, incur any Debt (including
Acquired Debt) unless (i) after giving effect to such incurrence of Debt and the
contemporaneous application of the proceeds thereof, no Default or Event of
Default shall have occurred and be continuing at the time or would occur as a
consequence of the incurrence of such Debt, and (ii) such Debt is Permitted
Debt.
Limitation on Liens. The Company will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur, assume or
suffer to exist any Lien of any kind (other than Permitted Liens) on or with
respect to any of its property or assets, including any shares of stock or Debt
of any 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
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of the Company; (iv) the purchase, redemption, defeasance or other acquisition
or retirement for value of Subordinated Debt of the Company in exchange for
(including any such exchange pursuant to the exercise of a conversion right or
privilege in which cash is paid in lieu of fractional shares or scrip), or out
of the Net Cash Proceeds of a substantially concurrent incurrence (other than to
a Restricted Subsidiary of the Company) of, new Subordinated Debt of the Company
so long as (A) the principal amount of such new Subordinated Debt does not
exceed the principal amount (or, if such Subordinated Debt being refinanced
provides for an amount less than the principal amount thereof to be due and
payable upon a declaration of acceleration thereof, such lesser amount as of the
date of determination) of the Subordinated Debt being so purchased, redeemed,
defeased, acquired or retired, plus the lesser of the amount of any premium
required to be paid in connection with such refinancing pursuant to the terms of
the Subordinated Debt being refinanced or the amount of any premium reasonably
determined by the Company as necessary to accomplish such refinancing, plus, in
either case, the amount of expenses of the Company incurred in connection with
such refinancing, (B) such new Subordinated Debt is subordinated to the Notes to
the same extent as such Subordinated Debt so purchased, redeemed, defeased,
acquired or retired, and (C) such new Subordinated Debt has an Average Life
longer than the Average Life of the Subordinated Debt being refinanced and a
final Stated Maturity of principal later than the final Stated Maturity of
principal of the Subordinated Debt being refinanced; (v) any purchase or
defeasance of Subordinated Debt to the extent required upon a change of control
or asset sale (as defined therein) by the indenture or other agreement or
instrument pursuant to which such Subordinated Debt was issued, but only if the
Company (x) in the case of a Change of Control, has complied with its
obligations under the provisions described under 'Change of Control' or (y) in
the case of an Asset Sale, has applied the Net Cash Proceeds from such Asset
Sale in accordance with the provisions under the covenant entitled 'Limitation
on Asset Sales'; (vi) the repurchase of Capital Stock of the Company (including
options, warrants or other rights to acquire such Capital Stock) from departing
or deceased directors, officers or employees of the Company or its Subsidiaries
in an aggregate amount not to exceed $1.0 million in any fiscal year, provided
that the Company may carry forward the unused portion of the $1.0 million in any
fiscal year to the next fiscal year, and provided further, that the Company may
not carry forward more than $2.0 million to any subsequent fiscal year; and
(vii) the purchase, redemption, acquisition, cancellation or other retirement
for value of shares of Capital Stock of the Company to the extent necessary, in
the judgment of the Board of Directors of the Company, to prevent the loss or
secure the removal or reinstatement of any license held by the Company or any
Restricted Subsidiary from any governmental agency as a result of laws limiting
foreign ownership of the Company's Capital Stock.
Restricted Payments made pursuant to clauses (i), (iii), (vi) and (vii) of
the immediately preceding paragraph shall reduce the amount that would otherwise
be available for Restricted Payments under clause (iii) of the second preceding
paragraph and Restricted Payments made pursuant to clauses (ii), (iv) and (v) of
the immediately preceding paragraph shall not reduce the amount that would
otherwise be available for Restricted Payments under clause (iii) of the second
preceding paragraph, provided that any Permitted Investments made pursuant to
clause (a) of the definition of Permitted Investments will be deemed to be
Restricted Payments for the purposes of clause (iii) of the second preceding
paragraph.
For purposes of this covenant, if a particular Restricted Payment involves
a non-cash payment, including a distribution of assets, then such Restricted
Payment shall be deemed to be an amount equal to the cash portion of such
Restricted Payment, if any, plus an amount equal to the Fair Market Value of the
non-cash portion of such Restricted Payment as determined by the Board of
Directors of the Company, whose good faith determination shall be conclusive and
evidenced by a resolution of the Board of Directors of the Company (a 'Board
Resolution').
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries. The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, cause or suffer to exist or become
effective or enter into any consensual encumbrance or restriction on the ability
of any Restricted Subsidiary of the Company (i) to pay dividends or make any
other distributions in respect of its Capital Stock or pay any Debt or other
obligation owed to the Company or any other Restricted Subsidiary of the
Company; (ii) to make loans or advances to the Company or any Restricted
Subsidiary of the Company; or (iii) to transfer any of its property or assets to
the Company or any other Restricted Subsidiary of the Company, except:
(a) any encumbrance or restriction pursuant to an agreement in effect
at the Issue Date or any amendment, restatement, renewal or replacement of
such agreement, so long as the encumbrances and restrictions are not
materially more restrictive than those in the agreement in effect on the
Issue Date;
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(b) any encumbrance or restriction pursuant to an agreement relating
to an acquisition of property, so long as the encumbrances or restrictions
in any such agreement relate solely to the property so acquired (and are
not or were not created in anticipation of or in connection with the
acquisition thereof);
(c) any encumbrance or restriction relating to any Debt of any
Restricted Subsidiary of the Company at the date on which such Restricted
Subsidiary was acquired by the Company or any Restricted Subsidiary of the
Company (other than Debt incurred by such Restricted Subsidiary in
connection with or in anticipation of its acquisition);
(d) any encumbrance or restriction pursuant to an agreement effecting
a permitted refinancing of Debt issued pursuant to an agreement referred to
in the foregoing clauses (a) through (c), or permitted replacement or
increase of Debt referred to in the foregoing clause (a) so long as the
encumbrances and restrictions contained in any such refinancing agreement
are not materially more restrictive than the encumbrances and restrictions
contained in the agreements governing the Debt being so refinanced;
(e) customary provisions restricting subletting or assignment of any
lease, license or similar contract of the Company or any Restricted
Subsidiary of the Company or provisions in agreements that restrict the
assignment of such agreement or any rights thereunder;
(f) any encumbrance or restriction arising out of any sale of accounts
receivable in the ordinary course (including in connection with a financing
transaction) to or by (i) an Accounts Receivable Subsidiary or (ii) to
Persons that are not Affiliates of the Company or any Subsidiary of the
Company;
(g) any encumbrance or restriction on the sale or other disposition of
assets or property securing Debt as a result of a Permitted Lien on such
assets or property (including, without limitation, customary restrictions
relating to assets securing the Credit Agreement, any Vendor Debt or any
Telecommunications Assets Debt under the applicable security documents);
and
(h) any encumbrance or restriction contained in contracts for sales of
assets permitted by the 'Limitation on Asset Sales' covenant with respect
to the assets to be sold pursuant to such contract.
Nothing contained in this 'Limitation on Dividend and Other Payment
Restrictions Affecting Restricted Subsidiaries' covenant shall prevent the
Company or any of its Restricted Subsidiaries from (1) creating, incurring,
assuming or suffering to exist any Liens otherwise permitted in the 'Limitation
on Liens' covenant or (2) restrictions on the sale or other disposition of
property or assets of the Company or any of its Restricted Subsidiaries to the
extent that such property or assets secure Debt of the Company or any of its
Restricted Subsidiaries not incurred or secured in violation of the Indenture.
Limitation on Issuances of Certain Guarantees by, and Debt Securities of,
Restricted Subsidiaries. The Company will not permit any of its Restricted
Subsidiaries to (i) directly or indirectly Guarantee any Debt Securities of the
Company, or (ii) issue any Debt Securities, unless, in either such case, such
Restricted Subsidiary (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 Offer Purchase Date
occurring prior to , 2002, or 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 Asset Sale
Offer 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, (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, and (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 Notes
when it becomes due and payable and the continuance of such default for a
period of 30 days; provided that a default in the payment of any
installment of interest when it becomes due and payable on the Senior Notes
on or prior to , 2000 will constitute an Event of
Default, with no grace or cure period;
(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) 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 and any Subsidiary Guarantors 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
amount at Stated Maturity of, premium, if any, and interest on such Notes to
redemption or Stated 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
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Maturity of the applicable Note, such defeasance or covenant defeasance will not
be deemed, or result in, a taxable event for federal income tax purposes, with
respect to Holders of the applicable Note (and in the case of defeasance the
Internal Revenue Service has provided a ruling to the Company or published a
ruling or there has been a change after the Issue Date in applicable federal
income tax law), 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 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;
and (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 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,' or any Guarantees in
respect of the foregoing.
'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 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.
'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
Organization for Economic Cooperation and Development 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 further
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) or 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) 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 Trustee and 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, any 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 clause (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 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 outlines the principal terms and
conditions under which the Company will purchase certain portions of its 24GHz
telecommunications systems network infrastructure equipment needs from Nortel
(such equipment being herein referred to as the 'Deliverables'). Pursuant to the
Equipment Purchase Letter of Intent, Nortel and the Company have agreed to
negotiate a definitive agreement covering the purchase and sale of the
Deliverables as well as definitive agreements relating to the financing
contemplated by the Financing Letter of Intent. The provision of financing by
Nortel is a condition precedent to the Company's obligation to purchase
Deliverables from Nortel pursuant to the terms contemplated by the Equipment
Purchase Letter of Intent.
The Equipment Purchase Letter of Intent provides that the definitive
agreement contemplated thereby will have a term of five years (the 'Term'). If
Teligent is successful in entering into the definitive agreement contemplated by
the Equipment Purchase Letter of Intent and the Financing Letter of Intent, the
Company expects that it will purchase a significant portion of its equipment
from or through Nortel over the next five years.
The Equipment Purchase Letter of Intent contemplates that Nortel will
supply Teligent with switching infrastructure (Teligent Central Offices, or
'TCOs') made by Nortel. The Equipment Purchase Letter of Intent contemplates
that Nortel will also supply microwave transmission products (Teligent Nodes, or
'TNs', and Teligent Access Sites, or 'TASs') in standard configurations. The TNs
and TASs will be manufactured by Teligent-Approved Radio Vendors which will
manufacture the products under the supervision of Nortel, which will then
re-sell the products to Teligent. The Equipment Purchase Letter of Intent
contemplates that multiple Teligent-Approved Radio Vendors will be established
in the next two years, and that Nortel could develop its own radio product
manufacturing capability in order to also become a Teligent-Approved Radio
Vendor.
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In addition, the Equipment Purchase Letter of Intent contemplates that
Nortel will provide various services to Teligent under Teligent's direction,
including installation, commissioning, equipment engineering, and system
integration such that ancillary third-party equipment may be supplied by Nortel.
The Equipment Purchase Letter of Intent distinguishes between 'Core
Deliverables' and 'Adjunct Deliverables.' Core Deliverables are the TCOs, TNs
and TASs, and related Nortel-supplied services. The Equipment Purchase Letter of
Intent contemplates that Nortel will provide Core Deliverables to the Company
and that the Company will provide Nortel with the opportunity to bid on the
supply of Adjunct Deliverables. Adjunct Deliverables are various types of
third-party equipment necessary to the completion of the network infrastructure.
The Equipment Purchase Letter of Intent contemplates that Nortel will also bid
on the supply of Adjunct Deliverables. The Equipment Purchase Letter of Intent
contemplates that both Core Deliverables and Adjunct Deliverables will be
financed by Nortel pursuant to the arrangements contemplated by the Financing
Letter of Intent, whether or not such Adjunct Deliverables are purchased from
Nortel.
Teligent has designated Nortel as a 'Preferred Supplier' in the Equipment
Letter of Intent. By reason of this designation Teligent agrees to place all
purchase orders for Core Deliverables during the Term with Nortel. The Equipment
Purchase Letter of Intent anticipates that certain additional benefits will be
provided by Nortel to the Company so long as Nortel retains its Preferred
Supplier status, including (i) Nortel will provide certain price and equipment
performance protection to Teligent to ensure it remains competitive within the
wireless CLEC industry; (ii) Nortel will provide assistance to the Company in
network monitoring, management and provisioning for the first year of operations
and (iii) Nortel will establish specialized corporate and regional support teams
for Teligent's network deployment. The Equipment Purchase Letter of Intent
contemplates that the Company may terminate Nortel's Preferred Supplier status
at any time.
The Core Deliverables are subject to a volume discount arrangement between
the parties under the terms contemplated by the Equipment Purchase Letter of
Intent. The volume discount will be increased as long as Nortel is Teligent's
'Preferred Supplier.' If Teligent issues purchase orders for Core Deliverables
to other vendors, however, the basic volume discount remains intact.
The Equipment Purchase Letter of Intent contemplates that the basic volume
discount will be tied to a projected dollar amount of purchases over the Term.
If this projected amount is exceeded, Teligent will be entitled to credits or
rebates at the end of the term. If Teligent's purchases fall short of the
projected range, Nortel will be entitled to additional monies, as established by
a volume discount table to be agreed to by the parties. However, the Equipment
Purchase Letter of Intent contemplates that if Nortel retains its Preferred
Supplier status throughout the Term, there will be no true-up against Teligent
at the end of the Term regardless of the actual purchase volume.
The Equipment Purchase Letter of Intent anticipates that Teligent will have
no obligation to purchase any of its equipment from Nortel, and there will be no
penalties for the termination of Nortel's preferred supplier status or for the
termination of the definitive agreements themselves. Moreover, the Equipment
Purchase Letter of Intent contemplates that Nortel will face certain penalties
for the late acceptance of equipment and system outages due to Nortel-supplied
equipment and services.
The Equipment Purchase Letter of Intent anticipates that the definitive
agreement will contain certain customary representations and warranties and
limitations on liabilities. The Equipment Purchase Letter of Intent contemplates
that Nortel will warrant the capacity, operating parameters and availability of
the equipment. In addition, the parties have also agreed in the Equipment
Purchase Letter of Intent to a plan for the development of future features and
functionality of the radio products.
The Equipment Purchase Letter of Intent contemplates that strategic
partners of Teligent will be entitled to purchase Core Deliverables at the same
price as Teligent and upon reasonably similar terms and conditions. While Nortel
will not have the obligation to finance such purchases, this aspect of the
agreement will enable such strategic partners to rapidly establish terms and
conditions for the supply of equipment and services from Nortel.
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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.
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).
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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 NTTA&T's election, to
refuse to sell stock in the Company to any Foreign Owner if such a transaction
would adversely impact NTTA&T'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.'
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Delaware Takeover Statute. The Company is subject to Section 203 of the
DGCL ('Section 203'), which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years following the date that such stockholder
became an interested stockholder, unless: (i) prior to such date, the board of
directors of the corporation approved either the business combination or the
transaction that resulted in the stockholder becoming an interested stockholder;
(ii) upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding for purposes of determining the number of
shares outstanding those shares owned (a) by persons who are directors and also
officers and (b) by employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer; or (iii) on or subsequent
to such date, the business combination is approved by the board of directors and
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least 66 2/3% of the outstanding voting
stock that is not owned by the interested stockholder.
Section 203 defines 'business combination' to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii) any
sale, transfer, pledge or other disposition of 10% or more of the assets of the
corporation involving the interested stockholder; (iii) subject to certain
exceptions, any transaction that results in the issuance or transfer by the
corporation of any stock of the corporation to the interested stockholder; (iv)
any transaction involving the corporation that has the effect of increasing the
proportionate share of the stock of any class or series of the corporation
beneficially owned by the interested stockholder; or (v) the receipt by the
interested stockholder of the benefit of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the corporation. In
general, Section 203 defines an interested stockholder as any entity or person
beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person. The restrictions on business combinations
contained in Section 203 would not apply to any business combination between MSI
or DSC, on the one hand, and the Company, on the other hand.
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
First Union National Bank.
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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
117
<PAGE>
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.
118
<PAGE>
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.
119
<PAGE>
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
120
<PAGE>
maintain the market price of the Notes above independent market levels. The
Underwriters are not required to engage in these activities and may end any of
these activities at any time.
Each Underwriter has represented and agreed that (i) it has not offered or
sold and, prior to the date six months after the date of issue of the Notes,
will not offer and sell any Notes to persons in the United Kingdom, except to
persons whose ordinary activities involve them in acquiring, holding, managing
or disposing of investments (as principal or agent) for the purposes of their
businesses, or otherwise in circumstances which do not constitute an offer to
the public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995; (ii) it has complied and will comply with all
applicable provisions of the Financial Services Act 1986 with respect to
anything done by it in relation to the Notes in, from or otherwise involving the
United Kingdom; and (iii) it has only issued or passed on and will only issue or
pass on in the United Kingdom any document received by it in connection with the
issue of the Notes to a person who is of a kind described in Article 11(3) of
the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order
1996, or to any person to whom the document may otherwise lawfully be issued or
passed on.
Certain of the Underwriters and their respective affiliates have provided
from time to time, and expect to provide in the future, financial advisory and
investment banking services for, and/or have normal banking relationships with,
the Company and its affiliates, for which they receive customary compensation.
LEGAL MATTERS
The validity of the Notes offered hereby will be passed upon for the
Company by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York and for
the Underwriters by Shearman & Sterling, New York, New York.
EXPERTS
The financial statements of Teligent, L.L.C. (a development stage company)
(formerly Associated Communications, L.L.C.) at December 31, 1996, and for the
period March 5, 1996 (date of inception) to December 31, 1996 appearing in this
Prospectus and Registration Statement have been audited by Ernst & Young LLP,
independent auditors, and the information under the caption 'Selected Financial
Data' for the period March 5, 1996 (date of inception) to December 31, 1996,
appearing in this Prospectus and Registration Statement have been derived from
financial statements audited by Ernst & Young LLP, as set forth in their report
thereon appearing elsewhere herein.
Such financial statements and selected financial data are included in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing.
121
<PAGE>
ANNEX A
GLOSSARY
24 GHZ--The portion of the radio frequency spectrum in which fixed wireless
licensees may hold up to five 80 MHz channels located between 24.25 GHz and
24.45 GHz and 25.05 and 25.25 GHz.
ACCESS CHARGES--The fees paid by long distance carriers to LECs for
originating and terminating long distance calls on their local networks.
ADSL (ASYMMETRICAL DIGITAL SUBSCRIBERS LINE)--A technology designed for
conventional copper wire connections which provides a 1.5-8 Mbps downstream data
transfer rates, and 16-640 Kbps upstream data transfer rates. The speed of the
connection is limited by the distance the signal must travel.
ATM (ASYNCHRONOUS TRANSFER MODE)--ATM is packet-based switching and
transmission technology used to transmit voice, data and video.
BANDWIDTH--At any given level of compression, the amount of information
transportable over a link per unit of time. A single T-1 circuit will carry up
to 1,544,000 bits (or 1.544 megabits) per second.
BIT--A bit is the basic unit of information, yes-or-no, on-or-off, 1-or-0
in the binary (base 2) system which is the basis of digital computing. In
contrast, a voice telephone signal over a copper wire is analog, reflecting a
continuous range of vocal tone (frequency) and volume (amplitude).
BROADBAND--Data streams of at least 1.544 megabits per second. Broadband
communications systems can transmit large quantities of voice, data and video by
way of digital or analog signals. Examples of broadband communications systems
include DS-3 systems, which can transmit 672 simultaneous voice conversations,
or a broadcast television station signal that transmits high resolution audio
and video signals into the home. Broadband connectivity is an essential element
for interactive multimedia applications.
CAP (COMPETITIVE ACCESS PROVIDER)--A company that provides its customers
with an alternative to the local telephone company for local and interstate
transport of private line, special access and switched access telecommunications
services. CAPs are also referred to in the industry as competitive local
exchange carriers (CLECs), alternative local telecommunications service
providers (ALTs) and metropolitan area network providers (MANs) and were
formerly referred to as alternative access vendors (AAVs).
CELLULAR--Characterized by 'cells,' the area accessible by radio/antenna
unit(s) typically located at one site. A cellular phone connects to the
ratio/antenna unit in its current cell, then the connection is handed-off when
the user moves to any other cell.
CENTREX--A central office managed group of lines; each line is individually
connected to the central office switch, but four or five digit dialing is
permitted among the line group.
CLEC (COMPETITIVE LOCAL EXCHANGE CARRIER)--A company that provides local
exchange services in competition with the incumbent local exchange carrier.
COMPRESSION--Any process that transforms a signal to a more compact form
(fewer bits) for easier transfer, and then restores the signal after transfer.
COPPER WIRE--A shorthand reference to traditional telephone lines using
electric current to carry signals over copper wire.
CPE (CUSTOMER PREMISE EQUIPMENT)--Telecommunications equipment, such as a
radio/antenna unit, which is installed on the customer premises.
DEMS (DIGITAL ELECTRONIC MESSAGE SERVICE)--A two-way, end-to-end digital
fixed microwave radio service utilizing both point-to-point and
point-to-multipoint equipment for the provision of telecommunications services.
DIALING PARITY--Dialing parity is one of the changes, required by the
Telecommunications Act, intended to level the competitive playing field. Dialing
parity when implemented will enable customers to dial only 1+ or 0+ for service
no matter which local or long distance carrier they choose.
DIGITAL--A method of storing, processing and transmitting information
through the use of distinct electronic or optical pulses that represent the
binary code digits 0 and 1. Digital transmission and switching technologies
employ a sequence of these pulses to represent information as opposed to the
continuously variable analog signal. Digital transmission and switching
technologies offer a threefold improvement in speed and capacity over analog
techniques, allowing much more efficient and cost-effective transmission of
voice, video, and data.
A-1
<PAGE>
DIRECT INWARD DIAL--A PBX trunk feature that allows the central office
switch to recognize individual extension numbers and route calls to the PBX
trunk.
DNS (DOMAIN NAME SYSTEM)--A general purpose, distributed, replicated, data
query service chiefly used on the Internet for translating host names into their
corresponding Internet addresses.
DS-0, DS-1, DS-3--Standard telecommunications industry digital signal
formats, which are distinguishable by bit rate (the number of binary digits (0
and 1) transmitted per second). DS-0 service has a bit rate of 64 kilobits per
second, DS-1 service has a bit rate of 1.544 megabits per second and DS-3
service has a bit rate of 45 megabits per second.
FCC--Federal Communications Commission.
FIBER OPTICS--Fiber optic cable largely immune to electrical interference
and environmental factors that affect copper wiring and satellite transmission.
Fiber optic technology involves sending laser light pulses across glass strands
in order to transmit digital information.
FRAME RELAY--A high speed data packet switching service used to tramsmit
data between computers. Frame Relay supports data units of variable lengths at
access speeds ranging from 56 kps to 1.5 mps.
GHZ (GIGAHERTZ)--Billions of hertz or cycles per second; a measure used to
characterize the frequency or amount of bandwidth of a radio frequency signal.
HDSL (HIGH DATA RATE DIGITAL SUBSCRIBER LINE)--A technology designed for
copper wire connections which provides, over limited distances (approximately
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 February 1998.
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 current and long-term portion of the accrued CARs and Appreciation
Units liabilities are calculated in accordance with the vesting of the
underlying CARs and Appreciation Units.
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.
F-9
<PAGE>
TELIGENT, L.L.C.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
7. RELATED PARTY TRANSACTIONS--(CONTINUED)
During 1996 employees of the parent companies of MSI and DSC performed
administrative and management services on behalf of the Company. These services
were billed to the Company at estimated fair value for such services for the
period March 5, 1996 (date of inception) through August 31, 1996, and at amounts
which approximate cost for the four months ended December 31, 1996, and totaled
$1,493,652.
Employees of the Company are covered under certain health and benefit plans
of the parent company of MSI. The Company is billed for their pro rata cost of
these benefits.
Also during 1996, the Company contracted with LCC International, Inc., an
affiliate of DSC, for consulting and technical services totaling $553,015 for
the period March 5, 1996 (date of inception) to December 31, 1996.
8. COMMITMENTS AND CONTINGENCIES
The Company has entered into a purchase agreement with an equipment vendor
for the purchase of microwave equipment. Pursuant to the agreement, the parties
have a mutually agreed period of time to complete negotiations of certain
additional terms. If negotiations are not completed to the satisfaction of the
Company within the requisite period, the Company may terminate the agreement,
provided that, under certain circumstances of termination, the Company may be
required to reimburse the vendor for up to $4 million in research and
development costs. The outcome of the negotiation of the additional terms, and
their effect on other terms and conditions of the agreement, is uncertain.
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 2,400,513
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>
PERIOD PERIOD
NINE MONTHS MARCH 5, 1996 MARCH 5, 1996
ENDED (DATE OF INCEPTION) TO (DATE OF INCEPTION) TO
SEPTEMBER 30, 1997 SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------ ---------------------- ----------------------
<S> <C> <C> <C>
Revenues:
Management fees................................... $ 90,000 $ 190,000 $ 70,000
Equipment leases.................................. 490,646 656,206 --
Other services provided to members................ 2,333,142 3,453,924 746,075
------------------ ---------------------- ----------------------
Total revenues................................. 2,913,788 4,300,130 816,075
Costs and expenses:
Cost of wireless communication services........... 2,874,554 4,499,560 373,968
Sales, general and administrative................. 25,551,033 35,133,670 5,230,522
CARs and Appreciation Units....................... 51,935,438 54,713,603 --
Depreciation and amortization..................... 306,069 470,120 61,026
------------------ ---------------------- ----------------------
Total costs and expenses....................... 80,667,094 94,816,953 5,665,516
------------------ ---------------------- ----------------------
Operating loss...................................... (77,753,306) (90,516,823) (4,849,441)
Interest expense and loan fees...................... (1,072,642) (1,941,818) --
------------------ ---------------------- ----------------------
Net loss............................................ $(78,825,948) $(92,458,641) $ (4,849,441)
------------------ ---------------------- ----------------------
------------------ ---------------------- ----------------------
Pro forma loss per share............................ $ (1.70) $ (2.00) $ (.10)
------------------ ---------------------- ----------------------
------------------ ---------------------- ----------------------
Pro forma weighted average common shares
oustanding........................................ 46,257,709 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 PERIOD
MARCH 5, 1996 MARCH 5, 1996
NINE MONTHS (DATE OF (DATE OF
ENDED INCEPTION) TO INCEPTION) TO
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 SEPTEMBER 30, 1997
------------------ ------------------ ------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................................ $(78,825,948) $ (4,849,441) $(92,458,641)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization.................... 306,069 61,026 470,120
Deferred compensation............................ 663,009 -- 955,557
Amortization of notes receivable from
Executive...................................... 2,250,000 250,000 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) (5,544) (19,340)
Employee loans and advances...................... (2,415,716) -- (2,415,716)
Due from related parties......................... (2,668,846) 422,622 (2,522,794)
Prepaid expenses and other assets................ (471,645) (79,959) (622,827)
Accounts payable................................. 904,151 2,574,353 3,906,330
Employee compensation............................ 1,534,181 48,700 1,996,848
Accrued expenses................................. 396,011 -- 396,011
------------------ ------------------ ------------------
Net cash used in operating activities............ (22,507,679) (1,578,243) (28,554,225)
Cash flows from investing activities:
Purchase of property and equipment............... (3,716,806) (2,400,513) (7,425,806)
Payments relating to wireless communications
business....................................... (5,770,000) -- (5,770,000)
------------------ ------------------ ------------------
Net cash used in investing activities............ (9,486,806) (2,400,513) (13,195,806)
Cash flows from financing activities:
Proceeds from bank borrowings.................... 36,500,000 -- 38,500,000
Member contributions............................. -- 4,288,158 9,058,158
------------------ ------------------ ------------------
Net cash provided by financing activities........ 36,500,000 4,288,158 47,558,158
------------------ ------------------ ------------------
Net increase in cash............................. 4,505,515 309,402 5,808,127
Cash at beginning of period...................... 1,302,612 -- --
------------------ ------------------ ------------------
Cash at end of period............................ $ 5,808,127 $ 309,402 $ 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 1996, 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, 1996, respectively, as
well as 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................................ 112
Certain Federal Income Tax Considerations................... 117
Underwriting................................................ 120
Legal Matters............................................... 121
Experts..................................................... 121
Glossary.................................................... A-1
Index to Financial Statements............................... F-1
</TABLE>
UNTIL , 1998 (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.(3)
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.(3)
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.(3)
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.(3)
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. (3)
4.5 -- Form of Certificate for the Class A Common Stock.(1)
5.1 -- Opinion of Skadden, Arps, Slate, Meagher & Flom LLP relating to the legality of the Notes.(1)
8.1 -- Opinion of Skadden, Arps, Slate, Meagher & Flom LLP relating to certain tax matters.(1)
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.(3)
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.(3)
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.(3)
10.9 -- Form of Teligent, Inc. 1997 Stock Incentive Plan.(1)
10.10 -- Financing Commitment Letter of Intent, dated October 28, 1997, by and between Northern Telecom
Inc. and Teligent, Inc.(3)
10.11 -- Promissory Note, dated February 1, 1997, by Kirby G. Pickle, Jr. to Associated Communications,
L.L.C.(3)
10.12 -- Promissory Note, dated October 29, 1997, by Abraham L. Morris to Associated Communications,
L.L.C.(1)
10.13 -- Promissory Note, dated August 5, 1997, by Laurence E. Harris to Associated Communications,
L.L.C.(3)
10.14 -- Promissory Note, dated April 7, 1997, by Steven F. Bell to Associated Communications, L.L.C.(3)
11.1 -- Statement of Computation of Per Share Earnings.(3)
21.1 -- Subsidiaries of the Company.(3)
23.1 -- Consent of Ernst & Young LLP.(1)
23.2 -- Consent of Skadden, Arps, Slate, Meagher & Flom LLP (to be contained in Exhibit 5).(1)
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> <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. 3 TO THE REGISTRATION STATEMENT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN VIRGINIA, ON
NOVEMBER 18, 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. 3 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 18, 1997
- ------------------------------------------ Officer and Director
Alex J. Mandl
* Senior Vice President and Chief Financial November 18, 1997
- ------------------------------------------ Officer (Principal Financial Officer)
Abraham L. Morris
* Vice President and November 18, 1997
- ------------------------------------------ Controller (Principal Accounting Officer)
Cindy L. Tallent
* Director November 18, 1997
- ------------------------------------------
Myles P. Berkman
* Director November 18, 1997
- ------------------------------------------
David J. Berkman
* Director November 18, 1997
- ------------------------------------------
William H. Berkman
* Director November 18, 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.(3)
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.(3)
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.(3)
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.(3)
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. (3)
4.5 -- Form of Certificate for the Class A Common Stock.(1)
5.1 -- Opinion of Skadden, Arps, Slate, Meagher & Flom LLP relating to the legality of the
Notes.(1)
8.1 -- Opinion of Skadden, Arps, Slate, Meagher & Flom LLP relating to certain tax matters.(1)
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.(3)
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.(3)
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.(3)
10.9 -- Form of Teligent, Inc. 1997 Stock Incentive Plan.(1)
10.10 -- Financing Commitment Letter of Intent, dated October 28, 1997, by and between Northern
Telecom Inc. and Teligent, Inc.(3)
10.11 -- Promissory Note, dated February 1, 1997, by Kirby G. Pickle, Jr. to Associated
Communications, L.L.C.(3)
10.12 -- Promissory Note, dated October 29, 1997, by Abraham L. Morris to Associated
Communications, L.L.C.(1)
10.13 -- Promissory Note, dated August 5, 1997, by Laurence E. Harris to Associated
Communications, L.L.C.(3)
10.14 -- Promissory Note, dated April 7, 1997, by Steven F. Bell to Associated Communications,
L.L.C.(3)
11.1 -- Statement of Computation of Per Share Earnings.(3)
21.1 -- Subsidiaries of the Company.(3)
23.1 -- Consent of Ernst & Young LLP.(1)
23.2 -- Consent of Skadden, Arps, Slate, Meagher & Flom LLP (to be contained in Exhibit 5).(1)
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 Offering.
<PAGE>
CLASS A COMMON
NUMBER [TELIGENT LOGO] SHARES
-------------- -------------
SEE REVERSE FOR CERTAIN DEFINITIONS
TELIGENT, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
This Certifies that Cuisp 87959Y 10 3
is the record holder of
FULLY PAID AND NONASSESSABLE SHARES OF THE CLASS A COMMON STOCK,
PAR VALUE $.01 PER SHARE, OF
Teligent, Inc. (hereinafter called the Corporation) transferable on the books
of the Corporation by the holder hereof in person or by duly authorized attorney
upon the surrender of this Certificate properly endorsed. This Certificate is
not valid unless countersigned by the Transfer Agent and registered by the
Registrar.
Witness, the facsimile seal of the Corporation and by facsimile the
signatures of its duly authorized officers.
Dated: [Teligent, Inc.
Corporate
/s/ Abraham L. Morris Seal 1997] /s/ Alex J. Mandl
- ---------------------------- ----------------------------
Senior Vice President, Chairman and Chief
Treasurer and Chief Executive Officer
Financial Officer
Countersigned and Registered:
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
(Charlotte, NC)
Transfer Agent and Registrar.
By Authorized Signature
<PAGE>
TELIGENT, INC.
The Corporation will, upon request and without charge, furnish any
stockholder information as to the powers, designations, preferences and relative
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM -- as tenants in common UNIF GIFT MIN ACT--______Custodian_____
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right under uniform Gifts to Minors
of survivorship and not as Act___________
tenants in common (State)
Additional abbreviations may also be used though not in the above list.
For Value received, ____________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______/____/________ _______________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(NAME AND ADDRESS OF ASSIGNEE SHOULD BE PRINTED OR TYPEWRITTEN)
________________________________________________________________________________
_________________________________________________________________________ Shares
of the Capital Stock represented by the within Certificate and do hereby
irrevocably constitute and appoint.
____________________________________________________________________ Attorney
to transfer the said stock on the books of the within-named Corporation, with
full power of substitution in the premises.
Date ________________________________
AFFIX MEDALLION SIGNATURE ______________________________________
GUARANTEE IMPRINT BELOW
______________________________________
ABOVE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT,
OR ANY CHANGE WHATEVER.
THE SIGNATURE(S) MUST BE GUARANTEED BY
AN ELIGIBLE GUARANTOR INSTITUTION SUCH
AS A SECURITIES BROKER/DEALER, COM-
MERCIAL BANK, TRUST COMPANY, SAVINGS
ASSOCIATION OR A CREDIT UNION
PARTICIPATING IN A MEDALLION PROGRAM
APPROVED BY THE SECURITIES TRANSFER
ASSOCIATION, INC.
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
<PAGE>
Skadden, Arps, Slate, Meagher & Flom LLP
November 18, 1997
Teligent, Inc.
8065 Leesburg Pike
Vienna, Virginia 22182
Re: Teligent, Inc.
Registration on Form S-1
Ladies and Gentlemen:
We have acted as special counsel to Teligent, Inc., a Delaware
corporation (the "Company"), in connection with the public offering (the
"Offering") of $250,000,000 aggregate principal amount of the Company's Senior
Notes due 2007 (the "Senior Notes") and the aggregate principal amount at
maturity that would generate gross proceeds to the Company of $150,000,000 of
the Company's Senior Discount Notes due 2007 (the "Senior Discount Notes" and,
together with the Senior Notes, the "Securities"), each to be issued under an
indenture (together, the "Indentures") to be entered into between the Company
and First Union National Bank, as Trustee (the "Trustee").
This opinion is being furnished in accordance with the
requirements of Item 601(b)(5) of Regulation S-K under the Securities Act of
1933, as amended (the "Act").
In connection with this opinion, we have examined originals or
copies, certified or otherwise identified to our satisfaction, of (i) the
Registration Statement on Form S-1 (File No. 333-37373) with respect to the
Offering as filed with the Securities and Exchange Commission (the "Commission")
on October 7, 1997 under the Act, as amended by Amendments Nos. 1, 2 and 3 to
the Registration Statement as filed with the Commission on
<PAGE>
Teligent, Inc.
November 18, 1997
Page 2
October 30, 1997, November 10, 1997 and November 18, 1997, respectively (such
Registration Statement, as so amended, being hereinafter referred to as the
"Registration Statement"); (ii) the form of the Purchase Agreement (the
"Purchase Agreement") proposed to be entered into between the Company, as
issuer, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, Salomon Brothers
Inc, TD Securities (USA) Inc. and Goldman, Sach & Co., as representatives of the
several Underwriters named therein (the "Underwriters"), filed as an exhibit to
the Registration Statement; (iii) the forms of the Indentures filed as exhibits
to the Registration Statement; (iv) the respective forms of the Securities; (v)
the Certificate of Incorporation of the Company, as presently in effect; (vi)
the By-Laws of the Company, as presently in effect; (vii) the form of
Certificate of Incorporation of the Company filed as an exhibit to the
Registration Statement, to be in effect as of the consummation of the Offering
(the "Certificate of Incorporation"); (viii) the form of By-Laws of the Company
filed as an exhibit to the Registration Statement, to be in effect as of the
consummation of the Offering (the "By-Laws"); and (ix) certain resolutions of
the Board of Directors of the Company and drafts of certain resolutions (the
"Draft Resolutions") of the Offering Committee appointed by the Board of
Directors of the Company (the "Offering Committee"), in each case relating to
the issuance and sale of the Securities and related matters. We have also
examined originals or copies, certified or otherwise identified to our
satisfaction, of such records of the Company and such agreements, certificates
of public officials, certificates of officers or other representatives of the
Company and others, and such other documents, certificates and records as we
have deemed necessary or appropriate as a basis for the opinions set forth
herein.
In our examination, we have assumed the legal capacity of all
natural persons, the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as certified, conformed or photostatic copies and
the authenticity of the originals of such latter documents. In making our
examination
<PAGE>
Teligent, Inc.
November 18, 1997
Page 3
of documents executed or to be executed by parties other than the Company, we
have assumed that such parties had or will have the power, corporate or other,
to enter into and perform all obligations thereunder and have also assumed the
due authorization by all requisite action, corporate or other, and the execution
and delivery by such parties of such documents and the validity and binding
effect thereof. We have also assumed the effectiveness of the Certificate of
Incorporation in accordance with the applicable provisions of the Delaware
General Corporation Law (the "DGCL") and the due adoption and continuance in
full force and effect of the By-Laws. As to any facts material to the opinions
expressed herein which we have not independently established or verified, we
have relied upon statements and representations of officers and other
representatives of the Company and others.
The opinions expressed herein are limited to the DGCL and the
laws of the State of New York.
Based upon and subject to the foregoing, we are of the opinion
that when (i) the Registration Statement becomes effective and each of the
Indentures has been qualified under the Trust Indenture Act of 1939, as amended;
(ii) the Draft Resolutions have been adopted by the Offering Committee; (iii)
the interest rate, maturity, redemption and other terms of the Securities as
well as the price at which the Securities are to be sold to the Underwriters
pursuant to the Purchase Agreement and other matters relating to the issuance
and sale of the Securities have been approved by the Offering Committee in
accordance with the Draft Resolutions; (iv) each of the Indentures and the
Purchase Agreement have been duly executed and delivered; and (v) the Securities
have been duly executed and authenticated in accordance with the terms of the
applicable Indenture and delivered to and paid for by the Underwriters as
contemplated by the Purchase Agreement, the issuance and sale of the Securities
will have been duly authorized, and the Securities will be valid and binding
obligations of the Company entitled to the benefits of the applicable Indenture
and enforceable against the Company in accordance with their
<PAGE>
Teligent, Inc.
November 18, 1997
Page 4
terms, except to the extent that (a) enforcement thereof may be limited by (1)
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
other similar laws now or hereafter in effect relating to creditors' rights
generally and (2) general principles of equity (regardless of whether
enforceability is considered in a proceeding at law or in equity) and (b) the
waiver contained in Section 514 of each of the Indentures may be deemed
unenforceable.
We hereby consent to the filing of this opinion with the
Commission as an exhibit to the Registration Statement. We also consent to the
reference to our firm under the caption "Legal Matters" in the Registration
Statement. In giving this consent, we do not thereby admit that we are included
in the category of persons whose consent is required under Section 7 of the Act
or the rules and regulations of the Commission.
Very truly yours,
/s/ Skadden, Arps, Slate, Meagher & Flom LLP
<PAGE>
[Letterhead of Skadden, Arps, Slate, Meagher & Flom LLP]
November 18, 1997
Teligent, Inc.
8065 Leesburg Pike
Vienna, VA 22182
Ladies and Gentlemen:
We have acted as special counsel to Teligent, Inc., a Delaware corporation
(the "Company"), in connection with the preparation of a registration statement
on Form S-1, which the Company filed with the Securities and Exchange Commission
(the "Commission") on October 7, 1997 and subsequently amended on October 30,
1997, November 10, 1997 and November 18, 1997 (such registration statement, as
so amended, the "Registration Statement"). The Registration Statement relates to
the registration under the Securities Act of 1933, as amended (the "1933 Act"),
of the Company's Senior Notes due 2007 (the "Senior Notes") and the Company's
Senior Discount Notes due 2007 (the "Senior Discount Notes" and, together with
the Senior Notes, the "Notes"). The Senior Notes are to be issued pursuant to an
indenture (the "Senior Notes Indenture") to be entered into between the Company
and First Union National Bank, as trustee. The Senior Discount Notes are to be
issued pursuant to an indenture (the "Senior Discount Notes Indenture" and,
together with the Senior Notes Indenture, the "Indentures") to be entered into
between the Company and First Union National Bank, as trustee.
As special counsel to the Company, we have examined and are familiar with
originals or copies, certified or otherwise identified to our satisfaction, of
such records and documents of the Company as we have considered necessary or
appropriate for purposes of our opinion set forth below, including (i) the
Registration Statement and (ii) the Indentures. In our examination, we have
assumed the genuineness of all signatures, the legal capacity of all natural
persons, the authenticity of all records and documents submitted to us as
originals, the conformity to original records and documents of all records and
documents submitted to us as certified, conformed or photostatic copies and the
authenticity of the originals of such copies.
<PAGE>
In rendering this opinion, we have assumed that the transactions will be
consummated in accordance with such records and documents and that such records
and documents accurately reflect the material facts of the transactions and
those surrounding the Company. In addition, as to any facts material to this
opinion that we did not independently establish or verify, we have relied upon
statements and representations of officers and other representatives of the
Company and others. Our opinion is limited to legal rather than factual matters.
In rendering this opinion, we have relied upon the Internal Revenue Code of
1986, as amended, Treasury regulations, judicial authorities, published
positions of the Internal Revenue Service and such other authorities as we have
considered relevant, all as in effect on the date hereof and all of which are
subject to change or differing interpretations. This opinion is subject to the
explanations and qualifications set forth under the heading "Certain Federal
Income Tax Considerations" in the Prospectus.
On the basis of and subject to the foregoing, we confirm that the
discussion set forth under the heading "Certain Federal Income Tax
Considerations" in the Prospectus, although general in nature, is an accurate
summary of the material United States federal income tax consequences to the
original holders of Notes. We express no opinion as to whether such discussion
addresses all of the United States federal income tax consequences that may be
applicable to any such particular holder of Notes. In addition, we express no
opinion as to United States federal tax consequences other than as set forth
herein or as to any state, local or foreign tax consequences.
We hereby consent to the filing of this opinion with the Commission as an
Exhibit to the Registration Statement. We also consent to the reference to our
firm under the heading "Certain Federal Income Tax Considerations" in the
Prospectus. In giving this consent, we do not thereby admit that we are in the
category of persons whose consent is required under Section 7 of the 1933 Act or
the rules and regulations of the Commission.
Very truly yours,
/s/ Skadden, Arps, Slate, Meagher & Flom LLP
2
<PAGE>
FORM OF TELIGENT, INC.
1997 STOCK INCENTIVE PLAN
1. Purpose.
The purpose of the Teligent, Inc. 1997 Stock Incentive Plan
(the "Plan") is to align the interests of officers, other employees, directors
and consultants of Teligent, Inc., a Delaware corporation ("Teligent") and its
subsidiaries, now held or hereafter acquired (collectively, the "Company"),
with those of the stockholders of Teligent; to attract, motivate and retain the
best available executive personnel and key employees of the Company by
permitting them to acquire an, or increase their, equity interest in Teligent;
to reinforce corporate, organizational and business-development goals; and to
reward the performance of individual officers and other employees in fulfilling
their personal responsibilities for long-range achievements.
2. Definitions.
The following terms, as used herein, shall have the following
meanings:
(a) "Award" shall mean any Option (including Conversion Options),
SAR or Restricted Stock Award granted pursuant, or which is
otherwise subject, to the Plan.
(b) "Award Agreement" shall mean any written agreement, contract
or other instrument or document between Teligent and a
Participant evidencing an Award.
(c) "Beneficial Owner" shall have the meaning set forth in Rule
13d-3 promulgated under the Exchange Act.
(d) "Board" shall mean the Board of Directors of Teligent.
(e) "Change in Control" shall have the meaning set forth in
Section 8(f) hereof.
1
<PAGE>
(f) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
(g) "Committee" shall mean the Compensation Committee or other
committee of the Board which, in accordance with Section 3 of
the Plan, may be authorized to grant Awards.
(h) "Company" shall have the meaning set forth in Section 1
hereof.
(i) "Conversion Options" shall mean the Options which result from
the conversion, in connection with the Initial Offering, of
the Company Appreciation Rights granted under that certain
employment agreement, dated as of September 1, 1996, by and
between Teligent, L.L.C. and Alex J. Mandl, and the
Appreciation Units previously granted by Teligent L.L.C.
pursuant to its Long Term Incentive Compensation Plan.
(j) "Effective Date" shall have the meaning set forth in Section
8(k) hereof.
(k) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
(l) "Fair Market Value" per share of Stock as of a particular date
shall mean (i) the average of the high and low sale price per
share of Stock (A) on the national securities exchange on
which the Stock is principally traded for the last preceding
date on which there was a sale of such Stock on such exchange
or (B) if the Stock is not then traded on a national
securities exchange, on the NNM for the last preceding date on
which a sale of the Stock was reported on the NNM, (ii) if the
Stock is not then traded on a national securities exchange and
sales of the Stock are not then reported on the NNM, but the
Stock is then quoted on an over-the-counter market other than
the NNM, the average of the closing per share bid and asked
prices for the Stock in such over-the-counter market for the
last preceding date on which such prices were quoted in such
market, (iii) if the shares of Stock are not then traded on a
2
<PAGE>
national securities exchange, sales of the Stock are not then
reported on the NNM and the Stock is not then quoted on an
over-the-counter market other than the NNM, such value as the
Board, in its sole discretion, shall determine.
Notwithstanding the foregoing, with respect only to the
exercise price of Options awarded effective as of the date on
which consummation of the Initial Offering takes place, the
Fair Market Value of the Stock as of such date shall be the
initial offering price of the Stock on such date.
(m) "Incentive Stock Option" shall mean an Option that meets the
requirements of Section 422 of the Code, or any successor
provision, and is designated by the Board as an Incentive
Stock Option.
(n) "Initial Offering" shall mean the initial public offering by
Teligent of shares of Stock which is made pursuant to the
terms of the Securities Act of 1933, as amended.
(o) "NNM" shall mean the Nasdaq National Market.
(p) "Nonqualified Stock Option" shall mean an Option other than an
Incentive Stock Option.
(q) "Option" shall mean the right, granted pursuant to the Plan,
of a holder to purchase shares of Stock.
(r) "Participant" shall mean an officer, other employee, director
or consultant of the Company who is, pursuant to Section 4 of
the Plan, selected to participate in the Plan.
(s) "Person" shall have the meaning given in Section 3(a)(9) of
the Exchange Act, as modified and used in Sections 13(d) and
14(d) thereof, except that such term shall not include (i)
Teligent or any of its subsidiaries, (ii) a trustee or other
fiduciary holding securities under an employee benefit plan of
Teligent or any of its affiliates, (iii) an underwriter
temporarily holding securities pursuant to an
3
<PAGE>
offering of such securities, (iv) a corporation owned,
directly or indirectly, by the stockholders of Teligent in
substantially the same proportions as their ownership of stock
of Teligent, or (v) The Associated Group, Inc. or any of its
subsidiaries or affiliates.
(t) "Plan" shall have the meaning set forth in Section 1 hereof.
(u) "Restricted Stock" shall mean any shares of Stock issued to a
Participant, without payment to Teligent, pursuant to Section
7 of the Plan.
(v) "Restricted Stock Award Program " shall mean the program set
forth in Section 7 hereof.
(w) "Stock" shall mean shares of the Class A Common Stock, par
value $.01 per share, of Teligent.
(x) "SAR" shall mean a stock appreciation right granted to a
Participant under Section 6 of the Plan.
(y) "Section 16 Participant" shall have the meaning set forth in
Section 3 hereof.
(z) "Stand-Alone SAR" shall mean a SAR which is not related to an
Option.
(aa) "Stock Option and SAR Program" shall mean the program set
forth in Section 6 hereof.
(ab) "Tandem SAR" shall mean a SAR which is granted in relation to
an Option.
(ac) "Teligent" shall have the meaning set forth in Paragraph 1
hereof.
(ad) "Ten Percent Stockholder" shall mean a Participant who, at
the time an Incentive Stock Option is to be granted to such
Participant, owns stock possessing more than ten percent (10%)
of the total combined voting power of all classes of stock of
Teligent.
4
<PAGE>
3. Administration.
The Plan will be administered by the Board; provided that the
Board may establish one or more Committees which may, to the extent set forth
in the resolutions establishing such Committee or Committees, be authorized to
grant Awards to, and administer such Awards with respect to, those Participants
who are subject to Section 16 of the Exchange Act with respect to the Company
("Section 16 Participants") or who are executive officers of the Company. Any
such Committee that is authorized to grant Awards to Section 16 Participants (a
"Section 16 Committee") shall, to the extent necessary to comply with Rule 16b-3
promulgated under the Exchange Act, be comprised of two or more "non-employee
directors" within the meaning of such Rule, and any such Committee that is
authorized to grant Awards to executive officers of the Company (which may or
may not be the same Committee as the Section 16 Committee) shall, to the extent
necessary to comply with Section 162(m) of the Code, be comprised of two or more
"outside directors" within the meaning of such Section. In the case of grants of
Awards to Participants who are neither Section 16 Participants nor executive
officers of the Company, the Board in its discretion may delegate to a Committee
or to members of the Company's management the authority, subject to such
guidelines as the Board may approve from time to time and to ratification by the
Board, to make grants of Awards to, and administer such Awards with respect to,
such Participants. The Board shall have the authority, in its sole discretion,
subject to and not inconsistent with the express provisions of the Plan, to
administer the Plan and to exercise all the powers and authority either
specifically granted to it under the Plan or necessary or advisable in
connection with the administration of the Plan, including, without limitation,
the authority to grant Awards; to determine the persons to whom and the time or
times at which Awards shall be granted; to determine the type and number of
Awards to be granted, the number of shares of Stock to which an Award may relate
and the terms, conditions, restrictions and performance criteria relating to any
Award; to determine whether, to what extent, and under what circumstances an
Award may be settled, cancelled, forfeited, exchanged, or surrendered or
accelerated or an Option or Options, Stand-Alone SAR or Stand-Alone SARs may be
repriced to a lower exercise price; to make adjustments in performance goals in
recog-
5
<PAGE>
nition of unusual or non-recurring events affecting Teligent or the financial
statements of Teligent, or in response to changes in applicable laws,
regulations, or accounting principles; to construe and interpret the Plan and
any Award; to prescribe, amend and rescind rules and regulations relating to the
Plan; to determine the terms and provisions of Award Agreements, consistent with
the terms and provisions of the Plan; and to make all other determinations
deemed necessary or advisable for the administration of the Plan, consistent
with the terms and provisions of the Plan. The Board shall keep minutes of its
meetings.
4. Eligibility.
Awards may be granted to officers, other employees, directors
and consultants of the Company in the sole discretion of the Board. In
determining the persons to whom Awards shall be granted and the type of Award,
the Board shall take into account such factors as the Board shall deem relevant
in connection with accomplishing the purposes of the Plan.
5. Stock Subject to the Plan; Limitation on Grants.
The maximum number of shares of Stock authorized and reserved
for issuance pursuant to the Plan shall be [equal to the sum of (i) the actual
number of shares issuable upon exercise of Conversion Options plus (ii) an
additional number of shares equal to 3.5% of the sum of (x) the actual number
of shares issuable upon exercise of Conversion Options plus (y) the total
number of shares of all classes of the Company's Common Stock, par value $.01
per share, issued and outstanding immediately following the consummation of the
Initial Offering].1 All such shares of Stock shall be subject to equitable
adjustment as provided herein. Such shares may, in whole or in part, be
authorized but unissued shares or shares that shall have been or may be
reacquired by Teligent in the open market, in private transactions or
otherwise. If any shares subject to an Award are forfeited, cancelled,
exchanged or surrendered or if an Award otherwise terminates or expires without
a distribution of shares to the Participant, the shares of
- --------
1 Actual number of shares, determined as the sum of (i) and (ii), will be
inserted upon such determination being made.
6
<PAGE>
Stock with respect to such Award shall, to the extent of any such forfeiture,
cancellation, exchange, surrender, termination or expiration, again be available
for Awards under the Plan. Upon the exercise of any Award granted in tandem with
any other Awards, such related Awards shall be cancelled to the extent of the
number of shares of Stock as to which the Award is exercised and,
notwithstanding the foregoing, such number of shares shall no longer be
available for Awards under the Plan.
During the term of this Plan, no Participant can receive
Awards, including Options, Restricted Stock and SARs (but excluding Conversion
Options), relating to shares of Stock which in the aggregate exceed twenty
percent (20%) of the total number of shares of Stock authorized for issuance
pursuant to the Plan, as adjusted pursuant to the terms hereof.
In the event that the Board shall determine that any dividend
or other distribution (whether in the form of cash, Stock or other property),
recapitalization, stock split, reverse stock split, reorganization, merger,
consolidation, spin-off, combination, repurchase, or share exchange, or other
similar corporate transaction or event, affects the Stock such that an
adjustment is appropriate in order to prevent dilution or enlargement of the
rights of Participants under the Plan, then the Board shall make such equitable
changes or adjustments as it deems necessary or appropriate to any or all of (i)
the number and kind of shares of Stock which may thereafter be issued in
connection with Awards, (ii) the number and kind of shares of Stock issued or
issuable in respect of outstanding Awards, and (iii) the exercise price, grant
price, or purchase price relating to any Award; provided that, with respect to
Incentive Stock Options, such adjustment shall be made in accordance with
Section 424 of the Code.
6. Stock Option and SAR Program.
Each Option and SAR granted pursuant to this Section 6 shall
be evidenced by an Award Agreement, in such form and containing such terms and
conditions as the Board shall from time to time approve, which Award Agreement
shall comply with and be subject to the following terms and conditions, as
applicable. Each Conversion Option shall be governed by and subject to the
terms of the
7
<PAGE>
Plan, as well as the specific terms and provisions previously determined by the
Board with respect thereto, which terms and provisions shall be set forth in the
Award Agreement evidencing such Conversion Option.
(a) Stock Options.
(1) Number of Shares. Each Award Agreement shall
state the number of shares of Stock to which the Option relates.
(2) Type of Option. Each Award Agreement
shall state that the Option constitutes an Incentive Stock Option or a
Nonqualified Stock Option.
(3) Option Price. Each Award Agreement
shall state the Option price, which, except for the Conversion Options and as
provided in Section 6(c)(2) below, shall not be less than one hundred percent
(100%) of the Fair Market Value of the shares of Stock covered by the Option on
the date of grant. The Option price shall be subject to adjustment as provided
in Section 5 hereof. Unless otherwise expressly stated in the Board resolution
expressly granting an Option and except with respect to Options granted by
members of the Company's management pursuant to delegated authority as
contemplated by Section 3 of the Plan, the date as of which the Board adopts
the resolution expressly granting an Option shall be considered the day on which
such Option is granted.
(4) Method and Time of Payment. The
Option price shall be paid in full, at the time of exercise, in cash (including
cash received from the Company as compensation or cash borrowed from the
Company), in shares of Stock having a Fair Market Value equal to such Option
price, in a combination of cash and Stock or, in the sole discretion of the
Board, through a cashless exercise procedure, which may include an exercise
through a registered broker-dealer pursuant to procedures which are, from time
to time, deemed by the Board to be acceptable. Any shares of Stock withheld
upon exercise as payment of the purchase price under an Option shall be valued
at their Fair Market Value on the date of exercise.
8
<PAGE>
(5) Term and Exercisability of Options. Each
Award Agreement shall provide that each Option shall become exercisable over a
period determined by the Board in its discretion, provided, that the Board shall
have the authority to accelerate the exercisability of any outstanding Option at
such time and under such circumstances as it, in its sole discretion, deems
appropriate. The exercise period shall be not more than ten (10) years from the
date of the grant of the Option, except as provided in Section 6(c)(2) below, or
such shorter period as is determined by the Board. The exercise period shall be
subject to earlier termination as provided in Section 6(a)(6) hereof. An Option
may be exercised, as to any or all full shares of Stock as to which the Option
has become exercisable, by written notice delivered in person or by mail to the
Secretary of Teligent, specifying the number of shares of Stock with respect to
which the Option is being exercised, together with payment in full of the Option
price. For purposes of the preceding sentence, the date of exercise will be
deemed to be the date upon which the Secretary of Teligent receives both the
notification and the payment.
(6) Termination. The Agreement evidencing the
grant of each Award shall set forth the terms and conditions applicable to such
Award upon a termination of an employee Participant's employment by the Company
or the termination of a consultant or director Participant's service with the
Company, which shall be as the Board may, in its discretion determine at the
time the Award is granted or thereafter.
(b) Stock Appreciation Rights. The Board shall have authority
to grant Stand-Alone SARs, and Tandem SARs with respect to all or some of the
shares of Stock covered by an Option. Stand-Alone SARs granted pursuant to this
Section 6 shall be evidenced by an Award Agreement, in such form as the Board
shall from time to time approve, and the terms and conditions of such Awards
shall be set forth therein. A Tandem SAR shall, except as provided in this
Section (6)(b), be subject to the same terms and conditions as the related
Option. Each Tandem SAR granted pursuant to the Plan shall be reflected in the
Award Agreement evidencing the related Option.
9
<PAGE>
(1) Time of Grant of Tandem SARs. A Tandem SAR
may be granted either at the time of grant, or at any time thereafter during the
term of the Option; provided, however, that Tandem SARs related to Incentive
Stock Options may only be granted at the time of grant of the related Option.
(2) SAR Price. Each Award Agreement shall state the
price for a Stand-Alone SAR, which shall not be less than one hundred percent
(100%) of the Fair Market Value of the shares of Stock covered by the
Stand-Alone SAR on the date of grant. The price for a Tandem SAR shall be set
forth in the Award Agreement evidencing the related Option.
(3) Payment. A SAR shall entitle the holder
thereof, upon exercise of the SAR or any portion thereof, to receive payment of
an amount computed pursuant to paragraph (5) below.
(4) Exercise. Each Award Agreement shall provide
that each Stand-Alone SAR shall become exercisable over a period determined by
the Board in its discretion, provided, that the Board shall have the authority
to accelerate the exercisability of any Stand-Alone SAR at such time and under
such circumstances as it, in its sole discretion, deems appropriate. The
exercise period shall be not more than ten (10) years from the date of the grant
of the Stand-Alone SAR or such shorter period as is determined by the Board. The
exercise period shall be subject to earlier termination as provided in Section
6(b)(8) hereof.
A Tandem SAR shall be exercisable at such time or
times and only to the extent that the related Option is exercisable, and will
not be transferable except to the extent the related Option may be transferable.
A Tandem SAR granted in connection with an Incentive Stock Option shall be
exercisable only if the Fair Market Value of a share of Stock on the date of
exercise exceeds the purchase price specified in the related Incentive Stock
Option.
(5) Amount Payable. Upon the exercise of
a SAR, the Participant shall be entitled to receive an amount determined by
multiplying (i) the excess of the Fair Market Value of a share of Stock on the
date of
10
<PAGE>
exercise of such SAR over the price of the Stand-Alone SAR or the Option to
which the Tandem SAR relates, as appropriate, by (ii) the number of shares of
Stock as to which such SAR is being exercised. Notwithstanding the foregoing,
the Board may limit in any manner the amount payable with respect to any SAR by
including such a limit at the time it is granted.
(6) Treatment of Related Options and Tandem SARs
Upon Exercise. Upon the exercise of a Tandem SAR, the related Option shall be
cancelled to the extent of the number of shares of Stock as to which the Tandem
SAR is exercised (and will be deemed to have been exercised for purposes of
determining the number of shares available for the grant of Awards under the
Plan), and upon the exercise of an Option granted in connection with a Tandem
SAR, the Tandem SAR shall be cancelled to the extent of the number of shares of
Stock as to which the Option is exercised (and will be deemed to have been
exercised for purposes of determining the number of shares available for the
grant of Awards under the Plan).
(7) Method of Exercise. SARs shall be exercised
by a Participant only by a written notice delivered in person or by mail to the
Company, Attention: Senior Vice President for Human Resources, specifying the
number of whole shares of Stock with respect to which the SAR is being
exercised. If requested by the Board, the Participant shall deliver the Award
Agreement evidencing the SAR and, if applicable, the related Option, which Award
Agreement shall be endorsed with a notation of such exercise and returned to the
Participant. For purposes of this paragraph (7), the date of exercise will be
deemed to be the date upon which the Company receives such notification.
(8) Form of Payment. Payment of the amount
determined under paragraph (5) above may, in the sole discretion of the Board,
be made solely in whole shares of Stock in a number determined based upon their
Fair Market Value on the date of exercise of the SAR or, alternatively, in the
sole discretion of the Board, solely in cash, or in a combination of cash and
shares of Stock as the Board deems advisable. If the Board determines that
payment may be made solely in shares of Stock, and the amount payable results in
a fractional share, payment for the fractional share will be made in cash.
11
<PAGE>
(c) Incentive Stock Options. Options granted as
Incentive Stock Options shall be subject to the following special terms and
conditions, in addition to the general terms and conditions specified in this
Section 6.
(1) Value of Shares. The aggregate Fair
Market Value (determined as of the date the Incentive Stock Option is granted)
of the shares of Stock with respect to which Incentive Stock Options granted
under this Plan and all other Plans of the Company become exercisable for the
first time by each Participant during any calendar year shall not exceed
$100,000.
(2) Ten Percent Stockholder. In the case
of an Incentive Stock Option granted to a Ten Percent Stockholder, (x) the
Option Price shall not be less than one hundred ten percent (110%) of the Fair
Market Value of the shares of Stock on the date of grant of such Incentive Stock
Option, and (y) the exercise period shall not exceed five (5) years from the
date of grant of such Incentive Stock Option.
7. Restricted Stock Award Program. Restricted Stock Awards granted
pursuant to this Section 7 shall be evidenced by an Award Agreement, in such
form as the Board shall from time to time approve, and the terms and conditions
of such Awards shall be set forth therein. At the time of the grant of a
Restricted Stock Award, the Board may impose such restrictions or conditions to
the vesting of such Award as it, in its sole discretion, deems appropriate.
Such conditions to vesting may include (without limitation), in the Board's sole
discretion, the achievement of performance goals which may be set forth in the
Award Agreement. Such performance goals may (without limitation) be based on an
increase in the trading price of Stock, achievement of certain goals relating to
Teligent's return on assets, return on equity or earnings per share, in each
case, determined in accordance with generally accepted accounting principles.
(a) Restrictions. Prior to the vesting of a share of
Restricted Stock, such share of Restricted Stock may not be sold, assigned,
transferred, pledged, hypothecated or otherwise disposed of, except by will or
the laws of descent and distribution. Certificates for shares of Stock which may
be issued pursuant to Restricted Stock Awards shall bear an appropriate legend
refer-
12
<PAGE>
ring to such restrictions, and any attempt to dispose of any such shares of
Stock in contravention of such re strictions shall be null and void and without
effect.
(b) Forfeiture. Subject to such exceptions as may be
determined by the Board, if an employee Participant's continuous employment
with the Company shall terminate for any reason, or if a consultant or director
Participant's service with the Company shall terminate for any reason, any
shares remaining subject to restrictions shall thereupon be forfeited by the
Participant and transferred to, and reacquired by, Teligent at no cost to
Teligent.
(c) Ownership. Except to the extent otherwise set forth in the
Award Agreement, a Participant who is granted a Restricted Stock Award shall
possess all incidents of ownership of such shares, subject to Section 7(a),
including the right to receive dividends with respect to such shares and to vote
such shares.
8. General Provisions.
(a) Compliance with Legal Requirements. The Plan and the
granting and exercising of Awards, and the other obligations of Teligent under
the Plan and any Award Agreement or other agreement shall be subject to all
applicable federal and state laws, rules and regulations and to such approvals
by any regulatory or governmental agency as may be required. Teligent, in its
discretion, may postpone the issuance or delivery of Stock under any Award as
Teligent may consider appropriate and may require any Participant to make such
representations and furnish such information as it may consider appropriate in
connection with the issuance or delivery of Stock in compliance with applicable
laws, rules and regulations.
(b) Nontransferability. Awards shall not be transferable by a
Participant other than (i) gratuitous transfers by an officer of the Company who
is the holder of an Award to his or her immediate family members or to a trust
for the benefit of any such immediate family member or members, (ii) by will or
the laws of descent and distribution or, (iii) if then permitted by Rule 16b-3
under the Exchange Act, pursuant to a Qualified Domestic Relations Order (as
defined under the Code or
13
<PAGE>
Title I of the Employee Retirement Income Security Act of 1974, as amended, or
the rules thereunder). Awards shall be exercisable during the lifetime of a
Participant only by such Participant or his guardian or legal representative.
(c) No Right To Continued Employment. Nothing in the Plan or
in any Award granted or any Award Agreement or other agreement entered into
pursuant hereto shall confer upon any Participant the right to continue in the
employ of the Company or to continue service as a consultant or director of the
Company or to be entitled to any remuneration or benefits not set forth in the
Plan or such Award Agreement or other agreement or to interfere with or limit
in any way the right of the Company to terminate such employee Participant's
employment or the service of a consultant or director Participant.
(d) Withholding Taxes. Where a Participant or other person is
entitled to receive shares of Stock pursuant to the exercise of an Option or is
otherwise entitled to receive shares of Stock or cash pursuant to an Award
hereunder, Teligent shall have the right to require the Participant or such
other person to pay to Teligent the amount of any taxes which Teligent may be
required to withhold before delivery to such Participant or other person of cash
or a certificate or certificates representing such shares.
If a Participant makes a disposition, within the
meaning of Section 424(c) of the Code and regulations promulgated thereunder, of
any share or shares of Stock issued to such Participant pursuant to the exercise
of an Incentive Stock Option within the two-year period commencing on the date
after the date of the grant or within the one-year period commencing on the day
after the date of transfer of such share or shares of Stock to the Participant
pursuant to such exercise, the Participant shall, within ten (10) days of such
disposition, notify the Company thereof, by delivery of written notice to
Teligent at its principal executive office.
Unless otherwise prohibited by the Board
or by applicable law, a Participant may satisfy any such withholding tax
obligation by any of the following methods, or by a combination of such
methods: (a) tendering a cash payment; (b) authorizing Teligent to withhold
from
14
<PAGE>
the shares of Stock or cash otherwise payable to such Participant (1) one or
more of such shares having an aggregate Fair Market Value, determined as of the
date the withholding tax obligation arises, less than or equal to the amount of
the total withholding tax obligation or (2) cash in an amount less than or equal
to the amount of the total withholding tax obligation; or (c) delivering to
Teligent previously acquired shares of Stock (none of which shares may be
subject to any claim, lien, security interest, community property right or other
right of spouses or present or former family members, pledge, option, voting
agreement or other restriction or encumbrance of any nature whatsoever) having
an aggregate Fair Market Value, determined as of the date the withholding tax
obligation arises, less than or equal to the amount of the total withholding tax
obligation.
(e) Amendment and Termination of the Plan. The Board may at
any time and from time to time alter, amend, suspend, or terminate the Plan in
whole or in part; provided that, no amendment which requires stockholder
approval under applicable law in order for the Plan to continue to comply with
Section 422 or 162(m) of the Code or in order for the Plan to continue to
comply with the
rules and regulations of any exchange or other trading market on which
Teligent's shares of Stock are traded shall be effective unless the same shall
be approved by the requisite vote of the stockholders of Teligent.
Notwithstanding the foregoing, no amendment shall affect adversely any of the
rights of any Participant, without such Participant's consent, under any Award
theretofore granted under the Plan. The power to grant Options under the Plan
will automatically terminate at the end of the [2007] fiscal year. If the Plan
is terminated, any unexercised Option shall continue to be exercisable in
accordance with its terms and the terms of the Plan in effect immediately prior
to such termination.
(f) Change in Control. Notwithstanding any other provision of
the Plan to the contrary, if, while any Awards remain outstanding under the
Plan, a Change in Control of Teligent (as defined in this Section 8(f)) shall
occur, then (unless otherwise provided in the applicable Award Agreement), (x)
all Options and SARs that are outstanding at the time of such Change in Control
shall become immediately exercisable in full and (y) all restrictions with
respect to shares of Restricted
15
<PAGE>
Stock shall lapse, and such shares shall be fully vested and nonforfeitable.
For purposes of this Section 8(f), a "Change in
Control" of Teligent shall occur if --
(1) any person or entity, or group of affiliated
persons or entities, other than The Associated Group, Inc., a Delaware
corporation, and Telcom-DTS Investors, L.L.C., a Delaware limited liability
company ("collectively, the Original Shareholders") and/or their respective
affiliates acquires stock of the Company representing more than fifty percent
(50%) of the voting power of all such outstanding stock;
(2) the majority of the Board consists of persons who
are designees of any person or entity or group of affiliated persons or
entities which hold stock in the Company, other than the Original Shareholders
and/or their respective affiliates;
(3) the Company adopts a plan of liquidation
providing for the distribution of all or substantially all of its assets; or
(4) all or substantially all of the business
enterprise of the Company is disposed of pursuant to a sale of assets
transaction or a merger, consolidation or similar transaction in which the
Company is not the surviving entity (unless (A) no person or entity, or group of
affiliated persons or entities, other than the Original Shareholders and/or
their respective affiliates, owns immediately after such transaction stock or
other equity interests of the entity which succeeds to the business of the
Company as a result of such transaction representing more than fifty percent
(50%) of the voting power of all such outstanding stock, (B) a majority of the
board of directors (or comparable governing body) of the entity which succeeds
to the business of the Company as a result of such transaction consists of
persons (or persons designated by such persons) who constituted a majority of
the Board immediately prior to such transaction, and (C) such successor entity
assumes in writing the Company's obligations under the Plan. For purposes of
this definition, "affiliate" (or derivations thereof) of any person or entity
means any other person or entity directly or indirectly controlling or
controlled by or
16
<PAGE>
under direct or indirect common control with such person or entity; and for
purposes of such definition, "control" when used with respect to any person or
entity means the power to direct the management and policies of such person or
entity, directly or indirectly, whether through the ownership of voting
securities or other equity interests, by contract or otherwise, and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
(g) Participant Rights. No Participant shall have any claim to
be granted any Award under the Plan, and there is no obligation for uniformity
of treatment for Participants. Except as provided specifically herein, a
Participant or a transferee of an Award shall have no rights as a stockholder
with respect to any shares of stock covered by any Award until the date of the
issuance of a Stock certificate to him for such shares.
(h) Unfunded Status of Awards. The Plan is intended to
constitute an "unfunded" plan for incentive and deferred compensation. With
respect to any payments not yet made to a Participant pursuant to an Award,
nothing contained in the Plan or any Award shall give any such Participant any
rights that are greater than those of a general creditor of Teligent.
(i) No Fractional Shares. No fractional shares of Stock shall
be issued or delivered pursuant to the Plan or any Award. The Board shall
determine whether cash, other Awards or other property shall be issued or paid
in lieu of such fractional shares or whether such fractional shares or any
rights thereto shall be forfeited or otherwise eliminated.
(j) Governing Law. The Plan and all determinations made and
actions taken pursuant hereto shall be governed by the laws of the State of
Delaware without giving effect to the conflict of laws principles thereof.
(k) Effective Date. The Plan has previously been approved by
the Board and Teligent's sole stockholder. The Plan shall become effective on
the effective date of the Initial Offering (the "Effective Date"), and shall be
of no force and effect if the Initial Offering is not consummated.
17
<PAGE>
(l) Beneficiary. A Participant may file with the Board a
written designation of a beneficiary on such form as may be prescribed by the
Board and may, from time to time, amend or revoke such designation. If no
designated beneficiary survives the Participant, the executor or administrator
of the Participant's estate shall be deemed to be the grantee's beneficiary.
(m) Interpretation. The Plan is designed and intended to
comply with Section 162(m) of the Code, and all provisions hereof shall be
construed in a manner to so comply.
18
<PAGE>
PROMISSORY NOTE
$250,000 October 29, 1997
FOR VALUE RECEIVED, the undersigned, Abraham L. Morris (the
"Borrower"), hereby promises to pay to Teligent, L.L.C., a Delaware limited
liability company (the "Company"), the principal sum (the "Principal Sum") of
Two Hundred Fifty Thousand Dollars ($250,000) 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 5.76% 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 April 10, 1999 (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 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. Upon any termination of the
Borrower's employment for Cause (as
<PAGE>
defined in that letter agreement dated April 10, 1997 (the "Letter Agreement")
between the Company and the Borrower) prior to the Maturity 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
Maturity Date (if, and only if, the Borrower shall be employed by the Company on
such date), any termination by the Company of the Borrower's employment prior to
the Maturity Date (other than for Cause), a change in control of the Company (as
defined in the Letter Agreement), a voluntary termination of Borrower's
employment solely if arising from a diminution in title or responsibilities or
because of a material breach of the Letter Agreement by the Company, 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 Maturity 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
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.
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:
Abraham L. Morris
If to the Company:
Teligent, L.L.C.
8065 Leesburg Pike
Vienna, VA 22182
Attn: Alex J. Mandl, Chairman and CEO
<PAGE>
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.
(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/ Abraham L. Morris
---------------------
Abraham L. Morris
<PAGE>
PROMISSORY NOTE
$250,000 October 29, 1997
FOR VALUE RECEIVED, the undersigned, Abraham L. Morris (the
"Borrower"), hereby promises to pay to Teligent, L.L.C., a Delaware limited
liability company (the "Company"), the principal sum (the "Principal Sum") of
Two Hundred Fifty Thousand Dollars ($250,000) 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 5.76% 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 April 10, 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 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. Upon any
<PAGE>
termination of the Borrower's employment for Cause (as defined in that letter
agreement dated April 10, 1997 (the "Letter Agreement") between the Company and
the Borrower) prior to the Maturity 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 Maturity Date (if, and
only if, the Borrower shall be employed by the Company on such date), any
termination by the Company of the Borrower's employment prior to the Maturity
Date (other than for Cause), a change in control of the Company (as defined in
the Letter Agreement), a voluntary termination of Borrower's employment solely
if arising from a diminution in title or responsibilities or because of a
material breach of the Letter Agreement by the Company, 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 Maturity
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
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.
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:
Abraham L. Morris
If to the Company:
Teligent, L.L.C.
8065 Leesburg Pike
Vienna, VA 22182
Attn: Alex J. Mandl, Chairman and CEO
or to such other address as any party (or such party's
<PAGE>
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.
(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/ Abraham L. Morris
---------------------
Abraham L. Morris
<PAGE>
PROMISSORY NOTE
$500,000 October 29, 1997
FOR VALUE RECEIVED, the undersigned, Abraham L. Morris (the
"Borrower"), hereby promises to pay to Teligent, L.L.C., a Delaware limited
liability company (the "Company"), the principal sum (the "Principal Sum") of
Five Hundred Thousand Dollars ($500,000) 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 5.76% 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 January 10, 1998 (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 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. Upon any termination of the
Borrower's employment for Cause (as
<PAGE>
defined in that letter agreement dated April 10, 1997 (the "Letter Agreement")
between the Company and the Borrower) prior to the Maturity 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
Maturity Date (if, and only if, the Borrower shall be employed by the Company on
such date), any termination by the Company of the Borrower's employment prior to
the Maturity Date (other than for Cause), a change in control of the Company (as
defined in the Letter Agreement), a voluntary termination of Borrower's
employment solely if arising from a diminution in title or responsibilities or
because of a material breach of the Letter Agreement by the Company, 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 Maturity 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
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.
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:
Abraham L. Morris
If to the Company:
Teligent, L.L.C.
8065 Leesburg Pike
Vienna, VA 22182
Attn: Alex J. Mandl, Chairman and CEO
or to such other address as any party (or such party's
<PAGE>
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.
(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/ Abraham L. Morris
---------------------
Abraham L. Morris
<PAGE>
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 17, 1997
