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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 10, 1998
REGISTRATION NO. 333-53301
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
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FORM S-4
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
----------------
TELIGENT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 4812 54-1866562
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
8065 LEESBURG PIKE
VIENNA, VIRGINIA 22182
(703) 762-5100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
LAURENCE E. HARRIS, ESQ.
TELIGENT, INC.
8065 LEESBURG PIKE
VIENNA, VIRGINIA 22182
(703) 762-5100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES TO:
MARK C. SMITH, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
919 THIRD AVENUE
NEW YORK, NY 10022
(212) 735-3000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
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If any of the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, 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 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. [_]
CALCULATION OF REGISTRATION FEE
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PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED PER NOTE(1) PRICE(1) FEE(2)
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<S> <C> <C> <C> <C>
11 1/2% Series B Senior
Discount Notes due
2008.................. $440,000,000 54.5% $239,800,000 $70,741
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f) 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.
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<PAGE>
PROSPECTUS
OFFER TO EXCHANGE ALL OUTSTANDING
11 1/2% SENIOR DISCOUNT NOTES DUE 2008 FOR
11 1/2% SERIES B SENIOR DISCOUNT NOTES DUE 2008, WHICH HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OF
[TELIGENT LOGO]
The Exchange Offer will expire at 5:00 p.m., New York City time, on August
13, 1998, unless extended.
----------------
Teligent, Inc. ("Teligent" or the "Company") hereby offers, upon the terms
and subject to the conditions set forth in this Prospectus and the
accompanying Letter of Transmittal (which together constitute the "Exchange
Offer"), to exchange an aggregate principal amount at maturity of up to
$440,000,000 of its 11 1/2% Series B Senior Discount Notes due 2008 (the "New
Notes"), which have been registered under the Securities Act of 1933, as
amended (the "Securities Act"), for a like principal amount at maturity of its
issued and outstanding 11 1/2% Senior Discount Notes due 2008 (the "Old Notes"
and, together with the New Notes, the "Notes") from the holders (the
"Holders") thereof. The terms of the New Notes are identical in all material
respects to the Old Notes, except for certain transfer restrictions and
registration rights relating to the Old Notes and except for certain
provisions under the Registration Rights Agreement (as defined herein),
providing for liquidated damages on the Old Notes under certain circumstances
relating to the timing of the Exchange Offer, which rights in each case will
terminate upon consummation of the Exchange Offer.
On February 20, 1998, Teligent issued $440,000,000 aggregate principal
amount at maturity of the Old Notes (the "Old Notes Offering"). The Old Notes
were issued pursuant to an offering exempt from registration under the
Securities Act and applicable state securities laws.
The New Notes will be issued pursuant to an indenture dated as of February
20, 1998 between the Company and First Union National Bank as Trustee (the
"Trustee") (the "Indenture").
For each Old Note accepted for exchange, the Holder of such Old Note will
receive a New Note having a principal amount at maturity equal to that of the
surrendered Old Note. The Old Notes were issued at a substantial discount from
their principal amount at maturity. Cash interest will not accrue on the Notes
prior to March 1, 2003. Commencing September 1, 2003, cash interest on the
Notes will be payable in cash semi-annually on March 1 and September 1 of each
year at a rate of 11 1/2% per annum. Original Issue Discount (as defined
herein) on the New Notes will accrue from the date of original issuance of the
Old Notes.
On or after March 1, 2003, 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
price set forth herein, together with interest accrued to the redemption date.
The Notes will be senior unsecured 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, including $300 million principal
amount of the Company's 11 1/2% Senior Notes due 2007 (the "Senior Notes").
The Company expects to incur substantial additional indebtedness (including
secured indebtedness) in the future. Such secured indebtedness, if incurred,
will effectively rank senior to the Old Notes with respect to the assets
securing such indebtedness. In addition, the Notes will be effectively
subordinated to all liabilities of each subsidiary of the Company to its
respective creditors. See "Risk Factors--Substantial Leverage; Ability to
Service Indebtedness" and "Description of the Notes--General."
(continued on next page)
SEE "RISK FACTORS" BEGINNING ON PAGE 17 FOR A DISCUSSION OF CERTAIN RISKS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS WHO TENDER THE OLD NOTES IN
THE EXCHANGE OFFER.
----------------
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.
THE DATE OF THIS PROSPECTUS IS JULY 10, 1998.
<PAGE>
(continued from previous page)
Upon the occurrence of a Change of Control (as defined herein), 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 Accreted Value (as defined herein)
thereof on any Change of Control Payment Date (as defined herein) occurring
prior to March 1, 2003, or 101% of the principal amount thereof at maturity on
any Change of Control Payment Date occurring on or after March 1, 2003, 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 New Notes are being offered hereunder in order to satisfy certain
obligations of Teligent contained in the Registration Rights Agreement (as
defined herein). Based on previous interpretations by the staff of the
Securities and Exchange Commission (the "Commission"), as set forth in no-
action letters issued to third parties, Teligent believes that the New Notes
issued pursuant to the Exchange Offer in exchange for the Old Notes may be
offered for resale, resold and otherwise transferred by Holders thereof (other
than any Holder which is an "affiliate" of Teligent within the meaning of Rule
405 under the Securities Act), without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that the New
Notes are acquired in the ordinary course of such Holders' business and such
Holders have no arrangement or understanding with any person to participate in
the distribution of the New Notes. However, the Commission has not considered
the Exchange Offer in the context of a no-action letter and there can be no
assurance that the staff of the Commission would make a similar determination
with respect to the Exchange Offer as in such other circumstances. Each
Holder, other than a broker-dealer, must acknowledge that it is not engaged
in, and does not intend to engage in, a distribution of such New Notes and has
no arrangement or understanding to participate in a distribution of New Notes.
Each broker-dealer that receives New Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of New
Notes received in exchange for Old Notes where such Old Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities. For a period of 90 days after the Expiration Date (as defined
herein), Teligent will make this Prospectus available to any broker-dealer for
use in connection with any such resale. See "Plan of Distribution."
Teligent will not receive any proceeds from the Exchange Offer. Teligent
will pay all the expenses incident to the Exchange Offer. Tenders of Old Notes
pursuant to the Exchange Offer may be withdrawn at any time prior to the
Expiration Date. In the event Teligent terminates the Exchange Offer and does
not accept for exchange any Old Notes, Teligent will promptly return the Old
Notes to the Holders thereof. See "The Exchange Offer."
There is no existing trading market for the New Notes, and there can be no
assurance regarding the future development of a market for the New Notes, or
the ability of Holders of the New Notes to sell their New Notes or the price
at which such Holders may be able to sell their New Notes. Merrill Lynch &
Co., Goldman, Sachs & Co., Salomon Smith Barney and TD Securities (the
"Initial Purchasers"), have advised Teligent that they currently intend to
make a market in the New Notes. The Initial Purchasers are not obligated to do
so, however, and any market-making with respect to the New Notes may be
discontinued at any time without notice. Teligent does not intend to apply for
listing or quotation of the New Notes on any securities exchange or stock
market.
THE EXCHANGE OFFER IS NOT BEING MADE, NOR WILL TELIGENT ACCEPT SURRENDERS
FOR EXCHANGE FROM HOLDERS OF EXISTING NOTES, IN ANY JURISDICTION IN WHICH THE
EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH
THE SECURITIES OR "BLUE SKY" LAWS OF SUCH JURISDICTION.
<PAGE>
FORWARD-LOOKING STATEMENTS
Certain statements contained herein constitute "forward-looking statements"
as that term is defined under the Private Securities Litigation Reform Act of
1995. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of the Company, or industry results, to be materially
different from those contemplated or projected, forecasted, estimated or
budgeted in or expressed or implied by such forward-looking statements. Such
factors include, among others, the risk and other factors set forth under
"Risk Factors" as well as the following: economic, key employee, competitive,
regulatory, governmental and technological factors affecting the Company's
growth, operations, markets, products, services, licenses and other factors
discussed in the Company's other filings with the Securities and Exchange
Commission. These factors 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.
AVAILABLE INFORMATION
The Company complies with the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, is required to file reports, proxy statements and other information
with the Commission. Such reports, proxy statements and other information
filed by the Company may be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Judiciary
Plaza, Washington, D.C. 20549; and at the following regional offices of the
Commission: 7 World Trade Center, Suite 1300, New York, New York 10048; and
500 West Madison Street, Suite 1400 Chicago, Illinois 60661. Copies of such
material can also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549,
at prescribed rates. Such material may also be accessed electronically by
means of the Commission's home page on the Internet at http://www.sec.gov.
The Company has agreed that, whether or not it is required to do so by the
rules and regulations of the Commission, for so long as any of the Notes
remain outstanding, it will furnish to the Holders of the Notes and file with
the Commission (unless the Commission will not accept such a filing) (i) all
quarterly and annual financial information that would be required to be
contained in a filing with the Commission on Forms 10-Q and 10-K as if the
Company were required to file such forms, including a "Management's Discussion
and Analysis of Results of Operations and Financial Condition" and, with
respect to the annual information only, a report thereon by the Company's
certified independent accountants, and (ii) all reports that would be required
to be filed with the Commission on Form 8-K if the Company were required to
file such reports in each case within the time periods set forth in the
Commission's rules and regulations. In addition, for so long as any of the
Notes remain outstanding, the Company has agreed to make available to any
prospective purchaser of the Notes or beneficial owner of the Notes in
connection with any sale thereof the information required by Rule 144A(d)(4)
under the Securities Act. This Prospectus constitutes a part of a Registration
Statement on Form S-4 filed by the Company with the Commission under the
Securities Act. This Prospectus omits certain of the information contained in
the Registration Statement, and reference is hereby made to the Registration
Statement and to the exhibits relating thereto for further information with
respect to the Company and the New Notes offered hereby. Any statements
contained herein concerning the provisions of any document are not necessarily
complete, and, in each instance, reference is made to such copy filed as an
exhibit to the Registration Statement or otherwise filed with the Commission.
Each such statement is qualified in its entirety by such reference. The
Registration Statement and the exhibits thereto may be inspected without
charge at the office of the Commission at 450 Fifth Street, N.W., Judiciary
Plaza, Washington, D.C. 20549, and copies thereof may be obtained from the
Commission at prescribed rates.
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<PAGE>
No dealer, salesperson or other individual has been authorized to give any
information or to make any representations other than those contained in this
Prospectus. If given or made, such information or representations must not be
relied upon as having been authorized by the Company. This Prospectus does not
constitute an offer to sell, or a solicitation of an offer to buy any of 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 been no change in the facts set forth in
this Prospectus or in the affairs of the Company since the date hereof.
TABLE OF CONTENTS
<TABLE>
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PAGE
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Prospectus Summary....................................................... 1
Risk Factors............................................................. 17
Use of Proceeds.......................................................... 31
Selected Financial Data.................................................. 32
Management's Discussion And Analysis of Financial Condition and Results
of Operations........................................................... 33
The Exchange Offer....................................................... 43
Business................................................................. 49
Telecommunications Industry Overview..................................... 63
Regulation............................................................... 65
Management............................................................... 72
Certain Transactions and Other Matters................................... 82
Certain Relationships and Related Transactions........................... 85
Security Ownership of Certain Beneficial Owners and Management........... 89
Description of the Notes................................................. 91
Exchange Offer; Registration Rights...................................... 119
Description of Certain Indebtedness...................................... 121
Certain Federal Income Tax Considerations................................ 125
Plan of Distribution..................................................... 126
Legal Matters............................................................ 126
Experts.................................................................. 126
Glossary................................................................. A-1
Index to Financial Statements............................................ F-1
</TABLE>
ii
<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"). 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, Inc. ("Teligent" or the "Company") intends to be a premier provider
of high quality, low cost voice, data, Internet and video telecommunications
services primarily to small and medium-sized businesses through its own fixed
local wireless point-to-point and 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,
30 by the end of 1999, and subsequently in all of its 74 currently licensed
market areas. The Company may have the opportunity to accelerate the launch of
commercial service on its digital wireless communications networks earlier than
previously planned. If the Company is successful in accelerating these
commercial launches, it may result in increased operating and capital
expenditures in 1998. The Company currently provides commercial Internet access
through fixed wireless point-to-point broadband systems.
The predecessor to the Company, Associated Communications, L.L.C., was
founded in 1996 as a limited liability company 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. In September
1996, Alex J. Mandl, formerly President and Chief Operating Officer of AT&T,
joined Associated Communications, L.L.C. as Chairman of the Board and Chief
Executive Officer. Associated Communications, L.L.C. was subsequently renamed
Teligent, L.L.C. On November 26, 1997, the Company issued 6,325,000 shares of
Class A Common Stock at $21.50 per share in its initial public offering (the
"Equity Offering") and $300 million aggregate principal amount of 11 1/2%
Senior Notes due 2007 (the "Senior Notes Offering"). Prior to and as a
condition to the Senior Notes Offering and the Equity Offering (together with
the Senior Notes Offering, the "Offerings"), Teligent, L.L.C. merged with and
into the Company (the "Merger") with the Company surviving the Merger. See
"Certain Transactions and Other Matters--The Reorganization." On February 20,
1998, the Company issued $440 million aggregate principal amount at maturity of
11 1/2% Senior Discount Notes due 2008 (the "Old Notes").
The Company obtained the majority of its 24 GHz fixed wireless licenses in
(i) November 1997 through the contribution to Teligent, L.L.C. of the licenses
by Teligent, L.L.C.'s founding members, Microwave Services, Inc. ("MSI"), a
subsidiary of Associated, and Digital Services Corporation ("DSC"), an
affiliate of Telcom Ventures, and (ii) July 1997 directly from the Federal
Communications Commission ("FCC"). 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 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--Federal Regulation--Teledesic." The
licenses contributed by MSI 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
1
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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. See "Regulation--Federal Regulation--FCC Licensing."
In addition, the Company obtained FCC licenses in three standard metropolitan
statistical areas ("SMSAs") in connection with its acquisition of FirstMark
Communications, Inc. ("FirstMark") in October 1997. See "Regulation--Federal
Regulation--Transfer of Control of Wireless Licenses."
In November 1997, Nippon Telegraph and Telephone Corporation ("NTT"), the
world's largest telecommunications carrier, through its indirect wholly-owned
subsidiary NTTA&T Investment, Inc. ("NTTA&T") made a strategic equity
investment totaling $100 million in the Company. In connection with NTT's
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.
See "Certain Transactions and Other Matters."
Associated is a publicly traded company (Nasdaq: AGRPA and AGRPB) principally
engaged in the ownership and operation of a variety of wireless communications
assets and businesses. 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.
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. 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,
have created opportunities for competitive local exchange carriers ("CLECs").
The Company intends to alleviate this last mile local bottleneck and gain
market share by deploying technologically advanced, high bandwidth digital
wireless technology complemented by superior customer service and competitive
pricing.
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 reduce 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 are expected to 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.
2
<PAGE>
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 radio equipment at the customer premises 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 should 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 typical 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 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
3
<PAGE>
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
original 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, through a subsidiary,
has entered 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,
Internet and video telecommunication 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 primarily 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.
4
<PAGE>
Achieve Market Share Via Competitive Pricing. As a new market entrant,
Teligent's strategy will be to price its services competitively to gain market
share early. For switched voice services and other services already provided by
the ILEC, the Company expects to price at a discount. For certain data and
bandwidth-intensive services that may not be provided by competitors or for
which there may exist an underserved market demand, the Company may be able to
price its services at a premium. The Company anticipates that some ILECs may
reduce their prices as increased competition begins to erode their market
share. The Company believes that it will be able to remain competitive if
market prices decline because of its lower expected network cost. The Company
also expects to price its bundled long distance service at a discount to market
prices as a further incentive to attract potential customers and to broaden its
revenue base.
Rapid Deployment. Teligent intends to take advantage of its network
flexibility and lower incremental capital requirements in order to quickly
roll-out and penetrate its market areas. Teligent believes that this rapid
deployment should allow it to become one of the first significant facilities-
based competitors in many parts of its market areas. The Company believes that
this rapid deployment should enable it to establish a level of market
penetration which will further enhance the Company's relative cost advantage,
attract additional customers and further enhance its brand reputation.
Exploit Future Growth Opportunities. Teligent intends to continue building on
the capabilities of its networks to expand its target market and service
offerings. Such expansion may include targeting residential customers in
multiple dwelling units as well as international opportunities, either through
joint ventures or by direct entry.
COMMERCIAL ROLL-OUT
Teligent is preparing to offer an integrated package of services including
local and long distance telephone services, high speed data connectivity,
Internet access and videoconferencing. Teligent is licensed by the FCC to
operate point-to-point and point-to-multipoint 24 GHz fixed wireless local
systems in 74 market areas, covering over 700 municipalities in the United
States, which licenses include 320-400 MHz of spectrum in 27 of the 35 most
populous market areas in the United States, and at least 80 MHz of spectrum in
47 other major market areas. See "Risk Factors--Relocation of Licenses to 24
GHz; Pending FCC Petitions" and "Regulation." The Company intends to deploy its
24 GHz fixed wireless point-to-multipoint broadband networks to provide last
mile connectivity in these licensed market areas. These networks may also
include point-to-point links and resold local loops where economically
attractive or strategically desirable.
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, 30 by the end of 1999, and subsequently in all of its 74
currently licensed market areas. Depending on technical, economic and market
considerations, the Company may have the opportunity to accelerate the launch
of commercial service on its digital wireless communications networks earlier
than previously planned. If the Company is successful in accelerating these
commercial launches, it may result in increased operating and capital
expenditures in 1998. 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.
5
<PAGE>
Teligent has the ability to source key network components from a number of
equipment vendors. Unlike many cellular and PCS networks, fixed local wireless
networks can be constructed using equipment from different manufacturers
utilizing different technologies because customers do not roam between base
stations. Teligent believes that the flexibility provided by vendor diversity
will assist in ensuring an adequate and prompt supply of equipment at
attractive prices. The Company has entered into a Network Products Purchase
Agreement dated December 11, 1997 (the "Network Products Purchase Agreement"),
with Northern Telecom Inc. ("Nortel") for the purchase of certain
telecommunications equipment, software and services. See "Description of
Certain Indebtedness."
CERTAIN TRANSACTIONS
The Reorganization. The Company was organized in September 1997 for the
purpose of succeeding to the business of Teligent, L.L.C. On November 26, 1997,
the Company issued $300,000,000 aggregate principal amount of its Senior Notes
due 2007 (the "Senior Notes") and 6,325,000 shares of Class A Common Stock at
$21.50 per share. Immediately prior, and as a condition, to the consummation of
the Offerings, Teligent, L.L.C. merged with and into the Company, with the
Company surviving the merger. As a result of the Reorganization, all Teligent,
L.L.C. member interests were converted into and became shares of common stock
of the Company, as follows: (i) the interest of Microwave Services, Inc., a
wholly owned subsidiary of Associated ("MSI"), was 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 holds the member interest
previously held by Digital Services Corporation ("DSC"), also an affiliate of
Telcom Ventures, was 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), was
converted into Series B-3 Common Stock; and (iv) the interest of the FirstMark
Sole Stockholder (see "The FirstMark Acquisition" below) was converted into
Class A Common Stock. In each case, the number of shares of Common Stock
received by each member of Teligent, L.L.C. pursuant to the Reorganization was
proportionate to such member's percentage interest in Teligent, L.L.C.
immediately prior to the Reorganization. See "Certain Transactions--The
Reorganization," 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, entered into a Stockholders Agreement which
provides for certain rights and obligations of the parties thereto with respect
to their ownership interest in, and the governance of, the Company. See
"Certain Relationships and Related Transactions--Stockholders Agreement."
The Additional Sponsor Equity Contributions. In connection with the Strategic
Equity Investment (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, 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. The ACLA Contribution was completed
in February 1998.
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 provided 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"), which occurred
on November 26, 1997,
6
<PAGE>
NTT, through NTTA&T, purchased 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).
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 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 held 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 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 (as modified to date, the "Financing Commitment Letter") setting forth
the anticipated terms and conditions under which Nortel was to provide loans
(the "Nortel Loans") in an aggregate amount of up to $780 million (the "Nortel
Financing") to finance the purchase of certain telecommunications equipment,
software and services pursuant to the Network Products Purchase Agreement and
to provide working capital. On July 2, 1998, the Company entered into the
Credit Agreement dated as of July 2, 1998 (the "Bank Credit Agreement") with
(i) the lenders from time to time parties thereto (the "Lenders"), (ii) Chase
Securities Inc., Goldman Sachs Credit Partners L.P ("Goldman Sachs") and TD
Securities (USA) Inc., as Arrangers, (iii) Goldman Sachs, as Syndication Agent,
(iv) Toronto Dominion (Texas), Inc., as Documentation Agent, and (v) The Chase
Manhattan Bank, as Administrative Agent. Under the Bank Credit Agreement, the
Lenders have provided to the Company credit facilities up to an aggregate
principal amount of $800 million (the "Credit Facilities") for working capital
and general corporate purposes, including, without limitation, the acquisition
of telecommunications equipment, software and services. The Lenders will make
$780 million of the Credit Facilities available to Teligent on behalf of Nortel
in lieu of the Nortel Financing, which Credit Facilities constitute "Vendor
Financing" under the indentures to which the Senior Notes and Senior Discount
Notes were issued (the "Indentures"), and the remaining $20 million of the
Credit Facilities available to Teligent as "Telecommunications Assets Debt" in
accordance with the terms of the Indentures. Availability of the Credit
Facilities under the Bank Credit Agreement is subject to certain conditions.
See "Description of Certain Indebtedness." The Company's obligations under the
Bank Credit Agreement are guaranteed by substantially all of its domestic
subsidiaries and are secured by substantially all of the assets of the Company
and such subsidiaries. See "Description of Certain Indebtedness."
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,
30 by the end of 1999, and subsequently in all of its 74 currently licensed
market areas. See "--Commercial Roll-Out." Depending on technical, economic and
market considerations, the Company may have the opportunity to accelerate the
launch of commercial service on its digital wireless communications networks
earlier than previously planned. The Company currently forecasts that its
capital requirements (including capital
7
<PAGE>
expenditures, working capital, debt service and operating losses) from March 5,
1996 (inception) through December 2000 will be approximately $1 billion. Actual
capital requirements may vary based upon the timing and success of the
Company's roll-out. If demand for the Company's services is lower than
expected, the Company expects to be able to reduce demand-driven capital
expenditures such as customer premise equipment and switch electronics.
Based on the Company's current business plan to offer its integrated package
of services in at least 10 market areas by the end of 1998, 30 by the end of
1999, and subsequently in all of its 74 currently licensed market areas, the
Company anticipates that the net proceeds from the Old Notes Offering, together
with the existing cash balances and funds available under the Bank Credit
Agreement, will be sufficient to fund the Company's capital requirements
through December 2000. If the Company accelerates implementation of its network
roll-out, the Company may be required to obtain additional financing earlier
than currently anticipated.
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.
Teligent's principal place of business is 8065 Leesburg Pike, Vienna, VA
22182 and its telephone number is (703) 762-5100.
8
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of March
31, 1998. The Old Notes were issued on February 20, 1998 and as such are
included in the accompanying table. This table should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the Company's Financial Statements contained elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
AS OF
MARCH 31,
1998
----------
(DOLLARS
IN
THOUSANDS)
<S> <C>
Cash and cash equivalents............................................ $636,933
========
Restricted cash(1)................................................... $ 96,395
========
Debt
11 1/2% Senior Notes due 2007...................................... 300,000
11 1/2% Senior Discount Notes due 2008(2).......................... 253,650
Stockholders' equity
Common stock....................................................... 526
Additional paid-in capital......................................... 442,982
Deficit accumulated during the development stage................... (190,245)
--------
Subtotal........................................................... 253,263
Notes receivable from Executive.................................... (10,250)
--------
Total stockholder's equity....................................... 243,013
--------
Total capitalization............................................. $796,663
========
</TABLE>
- --------
(1) Restricted cash consists of Pledged Securities in an amount sufficient to
provide for payment in full of interest due on the Senior Notes through
December 1, 2000.
(2) Reflects proceeds from the Old Notes Offering, as adjusted for the
accretion of the issue discount to March 31, 1998.
9
<PAGE>
THE EXCHANGE OFFER
Securities Offered.......... $440,000,000 principal amount at maturity of 11
1/2% Series B Senior Discount Notes due 2008
which have been registered under the Securities
Act. The terms of the New Notes and the Old Notes
are identical in all material respects, except
for certain transfer restrictions and
registration rights relating to the Old Notes and
except for certain provisions under the
Registration Rights Agreement providing for
liquidated damages on the Old Notes under certain
circumstances relating to the timing of the
Exchange Offer, which rights in each case will
terminate upon consummation of the Exchange
Offer.
The Exchange Offer.......... The New Notes are being offered in exchange for a
like principal amount of Old Notes. The issuance
of the New Notes is intended to satisfy
obligations of Teligent contained in the
Registration Rights Agreement, dated February 20,
1998, among Teligent and the Initial Purchasers
(the "Registration Rights Agreement").
Expiration Date; Withdrawal
Rights.....................
The Exchange Offer will expire at 5:00 p.m., New
York City time, on August 13, 1998, or such later
date and time to which it is extended (the
"Expiration Date"). The tender of Old
Notes pursuant to the Exchange Offer may be
withdrawn at any time prior to the Expiration
Date. Any Old Note not accepted for exchange for
any reason will be returned without expense to
the tendering Holder thereof as promptly as
practicable after the expiration or termination
of the Exchange Offer. See "The Exchange Offer--
Terms of the Exchange Offer; Period for Tendering
Old Notes," and "-- Withdrawal Rights."
Procedures for Tendering
the Old Notes.............. Each Holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile,
together with either certificates for such Old
Notes or a Book-Entry Confirmation (as defined
herein) of such Old Notes into the Book-Entry
Transfer Facility (as defined herein), if such
procedure is available, and any other required
documentation to the exchange agent (the
"Exchange Agent") at the address set forth
herein. By executing the Letter of Transmittal,
each Holder will represent to Teligent, among
other things, that (i) it is not an affiliate (as
defined in Rule 405 under the Securities Act) of
the Company, or, if it is such an affiliate, it
will comply with the registration and prospectus
delivery requirements of the Securities Act to
the extent applicable, (ii) any New Notes to be
received by it were acquired in the ordinary
course of business, (iii) at the time of the
commencement of the Exchange Offer it has no
arrangement with any person to participate in the
distribution (within the meaning of the
Securities Act) of the New Notes and (iv) it is
not acting on
10
<PAGE>
behalf of any Person who could not make the
representations in clauses (i) through (iii).
Each broker-dealer that receives New Notes for
its own account in exchange for Old Notes, where
such Old Notes were acquired by such broker or
dealer as a result of market-making activities or
other trading activities, must acknowledge that
it will deliver a prospectus in connection with
any resale of such New Notes. The Letter of
Transmittal states that by so acknowledging and
by delivering a prospectus, a broker or dealer
will not be deemed to admit that it is an
"underwriter" within the meaning of the
Securities Act. See "The Exchange Offer--
Procedures for Tendering Old Notes" and "Plan of
Distribution."
Special Procedures for
Beneficial Owners.......... Any beneficial owner whose Old Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and who wishes to tender should contact such
registered Holder promptly and instruct such
registered Holder to tender on such beneficial
owner's behalf. If such beneficial owner wishes
to tender on such owner's own behalf, such owner
must, prior to completing and executing the
Letter of Transmittal and delivering its Old
Notes, either make appropriate arrangements to
register ownership of the Old Notes in such
owner's name or obtain a properly completed bond
power from the registered Holder. The transfer of
registered ownership may take considerable time.
See "The Exchange Offer--Procedures for Tendering
Old Notes."
Guaranteed Delivery
Procedures................. Holders of Old Notes who wish to tender their Old
Notes and whose Old Notes are not immediately
available or who cannot deliver their Old Notes
or any other documents required by the Letter of
Transmittal to the Exchange Agent must tender
their Old Notes according to the guaranteed
delivery procedures set forth in "The Exchange
Offer--Guaranteed Delivery Procedures."
Certain Federal Income Tax
Considerations............. The exchange pursuant to the Exchange Offer will
not result in the recognition of income, gain or
loss to the Holders or the Company for federal
income tax purposes. See "Certain Federal Income
Tax Considerations."
Use of Proceeds............. There will be no proceeds to the Company from the
Exchange Offer.
Exchange Agent.............. First Union National Bank is serving as Exchange
Agent in connection with the Exchange Offer. See
"The Exchange Offer--Exchange Agent."
11
<PAGE>
CONSEQUENCES OF EXCHANGING OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities
Act and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. Teligent does not currently anticipate that
it will register Old Notes under the Securities Act. See "Exchange Offer;
Registration Rights." Based on previous interpretations by the staff of the
Commission, as set forth in no-action letters issued to third parties, Teligent
believes that the New Notes issued pursuant to the Exchange Offer in exchange
for the Old Notes may be offered for resale, resold or otherwise transferred by
Holders thereof (other than any Holder which is an "affiliate" of Teligent
within the meaning of Rule 405 under the Securities Act) without compliance
with the registration and prospectus delivery provisions of the Securities Act,
provided that such New Notes are acquired in the ordinary course of such
Holders' business and such Holders have no arrangement with any person to
participate in the distribution of such New Notes. However, the Commission has
not considered the Exchange Offer in the context of a no-action letter and
there can be no assurance that the staff of the Commission would make a similar
determination with respect to the Exchange Offer as in such other
circumstances. Each Holder, other than a broker-dealer, must acknowledge that
it is not engaged in, and does not intend to engage in, a distribution of New
Notes and has no arrangement or understanding to participate in a distribution
of New Notes. Each broker-dealer that receives New Notes for its own account in
exchange of Old Notes must acknowledge that such Old Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities and that it will deliver a prospectus in connection with any resale
of such New Notes. See "Plan of Distribution." In addition, to comply with the
securities laws of certain jurisdictions, if applicable, the New Notes may not
be offered or sold unless they have been registered or qualified for sale in
such jurisdiction or an exemption from registration or qualification is
available and is complied with. See "The Exchange Offer--Consequences of
Exchanging Old Notes."
12
<PAGE>
SUMMARY DESCRIPTION OF THE NEW NOTES
The terms of the New Notes and the Old Notes are identical in all material
respects, except for certain transfer restrictions and registration rights
relating to the Old Notes and except for certain provisions under the
Registration Rights Agreement providing for liquidated damages on the Old Notes
under certain circumstances relating to timing of the Exchange Offer, which
rights in each case will terminate upon consummation of the Exchange Offer.
Issuer...................... Teligent, Inc.
Securities Offered.......... $440,000,000 aggregate principal amount at
maturity of 11 1/2% Series B Senior Discount
Notes due 2008.
The Old Notes were issued at a substantial
discount to their aggregate principal amount at
maturity which generated gross proceeds to the
Company of $250,703,200. The yield to maturity of
the Notes is 11 1/2% (computed on a semi-annual
bond equivalent basis), calculated from February
20, 1998. See "Certain Federal Income Tax
Considerations."
Maturity Date............... March 1, 2008.
Ranking..................... The Notes will be senior unsecured 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 Old Notes Offering.
Such secured 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. On July
2, 1998, the Company entered into the Bank Credit
Agreement dated July 2, 1998 (the "Bank Credit
Agreement"), which will provide the Company
credit facilities up to an aggregate amount of
$800 million. The Company's obligations under the
Bank Credit Agreement are guaranteed by
substantially all of its domestic subsidiaries,
and are secured by substantially all of the
assets of the Company and such subsidiaries. (See
"Summary--Vendor Financing.") See "Risk Factors--
Substantial Leverage; Ability to Service
Indebtedness", "Description of Certain
Indebtedness," and "Description of the Notes--
General."
Interest Rate and Payment
Dates...................... Cash interest will not accrue on the Notes prior
to March 1, 2003. Commencing September 1, 2003,
cash interest on the Notes will be payable semi-
annually on March 1 and September 1 of each year
at a rate of 11 1/2% per annum. For each Old Note
accepted for exchange, the Holder of such Old
Note will receive a New Note having a principal
amount at maturity equal to that of the
surrendered Old Note. Original Issue Discount on
the New Notes will accrue from the date of
original issuance of the Old Notes.
13
<PAGE>
Optional Redemption......... On or after March 1, 2003, 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. See
"Description of the Notes--Optional Redemption."
Original Issue Discount..... For United States federal income tax purposes, a
New Note received pursuant to the Exchange Offer
will be treated as a continuation of the Old Note
in the hands of a holder. As a result, such
holder will have the same adjusted tax basis,
holding period and original issue discount in the
New Note as it had in the Old Note immediately
before the exchange. See "Certain Federal Income
Tax Considerations."
Change of Control........... Upon the occurrence of a Change of Control (as
defined herein), 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 Accreted Value
(as defined herein) thereof on any Change of
Control Payment Date (as defined herein)
occurring prior to March 1, 2003, plus any
accrued and unpaid cash interest not otherwise
included in the Accreted Value to such Change of
Control Payment Date, or 101% of the principal
amount at maturity thereof on any Change of
Control Payment Date occurring on or after March
1, 2003, plus accrued and unpaid interest, if
any, to such Change of Control Payment Date.
There can be no assurance that the Company will
have sufficient funds to pay the purchase price
for all of the Notes that might be delivered by
Holders upon a Change of Control. See "Risk
Factors--Risk of Inability to Satisfy Change of
Control Offer" and "Description of the Notes--
Change of Control."
Certain Covenants........... The Indenture (as defined herein) contains
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."
Exchange Offer;
Registration Rights........ Holders of New Notes (other than as set forth
below) are not entitled to any registration
rights with respect to the New Notes. Pursuant to
the Registration Rights Agreement (the
"Registration Rights Agreement"), Teligent agreed
to use its best efforts to file an Exchange Offer
Registration Statement (as defined) with respect
to the Old Notes. The Registration Statement of
which this Prospectus is a part constitutes the
Exchange Offer Registration Statement. Under
certain circumstances, certain Holders of Old
Notes (including Holders of Old Notes who may not
participate in the
14
<PAGE>
Exchange Offer) may in certain circumstances
require Teligent to file, and cause to become
effective, a shelf registration statement under
the Securities Act which would cover resales of
Old Notes by such Holders. See "Exchange Offer;
Registration Rights."
RISK FACTORS
Holders of Old Notes should carefully consider the matters set forth under
"Risk Factors," beginning on page 17, and all other information set forth in
this Prospectus, before making a decision to tender their Old Notes in the
Exchange Offer.
15
<PAGE>
SUMMARY FINANCIAL DATA
The following summary financial data presented below as of December 31, 1996
and 1997 and for the year ended December 31, 1997 was derived from the
Company's audited financial statements. The summary financial data presented
below as of March 31, 1997 and 1998 and for three months ended March 31, 1997
and 1998 and for the period from March 5, 1996 (date of inception) to March 31,
1998 has been derived from unaudited financial statements which, in the opinion
of management, have been prepared on the same basis as the audited financial
statements and include all adjustments, consisting of only normal recurring
adjustments necessary for a fair presentation of the financial position and
results of operations for such periods. Operating results for the three months
ended March 31, 1997 and 1998, and for the period March 5, 1996 (date of
inception) to March 31, 1998 are not necessarily indicative of the results that
may be expected for the full year. The following financial data should be read
in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Company's financial statements and
the related notes thereto, contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
MARCH 5, 1996 THREE MONTHS ENDED MARCH 5, 1996
(DATE OF INCEPTION) YEAR ENDED MARCH 31, (DATE OF INCEPTION)
TO DECEMBER 31, DECEMBER 31, ------------------------ TO MARCH 31,
1996 1997 1997 1998 1998
------------------- ------------ ----------- ----------- -------------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $ 1,386 $ 3,311 $ 635 $ 98 $ 4,795
Costs and expenses:
Cost of services........ 1,625 4,785 547 7,391 13,801
Sales, general and ad-
ministrative........... 9,583 43,466 4,556 19,229 72,277
Stock-based
compensation........... 2,778 84,043 2,084 6,630 93,451
Depreciation and
amortization........... 164 6,454 87 1,573 8,191
----------- ----------- ----------- ----------- -----------
Total costs and ex-
penses................. 14,150 138,748 7,274 34,823 187,720
----------- ----------- ----------- ----------- -----------
Operating loss.......... (12,764) (135,437) (6,639) (34,725) (182,925)
Interest and other in-
come................... 10 3,242 3 8,096 11,348
Interest expense........ (879) (5,859) (127) (11,929) (18,668)
----------- ----------- ----------- ----------- -----------
Net loss................ $ (13,633) $ (138,054) $ (6,763) $ (38,558) $ (190,245)
=========== =========== =========== =========== ===========
OTHER DATA:
Net loss per common
share outstanding...... $ (0.29) $ (2.94) $ (0.15) $ (0.73) $ (4.02)
Weighted average common
shares outstanding..... 46,257,709 46,950,860 44,426,299 52,585,382 47,347,100
Modified EBITDA (1)..... $ (8,822) $ (41,940) $ (3,718) $ (25,772) $ (76,533)
Cash used in operating
activities............. (6,047) (34,428) (4,513) (20,190) (59,496)
Cash used in investing
activities............. (3,709) (114,587) (6,958) (10,968) (130,432)
Cash provided by financ-
ing activities......... 11,058 572,613 11,500 243,190 826,861
Ratio of earnings to
fixed charges (2)...... -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
---------------- -----------------
1996 1997 1997 1998
------ -------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................... $1,303 $424,901 $ 1,331 $636,933
Working capital (deficit)................... (6,978) 441,316 (19,682) 607,840
Property and equipment, net................. 3,545 8,186 4,846 58,019
Total assets................................ 5,145 596,380 12,398 867,621
Long-term debt, less current portion........ -- 300,000 -- 553,650
Stockholders' equity (deficit).............. (3,575) 274,146 (9,588) 243,013
</TABLE>
- --------
(1) Modified EBITDA consists of earnings before interest, taxes, depreciation,
amortization, non-cash charges for stock-based compensation and for the
amortization of notes receivable from Executive. While not a measure under
generally accepted accounting principles ("GAAP"), EBITDA (earnings before
interest, taxes, depreciation and amortization) is a measure commonly used
in the telecommunications industry and is presented to assist in
understanding the Company's operating results. Although EBITDA should not
be construed as a substitute for operating income determined in accordance
with GAAP, 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
and the notes thereto.
(2) 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 year
ended December 31, 1997, the three months ended March 31, 1997 and 1998,
and the period March 5, 1996 (date of inception) to March 31, 1998,
earnings were insufficient to cover fixed charges by $13.6 million, $138.1
million, $6.8 million, $38.6 million and $190.2 million, respectively.
16
<PAGE>
RISK FACTORS
Holders of Old Notes should consider carefully all of the information set
forth in this Prospectus and, in particular, should evaluate the following
risks before tendering their Old Notes in the Exchange Offer, although the
risk factors set forth below (other than "--Consequences of Failure to
Exchange and Requirements for Transfer of New Notes") are generally applicable
to the Old Notes as well as the New Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE AND REQUIREMENTS FOR TRANSFER OF NEW NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to exemptions from or in
transactions not subject to, the registration requirements of the Securities
Act and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act, except pursuant
to an exemption from, or in a transaction not subject to, the Securities Act
and applicable state securities laws. Teligent does not currently anticipate
that it will register Old Notes under the Securities Act. Based on
interpretations by the staff of the Commission, as set forth in no-action
letters issued to third parties, Teligent believes that New Notes issued
pursuant to the Exchange Offer in exchange for Old Notes may be offered for
resale, resold or otherwise transferred by Holders thereof (other than any
such Holder which is an "affiliate" of Teligent within the meaning of Rule 405
under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such Holders' business and such
Holders have no arrangement with any person to participate in the
distributions of such New Notes. However, the Commission has not considered
the Exchange Offer in the context of a no-action letter and there can be no
assurance that the staff of the Commission would make a similar determination
with respect to the Exchange Offer as in such other circumstances. Each
Holder, other than a broker-dealer, must acknowledge that it is not engaged
in, and does not intend to engage in, a distribution of New Notes and has no
arrangement or understanding to participate in a distribution of New Notes. If
any Holder is an affiliate of Teligent, is engaged in or intends to engage in
or has any arrangement or understanding with respect to the distribution of
the New Notes to be acquired pursuant to the Exchange Offer, such Holder (i)
could not rely on the applicable interpretations of the staff of the
Commission and (ii) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
Each broker-dealer that receives New Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of New
Notes received in exchange for Old Notes where such Old Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities. For a period of 90 days after the Expiration Date, Teligent will
make this Prospectus available to any broker-dealer for use in connection with
any such resale. See "Plan of Distribution." However, to comply with the
securities laws of certain jurisdictions, if applicable, the New Notes may not
be offered or sold unless they have been registered or qualified for sale in
such jurisdictions or an exemption from registration or qualification is
available and is complied with. See "The Exchange Offer--Consequences of
Exchanging Old 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 establishment of necessary
facilities, including a network operations center, corporate headquarters and
various field offices and switch sites, the raising of capital, the
acquisition of equipment, the development of operating systems, the
negotiating of interconnection agreements, the design of networks, the testing
and the preparation for use of switches, and the securing of necessary
telephone numbers, service agreements and 911 agreements. Prospective
investors have limited operating and financial data about
17
<PAGE>
the Company upon which to base an evaluation of the Company's performance and
an investment in the Notes. 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, 1997, the Company had net losses of $151.7 million,
of which $86.8 million resulted from non-cash stock-based compensation
expense. During the three months ended March 31, 1998, the Company had net
losses of $38.6 million, of which $6.6 million resulted from non-cash stock-
based compensation expense. 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 may have the opportunity to
accelerate the launch of commercial service on its digital wireless
communications networks earlier than previously planned. If the Company is
successful in accelerating these commercial launches, it may result in
increased operating and capital expenditures in 1998. The Company currently
forecasts that its capital requirements (including capital expenditures,
working capital, debt service and operating losses) through December 2000 will
be approximately $1 billion. Based on the Company's current business plan, the
Company anticipates that the net proceeds from the Notes Offering, together
with the existing cash balances and funds available under the Bank Credit
Agreement, will be sufficient to fund the Company's capital requirements
through December 2000. 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.
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 Old
Notes Offering, the Offerings, the Additional Sponsor Cash Contributions, the
Strategic Equity Investment and Bank Credit Agreement, 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.
18
<PAGE>
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
Indenture contains, 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
As of March 31, 1998, the Company had approximately $553.7 million of
outstanding indebtedness, the Company's total debt as a percentage of
capitalization, excluding the value of the licenses contributed pursuant to
the FirstMark Acquisition, and the assignment of certain licenses held by
certain of the Company's members or affiliates to the Company, (see "Certain
Transactions--The FirstMark Acquisition") and the grant by the FCC of certain
other applications to provide 24 GHz wireless services in Boston, MA and New
York, NY, and excluding the ACLA Contribution, was 69.5% as of March 31, 1998
and the Company had a deficiency of earnings to fixed charges of $47.5 million
for the three months ended March 31, 1998. See "Prospectus Summary--
Capitalization." In addition, the Indenture permits, 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) 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 the Bank Credit Agreement providing for
credit facilities under which the Company can incur up to $800 million in
indebtedness. The Company's obligations under the Bank Credit Agreement are
guaranteed by substantially all of its domestic subsidiaries and are secured
by substantially all of the assets of the Company and such subsidiaries. The
Notes will be effectively subordinated to such additional indebtedness to the
extent of the assets, securing such indebtedness. In addition, the Notes will
be effectively subordinated to all liabilities of each subsidiary of the
Company to its respective creditors. See "--Significant Capital Requirements"
and "Description of Certain Indebtedness."
The Company's ability to make principal and interest payments on the Notes
will be dependent upon, among other things, the Company's future operating
performance and anticipated cash flow and its ability to obtain additional
debt or equity financing, which are themselves dependent upon a number of
factors, many of which are out of the Company's control. These factors include
prevailing economic, financial, competitive and regulatory conditions and
other factors affecting the Company's business and operations, including the
Company's ability to complete the roll-out of its networks on a timely and
cost-effective basis. There can be no assurance that the Company will have
adequate sources of liquidity to make required payments of principal and
interest on its indebtedness (including the Notes), whether at or prior to
maturity, finance anticipated capital expenditures and fund working capital
requirements. If the Company does not have sufficient available resources to
repay its outstanding indebtedness when it becomes due and payable, the
Company may find it necessary to refinance such indebtedness, and there can be
no assurance that refinancing will be available, or available on reasonable
terms. If the Company were unable to obtain adequate financing or refinancing
on satisfactory terms, it would have to consider various other options such as
the sale of certain assets or additional equity to meet its debt service
requirements or other options available to it under law.
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
19
<PAGE>
the covenants and other terms of its debt instruments or otherwise; (iii) the
Company is substantially more leveraged than certain of its competitors, which
may place the Company at a competitive disadvantage; (iv) the Company's high
degree of leverage may limit its ability to expand capacity and otherwise meet
its growth objectives; and (v) the Company's high degree of leverage may
hinder its ability to adjust rapidly to changing market conditions and could
make it more vulnerable in the event of a downturn in general economic
conditions or its business.
DEPENDENCE ON KEY PERSONNEL
The success of the Company depends, in large part, upon the continuing
contributions of its key technical, marketing, sales and management personnel.
The loss of the services of several key people within a short period of time
could have a material adverse effect upon the business, financial condition
and results of operations of the Company. The Company's future success is also
dependent upon its continuing ability to attract and retain other highly
qualified personnel. Competition for such personnel is intense, and the
Company's inability to attract and retain additional key employees could have
a material adverse effect on the Company's business, financial condition and
results of operations. There can be no assurance that such key personnel will
continue to be employed by the Company or that the Company will be able to
attract and retain qualified personnel in the future. See "Management."
MANAGEMENT OF GROWTH
The Company's business plan will, if successfully implemented, result in
rapid expansion of its operations and the provision of broadband wireless
local loop services on a widespread basis. Rapid expansion of the Company's
operations may place a significant strain on the Company's management,
financial and other resources. The Company's ability to manage future growth,
should it occur, will depend upon its ability to monitor operations, control
costs, maintain regulatory compliance, maintain effective quality controls and
significantly expand the Company's internal management, technical, information
and accounting systems and to attract, assimilate and retain additional
qualified personnel. See "--Dependence on Key Personnel." Furthermore, as the
Company's business develops and expands, the Company will need additional
facilities for its growing work force. There can be no assurance that the
Company will successfully implement and maintain such operational and
financial systems or successfully obtain, integrate and utilize the employees
and management, operational and financial resources necessary to manage a
developing and expanding business in an evolving, highly regulated and
increasingly competitive industry. Any failure to expand these areas and to
implement and improve such systems, procedures and controls in an efficient
manner at a pace consistent with the growth of the Company's business could
have a material adverse effect on the business, financial condition and
results of operations of the Company and the ability of the Company to make
principal and interest payments on its indebtedness, including the Notes.
If the Company were unable to hire staff, expand such facilities, retain
labor, purchase adequate supplies of transmission or base station equipment,
increase the capacity of its information systems and/or successfully manage
and integrate such additional resources, customers could experience delays in
connection of service and/or lower levels of customer service. Failure by the
Company to meet the demands of customers and to manage the expansion of its
business and operations could have a material adverse effect on the Company's
business, financial condition and results of operations.
LACK OF DEPLOYMENT; RELIANCE ON EQUIPMENT SUPPLIERS
Although fixed wireless point-to-point technology has been in use for a
significant period of time, two-way point-to-multipoint technology has only
been deployed on a limited basis. Teligent has deployed a point-to-multipoint
system in Richardson, Texas on a trial basis and in March 1998 successfully
completed the first telephone call made in the United States over a
commercially installed point-to-multipoint digital wireless network located in
Los Angeles. 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-
20
<PAGE>
multipoint technology has not been fully 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 recently has begun to market its integrated package of 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 has obtained financing, in each
case based upon certain expectations as to the anticipated market acceptance
of, and customer demand for, the Company's services in the market. Lack of
acceptance of the Company's services in the market would have a material
adverse effect on the Company's business, financial condition and results of
operations. See "--Significant Capital Requirements" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
DISTANCE AND WEATHER LIMITATIONS; LINE OF SIGHT; BUILDING ACCESS.
Wireless broadband services require a direct line of sight between two
antennas comprising a link and are subject to distance and rain attenuation.
The Company expects that its average coverage radius of a base station will be
approximately three miles (five kilometers), depending on local conditions,
and it is expected that the Company's base stations will utilize power control
to increase signal strength and mitigate the effects of rain
21
<PAGE>
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 typically on the rooftops of buildings. 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 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.
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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. The FCC could decide this relocation
issue in the same way or make another ruling, which may be adverse to the
Company. 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. 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
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share in any of the areas where it offers its services or intends to offer
services, nor does it expect to do so in the near future given the size of the
local telecommunications market, the intense competition therein and the
diversity of customer requirements. In each market area in which the Company
is authorized to provide services, the Company competes or will compete with
several other service providers and technologies. Many of the Company's
competitors have long-standing relationships with customers and suppliers in
their respective industries, greater name recognition and significantly
greater financial, technical and marketing resources than the Company. The
Company expects to compete on the basis of local service features, quality,
price, reliability, customer service and rapid response to customer needs
while bundling local, resold long distance and Internet services. The Company
faces significant competition from ILECs, such as the Regional Bell Operating
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 ILEC's 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 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
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 conducted auctions 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 adopted rules to auction geographical wide
area licenses for the operation of fixed wireless point-to-point and point-to-
multipoint communications services in the 38 GHz band, although many 38 GHz
licenses have already been issued nationwide. The 28 GHz LMDS auction
concluded in March 1998 and the 38 GHz auction is expected to occur later in
1998. The Company initially filed an application for and participated in the
early rounds of the LMDS auction, but withdrew from the auction without
acquiring any licenses or payment liabilities.
The FCC has adopted rules to auction geographical area wide licenses for the
operation of fixed wireless point-to-point and point-to-multipoint
communications services in the 38 GHz band, although many 38 GHz licenses have
already been issued nationwide. The 38 GHz auction is expected to occur later
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
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have only a limited capability to provide two-way communications needed for
wireless broadband telecommunications services, but there can be no assurance
that this will continue to be the case. The FCC has initiated a proceeding to
determine whether to provide wireless cable operators with greater technical
flexibility to offer two-way services. Cellular, PCS and other mobile service
providers may also offer fixed services over their licensed frequencies.
Finally, the FCC has allocated a number of spectrum blocks for use by wireless
devices that do not require site or network licensing. A number of vendors
have developed such devices that may provide competition to the Company, in
particular for certain low data rate transmission services. See "Business--
Competition in the Telecommunications Industry."
The Company will also face both local and long distance competition from
AT&T and other IXCs. The Company may face competition from electric utilities
(several of whom have secured the necessary authorizations and have begun to
provide local telephone service) ILECs operating outside their current local
service areas, other IXCs such as WorldCom (which is seeking to acquire MCI)
and Sprint (which has significant investment from 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
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 depends 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 February 1, 2001. While FCC custom and practice
establishes a presumption in favor of 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 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
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qualifications of the transferee and requires prior FCC approval (and in some
instances state regulatory approval as it relates to the provision of
telecommunications services in that state), thereby possibly diminishing the
value of the licenses.
RESTRICTIONS ON FOREIGN OWNERSHIP
Under the Communications Act, the FCC may, if it finds the public interest
will be served, refuse to grant common carrier licenses to (or may revoke the
licenses of) an entity directly or indirectly controlled by non-U.S. citizens
or by a corporation, the capital stock of which is more than 25% owned or
voted by non-U.S. citizens or companies. The Communications Act also prohibits
any entity, more than 20% of whose capital stock is owned or voted by non-U.S.
citizens or companies, from receiving a license for common carrier services.
Since February 9, 1998, the FCC rules have provided for 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 World Trade Organization General Agreement on Trade
in Services ("WTO Agreement") serves the public interest. The 20% restriction
on direct foreign ownership still applies. The Company believes that foreign
ownership of its Common Stock complies with the Communications Act. However, a
significant amount of the Company's and 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 1.265 million shares of Class A Common Stock
offered outside the United States and Canada and a nominal number of shares of
Class A Common Stock offered in the United States and Canada, were sold to
non-U.S. citizens or companies), is 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.
Pursuant to the Company's Certificate 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 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 has the right, and
would 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 has the right, and would 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
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based on the Company's then public trading value. See "Certain Relationships
and Related Transactions--Stockholders Agreement."
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 interconnection and certain 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
telecommunications markets. For example, the Telecommunications Act will
permit the RBOCs eventually to compete 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 ILECs in over 30 markets in twelve states and the District of
Columbia. In addition, it is currently negotiating comprehensive
interconnection agreements with ILECs in 13 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, numerous IXCs and various
other parties filed petitions for certiorari with the U.S. Supreme Court,
which accepted the case for review on January 26, 1998. The Supreme Court is
not expected to issue a decision before the end of 1998. Some of the same
parties and certain other parties also have asked the FCC to reconsider these
and other regulations implementing the Telecommunications Act. On January 22,
1998, the Eighth Circuit Court of Appeals ruled that the FCC cannot apply its
local competition pricing rules in reviewing applications of the RBOCs for
authorization to provide long distance service that originates and certain
long distance services that terminate in one of their in-region states. If
upheld, this decision could make it somewhat easier for the RBOCs to enter the
market for in-region long distance services. Although the
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Company believes that the final outcome of the Eighth Circuit cases, 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."
On December 31, 1997, a United States District Court judge in Texas held
unconstitutional certain sections of the Telecommunications Act, including
Section 271, which prohibits an RBOC from providing long distance service that
originates (or in certain cases terminates) in one of its in-region states
until the RBOC has satisfied certain statutory conditions in that state and
has received the approval of the FCC. This decision would permit the three
RBOCs that are parties to the case immediately to begin offering widespread
in-region long-distance services. Unless overturned on appeal, this decision
could have a material adverse effect on the Company. The District Court has
granted the request of the FCC and certain IXCs for a stay, and the FCC and
certain IXCs filed appeals of the decision with the United States Court of
Appeals for the Fifth Circuit. Although there can be no assurance as to the
outcome of this litigation, the Company believes that significant parts of the
District Court decision may be reversed or vacated on appeal. A recent D.C.
Circuit Court decision, in a separate case, held against a RBOC advocating a
position similar to that espoused by the Texas District Court.
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 universal service, 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. On December 12,
1997, the Company accepted under protest a franchise with the City of Dallas
which is similar to other Dallas franchises agreed to by other CLECs. On the
same date, the Company filed a Complaint for Declaratory Judgment against the
City of Dallas in the United States District Court for the Northern District
of Texas alleging that the Company does not own, construct, install, maintain
or use facilities located in public rights of way, and that the City of Dallas
is therefore prohibited both by federal and state law from barring the
Company's competitive entry into the Dallas market unless the Company first
accepts a franchise. In an order dated July 4, 1998, the Court granted
Teligent's motion for a preliminary injunction barring Dallas from applying
its franchise requirements to Teligent, concluding that Dallas had overstepped
the limits of its regulatory authority under federal and state law because
Teligent does not "use" any of the City's rights-of-way. The Company can give
no assurance as to the final outcome of such litigation or whether it would
have a material adverse effect on the Company. See "Regulation." No assurance
can be given that any regulation, litigation or proceeding will broaden the
opportunities available to the Company or will not have a material adverse
effect on the Company's business, financial condition and results of
operations. Further, there can be no assurance that the Company will be able
to 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
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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
Associated owns approximately 41.4% of the Company's outstanding Common
Stock and, pursuant to the Company's Certificate of Incorporation, currently
has 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, is currently 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."
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."
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 Accreted Value (as defined herein) thereof on any
Change of Control Payment Date (as defined herein) occurring prior to March 1,
2003, 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 at maturity thereof on any Change of Control Payment Date
occurring on or after March 1, 2003, 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 Indenture. See "Description of the
Notes--Change of Control."
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INVESTMENT COMPANY ACT CONSIDERATIONS
After giving effect to the Additional Sponsor Equity Contributions, the
Strategic Equity Investment, the Old Notes Offering and the Offerings, the
Company had substantial cash, cash equivalents and short-term investments. The
Company has invested the proceeds of the Offerings together with the proceeds
from the issuance of the Old Notes so as to preserve capital (for use in its
buildout) by investing 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." 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.
RESTRICTIONS ON RESALE; ABSENCE OF PUBLIC MARKET FOR THE NOTES; VOLATILITY
The New Notes are being offered to the Holders of the Old Notes. The Old
Notes were issued on February 20, 1998 to a small number of institutional
investors and are eligible for trading in the Private Offering, Resale and
Trading through Automated Linkages (PORTAL) Market, the National Association
of Securities Dealers' screen based, automated market for trading of
securities eligible for resale under Rule 144A. To the extent that Old Notes
are tendered and accepted in the Exchange Offer, the trading market for the
remaining untendered Old Notes could be adversely affected. There is no
existing trading market for the New Notes, and there can be no assurance
regarding the future development of a market for the New Notes, or the ability
of Holders of the New Notes to sell their New Notes or the price at which such
Holders may be able to sell their New Notes. If such a market were to develop,
the New Notes could trade at prices that may be higher or lower than the
initial offering price of the Old Notes depending on many factors, including
prevailing interest rates, the Company's operating results and the market for
similar securities. Although the Initial Purchasers have informed Teligent
that they currently intend to make a market in the New Notes, they are not
obligated to do so, and any such market making may be discontinued at any time
without notice. Accordingly, there can be no assurance as to the development
or liquidity of any market for the Notes. Teligent does not intend to apply
for listing of the New Notes on any securities exchange or for quotation
through the National Association of Securities Dealers Automated Quotation
System. See "Exchange Offer; Registration Rights" and "Plan of Distribution."
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.
ORIGINAL ISSUE DISCOUNT
The Old Notes were issued with original issue discount ("Original Issue
Discount") for United States federal income tax purposes. Since a New Note
received pursuant to the Exchange Offer will be treated as a continuation of
the Old Note in the hands of a holder, the holder of the New Note will be
required to continue 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."
30
<PAGE>
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the New
Notes offered hereby. In consideration for issuing the New Notes as
contemplated herein, the Company will receive in exchange Old Notes in like
principal amount. The Old Notes surrendered in exchange for the New Notes will
be retired and cancelled and cannot be reissued. Accordingly, issuance of the
New Notes will not result in any change in the indebtedness of the Company.
The net proceeds to the Company from the Old Notes Offering were
approximately $243.1 million after deducting estimated discounts and offering
expenses.
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<PAGE>
SELECTED FINANCIAL DATA
The following summary financial data presented below as of December 31, 1996
and 1997 and for the year ended December 31, 1997 was derived from the
Company's audited financial statements. The summary financial data presented
below as of March 31, 1997 and 1998 and for three months ended March 31, 1997
and 1998 and for the period from March 5, 1996 (date of inception) to March
31, 1998 has been derived from unaudited financial statements which, in the
opinion of management, have been prepared on the same basis as the audited
financial statements and include all adjustments, consisting of only normal
recurring adjustments necessary for a fair presentation of the financial
position and results of operations for such periods. Operating results for the
three months ended March 31, 1997 and 1998, and for the period March 5, 1996
(date of inception) to March 31, 1998 are not necessarily indicative of the
results that may be expected for the full year. The following financial data
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Company's financial
statements and the related notes thereto, contained elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
MARCH 5, 1996 THREE MONTHS ENDED MARCH 5, 1996
(DATE OF INCEPTION) YEAR ENDED MARCH 31, (DATE OF INCEPTION)
TO DECEMBER 31, DECEMBER 31, ------------------------ TO MARCH 31,
1996 1997 1997 1998 1998
------------------- ------------ ----------- ----------- -------------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $ 1,386 $ 3,311 $ 635 $ 98 $ 4,795
Costs and expenses:
Cost of services........ 1,625 4,785 547 7,391 13,801
Sales, general and ad-
ministrative........... 9,583 43,466 4,556 19,229 72,277
Stock-based
compensation........... 2,778 84,043 2,084 6,630 93,451
Depreciation and
amortization........... 164 6,454 87 1,573 8,191
----------- ----------- ----------- ----------- -----------
Total costs and ex-
penses................. 14,150 138,748 7,274 34,823 187,720
----------- ----------- ----------- ----------- -----------
Operating loss.......... (12,764) (135,437) (6,639) (34,725) (182,925)
Interest and other in-
come................... 10 3,242 3 8,096 11,348
Interest expense........ (879) (5,859) (127) (11,929) (18,668)
----------- ----------- ----------- ----------- -----------
Net loss................ $ (13,633) $ (138,054) $ (6,763) $ (38,558) $ (190,245)
=========== =========== =========== =========== ===========
OTHER DATA:
Net loss per common
share outstanding...... $ (0.29) $ (2.94) $ (0.15) $ (0.73) $ (4.02)
Weighted average common
shares outstanding..... 46,257,709 46,950,860 44,426,299 52,585,382 47,347,100
Modified EBITDA (1)..... $ (8,822) $ (41,940) $ (3,718) $ (25,772) $ (76,533)
Cash used in operating
activities............. (6,047) (34,428) (4,513) (20,190) (59,496)
Cash used in investing
activities............. (3,709) (114,587) (6,958) (10,968) (130,432)
Cash provided by financ-
ing activities......... 11,058 572,613 11,500 243,190 826,861
Ratio of earnings to
fixed charges (2)...... -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
---------------- -----------------
1996 1997 1997 1998
------ -------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................... $1,303 $424,901 $ 1,331 $636,933
Working capital (deficit)................... (6,978) 441,316 (19,682) 607,840
Property and equipment, net................. 3,545 8,186 4,846 58,019
Total assets................................ 5,145 596,380 12,398 867,621
Long-term debt, less current portion........ -- 300,000 -- 553,650
Stockholders' equity (deficit).............. (3,575) 274,146 (9,588) 243,013
</TABLE>
- --------
(1) Modified EBITDA consists of earnings before interest, taxes, depreciation,
amortization, non-cash charges for stock-based compensation and for the
amortization of notes receivable from Executive. While not a measure under
generally accepted accounting principles ("GAAP"), EBITDA (earnings before
interest, taxes, depreciation and amortization) is a measure commonly used
in the telecommunications industry and is presented to assist in
understanding the Company's operating results. Although EBITDA should not
be construed as a substitute for operating income determined in accordance
with GAAP, 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 and the notes thereto.
(2) 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 year
ended December 31, 1997, the three months ended March 31, 1997 and 1998,
and the period March 5, 1996 (date of inception) to March 31, 1998,
earnings were insufficient to cover fixed charges by $13.6 million, $138.1
million, $6.8 million, $38.6 million and $190.2 million, respectively.
32
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF
OPERATIONS
Except for any historical information contained herein, the matters
discussed in this Prospectus contain certain "forward-looking statements"
within the meaning of Section 21E of the Securities Exchange Act of 1934, as
amended. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors including, but not limited to, economic, key
employee, competitive, regulatory, governmental and technological factors
affecting the Company's growth, operations, markets, products, services,
licenses and other factors discussed in the Company's other filings with the
Securities and Exchange Commission. These factors 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.
GENERAL
The following discussion and analysis is based upon the financial statements
of the Company from its inception on March 5, 1996 to December 31, 1997 and
1996, and for the three months ended March 31, 1998 and 1997, and should be
read in conjunction with the Financial Statements and notes thereto contained
elsewhere in this Prospectus. 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 principally 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 establishment of necessary facilities,
including a network operations center, corporate headquarters and various
field offices and switch sites, the raising of capital, the acquisition of
equipment, the development of operating systems, the negotiation of
interconnection agreements, the design of networks, the testing and the
preparation for the use of switches, and securing necessary telephone numbers,
service agreements and 911 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
33
<PAGE>
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
The Company's primary activities to date have focused on the acquisition of
licenses and authorizations, the acquisition of building access rights, the
hiring of management and other key personnel, the establishment of necessary
facilities, including a network operations center, corporate headquarters and
various field offices and switch sites, the raising of capital, the
acquisition of equipment, the development of operating systems, the
negotiating of interconnection agreements, the design of the networks, the
testing and the preparation for use of switches, and securing necessary
equipment, telephone numbers, service agreements and 911 agreements. The
Company's ability to provide commercial service on a widespread basis and to
generate revenues and 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 an implement interconnection agreements with ILECs.
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, or compete successfully
in the telecommunications industry.
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 locations). 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.
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 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 generally 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.
34
<PAGE>
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. To the extent the
Company sells long distance service and Internet service to some customers
without providing local service to such customers, churn may be higher than
when the Company offers local service as part of the currently available
package of services.
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 rooftop lease costs associated
with providing service to customers, 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 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 may decide to sell
services that it can provide through others' facilities, such as long distance
and Internet, in order to establish a relationship with customers. Then, once
a relationship is obtained, such customers may assist the Company in securing
building access with building owners and managers so the Company can provide
local service as well, all on one bill. Teligent is actively exploring
alternative approaches to building access.
Base Station Sites. Base station sites will be located primarily on
rooftops of existing buildings. 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
35
<PAGE>
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 wireless microwave links as well as hybrid fiber optic transmission
facilities, where appropriate. 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. To the extent that customers buy
long distance service from Teligent, but not local service, Teligent will not
earn access charges.
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 and
operating costs 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.
The success of the Company depends, in large part, upon the continuing
contributions of its key technical, marketing, sales and management personnel.
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
36
<PAGE>
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.
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.
Stock-based Compensation. The Company granted Company Appreciation Rights
("CARs") to Alex Mandl and Appreciation Units to employees and directors
(collectively "Equity Awards"). See "Management--Company Appreciation Rights;
Long-Term Incentive Compensation Plan Awards and Conversion of CARs and
Appreciation Units into Stock Options." See note 4 to the Financial Statements
for the year ended December 31, 1997. These Equity Awards were considered to
be variable awards due to certain provisions thereof, and therefore gave rise
to compensation expense. In connection with the Offerings, the Equity Awards
were converted, effective as of the consummation of the Offerings, into stock
options of Teligent, Inc. having the same vesting schedule, vesting rights and
term as the applicable Equity Award converted. This conversion created a
measurement date whereby the variable Equity Awards were converted to
nonvariable stock options. The intrinsic value of the Equity Awards upon
conversion to stock options resulted in non-cash stock-based compensation
expense of $186.3 million, of which $84.0 million, $2.8 million and $6.1
million were recorded in 1997, the period March 5, 1996 (date of inception) to
December 31, 1996 and the three months ended March 31, 1998, respectively, and
additional non-cash stock-based compensation expense of up to $99.5 million
relating to the Equity Awards will be expensed over the remaining vesting
period of the options as follows: $25.2 million per year through 2000, $21.4
million in 2001, and $2.5 million in 2002.
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 the life of the asset or the
lease term for leasehold improvements. FCC licenses are amortized over fifteen
years.
The Company uses certain property and equipment to provide service to
customers on an 18 GHz frequency. However, the Company's future business plans
are to deploy a 24 GHz frequency network in its capacity as a
telecommunications provider. As such, the Company has recorded, as a component
of depreciation expense in 1997, an impairment loss of $5.0 million, which
represents the difference between the net book value of the assets prior to
the impairment loss and the estimated future cash flows to be derived by the
assets.
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
37
<PAGE>
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
thereafter will be able to add increased switching capacity by adding more
ports to each existing switch. Accordingly, the cost structure for switches is
expected to have both a fixed and variable cost component.
BUSINESS DEVELOPMENT, CAPITAL EXPENDITURES AND ACQUISITIONS
From inception through March 31, 1998, expenditures for property and
equipment total $64.2 million including $40.9 million of accrued capital
expenditures. 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 March 31, 1998 of approximately $190.2 million.
This amount includes $93.4 million of non-cash stock-based compensation,
consisting primarily of expenses associated with the Equity Awards. In October
1997, the Company consummated its acquisition of FirstMark, 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 approximately $42 million which consisted of $10.5 million in
cash and a 5% member interest in the predecessor to the Company, Teligent,
L.L.C (which such member interest was subsequently converted to 1,831,410
shares of Class A Common Stock in the Company as a result of the Merger.) 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.
YEAR 2000
While the Year 2000 considerations are not expected to materially impact the
Company's internal operations, they may have an effect on some of the
Company's customers and suppliers, and thus indirectly affect the Company. It
is not possible to quantify the aggregate cost to the Company with respect to
customers and suppliers with Year 2000 problems, although the Company does not
anticipate it will have a material adverse impact on its business.
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<PAGE>
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 principally 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. During the fourth quarter, the fixed wireless licenses
previously owned by MSI and DSC were contributed to the Company, and the
management service arrangements related to these licenses ended. During the
first quarter of 1998, the Company continued to focus on the acquisition of
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.
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO MARCH 31, 1997
The Company generated revenue from communications services of approximately
$0.1 million for the three months ended March 31, 1998. During the three
months ended March 31, 1997, the Company generated revenue of $0.6 million for
management and other services under arrangements that ended during 1997.
During the three months ended March 31, 1998, the Company continued to grow
and develop its infrastructure resulting in an overall increase in its
operating expenses as compared with the three months ended March 31, 1997.
Operating expenses for the three months ended March 31, 1998, were
approximately $34.8 million relating primarily to the commencement of
operations. Operating expenses included $7.4 million of cost of services,
primarily consisting of headcount related costs and site rent and acquisition
expenses related to network operations, $19.2 million of sales, general and
administrative expenses, primarily consisting of headcount related costs, and
$6.6 million of noncash expense associated with stock-based compensation.
Depreciation and amortization for the three months ended March 31, 1998 was
$1.6 million due to higher capital expenditures and amortization of
intangibles acquired in the fourth quarter of 1997. Interest expense for the
three months ended March 31, 1998 was $11.9 million, which comprised of
interest on the 11 1/2% Senior Notes issued in November 1997, and the Old
Notes issued in February 1998. Interest and other income for the three months
ended March 31, 1998, was $8.1 million, primarily as a result of interest
earned on cash and investments. The Company expects to generate significant
operating and net losses for the next several years.
For the three months ended March 31, 1997, the Company incurred operating
expenses of approximately $7.3 million, including $0.5 million relating to the
cost of services and $4.6 million of sales, general and administrative
expenses, and $2.1 million of non-cash expense associated with stock-based
compensation. Interest expense for the three months ended March 31, 1997 was
$0.1 million.
TWELVE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO THE PERIOD MARCH 5, 1996
(DATE OF INCEPTION) TO DECEMBER 31, 1996
For the twelve months ended December 31, 1997, the Company generated
revenues of approximately $3.3 million, including $2.7 million of management
and other services primarily provided to MSI and DSC, and $0.6 million from
equipment leases.
For the period March 5, 1996 (inception) to December 31, 1996, the Company
generated revenues of $1.4 million, including $1.2 million of management and
other services primarily provided to MSI and DSC, and $0.2 million from
equipment leases.
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For the year ended December 31, 1997, the Company incurred operating
expenses (other than interest expense) of approximately $138.7 million,
including $4.8 million relating to the cost of services, $43.5 million of
sales, general and administrative expenses, primarily due to payroll and
consulting costs relating to the commencement of operations of the Company,
and $84.0 million of non-cash expense associated with the Equity Awards.
Interest expense for 1997 was $5.9 million, due to borrowings under a
Revolving Credit Agreement (terminated in November 1997) and a $300 million
public debt offering which occurred in November 1997. Interest and other
income for 1997 was $3.2 million, primarily as a result of interest earned on
cash and investments. Depreciation and amortization for 1997 was $6.5 million
due to higher capital expenditures, an impairment loss included in
depreciation of $5.0 million and amortization of intangibles acquired in the
year.
For the period March 5, 1996 (inception) to December 31, 1996, the Company
incurred operating expenses (other than interest expense) of approximately
$14.1 million, including $1.6 million relating to the cost of 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 the Equity
Awards. Interest expense for the period ending December 31, 1996 was $0.9
million, primarily due to the loan structuring fee for a certain Revolving
Credit Agreement, which such Revolving Credit Agreement was subsequently
terminated by the Company in November 1997. The Company expects to generate
significant operating and net losses for the next several years.
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 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 and information systems, platforms
and interfaces. 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.
Depending on technical, economic and market considerations, the Company may
have the opportunity to accelerate the launch of commercial service on its
digital wireless communications networks earlier than previously planned.
Based on the Company's current business plan to offer its integrated package
of services in at least 10 market areas by the end of 1998, 30 by the end of
1999, and subsequently in all of its 74 currently licensed market areas, the
Company anticipates its existing cash balances, and funds available under the
Bank Credit Agreement and proceeds from its Old Notes Offering, will be
sufficient to fund the Company's capital requirements through December 2000.
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. If the Company accelerates
implementation of its network roll-out, the Company may be required to obtain
additional financing earlier than anticipated.
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
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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, the
acceptance of the Company's services and the development of new products.
INITIAL PUBLIC COMMON STOCK OFFERING
In November 1997, the Company completed an initial public offering of
6,325,000 shares of Class A Common Stock at $21.50 per share, raising
approximately $125.7 million of net proceeds, after deducting approximately
$10.3 million of offering expenses.
PUBLIC DEBT OFFERING
In November 1997, the Company issued $300 million of 11 1/2% Senior Notes
due 2007. The Company used approximately $93.9 million of the net proceeds of
this offering to purchase a portfolio of U.S. Treasury securities which are
classified as restricted cash and investments on the balance sheet, and have
been pledged as collateral for the payment of interest on the Senior Notes
through December 1, 2000. Interest on the Senior Notes accrues at a rate of 11
1/2% per annum and is payable semi-annually on June 1 and December 1,
commencing June 1, 1998.
SENIOR DISCOUNT NOTES OFFERING
On February 20, 1998, the Company completed an offering (the "Old Notes
Offering") of $440 million 11 1/2% Senior Discount Notes due 2008 (the "Old
Notes"). The Old Notes carry zero-coupon interest until March 1, 2003, after
which the Old Notes pay interest at 11 1/2% per annum payable March 1 and
September 1, through March 1, 2008. The Company received approximately $243.1
million net proceeds from the Old Offering, after deductions for offering
expenses of approximately $7.6 million.
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 the Network Products Purchase Agreement with
Nortel for the purchase of certain telecommunications system equipment,
software and services (collectively, the "Deliverables"). The Company has also
entered into a commitment letter with Nortel (as modified to date, the
"Financing Commitment Letter") setting forth the anticipated terms and
conditions under which Nortel was to provide loans in an aggregate amount of
up to $780 million (the "Nortel Financing") which was intended to be used to
finance the purchase of the Deliverables and to provide working capital.
On July 2, 1998, the Company entered into the Credit Agreement dated as of
July 2, 1998 (the "Bank Credit Agreement") with (i) the lenders from time to
time parties thereto (the "Lenders"), (ii) Chase Securities Inc., Goldman
Sachs Credit Partners L.P ("Goldman Sachs") and TD Securities (USA) Inc., as
Arrangers, (iii) Goldman Sachs, as Syndication Agent, (iv) Toronto Dominion
(Texas), Inc., as Documentation Agent, and (v) The Chase Manhattan Bank, as
Administrative Agent. Under the Bank Credit Agreement, the Lenders have
provided to the Company credit facilities up to an aggregate principal amount
of $800 million (the "Credit Facilities") for working capital and general
corporate purposes, including, without limitation, the acquisition of
telecommunications equipment, software and services. The Lenders will make
$780 million of the Credit Facilities available to Teligent on behalf of
Nortel in lieu of the Nortel Financing, which Credit Facilities constitute
"Vendor Financing" under the indentures to which the Senior Notes and Senior
Discount Notes were issued (the "Indentures"), and the remaining $20 million
of the Credit Facilities available to Teligent as "Telecommunications Assets
Debt" in accordance with the terms of the Indentures. Availability of the
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Credit Facilities under the Bank Credit Agreement is subject to the conditions
that the representations and warranties under the Bank Credit Agreement and
related documents shall be true and correct and no default or event of default
under the Bank Credit Agreement shall have occurred and be continuing. In
addition, the Company must meet certain operational tests before the full
amount of the Credit Facilities is available to the Company. The Company's
obligations under the Bank Credit Agreement are guaranteed by substantially
all of its domestic subsidiaries and are secured by substantially all of the
assets of the Company and such subsidiaries. See "Description of Certain
Indebtedness."
HISTORICAL CASH FLOWS
To develop its networks, the Company has relied upon several sources for its
cash flow. The Company received cumulative cash contributions of approximately
$70.4 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. The Company used $42.5 million of the Additional Sponsor Cash
Contributions to repay the outstanding balance of the Revolving Credit
Agreement. In November 1997, the Company received net proceeds of cash
contributions totaling $99.0 million (net of transaction expenses) from NTT
pursuant to a Securities Purchase Agreement, and the Company received an
additional $414.3 million of net proceeds from its public debt and equity
offerings. The Company used $93.9 million of the net proceeds from the debt
offering to purchase a portfolio of U.S. Treasury Securities, pledged as
collateral for the payment of interest on the Senior Notes through December 1,
2000.
From inception through March 31, 1998, the Company used $59.5 million of
cash in its operating activities and $130.4 million of cash in its investing
activities. At March 31, 1998, the Company had working capital of $607.8
million and cash (including cash equivalents) of $636.9 million, as compared
to working capital of $441.3 million and cash of $424.9 million at December
31, 1997. The increase in working capital from December 31, 1997 to March 31,
1998 is primarily the result of proceeds from the Old Notes Offering. 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."
The Company's total assets increased from $596.4 million at December 31,
1997 to $867.6 million at March 31, 1998. Property and equipment, net of
accumulated depreciation, was $8.2 million at December 31, 1997, and $58.0
million at March 31, 1998.
For the year ended December 31, 1997 and the three months ended March 31,
1998, the Company used cash in operations of $34.4 million and $20.2 million
respectively, consisting primarily of the operating loss for the periods
offset by non-cash stock-based compensation and current liabilities at the end
of each period.
For the year ended December 31, 1997, the Company used $114.6 million in
investing activities, consisting primarily of $10.0 million relating to the
purchase of property and equipment, $10.5 million of payments relating to the
acquisition of FirstMark and $93.9 million related to the purchase of U.S.
Treasury securities which are pledged as collateral for the payment of
interest on the Senior Notes through December 1, 2000. For the three months
ended March 31, 1998, the Company used cash in investing activities of $11.0
million, including $9.6 million for the purchase of property and equipment.
The Company also accrued capital expenditures of $40.9 million which are not
included in cash used in investing activities.
Cash flows provided by financing activities for the year ended December 31,
1997 were $572.6 million, consisting primarily of $160.3 million of capital
contributions from MSI, DSC and NTT, and $414.3 million of net proceeds from
the Equity Offering and the offering of the Senior Notes, after costs of $21.7
million. The Company's cash flows provided by financing activities for the
three months ended March 31, 1998 were $243.2 million, consisting primarily of
net proceeds from the Old Notes Offering.
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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THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal (which together constitute the
Exchange Offer), Teligent will accept for exchange Old Notes which are
properly tendered on or prior to the Expiration Date and not withdrawn as
permitted below. As used herein, the term "Expiration Date" means 5:00 p.m.,
New York City time, on August 13, 1998; provided, however, that if Teligent,
in its sole discretion, has extended the period of time for which the Exchange
Offer is open, the term "Expiration Date" means the latest time and date to
which the Exchange Offer is extended.
As of the date of this Prospectus, $440 million aggregate principal amount
at maturity of the Old Notes is outstanding. This Prospectus, together with
the Letter of Transmittal, is first being sent on or about July 15, 1998, to
all Holders of Old Notes known to Teligent. Teligent's obligation to accept
Old Notes for exchange pursuant to the Exchange Offer is subject to certain
conditions as set forth under "--Conditions of the Exchange Offer" below.
Teligent expressly reserves the right, at any time or from time to time, to
extend the period of time during which the Exchange Offer is open, and thereby
delay acceptance for exchange of any Old Notes, by giving oral or written
notice of such extension to the Holders thereof as described below. During any
such extension, all Old Notes previously tendered will remain subject to the
Exchange Offer and may be accepted for exchange by Teligent. Any Old Notes not
accepted for exchange for any reason will be returned without expense to the
tendering Holder thereof as promptly as practicable after the expiration or
termination of the Exchange Offer.
Old Notes tendered in the Exchange Offer must be in denominations of
principal amount at maturity of $1,000 and any integral multiple thereof.
Teligent expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Old Notes not theretofore accepted
for exchange, upon the occurrence of any of the conditions of the Exchange
Offer specified below under "--Conditions of the Exchange Offer." Teligent
will give oral or written notice of any extension, amendment, non-acceptance
or termination to the Holders of the Old Notes as promptly as practicable,
such notice in the case of any extension to be issued by means of a press
release or other public announcement no later than 9:00 a.m., New York City
time, on the next business day after the previously scheduled Expiration Date.
PROCEDURES FOR TENDERING OLD NOTES
The tender to Teligent of Old Notes by a Holder thereof as set forth below
and acceptance thereof by Teligent will constitute a binding agreement between
the tendering Holder and Teligent upon the terms and subject to the conditions
set forth in this Prospectus and in the accompanying Letter of Transmittal.
Except as set forth below, a Holder who wishes to tender Old Notes for
exchange pursuant to the Exchange Offer must transmit a properly completed and
duly executed Letter of Transmittal, including all other documents required by
such Letter of Transmittal, to First Union National Bank (the "Exchange
Agent") at the address set forth below under "Exchange Agent" on or prior to
the Expiration Date. In addition, either (i) certificates for such Old Notes
must be received by the Exchange Agent along with the Letter of Transmittal,
or (ii) a timely confirmation of book-entry transfer (a "Book-Entry
Confirmation") of such Old Notes, if such procedure is available, into the
Exchange Agent's account at The Depository Trust Company (the "Book-Entry
Transfer Facility") pursuant to the procedure for book-entry transfer
described below, must be received by the Exchange Agent prior to the
Expiration Date, or (iii) the Holder must comply with the guaranteed delivery
procedures described below. THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF
TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF
THE HOLDERS. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED
MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE
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ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD NOTES
SHOULD BE SENT TO TELIGENT.
Any beneficial owner whose Old Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to
tender should contact the registered Holder promptly and instruct such
registered Holder to tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such owner's own behalf, such owner must,
prior to completing and executing the Letter of Transmittal and delivering
such owner's Old Notes, either make appropriate arrangements to register
ownership of the Old Notes in such owner's name or obtain a properly completed
bond power from the registered Holder. The transfer of registered ownership
may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant thereto are tendered (i) by a registered Holder of the Old Notes who
has not completed the box entitled "Special Issuance Instructions" or "Special
Delivery Instructions" on the Letter of Transmittal or (ii) for the account of
an Eligible Institution (as defined below). In the event that signatures on a
Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantees must be by a firm which is a
financial institution (including most banks, savings and loan associations and
brokerage houses) that is a participant in the Securities Transfer Agents
Medallion Program, the New York Stock Exchange Medallion Signature Program or
the Stock Exchanges Medallion Program (collectively, "Eligible Institutions").
If Old Notes are registered in the name of a person other than a signer of the
Letter of Transmittal, the Old Notes surrendered for exchange must be endorsed
by, or be accompanied by a written instrument or instruments of transfer or
exchange, in satisfactory form as determined by Teligent in its sole
discretion, duly executed by the registered Holder with the signature thereon
guaranteed by an Eligible Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined
by Teligent in its sole discretion, which determination shall be final and
binding. Teligent reserves the absolute right to reject any and all tenders of
any particular Old Notes not properly tendered or to not accept any particular
Old Note which acceptance might, in the judgment of Teligent or its counsel,
be unlawful. Teligent also reserves the absolute right to waive any defects or
irregularities or conditions of the Exchange Offer as to any particular Old
Notes either before or after the Expiration Date (including the right to waive
the ineligibility of any Holder who seeks to tender Old Notes in the Exchange
Offer). The interpretation of the terms and conditions of the Exchange Offer
as to any particular Old Notes either before or after the Expiration Date
(including the Letter of Transmittal and the instructions thereto) by Teligent
shall be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Old Notes for exchange must be
cured within such reasonable period of time as Teligent shall determine.
Neither Teligent, the Exchange Agent nor any other person shall be under any
duty to give notification of any defect or irregularity with respect to any
tender of Old Notes for exchange, nor shall any of them incur any liability
for failure to give such notification.
If the Letter of Transmittal is signed by a person or persons other than the
registered Holder or Holders of Old Notes, such Old Notes must be endorsed or
accompanied by appropriate powers of attorney, in either case signed exactly
as the name or names of the registered Holder or Holders appear on the Old
Notes.
If the Letter of Transmittal or any Old Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
Teligent, proper evidence satisfactory to Teligent of their authority to so
act must be submitted.
By tendering, each Holder will represent to Teligent that, among other
things, the New Notes acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of business of the person receiving such New
Notes, whether or not such person is the Holder, and that neither the Holder
nor such other person has any arrangement or understanding with any person to
participate in the distribution of the New Notes. In the
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case of a Holder that is not a broker-dealer, each such Holder, by tendering,
will also represent to Teligent that such Holder is not engaged in and does
not intend to engage in a distribution of the New Notes. If any Holder or any
such other person is an "affiliate," as defined under Rule 405 of the
Securities Act, of Teligent, or is engaged in or intends to engage in or has
an arrangement or understanding with any person to participate in a
distribution of such New Notes to be acquired pursuant to the Exchange Offer,
such Holder or any such other person (i) could not rely on the applicable
interpretations of the staff of the Commission and (ii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each broker-dealer that receives New
Notes for its own account in exchange for Old Notes, where such Old Notes were
acquired by such broker-dealer as a result of market-making activities or
other trading activities, must acknowledge that it will deliver a prospectus
meeting the requirements of the Securities Act in connection with any resale
of such New Notes. See "Plan of Distribution." The Letter of Transmittal
states that by so acknowledging and by delivering such a prospectus, a broker-
dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
Teligent will accept, promptly after the Expiration Date, all Old Notes
properly tendered and will issue the New Notes promptly after acceptance of
the Old Notes. See "--Conditions of the Exchange Offer" below. For purposes of
the Exchange Offer, Teligent shall be deemed to have accepted properly
tendered Old Notes for exchange when, as and if Teligent has given oral or
written notice thereof to the Exchange Agent, with written confirmation of any
oral notice to be given promptly thereafter.
For each Old Note accepted for exchange, the Holder of such Old Note will
receive a New Note having a principal amount at maturity equal to that of the
surrendered Old Note. Original Issue Discount on the New Notes will accrue
from the date of original issuance of the Old Notes.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes or a timely Book-
Entry Confirmation of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility, a properly completed and duly executed Letter of
Transmittal and all other required documents. If any tendered Old Notes are
not accepted for any reason set forth in the terms and conditions of the
Exchange Offer or if Old Notes are submitted for a greater principal amount
than the Holder desires to exchange, such unaccepted or non-exchanged Old
Notes will be returned without expense to the tendering Holder thereof (or, in
the case of Old Notes tendered by book-entry transfer into the Exchange
Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry
procedures described below, such non-exchanged Old Notes will be credited to
an account maintained with such Book-Entry Transfer Facility) as promptly as
practicable after the expiration or termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Old Notes by causing the
Book-Entry Transfer Facility to transfer such Old Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Old Notes may be effected through book-entry transfer at the Book-
Entry Transfer Facility, the Letter of Transmittal or facsimile thereof, with
any required signature guarantees and any other required documents, must, in
any case, be transmitted to and received by the Exchange Agent at the address
set forth below under "--Exchange Agent" on or prior to the Expiration Date or
the guaranteed delivery procedures described below must be complied with.
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GUARANTEED DELIVERY PROCEDURES
If a registered Holder of the Old Notes desires to tender such Old Notes and
the Old Notes are not immediately available, or time will not permit such
Holder's Old Notes or other required documents to reach the Exchange Agent
before the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if (i) the tender is
made through an Eligible Institution, (ii) prior to the Expiration Date, the
Exchange Agent received from such Eligible Institution a properly completed
and duly executed Letter of Transmittal (or a facsimile thereof) and Notice of
Guaranteed Delivery, substantially in the form provided by Teligent (by
facsimile transmission, mail or hand delivery), setting forth the name and
address of the Holder of Old Notes and the amount of Old Notes tendered,
stating that the tender is being made thereby and guaranteeing that within
three New York Stock Exchange ("NYSE") trading days after the Expiration Date
the certificates for all physically tendered Old Notes, in proper form for
transfer, or a Book-Entry Confirmation, as the case may be, and any other
documents required by the Letter of Transmittal will be deposited by the
Eligible Institution with the Exchange Agent, and (iii) the certificates for
all physically tendered Old Notes, in proper form for transfer, or a Book-
Entry Confirmation, as the case may be, and all other documents required by
the Letter of Transmittal, are received by the Exchange Agent within three
NYSE trading days after the Expiration Date.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New
York City time, on the Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at the address or, in the case of Eligible
Institutions, at the facsimile number, set forth below under "--Exchange
Agent" prior to 5:00 p.m., New York City time, on the Expiration Date. Any
such notice of withdrawal must (i) specify the name of the person having
tendered the Old Notes to be withdrawn (the "Depositor"), (ii) identify the
Notes to be withdrawn (including the certificate number or numbers and
principal amount at maturity of such Old Notes), (iii) contain a statement
that such holder is withdrawing his election to have such Old Notes exchanged,
(iv) be signed by the holder in the same manner as the original signature on
the Letter of Transmittal by which such Old Notes were tendered (including any
required signature guarantees) or be accompanied by documents of transfer to
have the Trustee with respect to the Old Notes register the transfer of such
Old Notes in the name of the person withdrawing the tender and (v) specify the
name in which such Old Notes are registered, if different from that of the
Depositor. If Old Notes have been tendered pursuant to the procedure for book-
entry transfer described above, any notice of withdrawal must specify the name
and number of the account at the Book-Entry Transfer Facility to be credited
with the withdrawn Old Notes and otherwise comply with the procedures of such
facility. All questions as to the validity, form and eligibility (including
time of receipt) of such notices will be determined by Teligent, whose
determination shall be final and binding on all parties. Any Old Notes so
withdrawn will be deemed not to have been validly tendered for exchange for
purposes of the Exchange Offer and no New Notes will be issued with respect
thereto unless the Old Notes so withdrawn are validly retendered. Any Old
Notes that have been tendered for exchange but which are not exchanged for any
reason will be returned to the Holder thereof without cost to such Holder (or,
in the case of Old Notes tendered by book-entry transfer into the Exchange
Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry
transfer procedures described above, such Old Notes will be credited to an
account maintained with the Book-Entry Transfer Facility for the Old Notes) as
soon as practicable after withdrawal, rejection of tender or termination of
the Exchange Offer. Properly withdrawn Old Notes may be retendered by
following the procedures described under "--Procedures for Tendering Old
Notes" above at any time on or prior to 5:00 p.m., New York City time, on the
Expiration Date.
CONDITIONS OF THE EXCHANGE OFFER
The Exchange Offer is not conditioned upon any minimum principal amount at
maturity of the Old Notes being tendered for exchange. However,
notwithstanding any other provisions of the Exchange Offer, the
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Company shall not be required to accept for exchange, or to issue the New
Notes in exchange for, any Old Notes, if the Exchange Offer violates any
applicable law or interpretation of the staff of the Commission. The Company
expects that the foregoing conditions will be satisfied.
EXCHANGE AGENT
First Union National Bank has been appointed as the Exchange Agent for the
Exchange Offer. All executed Letters of Transmittal should be directed to the
Exchange Agent at the address set forth below. Questions and requests for
assistance, requests for additional copies of this Prospectus or of the Letter
of Transmittal and requests for Notices of Guaranteed Delivery should be
directed to the Exchange Agent addressed as follows:
First Union National Bank, Exchange Agent
By Mail Courier: By Overnight Courier:
Mike Klotz Mike Klotz
First Union National Bank First Union National Bank
First Union Customer Information First Union Customer Information
Center Center
Corporate Trust Operations NC1153 Corporate Trust Operations NC1153
1525 West W.T. Harris Blvd--3C3 1525 West W.T. Harris Blvd--3C3
Charlotte, NC 28288-1153 Charlotte, NC 28262
For Information Call:
(704) 590-7408
By Facsimile Transmission
(for Eligible Institutions only):
(704) 590-7628
Attention: Corporate Trust Department
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.
FEES AND EXPENSES
Teligent will not make any payment to brokers, dealers, or others soliciting
acceptances of the Exchange Offer. The estimated cash expenses to be incurred
in connection with the Exchange Offer will be paid by Teligent and are
estimated in the aggregate to be approximately $150,000.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to pay
any transfer taxes in connection therewith, except that holders who instruct
Teligent to register New Notes in the name of, or request that Old Notes not
tendered or not accepted in the Exchange Offer be returned to, a person other
than the registered tendering holder will be responsible for the payment of
any applicable transfer tax thereon.
CONSEQUENCES OF EXCHANGING OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the provisions
in the Indenture regarding transfer and exchange of the Old Notes and the
restrictions on transfer of such Old Notes as set forth in the legend thereon
as a consequence of the issuance of the Old Notes pursuant to exemptions from,
or in transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws. In general, the Old Notes
may not be
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offered or sold, unless registered under the Securities Act, except pursuant
to an exemption from, or in a transaction not subject to, the Securities Act
and applicable state securities laws. Teligent does not currently anticipate
that it will register Old Notes under the Securities Act. See "Exchange Offer;
Registration Rights." Based on interpretations by the staff of the Commission,
as set forth in no-action letters issued to third parties, Teligent believes
that New Notes issued pursuant to the Exchange Offer in exchange for Old Notes
may be offered for resale, resold or otherwise transferred by Holders thereof
(other than any such Holder which is an "affiliate" of Teligent within the
meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act,
provided that such New Notes are acquired in the ordinary course of such
Holders' business and such Holders have no arrangement or understanding with
any person to participate in the distribution of such New Notes. However, the
Commission has not considered the Exchange Offer in the context of a no-action
letter and there can be no assurance that the staff of the Commission would
make a similar determination with respect to the Exchange Offer as in such
other circumstances. Each Holder, other than a broker-dealer, must acknowledge
that it is not engaged in, and does not intend to engage in, a distribution of
New Notes and has no arrangement or understanding to participate in a
distribution of New Notes. If any Holder is an affiliate of Teligent, is
engaged in or intends to engage in or has any arrangement or understanding
with respect to the distribution of the New Notes to be acquired pursuant to
the Exchange Offer, such Holder (i) could not rely on the applicable
interpretations of the staff of the Commission and (ii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each broker-dealer that receives New
Notes for its own account in exchange for Old Notes must acknowledge that such
Old Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities and that it will deliver a prospectus
in connection with any resale of such New Notes. See "Plan of Distribution."
In addition, to comply with the securities laws of certain jurisdictions, if
applicable, the New Notes may not be offered or sold unless they have been
registered or qualified for sale in such jurisdiction or an exemption from
registration or qualification is available and is complied with.
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BUSINESS
THE COMPANY
Teligent, Inc. ("Teligent" or the "Company") intends to be a premier
provider of high quality, low cost voice, data, Internet and video
telecommunications services primarily to small and medium-sized businesses
through its own fixed local wireless point-to-point and 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 fixed wireless point-to-
point broadband systems.
The predecessor to the Company, Associated Communications, L.L.C., was
founded in 1996 as limited liability company 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. Associated
Communications, L.L.C. was subsequently renamed Teligent, L.L.C. In September
1996, Alex J. Mandl, formerly President and Chief Operating Officer of AT&T,
joined Associated Communications, L.L.C. as Chairman of the Board and Chief
Executive Officer. On November 26, 1997, the Company issued 6,325,000 shares
of Class A Common Stock at $21.50 per share in its initial public offering
(the "Equity Offering") and $300 million aggregate principal amount of 11 1/2%
Senior Notes due 2007 (the "Senior Notes Offering"). Prior to and as a
condition to the Senior Notes Offering and the Equity Offering (together with
the Senior Notes Offering, the "Offerings"), Teligent, L.L.C. merged with and
into the Company (the "Merger") with the Company surviving the Merger. See
"Certain Transactions and Other Matters--The Reorganization." On February 20,
1998, the Company issued $440,000 million aggregate principal amount at
maturity of 11 1/2% Senior Discount Notes due 2008 (the "Old Notes.")
The Company obtained the majority of its 24 GHz fixed wireless licenses in
(i) November 1997 through the contribution to Teligent, L.L.C. of the licenses
by Teligent, L.L.C.'s founding members, Microwave Services, Inc. ("MSI"), a
subsidiary of Associated, and Digital Services Corporation ("DSC"), an
affiliate of Telcom Ventures and (ii) July 1997 directly from the FCC. MSI and
DSC began the process of applying for fixed wireless licenses in 1993 prior to
the Federal Communication Commission's ("FCC") implementation of spectrum
auctions. These licenses have been granted by the FCC and 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." The licenses
contributed by MSI 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. See "Regulation--Federal
Regulation--FCC Licensing." In addition, the Company obtained FCC licenses in
three standard metropolitan statistical areas ("SMSAs") in connection with its
acquisition of FirstMark Communications, Inc. ("FirstMark") in October 1997.
See "Regulation--Federal Regulation--Transfer of Control of Wireless
Licenses."
In November 1997, Nippon Telegraph and Telephone Corporation ("NTT"), the
world's largest telecommunications carrier, through its indirect wholly owned
subsidiary NTTA&T Investment, Inc. ("NTTA&T") made a strategic equity
investment totaling $100 million in the Company. In connection with
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NTT's equity investment, the original members of Teligent, L.L.C. made
additional cash contributions to Teligent, L.L.C. in the aggregate amount of
$60.0 million. See "Certain Transactions and Other Matters."
Associated is a publicly traded company (Nasdaq: AGRPA and AGRPB)
principally engaged in the ownership and operation of a variety of wireless
communications assets and businesses. 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.
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. 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, have created opportunities for competitive local exchange
carriers ("CLECs"). The Company intends to alleviate this last mile local
bottleneck and gain market share by deploying technologically advanced, high
bandwidth digital wireless technology complemented by superior customer
service and competitive pricing.
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 is 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.
OTHER BACKGROUND
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 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
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modifying the affected 18 GHz licenses, including those held by the Company,
to authorize operations at 24 GHz. Pursuant to the Relocation Order, these 18
GHz fixed wireless operators with facilities in the Washington, DC and Denver,
CO areas (including the Company's Washington, Baltimore, MD and Denver, CO
facilities) were required to relocate those facilities to corresponding
channels in the 24 GHz band by no later than June 5, 1997. The Relocation
Order and the Modification Order require these 18 GHz fixed wireless licensees
in all other areas to relocate to corresponding channels in the 24 GHz band by
no later than January 1, 2001. Although the Company is permitted to continue
operations in the 18 GHz band outside of the Washington, DC and Denver, CO
areas until that date, its intention is to convert all of its facilities to 24
GHz band operation as soon as possible.
BUSINESS STRATEGY
Teligent's goal is to be a premier facilities-based provider of voice, data,
Internet and video telecommunication 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 primarily 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.
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Rapid Deployment. Teligent intends to take advantage of its network
flexibility and lower incremental capital requirements in order to quickly
roll-out and penetrate its market areas. Teligent believes that this rapid
deployment should allow it to become one of the first significant facilities-
based competitors in many parts of its market areas. The Company believes that
this rapid deployment should enable it to establish a level of market
penetration which will further enhance the Company's relative cost advantage,
attract additional customers and further enhance its brand reputation.
Exploit Future Growth Opportunities. Teligent intends to continue building
on the capabilities of its networks to expand its target market and service
offerings. Such expansion may include targeting residential customers in
multiple dwelling units as well as international opportunities, either through
joint ventures or by direct entry.
TELIGENT'S COMPETITIVE ADVANTAGES
Teligent believes that a number of factors will provide it with significant
competitive advantages in offering telecommunications services, including
lower network cost, success-based capital expenditures, speed to market, high
bandwidth capacity and flexibility, high quality service and network control,
flexible information systems and experienced management and sponsors.
Lower Network Cost. Teligent expects that its incremental capital required
for launching service in a market and for connecting each customer will be
lower than that of its competitors. Unlike copper- and fiber-based systems
that require installation and maintenance of a significant amount of wire and
cable, the Company's systems will have no physical wires to install and
maintain between radio equipment at the customer premises 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
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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 typical Teligent base station is
designed to provide 200 T-1 lines, the equivalent of 4,800 dedicated telephone
lines. The Company believes that in the future, radio equipment vendors will
make available radio/antenna units with even greater capacity.
High Quality Service and Network Control. Teligent plans to engineer its
network architecture to provide a minimum of 99.99% availability, a quality
level comparable to fiber-based networks. Teligent also intends to provide
high quality and value-added customer care service including integrated
billing (consolidating multiple services into one statement), customized
pricing and cross-marketing of services. The Company believes that its ability
to provide last mile local loop service through its own network will enhance
its ability to ensure high quality service by minimizing its reliance on the
ILEC for service deployment, maintenance and equipment upgrades. The Company
believes that this ability will represent an additional advantage relative to
fiber-based CLECs which frequently resell the last mile local loop from the
ILEC.
Flexible Information Systems. Teligent is designing, acquiring and
integrating advanced flexible information systems to support billing, customer
care, provisioning and maintenance operations. These information systems will
be based on current technologies and platforms to meet current and anticipated
customer demands, including service bundling, integrated billing and flexible
pricing. Teligent expects that its information systems will give it the
capability to adapt quickly and flexibly to changing market conditions and new
customer requirements. The Company believes that legacy systems have
historically constrained the industry's ability to provide customized
offerings and new service features to customers on a timely basis.
Experienced Management and Sponsors. Teligent's management team, led by Alex
J. Mandl, formerly President and Chief Operating Officer of AT&T, has
significant senior management experience at leading telecommunications
companies including MCI Communications Corporation, PCS PrimeCo, L.P., MFS
Communications Company, Inc. and UUNET Technologies, Inc. as well as other
competitive providers and start-up businesses. This includes extensive
experience in the operational, technical, sales, marketing, financial and
regulatory areas. Teligent believes that its senior management team has been
and will be critical in attracting high quality managers, salespeople and
engineers needed to execute its business plan. See "Management." Teligent's
sponsors, Associated and Telcom Ventures, both have extensive experience in
pioneering wireless telecommunications businesses. NTT, the world's largest
telecommunications carrier, has extensive local telecommunications and
wireless network experience and has entered 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 inter-exchange carrier's ("IXC")
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 (the "customer premise equipment," or, "CPE"), allowing
transmissions between multiple customer antennas and a single base station
antenna. The customer premise
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equipment includes two components: (i) an integrated radio/antenna 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 which is connected to the internal building wiring. 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), 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 within a 360-degree coverage area, depending on line of
sight. 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 is 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
wireless microwave links as well as fiber optic transmission facilities, where
appropriate.
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 has constructed 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 is building out and commercializing 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.
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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 approximately three to five days. Second, equipment will be deployed at
each customer's premise to connect their phone system, PBX or computer network
to the radio on the roof. The Company may, however, selectively 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 has its
own Division President in charge of operations, field service, site
acquisition and sales. Teligent believes that the reputation and quality of
its senior management will afford it a critical advantage in attracting the
highest quality sales people as it builds its sales force throughout its
market areas. The extent of sales activity in each market will depend upon a
number of factors including (i) number of license areas, (ii) geographic size
of license areas, (iii) end user density within licensed 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.
Sales Force/Customer Care. Teligent's goal is to complement its full array
of services for small- and 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
promotional 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.
The Company has developed 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, 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.
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Teligent intends to offer multiple product service packages to business
customers. 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.
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 consider
providing its local retail product offering on a case by case basis using
other telecommunications carriers' transport facilities, such as unbundled
local loops from ILECs or facilities from other CLECs where it can use such
facilities to penetrate the market more quickly and/or cost efficiently. As
the Company extends its wireless local service to such buildings, it intends
to migrate any such customers to its own facilities.
The Company began 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 fixed wireless point-to-point
broadband systems.
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,
Digital PBX 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, domain name service
("DNS"), registration services, network security and fire walls, intranet
services, e-mail, news servers, hosting and peering.
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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 SERVICES
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 marketplace demand for telecommunications 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. The Company may also offer wireless
backhaul services to connect the cell sites of cellular and PCS companies to
their mobile switching centers.
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 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
---- ------------ --------- ---------- ------------
<C> <S> <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
</TABLE>
57
<PAGE>
<TABLE>
<CAPTION>
BUSINESS
SMSA BANDWIDTH EMPLOYEES IN
RANK MARKET AREAS (MHZ) POPULATION MARKET AREA
---- ------------ --------- ----------- ------------
<C> <S> <C> <C> <C>
31 Sacramento, CA.................... 320 1,482,000 442,000
32 Milwaukee, WI..................... 320 1,469,000 660,000
33 San Antonio, TX................... 320 1,402,000 435,000
35 Indianapolis, IN.................. 320 1,333,000 551,000
36 Columbus, OH...................... 160 1,302,000 586,000
37 Salt Lake City, UT................ 80 1,214,000 499,000
38 Orlando, FL....................... 80 1,206,000 573,000
39 Buffalo, NY....................... 80 1,201,000 442,000
40 New Orleans, LA................... 80 1,178,000 469,000
41 Hartford, CT...................... 80 1,154,000 540,000
43 Nashville, TN..................... 80 1,060,000 508,000
44 Norfolk, VA....................... 80 1,040,000 321,000
45 Rochester, NY..................... 80 1,038,000 444,000
46 Memphis, TN....................... 80 1,034,000 470,000
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 Regional Bell
Operating Companies ("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 of 1996 (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, by requiring ILECs to
unbundle their facilities and services, and by requiring ILECs to make certain
services available for resale 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. 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. 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
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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 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 that 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, and Teleport Communications Group, Inc. ("Teleport") with
respect to BizTel. Teleport has acquired BizTel and AT&T has announced its
agreement to acquire Teleport, 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 conducted auctions 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 adopted rules to auction geographical wide
area licenses for the operation of fixed wireless point-to-point and point-to-
multipoint communications services in the 38 GHz band, although many 38 GHz
licenses have already been issued nationwide. The 28 GHz LMDS auction
concluded in March 1998 and the 38 GHz auction is expected to occur later in
1998. The Company initially filed an application for and participated in the
early rounds of the LMDS auction, but withdrew from the auction without
acquiring any licenses or payment liabilities. 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
and have begun to provide local telephone service), ILECs operating outside
their current local service areas, other IXCs such as MCI and Sprint, and
other providers. These entities provide transmission services using
technologies that 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
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telecommunications industry, which are expected to accelerate as a result of
the passage of the Telecommunications Act, could give rise to significant new
or stronger competitors to the Company. There can be no assurance that the
Company will be able to compete effectively in any of its markets.
The Company's Internet access services also are likely to face significant
competition from other ISPs as well as from cable television operators
deploying cable modems, which provide high speed data capability over
installed coaxial cable television networks and there can be no assurance that
such competition will not be significant. Although cable modems currently are
not widely available and do not provide for data transfer rates that are as
rapid as those which can be provided by the Company's services, the Company
believes that the cable industry may support the deployment of cable modems to
residential cable customers through methods such as price subsidies.
Notwithstanding the cable industry's interest in rapid deployment of cable
modems, the Company believes that in order to provide broadband capacity to a
significant number of business and government users, cable operators will be
required to spend significant time and capital in order to upgrade their
existing networks to a more advanced hybrid fiber coaxial network
architecture. However, there can be no assurance that cable modems will not
emerge as a source of competition to the Company's Internet business. Further,
Internet access services based on existing technologies such as ISDN and, in
the future, on such technologies as ADSL and HDSL will likely provide
additional sources of competition to the Company's Internet access services.
Additionally, the Company believes that many ILECs and CLECs already are
promoting other Internet access services.
LONG DISTANCE TELECOMMUNICATIONS MARKET
The long distance market has relatively insignificant barriers to entry,
numerous entities competing for the same customers and a high (and increasing)
average churn rate as customers frequently change long distance providers in
response to the offering of lower rates or promotional incentives by
competitors. The Company will compete with major carriers such as AT&T, MCI,
Sprint and WorldCom (which has agreed to acquire MCI, subject to receipt of
necessary government approvals), 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." 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 SELECTION
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 received and has evaluated
proposals from several telecommunication infrastructure integrators and
manufacturers. After this evaluation, the Company selected Nortel as its
preferred vendor and systems integrator and entered into a Network Products
Purchase Agreement with Nortel. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Vendor Financing."
Additionally, in support of this effort, the Company has entered into
agreements with manufacturers specializing in radio access and transmission
equipment to provide technology trials of 24 GHz point-to-multipoint
equipment. See "Description of Certain Indebtedness."
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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
originally 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 1998. The Company reasonably believes that the applications will
mature to registration, but there is no assurance until the registrations
actually issue. The Company has also filed applications to register the name
"Teligent" in foreign countries.
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 March 31, 1998, the Company had a total of 494 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 are located at Vienna, Virginia and
consist of approximately 75,000 square feet held under a lease, which expires
on March 1, 2002. The Company has entered into a lease, expiring in 2008, for
a network operating center consisting of approximately 50,000 square feet of
space located in Herndon, Virginia.
The Company will lease and has been leasing space in and around each of its
licensed areas that is necessary to house switches, other equipment and
personnel. See "Risk Factors--Distance and Weather Limitations; Line of Sight;
Building Access and--Management of Growth."
See Note 10 to the audited Financial Statements for the year ended December
31, 1997 for additional information regarding future minimum lease payments.
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, video teleconferencing
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.
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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
elements at any technically feasible point and permit competitors and others
to use these elements 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 long distance service and equipment and
manufacturing only after meeting certain requirements. This ban will be
removed only after the RBOC demonstrates to the FCC,
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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 long distance services
through a separate affiliate, which is required for three years, unless
extended by the FCC; and (iii) demonstrated that entry is consistent with the
public interest.
FEDERAL REGULATION
The Telecommunications Act Regulations. The Telecommunications Act in some
sections is self-executing, but in most cases the FCC must issue regulations
that identify specific requirements before the Company and its competitors can
proceed to implement the changes the Telecommunications Act prescribes. The
Company actively monitors all pertinent FCC proceedings and has participated
in some of these proceedings. The outcome of these various ongoing FCC
rulemaking proceedings or judicial appeals of such proceedings could
materially affect the Company's business, financial condition and results of
operations.
As required by the Telecommunications Act, the FCC adopted, in August 1996,
new rules implementing the interconnection and resale provisions of the
Telecommunications Act (the "Interconnection Order") which are intended to
remove or minimize regulatory, economic and operational impediments to full
competition for local services, including switched local exchange service. A
number of parties filed appeals against the Interconnection Order in Federal
court seeking to vacate certain of the rules adopted therein. In a July 18,
1997 decision, the United States Court of Appeals for the Eighth Circuit
vacated significant portions of the Interconnection Order, including its
provisions governing the pricing of local telecommunications services and
unbundled network elements, its unbundling requirements and its "pick and
choose" provision (which enabled a telecommunications carrier to demand any
term of an ILEC's interconnection contract with another carrier). The Eighth
Circuit also issued an October 14, 1997 decision that 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 U.S. Supreme Court accepted the case for review, but is
not expected to issue a decision before the end of 1998. Some of the same
parties and certain other parties also have asked the FCC to reconsider these
and other regulations implementing the Telecommunications Act. Although the
Company believes that the final outcome of the Eighth Circuit cases, 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.
On December 31, 1997, a United States District Court judge in Texas held
unconstitutional certain sections of the Telecommunications Act, including
Section 271, which prohibits an RBOC from providing long distance service that
originates (or in certain cases terminates) in one of its in-region states
until the RBOC has satisfied certain statutory conditions in that state and
has received the approval of the FCC. This decision would permit the three
RBOCs that are parties to the case immediately to begin offering widespread
in-region long distance services. Unless overturned on appeal, this decision
could have a material adverse effect on the Company. The District Court has
granted the request of the FCC and certain IXCs for a stay and the FCC and
certain IXCs have filed appeals of the decision with the United States Court
of Appeals for the Fifth Circuit. Although there can be no assurance as to the
outcome of this litigation, the Company believes that significant parts of the
District Court decision may be reversed or vacated on appeal. A recent D.C.
Circuit Court decision, in a separate case, held against a RBOC advocating a
position similar to that espoused by the Texas District Court. To date,
several RBOCs have filed applications with the FCC for in-region long distance
authority in various states, but the FCC
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has denied each application. Several entities have sought reconsideration or
appeal of these decisions. In the only appellate decision to date, the FCC's
denial of SBC's application for Oklahoma was upheld by the U.S. Court of
Appeals for the D.C. Circuit. The Company expects that additional RBOC
applications, including that of Bell Atlantic for New York, will be filed in
the second half of 1998. See "Business--Competition in the Telecommunications
Industry," "Telecommunications Industry Overview" and "Regulation."
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 have begun
to implement number portability in the top 100 markets and are required to
complete it by December 31, 1998. In smaller markets, RBOCs must implement
number portability within six months of a request commencing December 31,
1998. Various waivers to extend the implementation date have been filed by
RBOCs, ILECs, and CLECs. 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 carrier.
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 February 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
Fluctuations 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
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among its customers, the statute, as currently interpreted by the FCC, does
permit the Company to reasonably classify its customers and reasonably
differentiate among such classifications. Under the FCC's streamlined
regulation of non-dominant interstate carriers, the Company, as a non-dominant
carrier, is not subject to rate regulation but is required to maintain tariffs
for its interstate common carrier service. 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, but that ruling
is on appeal and has been stayed by the U.S. Court of Appeals for the D.C.
Circuit pending its decision on the 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. The Company has also obtained a "Section 214"
authorization from the FCC authorizing it to provide international facilities-
based and resale telecommunications services between the U.S. and virtually
any other country. The Company must maintain and currently does have tariffs
on file with the FCC governing its provisions of interstate and international
telecommunications services.
Transfer of Control of Wireless Licenses. MSI and DSC contributed their
fixed wireless licenses to Teligent, L.L.C., the predecessor of the Company.
In connection with the acquisition of FirstMark, the Company acquired
additional licenses in three SMSAs. The assignment or transfer of control of
licenses issued by the FCC is subject to the prior consent of the FCC, which
consent generally turns on a number of factors including the identity,
background and 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 Teligent, L.L.C. in July 1997. The FCC granted the applications to assign
the MSI and DSC licenses to Teligent, L.L.C. in October 1997 and transferred
control over all such licenses to the Company in November 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.
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 generally 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
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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. The FCC could decide this relocation
issue in the same way or it could make a different decision, which may be
adverse to the Company. 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 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. Failure by the court to affirm the terms of the Relocation Order or
the Modification Order could have a material adverse effect on the Company's
business, financial condition and results of operations.
Uncertainty during an appeal period regarding the Company's prospects and
the implications of the result of such litigation may disrupt the Company's
relationships with actual and potential customers, equipment vendors, lenders
or other parties, which could have a material adverse effect on the Company's
business, financial condition and results of operations.
Teledesic. On September 6, 1996, Teledesic Corporation ("Teledesic") filed a
petition seeking the dismissal of then-pending applications for additional
transmission (nodal) stations in seven licensed MSI fixed wireless markets,
and the rescission of existing licenses, then held by or belonging to MSI or
DSC. In its petition, Teledesic claimed that its then-proposed satellite
system was incompatible with existing licensed terrestrial networks in the 18
GHz band, that the FCC'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 FCC 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 FCC notified MSI and DSC, respectively,
that the FCC "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.
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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. Since February 9, 1998, the FCC rules have provided for 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 World Trade Organization General Agreement on Trade in
Services ("WTO Agreement") serves the public interest. The 20% restriction on
direct foreign ownership will still apply. 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 the Company's and
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." With
regard to investors from countries that are not signatories to the WTO
Agreement, the FCC continues to apply an "effective competitive opportunities"
("ECO") test in the exercise of its statutory discretion to permit indirect
alien ownership of more than a 25% interest in a common carrier licensee.
Under this ECO test, 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. The Company has received state authorization to provide
facilities-based local services in Alabama, California, Colorado, Connecticut,
Delaware, the District of Columbia, Florida, Georgia, Hawaii, Illinois,
Indiana, Iowa, Kansas, Maryland, Massachusetts, Michigan, Minnesota, Nebraska,
Nevada, New Jersey, New York, Ohio, Pennsylvania, South Carolina, Texas,
Virginia, Washington and Wisconsin. In summary, the Company has obtained state
authorization in 57 markets and has applied for state authorization in the
remaining 17 markets where it holds FCC licenses.
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 may experience
delays.
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 comprehensive interconnection agreements with Ameritech (Illinois and
Wisconsin), Bell Atlantic (D.C., Maryland, Pennsylvania, Delaware, New Jersey,
and Virginia), BellSouth (Florida and Georgia), GTE (California, Florida,
Texas and Virginia), Pacific Bell (California), Southwestern Bell (Texas) and
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US West (Colorado). The Company is in the process of negotiating comprehensive
interconnection agreements with additional ILEC's in 13 states.
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, the Congress and other governmental entities, to encourage
the adoption of rules or laws facilitating rooftop 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.
On December 12, 1997, Teligent accepted under protest a franchise with the
City of Dallas, which is similar to other Dallas franchises agreed to by other
CLECs. On the same date, Teligent filed a Complaint for Declaratory Judgment
against the City of Dallas in the United States District Court for the
Northern District of Texas alleging that Teligent does not own, construct,
install or maintain facilities located in public rights of way, and that the
City of Dallas is therefore prohibited both by federal and state law from
barring Teligent's competitive entry into the Dallas market unless Teligent
first accepts a franchise. In an order dated July 4, 1998, the Court granted
Teligent's motion for a preliminary injunction barring Dallas from applying
its franchise requirements to Teligent, concluding that Dallas had overstepped
the limits of its regulatory authority under federal and state law because
Teligent does not "use" any of the City's rights-of-way. There can be no
assurance as to the final outcome of the 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.............................. Chairman of the Board and Chief Executive
54 Officer
Kirby G. Pickle, Jr........................ 41 President and Chief Operating Officer
Laurence E. Harris......................... 62 Senior Vice President, General Counsel and
Assistant Secretary
Abraham L. Morris.......................... 39 Senior Vice President, Chief Financial
Officer and Treasurer
Steven F. Bell............................. 48 Senior Vice President for Human Resources
OTHER OFFICERS
Richard J. Hanna........................... Senior Vice President for Sales and
42 Marketing
Keith W. Kaczmarek......................... 41 Senior Vice President for Engineering and
Operations
David S. Turetsky.......................... Vice President for Law and Regulatory
41 Affairs
Cindy L. Tallent........................... 40 Vice President and Controller
Philip C. McKinney......................... 37 Vice President for Information Technology
Robert H. Schwartz......................... 32 Vice President for Corporate Development
and Strategy
Scott G. Bruce............................. 36 Secretary
OTHER DIRECTORS
Myles P. Berkman........................... 61 Director
David J. Berkman........................... 36 Director
William H. Berkman......................... 33 Director
Donald H. Jones............................ 60 Director
Tetsuro Mikami............................. 46 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 of AT&T 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 General
Instrument Corporation (formerly NextLevel Corporation).
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Kirby G. Pickle, Jr., has served as President and Chief Operating Officer
since February 1997. Prior to that, Mr. Pickle served as Executive Vice
President of MFS Communications Company, Inc. and President and Chief
Operating Officer of one of its subsidiaries, UUNET Technologies, Inc.
Earlier, as President and COO of MFS Intelenet, Inc., Mr. Pickle managed three
businesses that generated a majority of MFS' revenues. Prior to his service
for MFS, Mr. Pickle was a Vice President at US Sprint (now known as Sprint), a
regional sales manager for MCI Communications Corporation, Inc. and held
various management positions at AT&T.
Laurence E. Harris has been Senior Vice President and General Counsel since
December 1996. Prior to joining the Company, Mr. Harris served as Senior Vice
President of Law and Public Policy for MCI Communications Corporation.
Earlier, Mr. Harris was President and Chief Operating Officer of Metromedia
Telecommunications, Inc. and CRICO Communications, a privately-held paging
company. Mr. Harris also served as chief of the FCC's Mass Media Bureau where
he was responsible for regulation and policy for cable, 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 that, he served as Senior Vice
President for Operations Support at MFS Communications Company, Inc., where
Mr. Morris was involved in business development, revenue assurance and co-
carrier/local service activities. Earlier, Mr. Morris was Vice President and
Chief Transition Officer for MFS Intelenet, Inc., and previously 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 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 joining Teligent, 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 Senior Vice
President, Finance for Global TeleSystems Group, Inc. There she was
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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 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.
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, Chief Executive Officer and
Treasurer of Associated, positions he has held since 1994 with the exception
of Chairman which has been since November 1995. In addition to owning the
largest 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 President, Chief Operating Officer and
Treasurer of Associated Communications Corporation ("ACC"), the parent
corporation of Associated prior to 1995, which was also a publicly traded
company. Mr. Berkman developed ACC into one of the larger U.S. cellular
operators at the time of its sale to SBC Communications Inc in 1994. 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 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 1993 Mr.
Berkman was a 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 director of Grupo Portatel S.A. de C.V., and is Vice
Chairman of Portatel del Sureste, S.A. de C.V., both of which are engaged in
the ownership and operation of a cellular telephone system in Mexico. 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 wholly owned
subsidiary of Associated. Since June 5, 1997, Mr. Berkman 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.
Donald H. Jones has been a director of the Company since November 1997. He
has served as a director of Associated since 1994. Prior to 1994, Mr. Jones
served as a director of ACC beginning in 1986, as well as a consultant to ACC
beginning in 1982. Mr. Jones is President of DHJ Enterprises, Inc., a firm
engaged in the
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<PAGE>
development of new business enterprises and investment activities. Until April
1997, Mr. Jones was Vice Chairman of Net Inc., formerly Industry Net
Corporation, a company that was engaged in electronic database publishing, and
from 1992 to June 1996, was its Chairman. Mr. Jones is a director of
Respironics Inc., a corporation engaged in the development, manufacturing and
marketing of medical equipment and PNC Equity Management Corporation, a
corporation engaged in the investment in growth companies. Mr. Jones also
serves as an adjunct professor of entrepreneurship at the Carnegie Mellon
Graduate School of Business.
Tetsuro Mikami has been a director of the Company since November 1997. Since
1993, Mr. Mikami has been General Manager, Business Solutions Group, Long
Distance, Nippon Telegraph and Telephone Corporation. Mr. Mikami has been with
NTT for over twenty years and has served in various senior management roles.
He currently resides in Tokyo, Japan.
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.
BOARD OF DIRECTORS
Election of Directors. Under the Company's Certificate of Incorporation (the
"Certificate of Incorporation"), until the number of shares held by holders of
the respective series of Class B Common Stock fall below certain thresholds,
such holders have the right to elect directors to the Company's Board of
Directors as follows: a majority of directors are elected by the holders of
Series B-1 Common Stock (as defined below), one director is elected by the
holders of Series B-2 Common Stock and one director is elected by the holders
of Series B-3 Common Stock. Since the consummation of the Offerings, all of
the Series B-1 Common Stock, Series B-2 Common Stock and Series B-3 Common
Stock has been held by MSI, the Telcom Stockholder and NTTA&T, respectively.
The holders of the Class A Common Stock and Class B Common Stock, voting as a
single class, 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. Since the Offerings, the Board has consisted of the
seven directors listed above. The Company intends to expand its Board of
Directors to the extent, if any, 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 Certificate of
Incorporation eliminates, 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 provides that the Company will indemnify its directors and
officers to the fullest extent authorized or permitted by law.
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<PAGE>
Committees of the Board of Directors; Compensation Committee Interlocks and
Insider Participation. The Board of Directors established an audit committee
(the "Audit Committee") whose members are Donald H. Jones, Tetsuro Mikami and
Dr. Rajendra Singh. The members of the compensation committee (the
"Compensation Committee") are Myles P. Berkman, Tetsuro Mikami and Dr.
Rajendra Singh.
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 reviews management compensation levels and
provides 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.
DIRECTORS' COMPENSATION
Directors do not receive compensation in their capacities as directors.
EXECUTIVE COMPENSATION
The following table sets forth the summary of all compensation earned by the
Chief Executive Officer and the four other most highly compensated executive
officers for the fiscal years ended 1997 and 1996 for services to the Company.
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SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------ ---------------------
FISCAL SECURITIES UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS STOCK OPTIONS COMPENSATION
- --------------------------- ------ -------- -------- --------------------- ------------
<S> <C> <C> <C> <C> <C>
Alex J. Mandl............ 1997 $500,000 $500,000 6,009,732(1) $3,988,270(2)
Chairman and Chief
Executive Officer 1996 165,753 166,666 -- --
Kirby G. Pickle, Jr...... 1997 329,808 250,000 1,011,101(1) 192,081(3)
President and Chief
Operating Officer 1996 -- -- -- --
Laurence E. Harris....... 1997 275,000 150,000 606,661(1) 4,750(4)
Senior Vice President, 1996 15,865 250,000 -- --
General Counsel and
Assistant Secretary
Abraham L. Morris........ 1997 179,808 125,000 606,661(1) --
Senior Vice President, 1996 -- -- -- --
Chief Financial Officer
and Treasurer
Steven F. Bell........... 1997 164,423 100,000 404,440(1) 3,375(4)
Senior Vice President 1996 -- -- -- --
for Human Resources
</TABLE>
- --------
(1) Consists of CARs which were converted on November 21, 1997, to options to
purchase shares of the Company's Class A Common Stock.
(2) Includes $3,983,520 of forgiveness of indebtedness to MSI and DSC pursuant
to Mr. Mandl's Employment Agreement, and $4,750 of contributions by the
Company to the Company's 401(k) Savings Plan.
(3) Includes $187,331 in relocation costs paid to Mr. Pickle, and $4,750 of
contributions by the Company to the Company's 401(k) Savings Plan.
(4) Consists of contributions by the Company to the Company's 401(k) Savings
Plan.
THE MANDL EMPLOYMENT AGREEMENT
The Mandl Employment Agreement between the Company and Alex J. Mandl 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
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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 granted Mr. Mandl
certain registration rights with respect to the shares of Class A Common Stock
which are subject to the options into which the CARs were 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. was 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 were sold by MSI or the
Telcom Stockholder in the Equity Offerings, Mr. Mandl had no right to, and did
not, 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 Company
has filed a registration statement on Form S-8 registering shares of Class A
Common Stock authorized for issuance under the Stock Plan, including the Mandl
Registrable Securities.
The Mandl Employment Agreement (other than certain restrictive covenants of
Mr. Mandl and certain severance obligations of the Company) may be terminated
(a) by the Company (i) without Cause by giving 30-days notice or (ii) for
Cause upon the Board's confirmation that the employee has failed to cure the
grounds for termination within ten days after notice thereof by the Company
and (b) by Mr. Mandl (i) without Good Reason by giving a 120-day notice or
(ii) for Good Reason upon the Company's failure to cure the grounds for
termination within 20 days after notice thereof by Mr. Mandl. The Mandl
Employment Agreement prohibits disclosure by Mr. Mandl of any Company
confidential information at any time. In addition, while he is employed by the
Company and for two years thereafter, Mr. Mandl is prohibited from engaging or
significantly investing in competing business activities and from soliciting
any Company employee to be employed elsewhere.
COMPANY APPRECIATION RIGHTS
On September 1, 1996, pursuant to the terms of the Mandl Employment
Agreement, six separate Company Appreciation Rights ("CARs") were granted to
Mr. Mandl. In connection with the Reorganization, the CARs were converted,
effective as of the consummation of the Offerings, into options to purchase
shares of Class A Common Stock, which options are 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
Teligent, L.L.C. 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") were authorized to be granted to
employees, directors, and consultants of the Company. Each Appreciation Unit
represented a right to receive consideration equal to a specified fraction of
a percentage 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. As
contemplated by the Long-Term Incentive Compensation Plan, in connection with
the Reorganization, all
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Appreciation Units were converted, effective as of the consummation of the
Offerings, into options to purchase Class A Common Stock, which options are
governed by and subject to the terms of the 1997 Stock Incentive Plan (the
"Stock Plan"). See"--Conversion of CARs and Appreciation Units into Stock
Options." No Appreciation Units were granted to the Named Executive Officers.
CONVERSION OF CARS AND APPRECIATION UNITS INTO STOCK OPTIONS
In connection with the Reorganization and the Equity Offerings, the Company
and Mr. Mandl agreed, and as contemplated by the Long-Term Incentive
Compensation Plan, the Board of Teligent, L.L.C. 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, outstanding CARs and Appreciation
Units would be converted, effective upon consummation of the Equity Offerings
(the "Conversion"), into and 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 would 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 are 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 term as the applicable CAR or
Appreciation Units which was converted.
The following table sets forth certain stock option information for each of
the named executive officers:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------------------
% OF TOTAL WEIGHTED
NUMBER OF OPTIONS GRANTED AVERAGE
SECURITIES UNDERLYING TO EMPLOYEES EXERCISE PRICE GRANT DATE
NAME OPTIONS GRANTED IN FISCAL YEAR ($/SHARE) EXPIRATION DATE PRESENT VALUE $
- ------------------------ --------------------- --------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Alex J. Mandl........... 6,009,732 45.65% $12.41 09/01/06 *
Kirby G. Pickle, Jr..... 1,011,101 7.68% 6.52 01/20/07 *
Laurence E. Harris...... 606,661 4.61% 6.52 12/09/06 *
Abraham L. Morris....... 606,661 4.61% 6.52 04/10/07 *
Steven F. Bell.......... 404,440 3.07% 6.52 04/07/07 *
</TABLE>
* The CARs held by Mr. Mandl and the Appreciation Units held by Mr. Harris
were granted in 1996 and the Appreciation Units held by Messrs. Pickle,
Morris and Bell were granted in 1997, in each case prior to the Conversion.
Although the Conversion did not result in the grant of additional equity to
any of the named executive officers, using the Black-Scholes option pricing
model (assuming a dividend yield of 0%, a risk free interest rate of 6.6%,
an expected life of 10 years, and an expected volatility of .50) the grant
date present value for each of the named executive officers would be as
follows: Mr. Mandl, $122.8 million; Mr. Pickle, $18.9 million; each of
Messrs. Harris and Morris, $11.4 million; and Mr. Bell, $7.6 million.
1997 STOCK INCENTIVE PLAN
The Teligent, Inc. 1997 Stock Incentive Plan became effective upon
consummation of the Equity Offerings (the "Stock Plan"). The Stock Plan 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.
Under the Stock Plan, 14,729,125 shares of Class A Common Stock have been
authorized for issuance pursuant to awards under the Stock Plan, including
12,480,778 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
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<PAGE>
shares or treasury shares of Class A Common Stock. The Stock Plan provides
that no participant can receive awards thereunder (excluding Conversion
Options) that relate to shares of Class A Common Stock which in the aggregate
exceed 20% of the total number of shares of Common Stock 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
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 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.
On January 27, 1998, the Company filed a registration statement on Form S-8
registering shares of Class A Common Stock authorized for issuance under the
Stock Plan.
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EXERCISE OF STOCK OPTIONS
No stock options were exercised by any of the named executive officers
during the fiscal year ended December 31, 1997. The following table sets forth
information regarding the value at December 31, 1997 of any unexercised stock
options granted under the Plan.
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL YEAR IN-THE-MONEY OPTIONS
END AT FISCAL YEAR END(1)
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Alex J. Mandl............... 1,001,622 5,008,110 $21,309,508 $73,529,071
Kirby G. Pickle, Jr......... -- 1,011,101 -- 18,305,984
Laurence E. Harris.......... 121,332 485,329 2,196,719 8,786,878
Abraham L. Morris........... -- 606,661 -- 10,983,597
Steven F. Bell.............. -- 404,440 -- 7,322,386
</TABLE>
- --------
(1) The closing stock price of the Company's Class A Common Stock on December
31, 1997 was $24.625.
81
<PAGE>
CERTAIN TRANSACTIONS AND OTHER MATTERS
THE REORGANIZATION
Immediately prior to the consummation of the Offerings, Teligent, L.L.C.
merged with and into the Company with the Company surviving the merger (the
"Reorganization"). The Company was organized in September 1997 for the purpose
of succeeding to the business of Teligent, L.L.C. In connection with the
Reorganization, the Company's Certificate of Incorporation and By-laws were
amended in their entirety. As a result of the Reorganization, all of Teligent,
L.L.C.'s member interests were converted into and became shares of common
stock of the Company, as follows: (i) the interest of MSI was converted into
21,436,689 shares of Series B-1 Common Stock; (ii) the interest of Telcom
Ventures was converted into 17,206,210 shares of Series B-2 Common Stock;
(iii) the interest of NTTA&T was converted into 2,313,360 shares of Series B-3
Common Stock (further described below); and (iv) the interest of the former
sole stockholder of FirstMark (the "FirstMark Sole Stockholder") was converted
into 1,831,410 shares of Class A Common Stock. In each case, the number of
shares of common stock received by each member of Teligent, L.L.C. pursuant to
the Reorganization was proportionate to such member's percentage interest in
Teligent, L.L.C. immediately prior to the Reorganization. The Company received
no additional consideration in connection with such conversion of member
interests into shares of common stock pursuant to the Reorganization.
THE ADDITIONAL SPONSOR EQUITY CONTRIBUTIONS
In connection with the Strategic Equity Investment (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 (the "Additional Sponsor Cash Contribution"). In
addition, on November 7, 1997, Associated agreed to contribute to Teligent,
Associated Communications of Los Angeles ("ACLA"), a wireless competitive
access provider, and, in consideration of such agreement, received an
approximate 1% increase in its member interest in Teligent, L.L.C.
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 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 Offering and the conversion of
existing equity incentive awards into stock options in connection with the
Reorganization, which as a result of the Reorganization was converted into
2,313,360 shares of Series B-3 Common Stock). At the Second Closing, which
occurred on November 26, 1997, NTT, through NTTA&T, purchased for $60 million
3,470,040 shares of Series B-3 Common Stock representing a 7.5% equity
interest in the Company. After giving effect to the Equity Offering, NTT's
equity interest in the Company became 11.0%.
Immediately prior to the consummation of the Equity Offerings, the Company
entered into a Stockholders Agreement with NTTA&T and the other stockholders
of the Company (other than the FirstMark Sole Stockholder) as of such time,
which provides 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 also
provides 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.
NTT Registration Rights Agreement. In connection with the Strategic Equity
Investment, Teligent and NTTA&T entered into a Registration Rights Agreement
(the "NTT Registration Rights Agreement"). The NTT 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 Offering (subject to a
maximum of three Demand Registrations in total), provided such demand is (i)
made by
82
<PAGE>
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 of 1933, as amended (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 NTT
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 Offering 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 NTT 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 NTT 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
NTT 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 NTT Registration Rights Agreement terminates with respect to
particular NTT Registrable Securities when (i) a registration statement with
respect to the sale of such securities shall have become effective under the
Securities Act and such securities have been disposed of under such
registration statement, (ii) such securities have been transferred pursuant to
Rule 144, (iii) such securities have been otherwise transferred or disposed
of, and new certificates therefor not bearing a legend restricting further
transfer shall have been delivered by the Company, and subsequent transfer or
disposition of them does not require registration or qualification under the
Securities Act or any similar state law then in force, or (iv) such securities
have ceased to be outstanding.
Technical Services Agreement. Pursuant to the NTT Purchase Agreement and in
satisfaction of a condition to the First Closing, the Company 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 commenced on December 1, 1997, 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. Under the TSA, during the first
two years of the Term (the "Initial Phase"), the Company is required to pay
NTT America a fee in the amount of $4 million per year. The TSA provides that
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 Company's acquisition of FirstMark, 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 held 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," "Regulation--Federal Regulation--
Transfer of Control of Wireless Licenses."
83
<PAGE>
VENDOR FINANCING
The Company has entered into the Network Products Purchase Agreement with
Nortel for the purchase of certain telecommunications system equipment,
software and services (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 was to
provide the Nortel Financing to the Company. On July 2, 1998, the Company
entered into the Bank Credit Agreement dated as of July 2, 1998 with (i) the
Lenders from time to time parties thereto (the "Lenders"), (ii) Chase
Securities Inc., Goldman Sachs and TD Securities (USA) Inc., as Arrangers,
(iii) Goldman Sachs, as Syndication Agent, (iv) Toronto Dominion (Texas),
Inc., as Documentation Agent, and (v) The Chase Manhattan Bank, as
Administrative Agent. Under the Bank Credit Agreement, the Lenders have
provided to the Company Credit Facilities up to an aggregate principal amount
of $800 million for working capital and general corporate purposes, including,
without limitation, the acquisition of telecommunications equipment, software
and services. The Lenders will make $780 million of the Credit Facilities
available to Teligent on behalf of Nortel in lieu of the Nortel Financing,
which Credit Facilities constitute "Vendor Financing" under the Indentures,
and the remaining $20 million of the Credit Facilities available to Teligent
as "Telecommunications Assets Debt" in accordance with the terms of the
Indentures. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
84
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MEMBERS AGREEMENT
Prior to the Company entering into the NTT Purchase Agreement, the Company,
MSI, Associated, DSC, the Telcom Stockholder and the owners of the Telcom
Stockholder entered into an agreement (the "Members Agreement") whereby the
Company granted to DSC certain registration rights substantially similar to
those granted to NTT (see "Certain Transactions and Other Matters--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, in the Members Agreement, 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, concurrently 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 granted to
each 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
also granted to each 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
Prior to the consummation of the Equity Offerings, the Company entered 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 have certain rights and obligations with respect to
their ownership interest in, and the governance of, the Company, 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, subject to certain exceptions (which exceptions include transactions
pursuant to 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
85
<PAGE>
under any bankruptcy or insolvency law. The Stockholders Agreement also
provides that so long as the Telcom Stockholder and NTTA&T, respectively, have
the right to elect a 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 is 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 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 has 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 terminates (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 (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, 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 terminates (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). The Stockholder's Agreement also
provides that the Stockholder Parties will vote for the election of the
Company's Chief Executive Officer as a member of the Company's Board.
To enable NTTA&T to benefit from secunding the Secunded Employees, in the
Stockholders Agreement the Company granted 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 does 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 also provides that until the second anniversary
of the First Closing under the NTT Purchase Agreement, each Stockholder Party
must continue to 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,
86
<PAGE>
except that such requirement lapses and is 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, then
such requirement also lapses and is without further effect with respect to
MSI. In addition, in the Stockholders Agreement, MSI and the Telcom
Stockholder 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).
The Stockholders Agreement also provides 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.
LOANS TO EXECUTIVE OFFICERS
On September 1, 1996, Mr. Mandl was 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. On September 1, 1997, the first
anniversary of Mr. Mandl's employment with the Company, 20% of the principal
and all underlying accrued interest was forgiven. The remaining principal
amount will be forgiven as to 20% thereof and the incremental underlying
accrued interest on the second anniversary 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.
Messrs. Pickle, Morris and Bell received loans each in the aggregate
principal amounts of $1,000,000. Such loans bear interest at annual interest
rates of 5.73%, 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, 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. 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. Mr.
Harris received a loan in the aggregate principal amount of $600,000, bearing
interest at an annual rate of 6.54%. Mr. Harris' loan is forgivable only if he
is terminated by the Company other than for cause, otherwise his loan is due
and payable to the Company on June 8, 2000. Mr. Harris also received an
upfront payment of $250,000, paid in January 1997. At the time Mr. Harris'
options are exercised, the $250,000 is expected to be deducted from his option
payout.
FIRSTMARK AGREEMENT
Pursuant to the FirstMark Agreement, the Company 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-
87
<PAGE>
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 had no right to, and did not,
sell any FirstMark Sole Stockholder Registrable Securities in the Equity
Offerings. Commencing on the first anniversary of the consummation of the
Equity Offerings, the FirstMark Sole Stockholder is entitled to one demand
registration under the Securities Act in respect of FirstMark Sole Stockholder
Registrable Securities, provided such demand registration right shall apply
only if the amount of FirstMark Sole Stockholder Registrable Securities to be
registered constitutes at least 50% of the greatest amount of FirstMark Sole
Stockholder Registrable Securities owned by the FirstMark Sole Stockholder at
any time and has an anticipated aggregate offering price (before underwriters'
fees, commissions and discounts) of at least $10,000,000. In the FirstMark
Agreement, the FirstMark Sole Stockholder has agreed not to engage, directly
or indirectly, in any business which provides or proposes to provide in the
United States digital electronic message services in the 18 GHz frequency band
or such other frequency band to which digital electronic message services are
relocated by the FCC, or which provides fixed wireless voice, video or data
transmission services in any frequency band in Canada.
ASSOCIATED
Prior to the 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. The Company has authorized a registration rights
agreement with MSI whereby the Company will grant to MSI certain registration
rights substantially similar to those granted to NTT (see "Certain
Transactions and Other Matters--the Strategic Equity Investment--NTT
Registration Rights Agreement") and to DSC (see "--Members Agreement"). In
addition, Associated provides certain general and administrative services to
Teligent for a monthly fee of approximately $150,000.
Associated owns, operates and invests in a variety of communications
activities and enterprises that may be in competition with the Company. There
can be no assurance that Associated's current or future business activities
will not be in competition with the Company's business.
NTT
In connection with the NTT Purchase Agreement, the Company entered into the
Technical Services Agreement with NTT America. See "Certain Transactions and
Other Matters--The Strategic Equity Investment--Technical Services Agreement."
88
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of March 20, 1998
regarding the beneficial ownership of each class of the Company's Common Stock
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) each Named
Executive Officer, and (iv) all directors and executive officers as a group.
The address for the directors and officers of the Company is Teligent, Inc.,
8065 Leesburg Pike, Vienna, VA 22182.
<TABLE>
<CAPTION>
CLASS B COMMON STOCK
----------------------------------------------------
CLASS A COMMON CLASS B COMMON SERIES B-1 COMMON SERIES B-2 COMMON SERIES B-3
STOCK STOCK STOCK STOCK COMMON STOCK PERCENTAGE
--------------- ---------------- ----------------- ----------------- ---------------- OF VOTING
NAME AND ADDRESS POWER
OF BENEFICIAL NUMBER % NUMBER % NUMBER % NUMBER % NUMBER % OUTSTANDING
OWNER (13) (14) (13) (14) (13) (14) (13) (14) (13) (14) (13)
------------------ --------- ----- ---------- ----- ---------- ------ ---------- ------ --------- ------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
The Associated
Group, Inc.(1)... -- -- 21,436,689 48.3% 21,436,689 100.0% -- -- -- -- 40.8%
200 Gateway Tow-
ers
Pittsburgh, PA
15222
Telecom Ventures,
L.L.C.(2)........ -- -- 17,206,210 38.7% -- -- 17,206,210 100.0% -- -- 32.7%
200 N. Union
Street
Suite 300
Alexandria, VA
22201
Lynn Forester..... 1,831,410 22.4% -- -- -- -- -- -- -- -- 3.5%
c/o FirstMark
Holdings
527 Madison Ave-
nue
New York, NY
10022
Nippon Telegraph
and Telephone
Corporation...... -- -- 5,783,400 13.0% -- -- -- -- 5,783,400 100.0% 11.0%
Tokyo Opera City
Tower
20-2 Nishi-
Shinjuku 3-chome
Shinjuku-ku, To-
kyo 163-24
Japan
Alex J. Mandl(3).. 1,226,622 13.4% -- -- -- -- -- -- -- -- 2.3%
Myles P. Berk-
man(4)........... 10,000 * -- -- -- -- -- -- -- -- *
David J. Berk-
man(5)........... 120,968 1.5% -- -- -- -- -- -- -- -- *
William H. Berk-
man(6)........... 120,968 1.5% -- -- -- -- -- -- -- -- *
Donald H. Jones... 3,000 * -- -- -- -- -- -- -- -- *
Tetsuro Mikami.... -- -- -- -- -- -- -- -- -- -- --
Dr. Rajendra
Singh(7)......... 80,888 1.0% -- -- -- -- -- -- -- -- *
Kirby G. Pickle,
Jr.(8)........... 217,220 2.6% -- -- -- -- -- -- -- -- *
Laurence E. Har-
ris(9)........... 121,332 1.5% -- -- -- -- -- -- -- -- *
Abraham L. Mor-
ris(10).......... 124,332 1.5% -- -- -- -- -- -- -- -- *
Steven F.
Bell(11)......... 80,888 1.0% -- -- -- -- -- -- -- -- *
All directors and
executive offi-
cers as a group
(11 per-
sons)(12)........ 2,106,218 21.0% -- -- -- -- -- -- -- -- 3.9%
</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.
(3) Includes 1,001,622 shares of Class A Common Stock issuable upon exercise
of Mr. Mandl's stock options.
(4) Does not include 21,436,689 shares of Series B-1 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 Series
B-1 Common Stock held by Microwave Services, Inc.
(5) All such 120,968 shares of Class A Common Stock are issuable upon exercise
of David J. Berkman's stock options. Does not include 21,436,689 shares of
Series B-1 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 Series B-1
Common Stock held by Microwave Services, Inc.
(6) All such 120,968 shares of Class A Common Stock are issuable upon exercise
of William H. Berkman's stock options.
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<PAGE>
(7) All such 80,888 shares of Class A Common Stock are issuable upon exercise
of Dr. Singh's stock options which are exercisable within 60 days. Does
not include 17,206,210 shares of Series B-2 Common Stock held of record by
Telcom-DTS Investors, L.L.C., a subsidiary of Telcom Ventures, L.L.C. As
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 Series B-2 Common Stock
held by Telcom-DTS Investors, L.L.C.
(8) Includes 202,220 shares of Class A Common Stock issuable upon exercise of
Mr. Pickle's stock options.
(9) All such 121,332 shares of Class A Common Stock are issuable upon exercise
of Mr. Harris' stock options.
(10) Includes 121,332 shares of Class A Common Stock issuable upon exercise of
Mr. Morris' stock options which are exercisable within 60 days.
(11) All such 80,888 shares of Class A Common Stock are issuable upon exercise
of Mr. Bell's stock options which are exercisable within 60 days.
(12) Includes 1,850,218 shares of Class A Common Stock issuable upon exercise
of stock options held by all directors and executive officers as a group.
Does not include 21,436,689 and 17,206,210 shares of Series B-1 and B-2
Common Stock held of record by Microwave Services, Inc. and Telcom-DTS
Investors, L.L.C., respectively. See footnotes 4, 5 and 7.
(13) 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 exercisable within 60 days,
warrants and convertible securities held by such person, entity or group.
(14) 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, but not the
exercise or conversion of options, warrants and convertible securities
held by others shown in the table.
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<PAGE>
DESCRIPTION OF THE NOTES
The New Notes offered hereby will be issued under an indenture dated as of
February 20, 1998 (the "Indenture") between the Company, as issuer and First
Union National Bank, as trustee (in such capacity, the "Trustee"), a copy of
which has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part. Upon the effectiveness of the Registration Statement of
which this Prospectus is a part, the Indenture will be qualified under the
Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The
following summary of the material provisions of the Indenture does not purport
to be complete and is subject to, and qualified in its entirety by reference
to, the provisions of the Indenture, including the definitions of certain
terms contained therein and those terms made part of the Indenture by
reference to the Trust Indenture Act. For definitions of certain capitalized
terms used in the following summary, see "--Certain Definitions." As used in
this "Description of the Notes," the "Company" refers to Teligent, Inc. and
does not, unless the context otherwise indicates, include its subsidiaries.
GENERAL
The New Notes will be senior unsecured obligations of the Company limited in
aggregate principal amount at maturity to $440 million and will mature on
March 1, 2008. The Notes will rank pari passu in right of payment with all
other existing and future senior unsecured indebtedness of the Company. The
Notes will be effectively subordinated to all liabilities of each subsidiary
of the Company to its respective creditors.
The Trustee will authenticate and deliver from time to time New Notes for
original issue only in exchange for a like principal amount at maturity of Old
Notes.
The Old Notes were issued at a discount to their aggregate principal amount
at maturity to generate gross proceeds to the Company of approximately $250.7
million. Original Issue Discount on the New Notes will accrue from the date of
original issuance of the Old Notes. The New Notes will accrete at a rate of 11
1/2% compounded semi-annually, to an aggregate principal amount of $440
million by March 1, 2003. Cash interest will not accrue on the New Notes prior
to March 1, 2003. Thereafter, interest on the New Notes will accrue at a rate
of 11 1/2% per annum and will be payable in cash semi-annually on March 1 and
September 1, commencing on March 1, 2003 to Holders of record on the
immediately preceding February 15 and August 15, 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 New 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 New 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 Notes. Except as set forth below, the Notes will not
be redeemable at the option of the Company prior to March 1, 2003. On or after
March 1, 2003, 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 following prices
(expressed as percentages of the principal amount at Stated Maturity thereof),
if redeemed during the twelve months beginning March 1, 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>
2003........................................................... 105.750%
2004........................................................... 103.833%
2005........................................................... 101.917%
2006 and thereafter............................................ 100.000%
</TABLE>
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<PAGE>
SELECTION AND NOTICE OF REDEMPTION
If less than all of the 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 Accreted Value (as defined herein) thereof on any
Change of Control Payment Date (as defined below) occurring prior to March 1,
2003, plus any accrued and unpaid cash interest not otherwise included in the
Accreted Value to such Change of Control Payment Date, or 101% of the
principal amount thereof on any Change of Control Payment Date occurring on or
after March 1, 2003, plus accrued and unpaid interest, if any, to such change
of Control Payment Date, in accordance with the procedures set forth in the
Indenture.
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 Indenture. In addition,
one of the events that constitutes a Change of Control under the Indenture is
a sale, conveyance, transfer or lease of all or substantially all of the
property of the Company. The Indenture 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
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<PAGE>
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.
CERTAIN COVENANTS
Set forth below are certain covenants contained in the Indenture:
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
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thereof if, on the declaration date, the Company could have paid such dividend
in compliance with the Indenture; (ii) the making of Permitted Investments by
the Company or any of its Restricted Subsidiaries; (iii) the redemption,
repurchase, retirement or other acquisition of any Capital Stock or
Subordinated Debt of the Company in exchange for (including any such exchange
pursuant to the exercise of a conversion right or privilege in which cash is
paid in lieu of fractional shares or scrip), or out of the Net Cash Proceeds
of the substantially concurrent sale (other than to a Restricted Subsidiary of
the Company) of, Qualified Capital Stock of the Company; (iv) the purchase,
redemption, defeasance or other acquisition or retirement for value of
Subordinated Debt of the Company in exchange for (including any such exchange
pursuant to the exercise of a conversion right or privilege in which cash is
paid in lieu of fractional shares or scrip), or out of the Net Cash Proceeds
of a substantially concurrent incurrence (other than to a Restricted
Subsidiary of the Company) of, new Subordinated Debt of the Company so long as
(A) the principal amount of such new Subordinated Debt does not exceed the
principal amount (or, if such Subordinated Debt being refinanced provides for
an amount less than the principal amount thereof to be due and payable upon a
declaration of acceleration thereof, such lesser amount as of the date of
determination) of the Subordinated Debt being so purchased, redeemed,
defeased, acquired or retired, plus the lesser of the amount of any premium
required to be paid in connection with such refinancing pursuant to the terms
of the Subordinated Debt being refinanced or the amount of any premium
reasonably determined by the Company as necessary to accomplish such
refinancing, plus, in either case, the amount of expenses of the Company
incurred in connection with such refinancing, (B) such new Subordinated Debt
is subordinated to the Notes to the same extent as such Subordinated Debt so
purchased, redeemed, defeased, acquired or retired, and (C) such new
Subordinated Debt has an Average Life longer than the Average Life of the
Subordinated Debt being refinanced and a final Stated Maturity of principal
later than the final Stated Maturity of principal of the Subordinated Debt
being refinanced; (v) any purchase or defeasance of Subordinated Debt to the
extent required upon a change of control or asset sale (as defined therein) by
the indenture or other agreement or instrument pursuant to which such
Subordinated Debt was issued, but only if the Company (x) in the case of a
Change of Control, has complied with its obligations under 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").
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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;
(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 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
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that such Restricted Subsidiary is released from all of its obligations under
all of its Guarantees in respect of Debt Securities of the Company or its
obligations under its Debt Securities, as applicable. The obligations of each
Restricted Subsidiary under a Subsidiary Guarantee will be limited to the
maximum amount, as will, after giving effect to all other contingent and fixed
liabilities of such Restricted Subsidiary, result in the obligations of such
Restricted Subsidiary under the Subsidiary Guarantee not constituting a
fraudulent conveyance or fraudulent transfer under applicable law.
Notwithstanding the foregoing, any Subsidiary Guarantee by a Restricted
Subsidiary of the Notes shall provide by its terms that it shall be
automatically and unconditionally released and discharged upon the sale or
other disposition, by way of merger or otherwise, to any Person not an
Affiliate of the Company, of all of the Company's and its Restricted
Subsidiaries' Capital Stock in such Restricted Subsidiary. In addition, any
Subsidiary Guarantee will be automatically and unconditionally released and
discharged upon the merger or consolidation of the applicable Restricted
Subsidiary with and into the Company or another Restricted Subsidiary that has
guaranteed the Notes and that is the surviving Person in such merger or
consolidation.
Limitation on Issuances and Sales of Capital Stock in Restricted
Subsidiaries. The Company (a) will not permit any of its Restricted
Subsidiaries to issue any Capital Stock (other than to the Company or a
Restricted Subsidiary of the Company) unless the Company acquires at the same
time not less than its Proportionate Interest 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 Indenture, (ii) the ownership of Capital
Stock issued as permitted by clause (a) above, (iii) the ownership by
directors of directors' qualifying shares or the ownership by foreign
nationals of Capital Stock in any Restricted Subsidiary of the Company, to the
extent mandated by applicable law, (iv) the ownership of Capital Stock of a
Restricted Subsidiary issued and outstanding prior to the time that such
Person becomes a Restricted Subsidiary of the Company so long as such Capital
Stock was not issued in contemplation of such Person's becoming a Restricted
Subsidiary of the Company or otherwise being acquired by the Company, (v) the
issuance or sale of Capital Stock of a Restricted Subsidiary of the Company in
a transaction that complies with 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
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at least equal to the Fair Market Value (as evidenced by a Board Resolution,
which determination shall be conclusive (including as to the value of all non-
cash consideration)) of the property or assets sold or otherwise disposed of,
(ii) at least 75% of the consideration received by the Company or such
Restricted Subsidiary for such property or assets consists of cash or Eligible
Cash Equivalents and (iii) the Company or such Restricted Subsidiary of the
Company, as the case may be, uses the Net Cash Proceeds in the manner set
forth in the next paragraph; provided, however, that for purposes of this
covenant, "cash" shall include (i) the amount of any liabilities (other than
liabilities that are by their terms subordinated to the Notes) of the Company
or such Restricted Subsidiary (as shown on the Company's or such Restricted
Subsidiary's most recent balance sheet or in the notes thereto) that are
assumed by the transferee of any such assets or other property in such Asset
Sale or are no longer the liability of the Company or any Restricted
Subsidiary (and excluding any liabilities that are incurred in connection with
or in anticipation of such Asset Sale), but only to the extent that such
assumption is effected on a basis under which there is no further recourse to
the Company or any of its Restricted Subsidiaries with respect to such
liabilities, and (ii) any securities, notes or other obligations received by
the Company or any such Restricted Subsidiary in connection with such Asset
Sale that are converted by the Company or such Restricted Subsidiary into cash
within 60 days of receipt.
Within 360 days after any Asset Sale, the Company or such Restricted
Subsidiary of the Company, as the case may be, may at its option (a) reinvest
an amount equal to the Net Cash Proceeds (or any portion thereof) from such
disposition in Replacement Assets, provided that if such Investment is in a
project authorized by the Board of Directors of the Company that will take
longer than such 360 day period to complete, the Company 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 Accreted Value thereof on any Asset Sale Purchase Date occurring prior
to March 1, 2003, plus any accrued and unpaid cash interest not otherwise
included in Accreted Value to such Asset Sale Purchase Date, or 100% of the
principal amount thereof at Stated Maturity on any Asset Sale Purchase Date
occurring on or after March 1, 2003, plus accrued and unpaid interest, if any,
to such Asset Sale Purchase Date, in accordance with the procedures set forth
in the Indenture. 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 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,
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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.
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
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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
Indenture;
(b) immediately before and after giving effect to such transaction or
series of transactions on a pro forma basis (including, without limitation,
any Debt incurred or anticipated to be incurred in connection with or in
respect of such transaction or series of transactions), no Default or Event
of Default shall have occurred and be continuing or would result therefrom;
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 Indenture and the Notes with the same effect as if such Surviving Entity
had been named as the Company in the Indenture; and when a Surviving Person
duly assumes all of the obligations and covenants of the Company pursuant to
the Indenture 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 the Indenture:
(a) default in the payment of any installment of interest on the Notes
when it becomes due and payable and the continuance of such default for a
period of 30 days;
(b) default in the payment of the principal of (or premium, if any, on)
any Note at its Stated Maturity, upon repurchase, acceleration, optional
redemption, required repurchase (including pursuant to a Change of Control
Offer or an Asset Sale Offer) or otherwise, or the failure to make an offer
to purchase as therein required;
(c) the Company fails to perform or comply with the provisions of the
Indenture described under "Consolidation, Merger, Conveyance, Transfer or
Lease";
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(d) default in the performance, or breach, of any covenant or warranty of
the Company in the Indenture (other than a covenant or warranty a default
in whose performance or whose breach is specifically dealt with in (a), (b)
or (c) above) and continuance of such default or breach for a period of 60
days after specified written notice thereof has been given to the Company
by the Trustee or to the Company and the Trustee by the Holders of at least
25% of the aggregate principal amount at Stated Maturity of the Notes 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
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
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the outstanding aggregate principal amount at Stated Maturity of Notes 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. Prior
to March 1, 2003, the Default Amount with respect to the Notes shall equal the
Accreted Value of the Notes as of such date. On or after March 1, 2003, the
Default Amount with respect to the Notes shall equal 100% of the principal
amount at Stated Maturity of the Notes. Under certain circumstances, the
Holders of a majority in principal amount of the outstanding Notes may rescind
an acceleration and its consequences by notice to the Company and the Trustee.
AMENDMENT, SUPPLEMENT AND WAIVER
The Company and the Trustee, at any time and from time to time, without
notice or consent of any Holder, may amend, waive or supplement the Indenture
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
Indenture and 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 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 Indenture 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 Indenture by a successor Trustee, (7) to secure the
Notes, (8) to cure any ambiguity, to correct or supplement any provision in
the Indenture 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 the Indenture 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 Indenture 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 at Stated Maturity of the outstanding Notes, the
Company and the Trustee may amend, waive or supplement the Indenture or the
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 Note, (1) change the Stated Maturity of the principal of, or any
installment of interest on, any Note, or reduce the principal amount thereof
(or premium, if any) or the 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 Indenture or change the place of payment where, or the
coin or currency in which, any 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) reduce the percentage in
principal amount of the outstanding Notes, the consent of whose Holders is
necessary for any such supplemental indenture or required for any waiver of
compliance with certain provisions of the Indenture or certain Defaults
thereunder, (3) modify the obligations of the Company to make offers to
purchase Notes upon a Change of Control or from the proceeds of Asset Sales,
(4) subordinate in right of payment, or otherwise subordinate, the Notes to
any other indebtedness, or (5) 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 at Stated
Maturity of the outstanding Notes 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
Indenture and its consequences, except for a Default (1) in the payment of the
principal of (or premium, if any) or interest on any Note or (2) in
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respect of a covenant or provision hereof which under the first proviso to the
preceding paragraph cannot be modified or amended without the consent of the
Holder of each outstanding Note affected.
The Holders of a majority in aggregate principal amount at Stated Maturity
of the outstanding Notes may waive compliance with certain restrictive
covenants and provisions of the Indenture.
SATISFACTION AND DISCHARGE OF THE INDENTURE, DEFEASANCE AND COVENANT
DEFEASANCE
The Company may terminate its obligations under the Indenture 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 the 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 the 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 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 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 its obligations
with respect to the outstanding Notes ("defeasance"). Such defeasance means
that the Company will be deemed to have paid and discharged the entire Debt on
the outstanding Notes and the Indenture shall cease to be of further effect as
to all outstanding Notes except as to (i) rights of registration of transfer,
substitution and exchange of the 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
the Notes and any rights of the Holders with respect to such amounts, (iii)
the rights, obligations and immunities of the Trustee under the Indenture and
(iv) certain other specified provisions in the 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 its obligations of the Company with respect to certain covenants set
forth in the Indenture and any omission to comply with such obligations will
not constitute a Default or an Event of Default with respect to the Notes
("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 Notes, at any time prior to the Stated Maturity of the
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 the Notes, money in an amount, or
(C) a combination thereof, sufficient to pay and discharge the Accreted Value
of, premium, if any, and interest on the 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 Indenture and of the
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
Indenture (other than a Default or Event of Default resulting from the
incurrence of Debt, the proceeds of which are applied to such deposit), or any
material agreement or instrument to which the Company is a party or by which
it is bound; (iv) the Company shall have delivered to the Trustee an opinion
of outside counsel acceptable to the Trustee (who may be counsel to the
Company) to the effect that (a) in the event that the defeasance or covenant
defeasance, as the case may be, shall occur more than twelve months prior to
the Stated Maturity of the 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 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
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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 Indenture relating
to either defeasance or covenant defeasance, as the case may be, have been
complied with.
THE TRUSTEE
The Trustee's current address is 800 East Main Street, Lower Mezzanine,
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 Indenture. During the existence of an Event of Default, the
Trustee will exercise such of the rights and powers vested in it by the
Indenture, and use the same degree of care and skill in their exercise as a
prudent person would exercise or use under the circumstances in the conduct of
such person's own affairs.
The Indenture 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 Notes 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
Indenture at the request of any Holder of the Notes, unless such Holder shall
have offered to the Trustee security and indemnity satisfactory to it against
any loss, liability or expense.
The Trustee is also the trustee under an indenture governing the Company's
$300 million principal amount 11 1/2% Senior Notes due 2007.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
The Indenture 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 Indenture, 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 Indenture 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
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any capitalized terms used herein for which no
definition is provided.
"Accounts Receivable Subsidiary" means any Restricted Subsidiary of the
Company that is, directly or indirectly, wholly owned by the Company (other
than directors' qualifying shares) and organized for the purpose of and
engaged in (i) purchasing, financing, and collecting accounts receivable
obligations of customers of the Company or its Restricted Subsidiaries, (ii)
the sale or financing of such accounts receivable or interests therein and
(iii) other activities incident thereto.
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"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.
"Accreted Value" as of any date (the "Specified Date") means, with respect
to each $1,000 principal amount at Stated Maturity of Notes:
(i) if the Specified Date is one of the following dates (each a "Semi-
Annual Accrual Date"), the amount set forth opposite such date below:
<TABLE>
<CAPTION>
ACCRETED
SEMI-ANNUAL ACCRUAL DATE VALUE
------------------------ ---------
<S> <C>
Issue Date....................................................... $ 569.78
September 1, 1998................................................ 604.61
March 1, 1999.................................................... 639.37
September 1, 1999................................................ 676.14
March 1, 2000.................................................... 715.02
September 1, 2000................................................ 756.13
March 1, 2001.................................................... 799.61
September 1, 2001................................................ 845.59
March 1, 2002.................................................... 894.21
September 1, 2002................................................ 945.63
March 1, 2003.................................................... $1,000.00
</TABLE>
(ii) if the Specified Date occurs between two Semi-Annual Accrual Dates,
the sum of (a) the Accreted Value for the Semi-Annual Accrual Date
immediately preceding the Specified Date and (b) an amount equal to the
product of (x) the Accreted Value for the immediately following Semi-Annual
Accrual Date less the Accreted Value for the immediately preceding Semi-
Annual Accrual Date and (y) a fraction, the numerator of which is the
number of days actually elapsed from the immediately preceding Semi-Annual
Accrual Date to the Specified Date and the denominator of which is 180; and
(iii) if the Specified Date is after March 1, 2003, $1,000.
"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.
"Arrangement Commitment Letter" means the commitment letter among Nortel and
the financial institutions acting as arrangement agents thereunder setting
forth the terms and conditions under which the arranging agents will provide
the facility contemplated by the Financing Commitment Letter and underwrite
and arrange the syndication of such facility.
"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
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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 Indenture. Notwithstanding the provisions of the covenant
under "Limitation on Asset Sales", the Company and its Restricted Subsidiaries
may (a) sell or dispose of damaged, worn out or other obsolete property in the
ordinary course of business so long as such property is no longer necessary
for the proper conduct of the business of the Company or such Restricted
Subsidiary, as applicable, (b) create or assume Liens (or permit any
foreclosure thereon) securing Debt to the extent that such Lien does not
violate the "Limitation on Liens" covenant above, and (c) sell, convey,
transfer, lease or otherwise dispose of accounts receivable to an Accounts
Receivable Subsidiary or to Persons that are not Affiliates of the Company or
any Subsidiary of the Company in the ordinary course of business, including in
connection with financing transactions.
"Attributable Debt" means, with respect to an operating lease included in
any Sale and Leaseback Transaction at the time of determination, the present
value (discounted at the interest rate implicit in the lease or, if not known,
at the Company's incremental borrowing rate) of the obligations of the lessee
of the property subject to such lease for rental payments during the remaining
term of the lease included in such transaction, including any period for which
such lease has been extended or may, at the option of the lessor, be extended,
or until the earliest date on which the lessee may terminate such lease
without penalty or upon payment of penalty (in which case the rental payments
shall include such penalty), after excluding from such rental payments all
amounts required to be paid on account of maintenance and repairs, insurance,
taxes, assessments, water, utilities and similar charges.
"Average Life" means, as of any date, with respect to any Debt, the quotient
obtained by dividing (i) the sum of the products of (x) the number of years
from such date to the dates of each scheduled principal payment (including any
sinking fund or mandatory redemption payment requirements) of such Debt
multiplied in each case by (y) the amount of such principal payment by (ii)
the sum of all such principal payments.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
that is not a day on which banking institutions in the Borough of Manhattan,
The City of New York are authorized or obligated by law or executive order to
close.
"Capital Lease Obligation" of any Person means the obligation to pay rent or
other payment amounts under a lease of (or other Debt arrangement conveying
the right to use) real or personal property of such Person that is required to
be classified and accounted for as a capital lease or a liability on the face
of a balance sheet of such Person in accordance with GAAP and the Stated
Maturity thereof shall be the date of the last payment of rent or any amount
due under such lease prior to the first date upon which such lease may be
terminated by the lessee without payment of a penalty.
"Capital Stock" in any Person means any and all shares, interests,
participations or other equivalents in the equity interest (however
designated) in such Person and any rights (other than Debt securities
convertible into an equity interest), warrants or options to acquire an equity
interest in such Person.
"Change of Control" means the occurrence of any of the following events: (i)
any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of
the Exchange Act) other than a Permitted Holder is or becomes the "beneficial
owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except
that a
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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 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
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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 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 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
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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 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
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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
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, subject to the Arrangement Commitment Letter.
"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 Indenture shall utilize GAAP in effect at
the time of preparation of, and in accordance with the GAAP used to prepare,
the historical financial statements of the Company on the Issue Date.
"Guarantee" means, as applied to any obligation of another Person, (i) a
guarantee (other than by endorsement of negotiable instruments for collection
in the ordinary course of business), direct or indirect, in any manner, of any
part or all of such obligation, (ii) any direct or indirect obligation,
contingent or otherwise, of a Person guaranteeing or having the effect of
guaranteeing the obligations of any other Person in any manner and (iii) an
agreement of a Person, direct or indirect, contingent or otherwise, the
practical effect of which is to assure in any way the payment or performance
(or payment of damages in the event of non-performance) of all or any part of
such obligation of another Person (and "Guaranteed", "Guaranteeing" and
"Guarantor" shall have meanings correlative to the foregoing).
"Incur" means, with respect to any Debt or other obligation of any Person,
to create, issue, incur (by conversion, exchange or otherwise), extend,
assume, Guarantee or otherwise become liable in respect of such
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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", "incurable" 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 Indenture.
"Lien" means, with respect to any property or other asset, any mortgage or
deed of trust, pledge, hypothecation, assignment, deposit arrangement,
security interest, lien (statutory or other), charge, easement, preference,
priority or other encumbrance on or with respect to such property or other
asset (including, without limitation, any conditional sale or other title
retention agreement having substantially the same economic effect as any of
the foregoing).
"Maturity", when used with respect to a Note, means the date on which the
principal of such Note becomes due and payable as provided therein or in the
Indenture, whether at the Stated Maturity, on the purchase date established
pursuant to the terms of the Indenture with regard to a Change of Control
Offer or an Asset Sale Offer, as applicable, or by declaration of
acceleration, call for redemption or otherwise.
"Net Cash Proceeds" means, (a) with respect to Asset Sales of any property
or other assets by a Person or its Restricted Subsidiaries, cash and cash
equivalents received net of (i) all reasonable out-of-pocket expenses of such
Person or such Restricted Subsidiary incurred in connection with such sale,
including, without limitation, all legal, title and recording tax expenses,
commissions and other fees and expenses incurred (but excluding any finder's
fee or broker's fee payable to any Affiliate of such Person) and all federal,
state, foreign and local taxes arising in connection with such an Asset Sale
that are paid or required to be accrued as a liability under GAAP by such
Person or its Restricted Subsidiaries, (ii) all payments made by such Person
or its Restricted Subsidiaries on any Debt that is secured by such properties
or other assets in accordance with the terms of any Lien upon or with respect
to such properties or other assets or that must, by the terms of such Debt or
in order to obtain a
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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 and the
Senior Notes, any Guarantees in respect thereof, and any Debt arising by
reason of any Lien granted to secure any of the foregoing Debt; (h) Debt
arising from agreements providing for indemnification, adjustment of purchase
price or similar obligations, or from Guarantees, or letters of credit, surety
bonds or performance bonds securing any obligations of the Company or any of
its Restricted Subsidiaries pursuant to such agreements, in any case incurred
in connection with the disposition of any business, assets or Restricted
Subsidiary of the Company, in a principal amount not to exceed the gross
proceeds actually received by the Company or any Restricted Subsidiary in
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connection with such disposition; (i) Capital Lease Obligations in an
aggregate principal amount outstanding at any time not to exceed $10.0
million; (j) Debt in existence on the Issue Date; (k) Debt arising from the
honoring of a check, draft or similar instrument of a Person drawn against
insufficient funds, provided that such Debt is extinguished within five
Business Days of its incurrence; (l) Debt incurred (and refinancing of such
Debt) not to exceed, at any one time outstanding, two times the aggregate Net
Cash Proceeds received by the Company after the Issue Date from the issuance
and sale of its Capital Stock (other than (1) Redeemable Capital Stock and (2)
preferred stock that requires the accrual of dividends in cash prior to the
Stated Maturity of the Notes) or Subordinated Stockholder Debt to a Person
that is not a Subsidiary of the Company to the extent that such Net Cash
Proceeds have not been used to make a Permitted Investment pursuant to clause
(a) of the definition of "Permitted Investments", or to make a Restricted
Payment pursuant to the "Limitation on Restricted Payments" covenant, provided
that such Debt does not mature prior to the Stated Maturity of the Notes and
has an Average Life longer than the Notes; (m) any Debt incurred in connection
with or given in exchange for the renewal, extension, substitution, refunding,
defeasance, refinancing or replacement of any Debt referred to in clauses (c),
(g), (j), (n), and (o) and not incurred in violation of the Indenture
("Refinancing Debt"), provided, however, that (1) the principal amount of such
Refinancing Debt shall not exceed the principal amount of the Debt so renewed,
extended, substituted, refunded, defeased, refinanced or replaced (plus the
premiums paid, and the expenses incurred, in connection therewith), (2) with
respect to Refinancing Debt of any Debt, if the Average Life of the Debt being
renewed, extended, substituted, refunded, defeased, refinanced or replaced is
equal to or greater than the Average Life of the Notes, the Refinancing Debt
shall have an Average Life equal to or greater than the Average Life of the
Notes and shall not mature prior to the Stated Maturity of the Notes, and (3)
with respect to Refinancing Debt of any Debt, such Refinancing Debt shall rank
no more senior (including as a result of structural subordination of the
Notes), and shall be at least as subordinated, in right of payment to the
Notes as the Debt being renewed, extended, substituted, refunded, defeased,
refinanced or replaced; (n) Debt incurred in connection with a prepayment or
redemption of the Notes or the Senior Notes pursuant to a Change of Control,
provided that the principal amount of such Debt does not exceed 101% of the
principal amount at Stated Maturity of the Notes or the principal amount of
the Senior 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
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principal amount of such refinancing Debt does not exceed the principal amount
of such Debt being refinanced. The principal amount of any Debt incurred to
refinance other Debt, if incurred in a different currency from the Debt being
refinanced, shall be calculated based on the currency exchange rate applicable
to the currencies in which such respective Debt is denominated that is in
effect on the date of such refinancing.
Debt of any Person that is not a Restricted Subsidiary, which Debt is
outstanding at the time such Person becomes a Restricted Subsidiary or is
merged with or into or consolidated with the Company or a Restricted
Subsidiary, shall be deemed to have been incurred at the time such Person
becomes a Restricted Subsidiary or is merged with or into or consolidated with
the Company or a Restricted Subsidiary, and Debt which is assumed at the time
of the acquisition of any asset shall be deemed to have been incurred at the
time of such acquisition.
"Permitted Holder" means each of MSI, DSC, NTT, Alex 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
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Interest Swap Obligations and Currency Hedge Obligations permitted under the
Indenture; (g) Liens in favor of the Company or any of its Restricted
Subsidiaries; (h) Liens securing the Notes and the Senior Notes or any
Guarantees thereof; (i) any interest or title of a lessor in the property
subject to any Capitalized Lease Obligation or operating lease; (j) Liens
securing reimbursement obligations with respect to letters of credit that
encumber documents and other property relating to such letters of credit and
the products and proceeds thereof; (k) Liens arising out of conditional sale,
title retention, consignment or similar arrangements for the sale of goods
entered into by the Company or any of its Restricted Subsidiaries in the
ordinary course of business; (l) Liens on the property or assets or Capital
Stock of Accounts Receivable Subsidiaries and Liens arising out of any sale of
accounts receivable in the ordinary course (including in connection with a
financing transaction) to or by an Accounts Receivable Subsidiary or to
Persons that are not Affiliates of the Company; (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.
"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 February 15 or August 15 (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
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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, (iv) an
Investment in any Person, including an Unrestricted Subsidiary, other than (a)
a Permitted Investment, (b) an Investment by the Company in a Restricted
Subsidiary of the Company or (c) an Investment by a Restricted Subsidiary of
the Company in the Company or a Restricted Subsidiary of the Company or (v) a
payment of principal, interest or other payment on or in respect of
Subordinated Stockholder Debt. 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, except to the extent expressly permitted by the
"Limitation on Restricted Payments" covenant, 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 the
earlier of (a) six months after the Stated Maturity of the Notes and (b) the
payment in full in cash of all the Notes and provided further that (i) such
Debt shall be subordinated to the Notes pursuant to the terms of a
subordinated note in the form attached to the Indenture and (ii) the Company
shall have delivered one or more opinions of counsel as to the validity and
enforceability of such subordinated note.
"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.
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"Telecommunications Assets Debt" means any Debt of the Company or any of its
Restricted Subsidiaries to finance the acquisition, construction, expansion or
development of Telecommunications Assets; provided that, at the time of
incurrence, such Debt does not exceed 100% of the lesser of cost or Fair
Market Value of the Telecommunications Assets to be so acquired, constructed,
expanded or developed.
"Telecommunications Business" means, when used in reference to any Person,
that such Person is engaged primarily in the business of (i) transmitting or
providing services relating to the transmission of voice, video or data
through owned or leased transmission facilities, (ii) creating, developing or
marketing communications related network equipment, software and other devices
for use in a Telecommunications Business or (iii) evaluating, participating in
or pursuing any other activity or opportunity that is related to those
identified in (i) or (ii) above; provided that the determination of what
constitutes a Telecommunications Business shall be made in good faith by the
Board of Directors of the Company.
"U.S. Government Obligations" means (x) securities that are (i) direct
obligations of the United States of America for the payment of which the full
faith and credit of the United States of America is pledged or (ii)
obligations of a Person controlled or supervised by and acting as an agency or
instrumentality of the United States of America the payment of which is
unconditionally guaranteed as a full faith and credit obligation by the United
States of America, which securities, in either case under 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.
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"Vendor Debt" means any Debt incurred (x) pursuant to the facility
contemplated by the Financing Commitment Letter and/or the Arrangement
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.
BOOK-ENTRY DELIVERY AND FORM
The certificates representing the New Notes will be issued in fully
registered form. Except as described below, the New Notes initially will be
represented by one or more global Notes, in definitive, fully registered form
without interest coupons (together the "Global Note") and will be deposited
with the Trustee as custodian for DTC and registered in the name of Cede & Co.
or such other nominee as DTC may designate. One Global Note shall be issued
with respect to each $200 million aggregate principal amount at maturity of
the New Notes and an additional certificate will be issued for any remaining
amount of the New Notes tendered for exchange.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a "banking
organization" within the meaning of the New York Banking Law, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provision of Section 17A of the Exchange Act. DTC was created to hold
securities for its participants and facilitate the clearance and settlement of
securities transactions between participants through electronic book-entry
changes in accounts of its participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and certain other
organizations. Indirect access to the DTC system is available to others such
as banks, brokers, dealers and trust companies that clear through or maintain
a custodial relationship with a participant, either directly or indirectly
("indirect participants").
Upon the issuance of the Global Note, DTC or its custodian will credit, on
its internal system, the respective principal amounts at maturity of the New
Notes represented by such Global Note to the accounts of persons who have
accounts with DTC. Ownership of beneficial interests in the Global Note will
be limited to persons who have accounts with DTC ("participants") or persons
who hold interests through participants. Ownership of beneficial interests in
the Global Note will be shown on, and the transfer of that ownership will be
effected only through, records maintained by DTC or its nominee (with respect
to interests of participants) and the records of participants (with respect to
interests of persons other than participants).
So long as DTC or its nominee is the registered owner or holder of the
Global Note, DTC or such nominee, as the case may be, will be considered the
sole record owner or holder of the New Notes represented by such Global Note
for all purposes under the Indenture and the New Notes. No beneficial owners
of an interest in the Global Note will be able to transfer that interest
except in accordance with DTC's applicable procedures in addition to those
provided for under the Indenture. Owners of beneficial interests in the Global
Note will not be entitled to have the New Notes represented by such Global
Note registered in their names, will not receive or be entitled to receive
physical delivery of certificated Notes in definitive form and will not be
considered to be the owners or holders of any New Notes under the Global Note.
Accordingly, each person owning a beneficial interest in the Global Note must
rely on the procedures of DTC and, if such person is not a participant, on the
procedures of the participant through which such person owns its interests, to
exercise any right of a holder of New Notes under the Global Note. The Company
understands that under existing industry practice, in the event an owner of a
beneficial interest in the Global Note desires to take any action that DTC, as
the holder of the
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Global Note, is entitled to take, DTC would authorize the participants to take
such action, and that the participants would authorize beneficial owners
owning through such participants to take such action or would otherwise act
upon the instructions of beneficial owners owning through them.
Payments of the principal of, premium, if any, and interest on the New Notes
represented by the Global Note will be made to DTC or its nominee, as the case
may be, as the registered owner thereof. Neither the Company, the Trustee, nor
any paying agent will have any responsibility or liability for any aspect of
the records relating to or payments made on account of beneficial ownership
interests in the Global Note or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal of, premium, if any, or interest in respect of the Global Note will
credit participants' accounts with payments in amounts proportionate to their
respective beneficial ownership interests in the principal amount of such
Global Note, as shown on the records of DTC or its nominee. The Company also
expects that payments by participants to owners of beneficial interests in
such Global Note held through such participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers registered in the names of nominees for such
customers. Such payments will be the responsibility of such participants.
Transfer between participants in DTC will be effected in the ordinary way in
accordance with DTC rules. If a Holder requires physical delivery of Notes in
certificated form ("Certificated Notes") for any reason, including to sell
Notes to persons in states which require such delivery of such Notes or to
pledge such Notes, such holder must transfer its interest in the Global Note,
in accordance with the normal procedures of DTC and the procedures set forth
in the Indenture.
Unless and until they are exchanged in whole or in part for certificated New
Notes in definitive form, the Global Note may not be transferred except as a
whole by DTC to a nominee of DTC or by a nominee of DTC to DTC or another
nominee of DTC.
Beneficial owners of New Notes registered in the name of DTC or its nominee
will be entitled to be issued, upon request, New Notes in definitive
certificated form.
DTC has advised the Company that DTC will take any action permitted to be
taken by a holder of Notes (including the presentation of Notes for exchange
as described below) only at the direction of one or more participants to whose
account the DTC interests in the Global Note are credited and only in respect
of such portion of the aggregate principal amount of Notes as to which such
participant or participants has or have given such direction.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Note among participants of DTC, it is
under no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither the Company nor the Trustee will have any
responsibility for the performance by DTC or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
Subject to certain conditions, any person having a beneficial interest in
the Global Note may, upon request to the Trustee, exchange such beneficial
interest for New Notes in the form of Certificated Notes. Upon any such
issuance, the Trustee is required to register such Certificated Notes in the
name of, and cause the same to be delivered to, such person or persons (or the
nominee of any thereof). In addition, if DTC is at any time unwilling or
unable to continue as a depositary for the Global Note and a successor
depositary is not appointed by the Company within 90 days, the Company will
issue Certificated Notes in exchange for the Global Note.
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EXCHANGE OFFER; REGISTRATION RIGHTS
Holders of New Notes are not generally entitled to any registration rights
with respect to such New Notes. In connection with the initial issuance and
sale of the Old Notes, the Initial Purchasers and their assignees became
entitled to the benefits of the Registration Rights Agreement. Pursuant to the
Registration Rights Agreement, for the benefit of the holders of the Old
Notes, Teligent is obligated to, at its own expense, (i) file the Exchange
Offer Registration Statement with the Commission with respect to the Exchange
Offer to exchange the New Notes for the Old Notes having substantially
identical terms in all material respects to the Old Notes (except that the New
Notes will not contain terms with respect to transfer restrictions or interest
rate increases as described herein) by May 21, 1998, (ii) use its best efforts
to cause the Exchange Offer Registration Statement to be declared effective by
the Commission under the Securities Act by July 20, 1998, (iii) use its best
efforts to cause the Exchange Offer Registration Statement to remain effective
until the closing of the Exchange Offer and (iv) use its best efforts to
consummate the Exchange Offer by August 19, 1998. Upon the Exchange Offer
Registration Statement being declared effective, the Company will offer the
New Notes in exchange for surrender of the Old Notes. The Company will keep
the Exchange Offer open for at least 20 business days (or longer if required
by applicable law) after the date that notice of the Exchange Offer is mailed
to holders of the Old Notes. For each Old Note surrendered to the Company
pursuant to the Exchange Offer, the holder who surrendered such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note. Original Issue Discount on the New Notes will accrue from the date
of original issuance of the Old Notes.
Under existing interpretations of the Securities Act by the staff of the
Commission contained in several no-action letters to third parties, and
subject to the immediately following sentence, the Company believes that the
New Notes would generally be freely transferable by holders thereof after the
Exchange Offer without further registration under the Securities Act (subject
to certain representations required to be made by each holder of Old Notes, as
set forth below). However, any purchaser of Old Notes who is an "affiliate" of
the Company or who intends to participate in the Exchange Offer for the
purpose of distributing the New Notes (i) will not be able to rely on the
interpretation of the staff of the Commission, (ii) will not be able to tender
its Old Notes in the Exchange Offer and (iii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any sale or transfer of the New Notes unless such sale or
transfer is made pursuant to an exemption from such requirements.
In addition, in connection with any resales of New Notes, any broker-dealer
(a "Participating Broker-Dealer") which acquired the Old Notes for its own
account as a result of market making or other trading activities must deliver
a prospectus meeting the requirements of the Securities Act. The Commission
has taken the position that Participating Broker-Dealers may fulfill their
prospectus delivery requirements with respect to the New Notes (other than a
resale of an unsold allotment from the original sale of the Old Notes) with
the prospectus contained in the Exchange Offer Registration Statement. The
Company will agree to make available for a period of up to 90 days after
consummation of the Exchange Offer a prospectus meeting the requirements of
the Securities Act to any Participating Broker-Dealer and any other persons,
if any, with similar prospectus delivery requirements, for use in connection
with any resale of New Notes. A Participating Broker-Dealer or any other
person that delivers such a prospectus to purchasers in connection with such
resales will be subject to certain of the civil liability provisions under the
Securities Act and will be bound by the provisions of the Registration Rights
Agreement (including certain indemnification rights and obligations
thereunder).
Each holder of the Old Notes (other than certain specified holders) who
wishes to exchange Old Notes for New Notes in the Exchange Offer will be
required to make certain representations, including representations that (i)
any New Notes to be received by it will be acquired in the ordinary course of
its business, (ii) it has no arrangement or understanding with any person to
participate in the distribution (within the meaning of the Securities Act) of
the New Notes, (iii) it is not an "affiliate" (as defined in Rule 405 under
the Securities Act) of the Company or, if it is such an affiliate, it will
comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable and (iv) it is not acting on behalf of
any person who could not truthfully make the foregoing representations.
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In the event that (i) any changes in law or the applicable interpretations
of the staff of the Commission do not permit the Company to effect the
Exchange Offer, (ii) for any other reason the Exchange Offer Registration
Statement is not declared effective by July 20, 1998 or the Exchange Offer is
not consummated by August 19, 1998, (iii) any holder of Old Notes (other than
the Initial Purchasers) is not eligible to participate in the Exchange Offer,
or (iv) under certain circumstances, if the Initial Purchasers shall so
request, the Company will, at its expense, (a) as promptly as practicable,
file with the Commission the Shelf Registration Statement covering resales of
the Old Notes, (b) use its best efforts to cause the Shelf Registration
Statement to be declared effective under the Securities Act by August 19, 1998
and (c) use its best efforts to keep effective the Shelf Registration
Statement until the earlier of two years from the Issuance Date or such
shorter period ending when all Notes covered by the Shelf Registration
Statement have been sold in the manner set forth and as contemplated in the
Shelf Registration Statement or when the Notes become eligible for resale
pursuant to Rule 144 under the Securities Act without volume restrictions, if
any. The Company will, in the event of the filing of the Shelf Registration
Statement, provide to each holder of the Notes copies of the prospectus which
is a part of the Shelf Registration Statement, notify each such holder when
the Shelf Registration Statement has become effective and take certain other
actions as are required to permit unrestricted resales of the Notes. A holder
of Notes that sells its Notes pursuant to the Shelf Registration Statement
generally will be required to be named as a selling security holder in the
related prospectus and to deliver a prospectus to purchasers, will be subject
to certain of the civil liability provisions under the Securities Act in
connection with such sales and will be bound by the provisions of the
Registration Rights Agreement that are applicable to such a holder (including
certain indemnification rights and obligations thereunder). In addition, each
holder of the Notes will be required to deliver information to be used in
connection with the Shelf Registration Statement and to provide comments on
the Shelf Registration Statement within the time periods set forth in the
Registration Rights Agreement in order to have their Notes included in the
Shelf Registration Statement and to benefit from the provisions regarding
liquidated damages set forth in the following paragraph.
Although the Company has filed the registration statements described above,
as required, there can be no assurance that such registration statements or
amendments thereto will become effective. In the event that either (i) the
Exchange Offer Registration Statement has not been declared effective on or
prior to July 20, 1998 or (ii) the Exchange Offer is not consummated, and a
Shelf Registration Statement is not declared effective, on or prior to August
19, 1998, cash interest ("Additional Interest") will accrue and become payable
on the Notes (in addition to the accrual of original issue discount on the
Notes), at a rate per annum equal to one-quarter of one percent of the
Accreted Value of the Old Notes following July 20, 1998 in the case of clause
(i) above or following August 19, 1998 in the case of clause (ii) above, which
rate will be increased by an additional one-quarter of one percent per annum
for each 90-day period that any such additional interest continues to accrue;
provided that the aggregate increase in such annual interest rate may in no
event exceed one percent. Such Additional Interest shall become payable semi-
annually on each March 1 and September 1, as applicable, following the periods
set forth in clauses (i) or (ii) above. Upon (x) the effectiveness of the
Exchange Offer Registration Statement after July 20, 1998 described in clause
(i) above or (y) the consummation of the Exchange Offer or the effectiveness
of a Shelf Registration Statement, as the case may be, after August 19, 1998
described in clause (ii) above, such Additional Interest rate borne by the Old
Notes from the date of such filing, effectiveness or consummation, as the case
may be, will be reduced to the original interest rate if the Company is
otherwise in compliance with this paragraph; provided, however, that if, after
any such reduction in interest rate, a different event specified in clause (i)
or (ii) above occurs, the interest rate may again be increased pursuant to the
foregoing provisions.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified
in its entirety by, all the provisions of the Registration Rights Agreement, a
copy of which will be made available upon request to the Company.
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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 Network Products Purchase Agreement with
Nortel for the purchase of the Deliverables. The Company has also entered into
the Financing Commitment Letter with Nortel setting forth the anticipated
terms and conditions under which Nortel was to provide the Nortel Loans to the
Company in an aggregate amount of up to $780 million to finance the purchase
of the Deliverables and to provide working capital. On July 2, 1998, the
Company entered into the Bank Credit Agreement with (i) the Lenders from time
to time parties thereto, (ii) Chase Securities Inc., Goldman Sachs and TD
Securities (USA) Inc., as Arrangers, (iii) Goldman Sachs, as Syndication
Agent, (iv) Toronto Dominion (Texas), Inc., as Documentation Agent, and (v)
The Chase Manhattan Bank as Administrative Agent. Under the Bank Credit
Agreement, the Lenders have provided to the Company Credit Facilities up to an
aggregate principal amount of $800 million for working capital and general
corporate purposes, including, without limitation, the acquisition of
telecommunications equipment, software and services. The Lenders will make
$780 million of the Credit Facilities available to Teligent on behalf of
Nortel in lieu of the Nortel Financing, which Credit Facilities constitute
"Vendor Financing" under the Indentures, and the remaining $20 million of the
Credit Facilities available to Teligent as "Telecommunications Assets Debt" in
accordance with the terms of the Indentures. Availability of the Credit
Facilities under the Bank Credit Agreement is subject to the conditions that
the representations and warranties under the Bank Credit Agreement and related
documents shall be true and correct and no default or event of default under
the Bank Credit Agreement shall have occurred and be continuing. In addition,
the Company must meet certain operational tests before the full amount of the
Credit Facilities is available to the Company. The Company's obligations under
the Bank Credit Agreement are guaranteed by substantially all of its domestic
subsidiaries and are secured by substantially all of the assets of the Company
and such subsidiaries.
NETWORK PRODUCTS PURCHASE AGREEMENT
The Network Products Purchase Agreement outlines the principal terms and
conditions under which the Company will purchase certain portions of its 24
GHz telecommunications systems network infrastructure equipment needs from
Nortel (such equipment being herein referred to as the "Deliverables"). 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 Network Products Purchase Agreement.
The Network Products Purchase Agreement has a term of five years (the
"Term").
The Network Products Purchase Agreement provides that Nortel will supply
Teligent with switching infrastructure (Teligent Central Offices, or "TCOs")
made by Nortel. The Network Products Purchase Agreement provides 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 Network Products Purchase Agreement
provides 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.
In addition, the Network Products Purchase Agreement provides 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.
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The Network Products Purchase Agreement 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 Network Products Purchase Agreement provides that Nortel
will also bid on the supply of Adjunct Deliverables. The Network Products
Purchase Agreement provides 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 Network
Products Purchase Agreement. By reason of this designation Teligent agrees to
place all purchase orders for Core Deliverables during the Term with Nortel.
The Network Products Purchase Agreement provides 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
Network Products Purchase Agreement provides 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 Network Products Purchase
Agreement. 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 Network Products Purchase Agreement provides 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
Network Products Purchase Agreement provides 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 Network Products Purchase Agreement provides 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 Network
Products Purchase Agreement provides that Nortel will face certain penalties
for the late acceptance of equipment and system outages due to Nortel-supplied
equipment and services.
The Network Products Purchase Agreement provides that the definitive
agreement will contain certain customary representations and warranties and
limitations on liabilities. The Network Products Purchase Agreement provides
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 Network Products Purchase Agreement provides 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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The Credit Facilities provided to the Company under the Credit Agreement are
structured as three separate tranches as follows:
<TABLE>
<CAPTION>
364-Day Delayed Draw Term Loan Facility........................ $200 million
<S> <C>
Revolving Credit Facility...................................... $25 million
Tranche A Term Loan Facility................................... $575 million
------------
TOTAL........................................................ $800 million
============
</TABLE>
All advances under each of the Credit Facilities may be used to finance the
purchase of Deliverables and for other general corporate and working capital
purposes, provided that $20 million under the facilities will be
"Telecommunications Assets Debt" under the Indentures. The 364-Day Delayed
Draw Term Loan Facility is available in multiple draws for 364 days and may be
extended for an additional 364 days with the consent of the Lenders or at the
option of the Company, converted into seven year amortizing term loans. The
Tranche A Term Loan Facility is available in multiple draws for a period of 4
years and will be payable in 16 consecutive quarterly escalating installments
commencing 51 months after closing. Availability under the Credit Facilities
is limited to $300,000,000 until the Company is commercially operational in at
least 10 markets and limited to $550,000,000 until the Company is commercially
operational in 25 markets. $780 million of the Credit Facilities is being made
available to Teligent on behalf of Nortel in lieu of the Nortel Financing and
constitutes "Vendor Financing" under the Indentures.
The Credit Agreement requires mandatory prepayment of the Credit Facilities
in the amount of (i) the pro rata share allocable to the Credit Facilities of
any mandatory prepayment required to be made in respect of any other
indebtedness of the Company, (ii) 100% of the net cash proceeds of certain
assets sales by the Company and its restricted subsidiaries under the Credit
Agreement which are not reinvested to the Company's business, and (iii) 50% of
excess cash flow for each fiscal year commencing with fiscal year 2002.
Mandatory prepayments may also be required for change of control. Optional
prepayments (and prepayments as a result of a change of control) occurring
prior to the first anniversary of the closing will be subject to a prepayment
fee.
The loans made pursuant to the Credit Facilities 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 initially the revenues
of the Company and thereafter the total leverage ratio of 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 Credit Facilities are secured by substantially all of the existing and
future assets of the Company. Certain of the Company's domestic subsidiaries
will also guarantee the Company's obligations under the Credit Agreement and
related documentation (the "Credit Documents") and will also pledge
substantially all of their existing and future assets as collateral. All
collateral for the loans contemplated thereby will be held for the equal and
ratable benefit of, and shared by, the Lenders under the Credit Agreement, and
certain subsequent secured lenders or financiers of the Company (who will be
expected to enter into collateral sharing or similar arrangements). Credit
Documents 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, and maintenance of licenses, (b) negative
covenants restricting the ability to incur or create (with standard baskets
and exceptions) liens and debt and otherwise restricting (with customary
exceptions) mergers or consolidations, disposal of assets, investments,
payments of dividends and distributions changes in the nature of the business
of the Company, prepayment or redemption of debt, 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.
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The Credit Documents contain customary representations and warranties for
similarly situated borrowers in secured transactions. The Credit Documents
also contain events of default (with standard grace periods and exceptions)
with respect to, any others, payments, representations and warranties,
covenants, cross default, bankruptcy and similar proceedings, judgments,
enforceability of the Credit Documents, validity and perfection of security
interests and ERISA.
In connection with the arranging and the providing of the Credit Facilities,
the Company has paid various arrangement, commitment and other fees to the
Arrangers, and is required to pay to the Lenders certain commitment fees on
the unused portion of the Credit Facilities.
THE SENIOR NOTES
On November 26, 1997, the Company issued, in a public offering, $300,000,000
aggregate principal amount of 11 1/2% Senior Notes due 2007. The Senior Notes
rank pari passu with the Notes and contain provisions similar to the Notes
offered hereby regarding optional redemption, change of control and covenants
substantially similar to those in the Notes. The Senior Notes are senior
unsecured obligations of the Company except for the pledge by the Company of
certain securities which provide for payment of the first six scheduled
interest payments.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of certain United States federal
income tax consequences associated with the exchange of the Old Notes for the
New Notes pursuant to the Exchange Offer and the ownership and disposition of
the New Notes. This summary applies only to a beneficial owner of a New Note
who acquired an Old Note at the initial offering for the original offering
price thereof and who acquires the New Note pursuant to the Exchange Offer.
This discussion is based on provisions of the Internal Revenue Code of 1986,
as amended (the "Code"), Treasury regulations promulgated thereunder, and
administrative and judicial interpretations thereof, all as in effect on the
date hereof and all of which are subject to change, possibly with retroactive
effect. This discussion does not address the tax consequences to subsequent
purchasers of the New Notes and is limited to investors who hold the Old Notes
and New Notes as capital assets. Furthermore, this discussion does not address
all aspects of United States federal income taxation that may be applicable to
investors in light of their particular circumstances, or to investors subject
to special treatment under United States federal income tax law (including,
without limitation, certain financial institutions, insurance companies, tax-
exempt entities, dealers in securities or persons who have acquired the New
Notes as part of a straddle, hedge, conversion transaction or other integrated
investment).
EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS TAX ADVISOR AS TO THE
PARTICULAR TAX CONSEQUENCES TO SUCH PURCHASER OF THE ACQUISITION, OWNERSHIP
AND DISPOSITION OF THE NEW NOTES, INCLUDING THE APPLICABILITY OF ANY FEDERAL
ESTATE OR GIFT TAX LAWS OR ANY STATE, LOCAL OR FOREIGN TAX LAWS, ANY CHANGES
IN APPLICABLE TAX LAWS AND ANY PENDING OR PROPOSED LEGISLATION OR REGULATIONS.
EXCHANGE OFFER
For United States federal income tax purposes, a New Note received pursuant
to the Exchange Offer will be treated as a continuation of the Old Note in the
hands of a holder. As a result, there will be no United States federal income
tax consequences to a holder who exchanges an Old Note for a New Note pursuant
to the Exchange Offer and any such holder will have the same adjusted tax
basis, holding period and original issue discount in the New Note as it had in
the Old Note immediately before the exchange.
SALE, EXCHANGE AND REDEMPTION OF NOTES
A sale, exchange or redemption of a New Note will result in capital gain or
loss equal to the difference between the amount of cash or other property
received for such New Note and the holder's adjusted tax basis in the New 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 individual
and other noncorporate taxpayers, capital gains recognized on New 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 tax
advisors regarding the availability and effect of a certain tax election to
mark-to-market New Notes held on January 1, 2001.
The foregoing does not discuss special rules that may affect the treatment
of purchasers that acquired Old Notes other than at the initial offering for
the original offering price thereof, including those provisions of the Code
relating to the treatment of "market discount," "acquisition premium" and
"amortizable bond premium."
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PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. In addition, until 180 days from the date of this
Prospectus, all dealers effecting transactions in the New Notes may be
required to deliver a prospectus.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the New Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from
any such broker-dealer or the purchasers of any such New Notes. Any broker-
dealer that resells New Notes that were received by it for its own account
pursuant to the Exchange Offer and any broker or dealer that participates in a
distribution of such New Notes may be deemed to be an "underwriter" within the
meaning of the Securities Act and any profit on any such resale of New Notes
and any commission or concessions received by any such persons may be deemed
to be underwriting compensation under the Securities Act. The Letter of
Transmittal states that, by acknowledging that it will deliver and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
For a period of 90 days after the Expiration Date, Teligent will promptly
send additional copies of this Prospectus and any amendment or supplement to
this Prospectus to any broker-dealer that requests such documents in the
Letter of Transmittal. Teligent has agreed to pay all expenses incident to the
Exchange Offer (including the expenses of one counsel for the holders of the
Notes) other than commissions or concessions of any brokers or dealers and
will indemnify the Holders of the Notes (including any broker-dealers) against
certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the New Notes offered hereby will be passed upon for the
Company by Laurence E. Harris.
EXPERTS
The financial statements of Teligent, Inc. (a development stage company)
(formerly Teligent, L.L.C.) as of December 31, 1997 and 1996, and the related
statements of operations, stockholders' equity (deficit), and cash flows for
the year ended December 31, 1997 and for the periods March 5, 1996 (date of
inception) to December 31, 1997 and 1996 appearing in this Registration
Statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon appearing elsewhere herein. The financial
statements audited by Ernst & Young LLP have been included in reliance on
their report as experts in accounting and auditing.
126
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
Audited Financial Statements
Report of Ernst & Young LLP, Independent Auditors..................... F-2
Balance Sheets as of December 31, 1997 and 1996....................... F-3
Statements of Operations for the year ended December 31, 1997 and the
periods from March 5, 1996 (date of inception) to December 31, 1997
and 1996............................................................. F-4
Statements of Stockholders' Equity (Deficit) for the period from March
5, 1996 (date of inception) to December 31, 1997..................... F-5
Statements of Cash Flows for the year ended December 31, 1997 and the
periods from March 5, 1996 (date of inception) to December 31, 1997
and 1996............................................................. F-6
Notes to Financial Statements......................................... F-7
Unaudited Financial Statements
Condensed Balance Sheets as of March 31, 1998 (unaudited) and December
31, 1997............................................................. F-15
Unaudited Condensed Statements of Operations for the three months
ended March 31, 1998 and 1997, and for the period March 5, 1996 (date
of inception) to March 31, 1998...................................... F-16
Condensed Statements of Shareholders' Equity (Deficit) for the period
March 5, 1996 (date of inception) to December 31, 1997, and for the
three months ended March 31, 1998 (unaudited)........................ F-17
Unaudited Condensed Statements of Cash Flows for the three months
ended March 31, 1998 and 1997, and for the period March 5, 1996 (date
of inception) to March 31, 1998...................................... F-18
Notes to Unaudited Condensed Financial Statements..................... F-19
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Teligent, Inc.
We have audited the accompanying balance sheets of Teligent, Inc., (a
development stage company) (formerly Teligent, L.L.C.) as of December 31, 1997
and 1996, and the related statements of operations, and stockholders' equity
(deficit) and cash flows for the year ended December 31, 1997, and for the
periods from March 5, 1996 (date of inception) to December 31, 1997 and 1996.
The financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits 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 audits provide 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, Inc., (formerly
Teligent, L.L.C.) at December 31, 1997 and 1996, and the results of its
operations and its cash flows for the year ended December 31, 1997, and for
the periods from March 5, 1996 (date of inception) to December 31, 1997 and
1996, in conformity with generally accepted accounting principles.
Ernst & Young LLP
Vienna, Virginia
February 27, 1998
F-2
<PAGE>
TELIGENT, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1997 1996
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................... $ 424,900,715 $ 1,302,612
Prepaid expenses and other current assets....... 7,087,268 147,073
Restricted cash and investments................. 30,372,962 --
------------- ------------
Total current assets.......................... 462,360,945 1,449,685
Property and equipment, net..................... 8,185,899 3,544,949
Restricted cash and investments................. 64,702,148 --
Intangible assets, net.......................... 60,354,191 --
Other assets.................................... 777,085 150,695
------------- ------------
Total assets.................................. $ 596,380,268 $ 5,145,329
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable................................ $ 16,577,277 $ 3,002,179
Accrued interest and other...................... 4,467,473 646,972
Revolving line of credit........................ -- 2,000,000
Accrued company appreciation rights............. -- 2,778,165
------------- ------------
Total current liabilities..................... 21,044,750 8,427,316
11 1/2% Senior Notes, due 2007.................... 300,000,000 --
Other non-current liabilities..................... 1,189,296 292,548
Commitments and contingencies
Stockholders' equity (deficit):
Preferred stock................................. -- --
Common stock.................................... 525,827 --
Member contributions............................ -- 24,058,158
Additional paid-in capital...................... 436,307,243 --
Deficit accumulated during the development stage
............................................... (151,686,848) (13,632,693)
------------- ------------
285,146,222 10,425,465
Notes receivable from Executive................. (11,000,000) (14,000,000)
------------- ------------
Total stockholders' equity (deficit).......... 274,146,222 (3,574,535)
------------- ------------
Total liabilities and stockholders' equity (def-
icit).......................................... $ 596,380,268 $ 5,145,329
============= ============
</TABLE>
See notes to financial statements.
F-3
<PAGE>
TELIGENT, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM MARCH 5, 1996 (DATE
OF INCEPTION) TO DECEMBER 31,
YEAR ENDED ---------------------------------
DECEMBER 31, 1997 1997 1996
----------------- ---------------- ---------------
<S> <C> <C> <C>
REVENUES:
Management fees and
other services provided
to members............. $ 3,278,254 $ 4,664,596 $ 1,386,342
Wireless communication
services............... 32,745 32,745 --
------------- ---------------- ---------------
Total revenues........ 3,310,999 4,697,341 1,386,342
COSTS AND EXPENSES:
Cost of services........ 4,785,589 6,410,595 1,625,006
Sales, general and
administrative
expenses............... 43,465,732 53,048,369 9,582,637
Stock-based
compensation........... 84,042,581 86,820,746 2,778,165
Depreciation and
amortization........... 6,453,632 6,617,683 164,051
------------- ---------------- ---------------
Total costs and ex-
penses............... 138,747,534 152,897,393 14,149,859
------------- ---------------- ---------------
Loss from operations.... (135,436,535) (148,200,052) (12,763,517)
Interest and other in-
come..................... 3,241,837 3,251,932 10,095
Interest expense.......... (5,859,457) (6,738,728) (879,271)
------------- ---------------- ---------------
Net loss.................. $(138,054,155) $ (151,686,848) $ (13,632,693)
============= ================ ===============
Net loss per share........ $ (2.94) $ (3.25) $ (0.29)
============= ================ ===============
Weighted average common
shares outstanding....... 46,950,860 46,638,160 46,257,709
============= ================ ===============
</TABLE>
See notes to financial statements.
F-4
<PAGE>
TELIGENT, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
PERIOD FROM MARCH 5, 1996 (DATE OF INCEPTION) TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
NOTES
COMMON STOCK ADDITIONAL RECEIVABLE
CAPITAL ------------------------------------------ PAID-IN ACCUMULATED FROM
CONTRIBUTIONS A B-1 B-2 B-3 TOTAL CAPITAL DEFICIT EXECUTIVE
------------- ------- -------- -------- ------- -------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at March
5, 1996 (date of
inception)...... $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
Member capital
contributions... 24,058,158
Notes receivable
from Executive.. (15,000,000)
Amortization of
notes receivable
from Executive.. 1,000,000
Net loss......... (13,632,693)
------------ ------- -------- -------- ------- -------- ------------ ------------- ------------
Balance at
December 31,
1996........... 24,058,158 -- -- -- -- -- -- (13,632,693) (14,000,000)
------------ ------- -------- -------- ------- -------- ------------ ------------- ------------
Contribution of
licenses from
members......... 8,497,006
Acquisition...... 31,500,000
Cash
contributions... 100,300,612
Contribution of
equity prior to
public
offering........ 34,700 34,700 59,965,300
Conversion of
member interests
to capital
stock........... (164,355,776) 18,314 214,367 172,062 23,134 427,877 163,927,899
Conversion of
CARs and
Appreciation
Units to stock
options......... 86,820,746
Public stock
offering........ 63,250 63,250 125,593,298
Amortization of
notes receivable
from Executive.. 3,000,000
Net loss......... (138,054,155)
------------ ------- -------- -------- ------- -------- ------------ ------------- ------------
Balance at
December 31,
1997........... $ -- $81,564 $214,367 $172,062 $57,834 $525,827 $436,307,243 $(151,686,848) $(11,000,000)
============ ======= ======== ======== ======= ======== ============ ============= ============
<CAPTION>
TOTAL
-------------
<S> <C>
Balance at March
5, 1996 (date of
inception)...... $ --
Member capital
contributions... 24,058,158
Notes receivable
from Executive.. (15,000,000)
Amortization of
notes receivable
from Executive.. 1,000,000
Net loss......... (13,632,693)
-------------
Balance at
December 31,
1996........... (3,574,535)
-------------
Contribution of
licenses from
members......... 8,497,006
Acquisition...... 31,500,000
Cash
contributions... 100,300,612
Contribution of
equity prior to
public
offering........ 60,000,000
Conversion of
member interests
to capital
stock........... --
Conversion of
CARs and
Appreciation
Units to stock
options......... 86,820,746
Public stock
offering........ 125,656,548
Amortization of
notes receivable
from Executive.. 3,000,000
Net loss......... (138,054,155)
-------------
Balance at
December 31,
1997........... $274,146,222
=============
</TABLE>
See notes to financial statements.
F-5
<PAGE>
TELIGENT, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM MARCH 5, 1996 (DATE
OF INCEPTION) TO DECEMBER 31,
YEAR ENDED ---------------------------------
DECEMBER 31, 1997 1997 1996
----------------- ---------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net loss $ (138,054,155) $ (151,686,848) $ (13,632,693)
Adjustments to reconcile
net loss to net cash
used in operating
activities:
Depreciation and amor-
tization............. 6,453,632 6,617,683 164,051
Amortization of notes
receivable from
Executive............ 3,000,000 4,000,000 1,000,000
Amortization of debt
issue costs.......... 59,381 59,381 --
Other noncurrent lia-
bilities............. 896,748 1,189,296 292,548
Stock-based compensa-
tion................. 84,042,581 86,820,746 2,778,165
Other................. (626,390) (777,085) (150,695)
Changes in current as-
sets and current lia-
bilities:
Restricted cash and
investments........ (1,168,357) (1,168,357) --
Prepaid expenses and
other current
assets............. (6,426,665) (6,573,738) (147,073)
Accounts payable.... 13,575,098 16,577,277 3,002,179
Accrued expenses and
other current lia-
bilities........... 3,820,501 4,467,473 646,972
-------------- ---------------- ---------------
Net cash used in
operating
activities....... (34,427,626) (40,474,172) (6,046,546)
CASH FLOWS FROM
INVESTING ACTIVITIES:
Restricted cash and in-
vestments.............. (93,906,753) (93,906,753) --
Purchase of property and
equipment.............. (9,960,652) (13,669,652) (3,709,000)
Acquisition and other
investments............ (10,720,000) (10,720,000) --
-------------- ---------------- ---------------
Net cash used in in-
vesting activi-
ties............... (114,587,405) (118,296,405) (3,709,000)
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from bank
borrowing............ 40,500,000 42,500,000 2,000,000
Repayment of bank bor-
rowing............... (42,500,000) (42,500,000) --
Equity contribution
prior to public
offering............. 60,000,000 60,000,000 --
Net proceeds from is-
suance of common
stock................ 125,656,548 125,656,548 --
Proceeds from long-
term debt............ 300,000,000 300,000,000 --
Debt financing costs.. (11,344,026) (11,344,026) --
Member contributions.. 100,300,612 109,358,770 9,058,158
-------------- ---------------- ---------------
Net cash provided by
financing
activities......... 572,613,134 583,671,292 11,058,158
-------------- ---------------- ---------------
Net increase in cash and
equivalents............ 423,598,103 424,900,715 1,302,612
Cash and cash equiva-
lents, beginning of pe-
riod................... 1,302,612 -- --
-------------- ---------------- ---------------
Cash and cash equiva-
lents, end of period... $ 424,900,715 $ 424,900,715 $ 1,302,612
============== ================ ===============
SUPPLEMENTAL CASH FLOW
INFORMATION:
Cash paid for interest.. $ 2,450,000 $ 3,325,000 $ 875,000
============== ================ ===============
</TABLE>
See notes to financial statements.
F-6
<PAGE>
TELIGENT, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
1. THE COMPANY
Teligent, Inc. ("Teligent" or the "Company") (a development stage company)
was formed in September 1997, as a wholly owned subsidiary of Teligent, L.L.C.
On November 21, 1997 concurrent with an initial public offering of the
Company's Class A Common Stock, Teligent, L.L.C. merged with and into the
Company (the "Merger") with the Company as the surviving entity. Teligent,
L.L.C. was originally formed in March 1996, by Microwave Services, Inc.
("MSI") and Digital Services Corporation ("DSC"), both of which, through
affiliates, have extensive experience in pioneering wireless
telecommunications businesses. Prior to the Merger, Nippon Telegraph and
Telephone Corporation ("NTT"), through its wholly owned subsidiary NTTA&T,
acquired a 5% interest in Teligent L.L.C., and immediately after the Merger
acquired an additional 7.5% equity interest in the Company. All of Teligent,
L.L.C.'s member interests were converted into shares of common stock upon the
Merger in a manner proportionate to each member's percentage interest in
Teligent, L.L.C. immediately prior to the Merger.
Teligent, currently in the development stage, intends to be a premier
provider of high quality, low cost voice, data, and video telecommunications
services primarily to small and medium size businesses through its own fixed
local wireless point-to-multipoint broadband networks and leased long distance
facilities. The Company intends to deploy its 24 GHz fixed wireless licenses
in 74 major U.S. metropolitan market areas.
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.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with maturity
dates of 90 days or less at the time of purchase to be cash equivalents. Cash
equivalents consist of money market fund investments and short-term commercial
paper. Restricted cash and investments relates to cash and securities held
exclusively to fund future interest payments and to secure letters of credit
obtained by the Company.
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, computer equipment, and
furniture, and the lesser of the life of the asset or the lease term for
leasehold improvements. Maintenance and repairs are charged to expense when
incurred.
Long-Lived Assets
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of", management periodically reviews, if impairment
indicators exist, the carrying value and lives of property and equipment and
intangible assets based on expected future cash flows.
The Company uses certain property and equipment to provide service to
customers on an 18 GHz frequency. However, the Company's future business plans
are to deploy a 24 GHz frequency network in its capacity as a
F-7
<PAGE>
TELIGENT, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
telecommunications provider. As such, the Company has recorded, as a component
of depreciation expense, an impairment loss of $5.0 million, which represents
the difference between the net book value of the assets prior to the
impairment loss and the estimated future cash flows to be derived by the
assets.
Intangible Assets
Intangible assets, and their respective amortization lives, are as follows
as of December 31, 1997:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C> <C>
Fixed wireless licenses... $49,808,769 15
Debt financing costs...... 11,344,022 10
-----------
61,152,791
Accumulated amortization.. (798,600)
-----------
$60,354,191
===========
</TABLE>
Fixed wireless licenses represent the direct costs of obtaining such
licenses, including $41.6 million acquired from FirstMark Communications, Inc.
("FirstMark", see Note 7). Debt financing costs represent fees and other costs
incurred in connection with the issuance of long-term debt. Debt financing
costs are amortized to interest expense over the term of the related debt.
Income Taxes
The Company uses the liability method of accounting for income taxes.
Deferred income taxes result from temporary differences between the tax basis
of assets and liabilities and the basis reported in the financial statements.
Prior to the Merger, Teligent, L.L.C. was treated as a partnership for U.S.
Federal income tax purposes. Therefore, no provision for income taxes was made
prior to the Merger, and tax losses recognized prior to the Merger are not
available to offset any future earnings of the Company.
Revenue Recognition
Revenue from providing wireless communications services is recognized when
services are rendered based on usage of the Company's exchange networks and
facilities. Revenue from management fees, equipment leases, and other services
provided to members or affiliated companies is recognized as earned on the
accrual basis.
Net Loss Per Share
During 1997, the Company adopted SFAS No. 128 ("Earnings Per Share"), which
requires the Company to present basic and fully diluted earnings per share for
all years presented. The Company's net loss per share calculation (basic and
fully diluted), is based upon the number of common shares outstanding
immediately prior to the initial public offering, as if outstanding for all
periods presented similar to a stock split, plus the weighted average common
shares issued subsequently through December 31, 1997. There are no reconciling
items in the numerator or denominator of the Company's net loss per share
calculation. Employee stock options (see note 4) have been excluded from the
net loss per share calculation because their effect would be anti-dilutive.
Stock-Based Compensation
SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123")
established a fair value method of accounting for employee stock options and
similar equity instruments. The fair value method requires compensation cost
to be measured at the grant date, based on the value of the award, and
recognized over the
F-8
<PAGE>
TELIGENT, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
service period. SFAS No. 123 allows companies to either account for stock-
based compensation under the provisions of SFAS No. 123 or under the
provisions of APB No. 25, "Accounting for Stock Issued to Employees" ("APB No.
25"). The Company has elected to account for its stock-based compensation in
accordance with the provisions of APB No. 25 and will present pro forma
disclosures of net loss as if the fair value method had been adopted.
Recent Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"), which is required
to be adopted during the first quarter of fiscal 1998. SFAS No. 130 requires
that an enterprise (a) classify items of other comprehensive income by their
nature in the financial statements and (b) display the accumulated balance of
other comprehensive income separately from retained earnings and additional
paid-in capital in the Statement of Stockholders' Equity. The Company will be
required to restate earlier periods provided for comparative purposes, but
believes that the adoption of SFAS No. 130 will not be material to the
Company's reported financial condition or results of operations.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information" ("SFAS No. 131"), which is required to
be adopted during the year ended December 31, 1998. SFAS No. 131 changes the
way public companies report segment information in annual financial statements
and also requires those companies to report selected segment information in
interim financial reports to stockholders. The effect of the disclosure for
segment information on the Company's reported financial condition or results
of operations is not expected to be material.
Reclassifications
Certain amounts in the prior periods' financial statements have been
reclassified to conform to the current year's presentation.
3. CAPITAL STOCK
The Company has authorized two classes of common stock, Class A Common Stock
and Class B Common Stock. The rights of the two classes of Common Stock are
substantially identical, except that 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 the directors will be
elected by the holders of Series B-1 Common Stock, 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.
The number of shares authorized, issued and outstanding at December 31,
1997, for each class of stock is summarized below:
<TABLE>
<CAPTION>
SHARES SHARES ISSUED
CLASS PAR VALUE AUTHORIZED AND OUTSTANDING
----- --------- ----------- ---------------
<S> <C> <C> <C>
A...................................... $ .01 200,000,000 8,156,410
Series B-1............................. .01 30,000,000 21,436,689
Series B-2............................. .01 25,000,000 17,206,210
Series B-3............................. .01 10,000,000 5,783,400
</TABLE>
The Company has authorized 10,000,000 shares of Preferred Stock, par value
$.01 per share, of which none are issued and outstanding.
F-9
<PAGE>
TELIGENT, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Initial Public Common Stock Offering
In November 1997, the Company completed an initial public offering of
6,325,000 shares of Common Stock at $21.50 per share (the "Equity Offering"),
raising approximately $125.7 million of net proceeds, after deducting
approximately $10.3 million of offering expenses.
4. STOCK-BASED COMPENSATION
Company Appreciation Rights and Appreciation Units
On September 1, 1996, Teligent, L.L.C. granted six separate Company
Appreciation Rights ("CARs") to an executive officer of the Company (the
"Executive") pursuant to an employment agreement dated September 1, 1996 (The
"Employment Agreement"). For each CAR, the Executive was entitled to receive a
percentage of the excess of the Company's fair market value, as defined, over
the target value for the CAR. The CARs vested over a period of six years.
During 1996, Teligent, L.L.C. adopted a Long-Term Incentive Compensation
Plan (the "Plan") under which an aggregate of 1,600,000 appreciation units
(the "Appreciation Units") were available and granted to employees and
directors of the Company.
Conversion of CARs and Appreciation Units into Stock Options
Upon consummation of the Equity Offering, all outstanding CARs and
Appreciation Units were converted into options (the "Conversion Options") to
purchase a number of shares of Class A Common Stock at respective exercise
prices such that the intrinsic value of the stock options approximated the
intrinsic value of the CARs and Appreciation Units. The stock options granted
in connection with this conversion are governed by and subject to the terms of
the 1997 Plan (see "1997 Stock Incentive Plan" below) and have the same
vesting schedule, vesting rights and term as the applicable CAR or
Appreciation Units which were converted.
Upon the conversion described above, the Company issued options to purchase
an aggregate of 12,480,779 shares of the Company's Class A Common Stock at
exercise prices ranging from $3.35 to $46.00 per share. In connection with the
issuance of these options, the Company will recognize $186.3 million of
compensation expense over the vesting period of the options. The Company
recognized $84.0 million of compensation expense during the year ended
December 31, 1997 ($86.8 million for the period from March 5, 1996 (date of
inception) to December 31, 1997) and will recognize additional expense up to
$99.5 million through September 1, 2002, as follows: $25.2 million per year
through 2000, $21.4 million in 2001 and $2.5 million in 2002.
1997 Stock Incentive Plan
The Company maintains the Teligent, Inc. 1997 Stock Incentive Plan (the
"1997 Plan"). As of December 31, 1997, the maximum number of shares of common
stock available for grant under the 1997 Plan was 14,729,125. Generally, all
options granted under the 1997 Plan vest over a period of five years and
expire ten years from the date of grant.
The Company applies the provisions of APB No. 25 in accounting for its
stock-based compensation. Had compensation expense been determined in
accordance with SFAS No. 123, the Company's net loss for the year ended
December 31, 1997, and the periods from March 5, 1996 (date of inception) to
December 31, 1996 and 1997 would have been $161.2 million, $12.5 million and
$173.7 million, respectively. Options arising from the conversion of CARs and
Appreciation Units have been valued based on the number and exercise price of
the options issued upon conversion. The weighted average fair value of options
granted was $18.57 and $14.04 in
F-10
<PAGE>
TELIGENT, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
1997 and 1996, respectively, using the Black-Scholes option pricing model with
the following assumptions: dividend yield 0%, risk free rate interest rate of
6.6% in 1997 and 7.0% for the period from March 5, 1996 (date of inception) to
December 31, 1996, an expected life of ten years, and an expected volatility
of .50 in 1997 and .34 for the period from March 6, 1996 (date of inception)
to December 31, 1996.
Additional information with respect to the Company's 1997 Plan is as
follows.
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE
---------- ----------------
<S> <C> <C>
Options at beginning of
year....................... -- --
Converted from Appreciation
Units...................... 6,471,047 $ 7.07
Converted from CARs......... 6,009,732 $12.41
Options granted under 1997
Plan....................... 380,450 $22.18
Options forfeited and re-
turned to the plan......... (50,544) $12.94
----------
Options outstanding at end
of year.................. 12,810,685 $10.00
==========
Weighted average remaining
contractual life........... 9.4 years
Options exercisable at end
of year:
Exercise price of $6.52... 454,107
Exercise price of $3.35... 1,001,622
----------
Total................... 1,455,729
==========
</TABLE>
5. NOTES RECEIVABLE FROM EXECUTIVE AND DEFERRED COMPENSATION
The Executive's Employment Agreement provides for, among other things, a
forgivable loan of $15,000,000 with a five-year term, at an interest rate of
6.53% per year, which was advanced to the Executive from certain stockholders
of the Company. The loan is recorded as a reduction to stockholders' equity in
the Company's financial statements. The Employment Agreement also provides for
a payment of $5,000,000 on the fifth anniversary of the Executive's
employment, or earlier in certain circumstances. The Company accrues the
present value of the payment due over the expected service period of five
years.
6. LONG-TERM DEBT
Public Debt Offering
In November 1997, the Company issued $300 million of 11 1/2% Senior Notes
due 2007 (the "Senior Notes".) The Company used approximately $93.9 million of
the net proceeds of this offering to purchase a portfolio of U.S. Treasury
securities which are classified as restricted cash and investments on the
balance sheet, and have been pledged as collateral for the payment of interest
on the Senior Notes through December 1, 2000. Interest on the Senior Notes
accrues at a rate of 11 1/2% per annum and is payable semi-annually on June 1
and December 1, commencing June 1, 1998.
On or after December 1, 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
following prices (expressed in percentages of the principal amount thereof).
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2002.............................. 105.750%
2003.............................. 103.833
2004.............................. 101.917
2005 and thereafter............... 100.000
</TABLE>
F-11
<PAGE>
TELIGENT, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Upon the occurrence of a change in control, as defined in the Senior Notes
agreement, each holder of the Senior Notes will have the right to require the
Company to repurchase all or any part of such holder's Senior Notes at a
purchase price in cash equal to 101% of the principal amount thereof on any
change of control payment date, plus accrued and unpaid interest, if any, to
such change of control payment date.
Credit Facility
In December 1996, the Company entered into a loan agreement with a bank
providing for a $50.0 million senior secured revolving credit facility (the
Credit Facility) which expired December 19, 1997. In November 1997, the
Company used $42.5 million of proceeds from member cash contributions to repay
all outstanding amounts under the Credit Facility, which was terminated.
7. ACQUISITION
In October 1997, Teligent, L.L.C. acquired all of the outstanding stock of
FirstMark (the "FirstMark Acquisition"), for an aggregate purchase price of
approximately $42.0 million which consisted of $10.5 million in cash and a 5%
member interest in Teligent, L.L.C valued at $31.5 million. As a result of the
Merger, the sole stockholder of FirstMark received 1,831,410 shares of
Teligent, Inc. Class A Common Stock. The FirstMark Acquisition was accounted
for under the purchase method of accounting. The majority of the purchase
price ($41.6 million) was allocated to the fixed wireless licenses acquired
and the remaining amount was allocated to the net assets acquired. The
acquisition of FirstMark would not have had a material impact on the Company's
operating results for the year ended December 31, 1997 and thus no pro forma
information has been disclosed herein.
8. PROPERTY AND EQUIPMENT
The amounts included in property and equipment are as follows.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1996
----------- ----------
<S> <C> <C>
Operating equipment................................. $ 4,815,283 $1,999,690
Computer equipment.................................. 2,105,557 183,605
Furniture and leasehold improvements................ 2,072,462 366,937
Systems in progress................................. 5,178,080 1,158,768
----------- ----------
14,171,382 3,709,000
Accumulated depreciation............................ (5,985,483) (164,051)
----------- ----------
$ 8,185,899 $3,544,949
=========== ==========
</TABLE>
9. INCOME TAXES
Income and losses were reported on the respective tax returns of the members
of Teligent L.L.C. and, therefore, no provision for income taxes was made for
the period March 5, 1996 (date of inception) through December 31, 1996. As a
result of the Merger, the Company has recorded income taxes in accordance with
SFAS No. 109 for the year ended December 31, 1997.
F-12
<PAGE>
TELIGENT, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The tax effects of temporary differences as of December 31, 1997 are as
follows:
<TABLE>
<S> <C>
Deferred tax assets:
Net operating loss carryforward.............................. $ 2,356,383
Stock based compensation..................................... 29,519,054
Property and equipment....................................... 1,737,829
Deferred compensation........................................ 1,230,400
Other........................................................ 704,100
------------
Total deferred tax assets.................................. 35,547,766
Deferred tax liability:
Intangible assets............................................ (13,106,847)
------------
Net deferred tax assets........................................ 22,440,919
Valuation allowance............................................ (22,440,919)
------------
Total...................................................... $ --
============
</TABLE>
The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those
temporary differences become deductible. The Company has not recorded its
deferred tax assets and liabilities on its balance sheet given the fact that
the majority of the assets and liabilities are long term and as such have no
impact on the balance sheet.
During the period ended December 31, 1997, the Company did not record an
income tax provision given the significant operating losses and based on the
fact that any resultant asset would be fully reserved. At December 31, 1997,
the Company has a federal net operating loss carryforward of $6.9 million,
which expires in the year 2017.
A reconciliation between income taxes computed using the statutory federal
income tax rate (34%) and the effective rate, for the year ended December 31,
1997, is as follows:
<TABLE>
<S> <C>
Federal income tax (credit) at statutory rate................ $(46,938,413)
Operating losses recognized by Teligent L.L.C. for which no
tax benefit is available.................................... 13,350,045
Purchase accounting adjustment............................... 13,106,847
Net change in valuation allowance (from beginning balance of
$2,128,665)................................................. 20,312,254
Other........................................................ 169,267
------------
$ --
============
</TABLE>
10. COMMITMENTS AND CONTINGENCIES
The Company leases various operating sites, roof-tops, storage, and
administrative offices under operating leases. Rent expense was approximately
$2.3 million and $0.9 million for the year ended December 31, 1997 and the
period March 5, 1996 (date of inception) to December 31, 1996, respectively.
Future minimum lease payments by year and in the aggregate, are as follows at
December 31, 1997:
<TABLE>
<S> <C>
1998............................................................. $ 5,013,242
1999............................................................. 5,200,713
2000............................................................. 5,140,898
2001............................................................. 5,180,322
2002............................................................. 4,223,945
Thereafter....................................................... 20,614,343
-----------
$45,373,463
===========
</TABLE>
F-13
<PAGE>
TELIGENT, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
11. RELATED PARTY TRANSACTIONS
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 cost for the year ended December 31, 1997, and for the
period March 5, 1996 (date of inception) through December 31, 1996, and
totaled approximately $1.7 million and $1.5 million, respectively.
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.
The company entered into a five-year technical service agreement (the "TSA")
with a subsidiary of NTT (the "Provider"). Under the terms of the TSA, the
Provider will provide certain technical services to the Company relating to
network design and implementation. During the first two years of the TSA which
commenced December 1, 1997, the Company is required to pay the Provider a fee
in the amount of $4.0 million per year. Payments during the remaining three
years shall be negotiated annually based on the scope of technical services to
be provided.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Company's financial instruments classified as current
assets or liabilities, including cash and cash equivalents, restricted cash
and investments and other assets, accounts payable and accrued expenses,
approximate carrying value, principally because of the short maturity of these
items. The fair value of the Company's non-current restricted cash and
investments approximate carrying value based on their effective interest rates
compared with market interest rates.
As of December 31, 1997, the estimated fair value and carrying amount of the
Company's 11 1/2% Senior Notes due 2007 was $301,590,000 and $300,000,000,
respectively.
13. SUBSEQUENT EVENT
On February 20, 1998, the Company completed an offering (the "Discount Notes
Offering") of $440 million 11 1/2% Senior Discount Notes due 2008 (the
"Discount Notes"). The Discount Notes carry zero-coupon interest until March
1, 2003, after which the Discount Notes pay interest at 11 1/2% payable March
1 and September 1 through March 1, 2008. The Company received approximately
$243.1 million net proceeds from the Discount Notes Offering, after deductions
for offering expenses of approximately $7.6 million.
F-14
<PAGE>
TELIGENT, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 636,933 $ 424,901
Prepaid expenses and other current assets............ 8,646 7,087
Restricted cash and investments...................... 31,796 30,373
---------- ---------
Total current assets............................... 677,375 462,361
Property and equipment, net............................ 58,019 8,186
Restricted cash and investments........................ 64,599 64,702
Intangible assets, net................................. 66,821 60,354
Other assets........................................... 807 777
---------- ---------
Total assets....................................... $ 867,621 $ 596,380
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................... $ 53,723 $ 16,577
Accrued interest and other current liabilities....... 15,812 4,468
---------- ---------
Total current liabilities.......................... 69,535 21,045
11 1/2% Senior Notes, due 2007......................... 300,000 300,000
11 1/2% Senior Discount Notes, due 2008................ 253,650 --
Other non-current liabilities.......................... 1,423 1,189
Commitments and contingencies
Stockholders' equity:
Preferred stock...................................... -- --
Common stock......................................... 526 526
Additional paid-in capital........................... 442,982 436,307
Deficit accumulated during the development stage..... (190,245) (151,687)
---------- ---------
253,263 285,146
Notes receivable from Executive, net................. (10,250) (11,000)
---------- ---------
Total stockholders' equity......................... 243,013 274,146
---------- ---------
Total liabilities and stockholders' equity........... $ 867,621 $ 596,380
========== =========
</TABLE>
See notes to condensed financial statements.
F-15
<PAGE>
TELIGENT, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 5,
1996
THREE MONTHS ENDED (DATE OF
MARCH 31, INCEPTION)
---------------------- TO MARCH 31,
1998 1997 1998
---------- ---------- ------------
<S> <C> <C> <C>
REVENUES:
Communications services................. $ 98 $ -- $ 131
Management fees and other services...... -- 635 4,664
---------- ---------- ----------
Total revenues........................ 98 635 4,795
---------- ---------- ----------
COSTS AND EXPENSES:
Cost of services........................ 7,391 547 13,801
Sales, general and administrative ex-
penses................................. 19,229 4,556 72,277
Stock-based compensation................ 6,630 2,084 93,451
Depreciation and amortization........... 1,573 87 8,191
---------- ---------- ----------
Total costs and expenses.............. 34,823 7,274 187,720
---------- ---------- ----------
Loss from operations.................... (34,725) (6,639) (182,925)
Interest and other income................. 8,096 3 11,348
Interest expense.......................... (11,929) (127) (18,668)
---------- ---------- ----------
Net loss.................................. $ (38,558) $ (6,763) $ (190,245)
========== ========== ==========
Net loss per share........................ $ (0.73) $ (0.15) $ (4.02)
========== ========== ==========
Weighted average common shares outstand-
ing...................................... 52,585,382 44,426,299 47,347,100
========== ========== ==========
</TABLE>
See notes to condensed financial statements.
F-16
<PAGE>
TELIGENT, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
PERIOD FROM MARCH 5, 1996 (DATE OF INCEPTION) TO MARCH 31, 1998
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
NOTES
COMMON STOCK ADDITIONAL RECEIVABLE
CAPITAL ------------------------- PAID-IN ACCUMULATED FROM
CONTRIBUTIONS A B-1 B-2 B-3 TOTAL CAPITAL DEFICIT EXECUTIVE TOTAL
------------- ---- ---- ---- ---- ----- ---------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at March 5, 1996
(date of inception).... $ -- $-- $-- $-- $-- $-- $ -- $ -- $ -- $ --
Member capital
contributions.......... 24,058 24,058
Notes receivable from
Executive.............. (15,000) (15,000)
Amortization of notes
receivable from
Executive.............. 1,000 1,000
Net loss................ (13,633) (13,633)
-------- ---- ---- ---- ---- ---- -------- --------- -------- --------
Balance at December 31,
1996.................. 24,058 -- -- -- -- -- -- (13,633) (14,000) (3,575)
-------- ---- ---- ---- ---- ---- -------- --------- -------- --------
Contribution of licenses
from members........... 8,497 8,497
Acquisition............. 31,500 31,500
Cash contributions...... 100,301 100,301
Conversion of member
interests to capital
stock.................. (164,356) 19 214 172 23 428 163,928 --
Conversion of CARs and
Appreciation Units to
stock options.......... 86,821 86,821
Equity contribution
prior to public
offering............... 35 35 59,965 60,000
Public stock offering... 63 63 125,593 125,656
Amortization of notes
receivable from
Executive.............. 3,000 3,000
Net loss................ (138,054) (138,054)
-------- ---- ---- ---- ---- ---- -------- --------- -------- --------
Balance at December 31,
1997.................. -- 82 214 172 58 526 436,307 (151,687) (11,000) 274,146
-------- ---- ---- ---- ---- ---- -------- --------- -------- --------
Exercise of stock
options................ 45 45
Stock-based
compensation........... 6,630 6,630
Amortization of notes
receivable from
Executive.............. 750 750
Net loss................ (38,558) (38,558)
-------- ---- ---- ---- ---- ---- -------- --------- -------- --------
Balance at March 31,
1998 (unaudited)...... $ -- $ 82 $214 $172 $ 58 $526 $442,982 $(190,245) $(10,250) $243,013
======== ==== ==== ==== ==== ==== ======== ========= ======== ========
</TABLE>
See notes to condensed financial statements.
F-17
<PAGE>
TELIGENT, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM
THREE MONTHS ENDED MARCH 5, 1996
MARCH 31, (DATE OF INCEPTION)
-------------------- TO MARCH 31,
1998 1997 1998
--------- --------- -------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................. $ (38,558) $ (6,763) $(190,245)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization...... 1,573 87 8,191
Amortization of notes receivable
from Executive.................... 750 750 4,750
Amortization of discount on long-
term debt......................... 2,947 -- 2,947
Amortization of debt issue costs... 262 -- 321
Other noncurrent liabilities....... 234 219 1,423
Stock-based compensation........... 6,630 2,084 93,451
Other.............................. (30) -- (807)
Changes in current assets and cur-
rent liabilities:
Prepaid expenses and other cur-
rent assets..................... (1,559) (353) (8,133)
Accounts payable................. (3,783) (789) 12,794
Accrued interest and other cur-
rent liabilities................ 11,344 252 15,812
--------- -------- ---------
Net cash used in operating ac-
tivities...................... (20,190) (4,513) (59,496)
--------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Restricted cash and investments.... (1,320) -- (96,395)
Purchase of property and equip-
ment.............................. (9,648) (1,388) (23,317)
Acquisitions and other invest-
ments............................. -- (5,570) (10,720)
--------- -------- ---------
Net cash used in investing activi-
ties.............................. (10,968) (6,958) (130,432)
--------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank borrowing....... -- 11,500 42,500
Repayment of bank borrowing........ -- -- (42,500)
Members contributions.............. -- -- 109,359
Equity contribution prior to public
offering.......................... -- -- 60,000
Net proceeds from issuance of com-
mon stock......................... -- -- 125,656
Proceeds from long-term debt....... 250,703 -- 550,703
Debt financing costs............... (7,558) -- (18,902)
Proceeds from exercise of stock op-
tions............................. 45 -- 45
--------- -------- ---------
Net cash provided by financing
activities...................... 243,190 11,500 826,861
--------- -------- ---------
Net increase in cash and equiva-
lents............................... 212,032 29 636,933
Cash and cash equivalents, beginning
of period........................... 424,901 1,303 --
--------- -------- ---------
Cash and cash equivalents, end of pe-
riod................................ $ 636,933 $ 1,332 $ 636,933
========= ======== =========
</TABLE>
See notes to condensed financial statements.
F-18
<PAGE>
TELIGENT, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. THE COMPANY
Teligent, Inc. ("Teligent" or the "Company") (a development stage company)
was formed in September 1997, as a wholly owned subsidiary of Teligent, L.L.C.
On November 21, 1997, concurrent with an initial public offering of the
Company's Class A Common Stock, Teligent, L.L.C. merged with and into the
Company (the "Merger") with the Company as the surviving entity. Teligent,
L.L.C. was originally formed in March 1996, by Microwave Services, Inc.
("MSI") and Digital Services Corporation ("DSC"), both of which, through
affiliates, have extensive experience in pioneering wireless
telecommunications businesses. Prior to the Merger, Nippon Telegraph and
Telephone Corporation ("NTT"), through its wholly owned subsidiary NTTA&T,
acquired a 5% interest in Teligent L.L.C., and immediately after the Merger
acquired an additional 7.5% equity interest in the Company. All of Teligent,
L.L.C.'s member interests were converted into shares of common stock upon the
Merger in a manner proportionate to each member's percentage interest in
Teligent, L.L.C. immediately prior to the Merger.
Teligent, currently in the development stage, intends to be a premier
provider of high quality, low cost voice, data, and video telecommunications
services primarily to small and medium size businesses.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed financial statements included herein
have been prepared by the Company in accordance with the rules and regulations
of the Securities and Exchange Commission ("SEC"). In the opinion of the
Company's management, all adjustments and reclassifications of a normal and
recurring nature necessary to present fairly the financial position, results
of operations and cash flows for the periods presented have been made. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles ("GAAP")
have been condensed or omitted pursuant to SEC rules and regulations. These
condensed unaudited financial statements should be read in conjunction with
the financial statements and notes thereto included in the Company's Annual
Report on Form 10-K for the period ended December 31, 1997 filed with the
Securities and Exchange Commission. The results of operations for the three
months ending March 31, 1998 are not necessarily indicative of the results
that may be expected for the full year.
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.
Income Taxes
The Company uses the liability method of accounting for income taxes.
Deferred income taxes result from temporary differences between the tax basis
of assets and liabilities and the basis reported in the financial statements.
During the period ended March 31, 1998, the Company did not record an income
tax provision given the significant operating losses and based on the fact
that any resultant asset would be fully reserved.
Net Loss Per Share
During 1997, the Company adopted the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings Per Share", which requires
the Company to present basic and fully diluted
F-19
<PAGE>
TELIGENT, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
earnings per share for all years presented. For the period prior to 1998, the
Company's net loss per share calculation (basic and fully diluted), is based
upon the number of common shares outstanding immediately prior to the initial
public offering, as if outstanding for all periods presented similar to a
stock split, plus the weighted average common shares issued subsequent to the
initial public offering. The Company's 1998 net loss per share calculation
(basic and fully diluted) is based on the weighted average common shares
outstanding. There are no reconciling items in the numerator or denominator of
the Company's net loss per share calculation. Employee stock options have been
excluded from the net loss per share calculation because their effect would be
anti-dilutive.
Comprehensive Income
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting of
Comprehensive Income" ("SFAS No. 130"). SFAS No. 130 establishes standards for
the display of comprehensive income and its components in a full set of
financial statements. Comprehensive income includes all changes in equity
during a period except those resulting from the issuance of shares of stock
and distributions to shareholders. There were no differences between net loss
and comprehensive loss.
3. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Investing Activities
During the three months ended March 31, 1998, the Company incurred capital
expenditures of approximately $50.6 million, of which $40.9 million was
accrued, and is not reflected in the accompanying condensed statement of cash
flows.
4. CAPITAL STOCK
During the three months ended March 31, 1998, stock options were exercised
to purchase 6,860 shares of the Company's Class A Common Stock. The number of
shares of the Company's Class A Common Stock issued and outstanding as of
March 31, 1998 was 8,163,270.
5. DISCOUNT NOTE OFFERING
On February 20, 1998, the Company completed an offering (the "Discount Notes
Offering") of $440 million 11 1/2% Senior Discount Notes due 2008 (the
"Discount Notes"). The Discount Notes carry zero-coupon interest until March
1, 2003, after which the Discount Notes pay interest at 11 1/2%, payable March
1 and September 1 through March 1, 2008. The Company received approximately
$243.1 million net proceeds from the Discount Notes Offering, after deductions
for offering expenses of approximately $7.6 million.
F-20
<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.
A-1
<PAGE>
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.
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 transmit
data between computers. Frame Relay supports data units of variable lengths at
access speeds ranging from 56 kps to 1.5 mps.
GHz (Gigahertz)--Billions of hertz or cycles per second; a measure used to
characterize the frequency or amount of bandwidth of a radio frequency signal.
HDSL (High Data Rate Digital Subscriber Line)--A technology designed for
copper wire connections which provides, over limited distances (; 15,000
feet), T1 data transfer rates for both the downstream and upstream connection.
Hertz--Cycles per second. A Hertz is one full cycle (sine curve with one
peak and one valley).
Inter-LATA long distance--Inter-LATA long distance calls are calls that pass
from one LATA to another. Typically, these calls are simply referred to as
"long distance" calls although intra-LATA calls can also be long distance
calls.
Internet--An array of interconnected networks using a common set of
protocols defining the information coding and processing requirements that can
communicate across hardware platforms and over many links now operated by a
consortium of telecommunications service providers and others.
ILEC (Incumbent Local Exchange Carrier)--A company providing local exchange
services on the date of enactment of the Telecommunications Act. Traditional
local telephone companies including RBOCs and GTE.
ISDN--Integrated Services Digital Network, a standardized all-digital
network that integrates voice and data communications through existing copper
wiring.
A-2
<PAGE>
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.
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.
A-3
<PAGE>
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
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<PAGE>
PART II--INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 102 of the Delaware General Corporation Law ("DGCL"), as amended,
allows a corporation to eliminate the personal liability of directors of a
corporation to the corporation or its stockholders for monetary damages for a
breach of fiduciary duty as a director, except where the director breached his
duty of loyalty, failed to act in good faith, engaged in intentional
misconduct or knowingly violated a law, authorized the payment of a dividend
or approved a stock repurchase in violation of Delaware corporate law or
obtained an improper personal benefit.
Section 145 of the DGCL, as amended, 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 he is or was a
director, officer, employee or agent of the corporation or is or was serving
at its request in such capacity in 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 him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he 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 his conduct was
unlawful.
Certificate of Incorporation
Article Eighth of the Company's Certificate of Incorporation provides 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, 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 includes the right to be paid by
the Company the expenses as 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 is not 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.
By-laws
Section 1 of Article VIII of the By-laws provides 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 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
II-1
<PAGE>
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 provides 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 provides 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 provides 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 provides 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 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 are not 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.
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<PAGE>
Section 8 of Article VIII of the By-laws provides that the Company may
purchase and maintain insurance 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 provides 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 of 1933, as amended (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 dated November 20, 1997 entered into by the
Company in connection with the IPO provides for the indemnification of the
directors and officers of the Company and certain controlling persons against
certain liabilities under certain circumstances, including certain liabilities
under the Securities Act.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) THE FOLLOWING EXHIBITS ARE FILED AS PART OF THE REGISTRATION STATEMENT
<TABLE>
<S> <C>
3.1 Form of Certificate of Incorporation of Registrant, filed as Exhibit 3.1 to the
Company's Registration Statement on Form S-1 (Registration No. 333-37381), dated
November 26, 1997, and incorporated herein by reference.
3.2 Form of By-laws of Registrant, filed as Exhibit 3.2 to the Company's Registration
Statement on Form S-1 (Registration No. 333-37381), dated November 26, 1997, and
incorporated herein by reference.
4.1 Form of Stockholders Agreement, filed as Exhibit 4.1 to the Company's Registration
Statement on Form S-1 (Registration No. 333-37381), dated November 26, 1997, and
incorporated herein by reference.
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,
filed as Exhibit 4.2 to the Company's Registration Statement on Form S-1
(Registration No. 333-37381), dated November 26, 1997, and incorporated herein by
reference.
4.3 Form of Pledge Agreement between Registrant, as issuer, and First Union National
Bank, as Escrow Agent, relating to Registrant's Senior Notes due 2007, filed as
Exhibit 4.3 to the Company's Registration Statement on Form S-1 (Registration No.
333-37381), dated November 26, 1997, and incorporated herein by reference.
4.4 Form of Indenture between the Registrant, as issuer, and First Union National Bank,
as Trustee, relating to Registrant's Senior Discount Notes due 2008, including form
of Note filed as Exhibit to the Company's Form of Annual Report on Form 10-K, filed
on March 31, 1998, and incorporated by reference herein.
</TABLE>
II-3
<PAGE>
<TABLE>
<S> <C>
4.5 Form of Certificate for the Class A Common Stock, filed as Exhibit 4.4 to the
Company's Registration Statement on Form S-1 (Registration No. 333-37381), dated
November 26, 1997, and incorporated herein by reference.
5.1 Opinion of Laurence E. Harris regarding the legality of the securities being
registered.**
10.1 Employment Agreement, dated August 19, 1996, between Associated Communications,
L.L.C. and Alex J. Mandl, filed as Exhibit 10.1 to the Company's Registration
Statement on Form S-1 (Registration No. 333-37381), dated November 26, 1997, and
incorporated herein by reference.
10.2 Stock Contribution Agreement, dated as of March 10, 1997, among Associated
Communications, L.L.C., FirstMark Communications, Inc. and Lynn Forester, filed as
Exhibit 10.2 to the Company's Registration Statement on Form S-1 (Registration
No.333-37381), dated November 26, 1997, and incorporated herein by reference.
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, filed as Exhibit 10.3 to the Company's
Registration Statement on Form S-1 (Registration No. 333-37381), dated November 26,
1997, and incorporated herein by reference.
10.4 Form of Registration Rights Agreement, by and among Teligent, L.L.C. and Nippon
Telegraph and Telephone Corporation, filed as Exhibit 10.4 to the Company's
Registration Statement on Form S-1 (Registration No. 333-37381), dated November 26,
1997, and incorporated herein by reference.
10.5 Form of Technical Services Agreement, by and among Teligent, L.L.C. and NTT America,
Inc., filed as Exhibit 10.5 to the Company's Registration Statement on Form S-1
(Registration No. 333-37381), dated November 26, 1997, and incorporated herein by
reference.
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, filed as Exhibit 10.6 to the Company's
Registration Statement on Form S-1 (Registration No. 333-37381), dated November 26,
1997, and incorporated herein by reference.
10.7 Agreement and Plan of Merger, dated as of October 6, 1997, by and between Teligent,
Inc. and Teligent, L.L.C., filed as Exhibit 10.7 to the Company's Registration
Statement on Form S-1 (Registration No. 333-37381), dated November 26, 1997, and
incorporated herein by reference.
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.,
filed as Exhibit 10.8 to the Company's Registration Statement on Form S-1
(Registration No. 333-37381), dated November 26, 1997, and incorporated herein by
reference.
10.9 Form of Teligent, Inc. 1997 Stock Incentive Plan, filed as Exhibit 10.9 to the
Company's Registration Statement on Form S-1 (Registration No. 333-37381), dated
November 26, 1997, and incorporated herein by reference.
10.10 Network Products Purchase Agreement, dated December 11, 1997, by and between
Northern Telecom Inc. and Teligent, Inc.* filed as Exhibit 10.10 to the Company's
Form of Annual Report on Form
10-K, filed on March 31, 1998, and incorporated herein by reference.
10.11 Financing Commitment Letter of Intent, dated October 28, 1997, by and between
Northern Telecom Inc. and Teligent, Inc, filed as Exhibit 10.9 to the Company's
Registration Statement on Form S-1 (Registration No. 333-37381), dated November 26,
1997 and incorporated herein by reference.
10.12 Promissory Note, dated February 1, 1997, by Kirby G. Pickle, Jr. to Associated
Communications, L.L.C., filed as Exhibit 10.10 to the Company's Registration
Statement on Form S-1 (Registration No. 333-37381), dated November 26, 1997, and
incorporated herein by reference.
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
10.13 Promissory Notes, each dated October 29, 1997, by Abraham L. Morris to Teligent,
L.L.C., filed as Exhibit 10.11 to the Company's Registration Statement on Form S-1
(Registration No. 333-37381), dated November 26, 1997, and incorporated herein by
reference.
10.14 Promissory Note, dated August 5, 1997, by Laurence E. Harris to Associated
Communications, L.L.C., filed as Exhibit 10.12 to the Company's Registration
Statement on Form S-1 (Registration No. 333-37381), dated November 26, 1997, and
incorporated herein by reference.
10.15 Promissory Note, dated April 7, 1997, by Steven F. Bell to Associated
Communications, L.L.C., filed as Exhibit 10.14 to the Company's Registration
Statement on Form S-1 (Registration No. 333-37381), dated November 26, 1997, and
incorporated herein by reference.
10.16 Registration Rights Agreement dated as of March 6, 1998, by and between Teligent,
Inc., and Microwave Services, Inc. filed as Exhibit 10.16 to the Company's Form of
Annual Report on Form 10-K, filed on March 31, 1998, and incorporated herein by
reference.
10.17 Registration Rights Agreement dated as of February 20, 1998, by and between
Teligent, Inc., and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch"), Goldman, Sachs & Co., Salomon Brothers Inc., and TD
Securities (USA) Inc. filed as Exhibit 10.17 to the Company's Form of Annual Report
on Form 10-K, filed on March 31, 1998, and incorporated herein by reference.
21.1 Significant Subsidiaries of the Registrant, filed as Exhibit 21.1 to the Company's
Form of Annual Report on Form 10-K, filed on March 31, 1998, and incorporated by
reference herein.
23.1 Consent of Ernst & Young LLP, Independent Auditors.**
23.2 Consent of Laurence E. Harris (included in exhibit 5.1).**
24.1 Power of Attorney (included in the signature pages to this Registration Statement).
25.1 Form T-1, Statement of Eligibility of Trustee.**
27.1 Financial Data Schedule filed as Exhibit 27.1 to the Company's Form of Annual Report
on Form
10-K, filed on March 31, 1998, and incorporated herein by reference (filed only
electronically with the Securities and Exchange Commission).
27.2 Financial Data Schedule filed as exhibit 27.1 to the Company's Quarterly Report on
Form 10-Q for the three months ended March 31, 1998, filed on May 15, 1998, and
incorporated here by reference (filed only electronically with the Securities and
Exchange Commission).
99.1 Form of Letter of Transmittal.***
99.2 Form of Notice of Guaranteed Delivery.**
</TABLE>
- --------
* Portions of this document have been omitted pursuant to a request for
confidential treatment.
** Filed herein.
*** Deleted and replaced in its entirety and filed herein.
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes as follows:
(1) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to between an underwriter
within the meaning of Rule 145(c), the issuer undertakes that such
reoffering prospectus will contain the information called for by the
applicable registration form with respect to reofferings by persons who may
be deemed underwriters, in addition to the information called for by the
other items of the applicable form.
(2) That every prospectus: (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to
the registration statement and will not be used until such amendment is
effective, and that, for purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment 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.
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<PAGE>
(3) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this
Form, within one business day of receipt of such request, and to send the
incorporated documents by first-class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding
to the request.
(4) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
(5) 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 Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(6) That 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 shall be deemed to be
part of this registration statement as of the time it was declared
effective.
(7) That 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.
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<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF VIENNA, COMMONWEALTH OF VIRGINIA, ON JULY 10, 1998.
Teligent, Inc.
/s/ Alex J. Mandl
By: _________________________________
Name: Alex J. Mandl
Title: Chairman of the Board and
Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Alex J. Mandl Chairman of the
- ------------------------------------- Board, Chief July 10, 1998
ALEX J. MANDL Executive Officer
and Director
* Senior Vice
- ------------------------------------- President and Chief July 10, 1998
ABRAHAM L. MORRIS Financial Officer
(Principal
Financial Officer)
* Vice President and
- ------------------------------------- Controller July 10, 1998
CINDY L. TALLENT (Principal
Accounting Officer)
* Director July 10, 1998
- -------------------------------------
MYLES P. BERKMAN
* Director July 10, 1998
- -------------------------------------
DAVID J. BERKMAN
* Director July 10, 1998
- -------------------------------------
WILLIAM H. BERKMAN
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
Director
* July 10, 1998
- -------------------------------------
DONALD H. JONES
Director
* July 10, 1998
- -------------------------------------
TETSURO MIKAMI
Director
* July 10, 1998
- -------------------------------------
RAJENDRA SINGH
/s/ Alex J. Mandl
By: ____________________________
ALEX J. MANDL
ATTORNEY-IN-FACT
</TABLE>
II-8
<PAGE>
Exhibit 5.1
Teligent, Inc.
8065 Leesburg Pike
Vienna, VA 22182
July 10, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Re: Teligent, Inc.
Registration Statement on Form S-4 Registration
-----------------------------------------------
No. (333-53301)
---------------
Ladies and Gentlemen:
I am Senior Vice President and General Counsel of Teligent, Inc., a
Delaware corporation (the "Company") and have acted as such in connection with
the public offering of $440,000,000 aggregate principal amount at maturity of
the Company's 11 1/2% Series B Senior Discount Notes due 2008 (the "Notes") to
be issued pursuant to an exchange offer (the "Exchange Offer") in exchange for a
like principal amount of the issued and outstanding 11 1/2% Senior Discount
Notes due 2008 of the Company (the "Old Notes") under an Indenture, dated as of
February 20, 1998 (the "Indenture"), between the Company and First Union
National Bank, as Trustee (the "Trustee"), as contemplated by the Registration
Rights Agreement dated February 20, 1998 (the "Registration Rights Agreement"),
among the Company and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Goldman, Sachs & Co., Salomon Brothers Inc and TD Securities (USA)
Inc.
<PAGE>
Securities and Exchange Commission
July 10, 1998
Page 2
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, I have examined originals or copies,
certified or otherwise identified to my satisfaction, of (i) the Registration
Statement on Form S-4 as filed with the Securities and Exchange Commission (the
"Commission") on May 21, 1998 under the Act and Amendment No. 1 thereto as
filed with the Commission on July 10, 1998 (such Registration Statement, as so
amended, being referred to as the "Registration Statement"); (ii) an executed
copy of the Registration Rights Agreement; (iii) an executed copy of the
Indenture; (iv) the Certificate of Incorporation of the Company, as amended to
date; (v) the By-Laws of the Company, as amended to date; (vi) certain
resolutions adopted by the Board of Directors of the Company relating to the
Exchange Offer, the issuance of the Old Notes and the Notes, the Indenture and
related matters; (vii) the Form T-1 of the Trustee filed as an exhibit to the
Registration Statement; and (viii) the form of the Notes. I have also examined
originals or copies, certified or otherwise identified to my 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 I have deemed
necessary or appropriate as a basis for the opinions set forth herein.
In my examination, I have assumed the legal capacity of all natural
persons, the genuineness of all signatures, the authenticity of all documents
submitted to me as originals, the conformity to original documents of all
documents submitted to me as certified, conformed or photostatic copies and the
authenticity of the originals of such latter documents. In making my
examination of documents executed or to be executed by parties other than the
Company, I 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
execution and delivery by such parties of such documents and the validity and
binding effect thereof. As to any facts material to the opinions expressed
herein which I did not independently establish or verify, I have
<PAGE>
Securities and Exchange Commission
July 10, 1998
Page 3
relied upon oral or written statements and representations of officers and other
representatives of the Company and others.
I am admitted to the practice of law in the Commonwealth of Pennsyl-
vania and I do not express any opinion as to the laws of any other jurisdiction
other than the General Corporation Law of the State of Delaware and the laws of
the United States of America to the extent referred to specifically herein.
Based upon and subject to the foregoing and the limitations,
qualifications, exceptions and assumptions set forth herein, I am of the
opinion that when the Notes have been duly executed and authenticated in
accordance with the terms of the Indenture and have been delivered upon
consummation of the Exchange Offer against receipt of Old Notes duly surrendered
in exchange therefor in accordance with the terms of the Exchange Offer, the
Notes will constitute valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms, except (a) to the extent
that 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) with respect to the waiver contained in
Section 514 of the Indenture which may be deemed unenforceable.
In rendering the opinions set above, I have assumed that the execu-
tion, authentication and delivery by the Company of the Notes do not and will
not violate, conflict with or constitute a default under (i) any agreement or
instrument to which the Company or its properties is subject (except that I do
not make the assumption set forth in this clause (i) with respect to the
Company's Certificate of Incorporation, the Company's By-Laws, the Indenture, or
the Registration Rights Agreement), (ii) any law, rule, or regulation to which
the Company is subject (except that I do not make the assumption set forth in
this clause (ii) with respect to the Delaware General Corporation Law and those
laws, rules and regulations of the United States of America, in each case,
which, in my experience, are normally applicable to transactions of the type
contemplated by the Exchange Offer (other than the United States federal
securities laws, state securities or Blue Sky laws, antifraud laws and the rules
and regulations of the National Association of Securities Dealers, Inc.), but
without my having made any special investigation with respect to any other laws,
rules or regulations), (iii) any judicial or regulatory order or decree of any
<PAGE>
Securities and Exchange Commission
July 10, 1998
Page 4
governmental authority or (iv) any consent, approval, license, authorization or
validation of, or filing, recording or registration with, any governmental
authority.
I hereby consent to the filing of this opinion with the Commission as
an exhibit to the Registration Statement. In giving this consent, I do not
thereby admit that I am 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/ Laurence E. Harris, Esq.
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated February 27, 1998, in Amendment No. 1 to the
Registration Statement (Form S-4 No. 333-53301) and related Prospectus of
Teligent, Inc. dated on or about July 10, 1998.
Ernst & Young LLP
Vienna, Virginia
July 8, 1998
<PAGE>
Exhibit 99.1
LETTER OF TRANSMITTAL
TELIGENT, INC.
OFFER FOR ALL OUTSTANDING
11 1/2% SENIOR DISCOUNT NOTES DUE 2008
IN EXCHANGE FOR
11 1/2% SENIOR SERIES B DISCOUNT NOTES DUE 2008
WHICH HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED,
PURSUANT TO THE PROSPECTUS, DATED JULY 10,1998
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME, ON AUGUST
13, 1998, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE
WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
Delivery To: First Union National Bank, Exchange Agent
By Mail: By Overnight Courier:
Mike Klotz Mike Klotz
First Union National Bank First Union National Bank
First Union Customer Information First Union Customer Information Center
Center Corporate Trust Operations NC1153
Corporate Trust Operations NC1153 1525 West W.T. Harris Blvd-3C3
1525 West W.T. Harris Blvd-3C3 Charlotte, NC 28288-1153
Charlotte, NC 28288-1153
For Information Call:
(704) 590-7408
By Facsimile Transmission
(for Eligible Institutions only):
(704) 590-7628
Attention: Corporate Trust Department
<TABLE>
<CAPTION>
DESCRIPTION OF OLD NOTES 1 2 3
- -----------------------------------------------------------------------------------------------------
AGGREGATE
PRINCIPAL
AMOUNT AT MATURITY PRINCIPAL
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) CERTIFICATE OF AMOUNT AT MATURITY
(PLEASE FILL IN, IF BLANK) NUMBER(S)* OLD NOTE(S) TENDERED**
- -----------------------------------------------------------------------------------------------------
-------------------------------------------------------------
-------------------------------------------------------------
-------------------------------------------------------------
-------------------------------------------------------------
<S> <C> <C> <C>
TOTAL
- -----------------------------------------------------------------------------------------------------
</TABLE>
* Need not be completed if Old Notes are being tendered by book-entry
transfer.
** Unless otherwise indicated in this column, a holder will be deemed to
have tendered ALL of the Old Notes represented by the Old Notes
indicated in column 2. See Instruction 2. Old Notes tendered hereby
must be in denominations of principal amount at maturity of $1,000 and
any integral multiple thereof. See Instruction 1.
<PAGE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR
TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE, WILL
NOT CONSTITUTE A VALID DELIVERY.
The undersigned acknowledges that he or she has received and reviewed the
Prospectus, dated July 10, 1998 (the "Prospectus"), of Teligent, Inc., a
Delaware corporation (the "Company"), and this Letter of Transmittal (the
"Letter"), which together constitute the Company's offer (the "Exchange
Offer") to exchange an aggregate principal amount of up to $440,000,000
aggregate principal amount at maturity of the Company's 11 1/2% Series B
Senior Discount Notes due 2008 which have been registered under the Securities
Act of 1933, as amended (the "New Notes"), for a like principal amount of the
Company's issued and outstanding 11 1/2% Senior Discount Notes due 2008 (the
"Old Notes") from the registered holders thereof (the "Holders").
For each Old Note accepted for exchange, the Holder of such Old Note will
receive a New Note having a principal amount at maturity equal to that of the
surrendered Old Note. Original Issue Discount on the New Notes will accrue
from the date of original issuance of the Old Notes. The New Notes will
accrete at a rate of 11 1/2% compounded semi-annually, to an aggregate
principal amount of $440 million by March 1, 2003. Cash interest will not
accrue on the New Notes prior to March 1, 2003.
This Letter is to be completed by a holder of Old Notes either if
certificates are to be forwarded herewith or if a tender of certificates for
Old Notes, if available, is to be made by book-entry transfer to the account
maintained by the Exchange Agent at The Depository Trust Company (the "Book-
Entry Transfer Facility") pursuant to the procedures set forth in "The
Exchange Offer--Book-Entry Transfer" section of the Prospectus. Holders of Old
Notes whose certificates are not immediately available, or who are unable to
deliver their certificates or confirmation of the book-entry tender of their
Old Notes into the Exchange Agent's account at the Book-Entry Transfer
Facility (a "Book-Entry Confirmation") and all other documents required by
this Letter to the Exchange Agent on or prior to the Expiration Date, must
tender their Old Notes according to the guaranteed delivery procedures set
forth in "The Exchange Offer--Guaranteed Delivery Procedures" section of the
Prospectus. See Instruction 1. Delivery of documents to the Book-Entry
Transfer Facility does not constitute delivery to the Exchange Agent.
<PAGE>
The undersigned has completed the appropriate boxes below and signed this
Letter to indicate the action the undersigned desires to take with respect to
the Exchange Offer.
List below the Old Notes to which this Letter relates. If the space provided
below is inadequate, the certificate numbers and principal amount at maturity
of Old Notes should be listed on a separate signed schedule affixed hereto.
[_]CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE
BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution ______________________________________________
Account No. __________________________Transaction Code No. _________________
[_]CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE
THE FOLLOWING:
Name(s) of Registered Holder(s) ___________________________________________
Window Ticket Number (if any) _____________________________________________
Date of Execution of Notice of Guaranteed Delivery ________________________
Name of Institution Which Guaranteed Delivery _____________________________
IF DELIVERED BY BOOK-ENTRY TRANSFER, COMPLETE THE FOLLOWING:
Account No. __________________________Transaction Code No. _________________
[_]CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name: ______________________________________________________________________
Address: ___________________________________________________________________
____________________________________________________________________________
If the undersigned is not a broker-dealer, the undersigned represents that
it is not engaged in, and does not intend to engage in, a distribution of New
Notes. If the undersigned is a broker-dealer that will receive New Notes for
its own account in exchange for Old Notes that were acquired as a result of
market-making activities or other trading activities, it acknowledges that it
will deliver a prospectus meeting the requirements of the Securities Act of
1933, as amended, in connection with any resale of such New Notes; however, by
so acknowledging and by delivering such a prospectus the undersigned will not
be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act of 1933, as amended. If the undersigned is a broker-dealer that
will receive New Notes, it represents that the Old Notes to be exchanged for
the New Notes were acquired as a result of market-making activities or other
trading activities.
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the aggregate principal amount at
maturity of Old Notes indicated above. Subject to, and effective upon, the
acceptance for exchange of the Old Notes tendered hereby, the undersigned
hereby sells, assigns and transfers to, or upon the order of, the Company all
right, title and interest in and to such Old Notes as are being tendered
hereby.
The undersigned hereby irrevocably constitutes and appoints the Exchange
Agent as the undersigned's true and lawful agent and attorney-in-fact with
respect to such tendered Old Notes, with full power of substitution, among
other things, to cause the Old Notes to be assigned, transferred and
exchanged. The undersigned hereby represents and warrants that the undersigned
has full power and authority to tender, sell, assign and transfer the Old
Notes, and to acquire New Notes issuable upon the exchange of such tendered
Old Notes, and that, when the same are accepted for exchange, the Company will
acquire good and unencumbered title thereto, free and clear of all liens,
restrictions, charges and encumbrances and not subject to any adverse claim
when the same are accepted by the Company. The undersigned hereby further
represents that any New Notes acquired in exchange for Old Notes tendered
hereby will have been acquired in the ordinary course of business of the
person receiving such New Notes, whether or not such person is the
undersigned, that neither the Holder of such Old Notes nor any such other
person is participating in, intends to participate in or has an arrangement or
understanding with any person to participate in the distribution of such New
Notes and that neither the Holder of such Old Notes nor any such other person
is an "affiliate," as defined in Rule 405 under the Securities Act of 1933, as
amended (the "Securities Act"), of the Company.
The undersigned acknowledges that this Exchange Offer is being made in
reliance on interpretations by the staff of the Securities and Exchange
Commission (the "SEC"), as set forth in no-action letters issued to third
parties, that the New Notes issued pursuant to the Exchange Offer in exchange
for the Old Notes may be offered for resale, resold and otherwise transferred
by Holders thereof (other than any such Holder that is an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act), without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such New Notes are acquired in the ordinary
course of such Holders' business and such Holders have no arrangement with any
person to participate in the distribution of such New Notes. However, the SEC
has not considered the Exchange Offer in the context of a no-action letter and
there can be no assurance that the staff of the SEC would make a similar
determination with respect to the Exchange Offer as in other circumstances. If
the undersigned is not a broker-dealer, the undersigned represents that it is
not engaged in, and does not intend to engage in, a distribution of New Notes
and has no arrangement or understanding to participate in a distribution of
New Notes. If any Holder is an affiliate of the Company, is engaged in or
intends to engage in or has any arrangement or understanding with respect to
the distribution of the New Notes to be acquired pursuant to the Exchange
Offer, such Holder (i) could not rely on the applicable interpretations of the
staff of the SEC and (ii) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction. If the undersigned is a broker-dealer that will receive New Notes
for its own account in exchange for Old Notes, it represents that the Old
Notes to be exchanged for the New Notes were acquired by it as a result of
market- making activities or other trading activities and acknowledges that it
will deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such New Notes; however, by so acknowledging and
by delivering a prospectus meeting the requirements of the Securities Act, the
undersigned will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
sale, assignment and transfer of the Old Notes tendered hereby. All authority
conferred or agreed to be conferred in this Letter and every obligation of the
undersigned hereunder shall be binding upon the successors, assigns, heirs,
executors, administrators, trustees in bankruptcy and legal representatives of
the undersigned and shall not be affected by, and shall survive, the death or
incapacity of the
<PAGE>
undersigned. This tender may be withdrawn only in accordance with the
procedures set forth in "The Exchange Offer--Withdrawal Rights" section of the
Prospectus.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, please deliver the New Notes (and, if applicable,
substitute certificates representing Old Notes for any Old Notes not
exchanged) in the name of the undersigned or, in the case of a book-entry
delivery of Old Notes, please credit the account indicated above maintained at
the Book-Entry Transfer Facility. Similarly, unless otherwise indicated under
the box entitled "Special Delivery Instructions" below, please send the New
Notes (and, if applicable, substitute certificates representing Old Notes for
any Old Notes not exchanged) to the undersigned at the address shown above in
the box entitled "Description of Old Notes."
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD NOTES"
ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE OLD NOTES
AS SET FORTH IN SUCH BOX ABOVE.
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
SPECIAL ISSUANCE INSTRUCTIONS -------------------------------------
(SEE INSTRUCTIONS 3 AND 4)
- ------------------------------------- To be completed ONLY if
certificates for Old Notes not
exchanged and/or New Notes are
to be sent to someone other than
the person or persons whose
signature(s) appear(s) on this
Letter above or to such person
or persons at an address other
than shown in the box entitled
"Description of Old Notes" on
this Letter above.
To be completed ONLY if
certificates for Old Notes not
exchanged and/or New Notes are
to be issued in the name of and
sent to someone other than the
person or persons whose
signature(s) appear(s) on this
Letter above, or if Old Notes
delivered by book-entry transfer
which are not accepted for
exchange are to be returned by
credit to an account maintained
at the Book-Entry Transfer
Facility other than the account
indicated above.
Mail: New Notes and/or Old Notes
to:
Name ____________________________
(PLEASE TYPE OR PRINT)
Issue: New Notes and/or Old _________________________________
Notes to: (PLEASE TYPE OR PRINT)
Name(s) _________________________ Address _________________________
(PLEASE TYPE OR PRINT)
_________________________________
_________________________________ (ZIP CODE)
(PLEASE TYPE OR PRINT)
Address _________________________
_________________________________
(ZIP CODE)
(COMPLETE SUBSTITUTE FORM W-9)
[_]Credit unexchanged Old Notes
delivered by book-entry
transfer to the Book-Entry
Transfer Facility account set
forth below.
_________________________________
(BOOK-ENTRY TRANSFER FACILITY
ACCOUNT NUMBER, IF APPLICABLE)
IMPORTANT: THIS LETTER OR A FACSIMILE HEREOF (TOGETHER WITH THE CERTIFICATES
FOR OLD NOTES OR A BOOK-ENTRY CONFIRMATION AND ALL OTHER REQUIRED DOCUMENTS OR
THE NOTICE OF GUARANTEED DELIVERY) MUST BE RECEIVED BY THE EXCHANGE AGENT
PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
<PAGE>
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING ANY BOX ABOVE.
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
(COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9 AS ATTACHED)
x __________________________________________________________________ , 1998
x __________________________________________________________________ , 1998
Signature(s) of Owner Date
Area Code and Telephone No. _______________________________________________
If a holder is tendering any Old Notes, this Letter must be signed by
the registered holder(s) as the name(s) appear(s) on the certificate(s)
for the Old Notes or by any person(s) authorized to become registered
holder(s) by endorsements and documents transmitted herewith. If signature
is by a trustee, executor, administrator, guardian, officer or other per-
son acting in a fiduciary or representative capacity, please set forth
full title. See Instruction 3.
Name(s):
--------------------------------------------------------------------
---------------------------------------------------------------------------
(Please Type or Print)
Capacity:
--------------------------------------------------------------------
Address:
--------------------------------------------------------------------
___________________________________________________________________________
(Including Zip Code)
SIGNATURE GUARANTEE
(IF REQUIRED BY INSTRUCTION 3)
Signature(s) Guaranteed by
an Eligible Institution:
-----------------------------------------------------------
(Authorized Signature)
---------------------------------------------------------------------------
(Title)
---------------------------------------------------------------------------
(Name and Firm)
Dated: , 1998
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER FOR THE 11 1/2%
SENIOR DISCOUNT NOTES DUE 2008 OF TELIGENT, INC. IN EXCHANGE FOR THE 11 1/2%
SERIES B SENIOR DISCOUNT NOTES DUE 2008 OF TELIGENT, INC., WHICH HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
1. DELIVERY OF THIS LETTER AND NOTES; GUARANTEED DELIVERY PROCEDURES.
This Letter is to be completed by holders of Old Notes either if
certificates are to be forwarded herewith or if tenders are to be made
pursuant to the procedures for delivery by book-entry transfer set forth in
"The Exchange Offer--Book-Entry Transfer" section of the Prospectus.
Certificates for all physically tendered Old Notes, or Book-Entry
Confirmation, as the case may be, as well as a properly completed and duly
executed Letter (or manually signed facsimile hereof) and any other documents
required by this Letter, must be received by the Exchange Agent at the address
set forth herein on or prior to the Expiration Date, or the tendering holder
must comply with the guaranteed delivery procedures set forth below. Old Notes
tendered hereby must be in denominations of principal amount at maturity of
$1,000 and any integral multiple thereof.
Holders whose certificates for Old Notes are not immediately available or
who cannot deliver their certificates and all other required documents to the
Exchange Agent on or prior to the Expiration Date, or who cannot complete the
procedure for book- entry transfer on a timely basis, may tender their Old
Notes pursuant to the guaranteed delivery procedures set forth in "The
Exchange Offer--Guaranteed Delivery Procedures" section of the Prospectus.
Pursuant to such procedures, (i) such tender must be made through an Eligible
Institution, (ii) prior to 5:00 P.M., New York City time, on the Expiration
Date, the Exchange Agent must receive from such Eligible Institution a
properly completed and duly executed Letter (or a facsimile thereof) and
Notice of Guaranteed Delivery, substantially in the form provided by the
Company (by facsimile transmission, mail or hand delivery), setting forth the
name and address of the holder of Old Notes and the amount of Old Notes
tendered, stating that the tender is being made thereby and guaranteeing that
within three New York Stock Exchange ("NYSE") trading days after the
Expiration Date, the certificates for all physically tendered Old Notes, in
proper form for transfer, or a Book- Entry Confirmation, as the case may be,
and any other documents required by this Letter will be deposited by the
Eligible Institution with the Exchange Agent, and (iii) the certificates for
all physically tendered Old Notes, in proper form for transfer, or a Book-
Entry Confirmation, as the case may be, and all other documents required by
this Letter, are received by the Exchange Agent within three NYSE trading days
after the Expiration Date.
The method of delivery of this Letter, the Old Notes and all other required
documents is at the election and risk of the tendering holders, but the
delivery will be deemed made only when actually received or confirmed by the
Exchange Agent. If Old Notes are sent by mail, it is suggested that the
mailing be registered mail, properly insured, with return receipt requested,
made sufficiently in advance of the Expiration Date to permit delivery to the
Exchange Agent prior to 5:00 P.M., New York City time, on the Expiration Date.
See "The Exchange Offer" section of the Prospectus.
2. PARTIAL TENDERS (NOT APPLICABLE TO NOTEHOLDERS WHO TENDER BY BOOK-ENTRY
TRANSFER).
If less than all of the Old Notes evidenced by a submitted certificate are
to be tendered, the tendering holder(s) should fill in the aggregate principal
amount at maturity of Old Notes to be tendered in the box above entitled
"Description of Old Notes--Principal Amount At Maturity Tendered." A reissued
certificate representing the balance of nontendered Old Notes will be sent to
such tendering holder, unless otherwise provided in the appropriate box on
this Letter, promptly after the Expiration Date. ALL OF THE OLD NOTES
DELIVERED TO THE EXCHANGE AGENT WILL BE DEEMED TO HAVE BEEN TENDERED UNLESS
OTHERWISE INDICATED.
7
<PAGE>
3. SIGNATURES ON THIS LETTER; BOND POWERS AND ENDORSEMENTS; GUARANTEE OF
SIGNATURES.
If this Letter is signed by the registered holder of the Old Notes tendered
hereby, the signature must correspond exactly with the name as written on the
face of the certificates without any change whatsoever.
If any tendered Old Notes are owned of record by two or more joint owners,
all of such owners must sign this Letter.
If any tendered Old Notes are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many
separate copies of this Letter as there are different registrations of
certificates.
When this Letter is signed by the registered holder or holders of the Old
Notes specified herein and tendered hereby, no endorsements of certificates or
separate bond powers are required. If, however, the New Notes are to be
issued, or any untendered Old Notes are to be reissued, to a person other than
the registered holder, then endorsements of any certificates transmitted
hereby or separate bond powers are required. Signatures on such certificate(s)
must be guaranteed by an Eligible Institution.
If this Letter is signed by a person other than the registered holder or
holders of any certificate(s) specified herein, such certificate(s) must be
endorsed or accompanied by appropriate bond powers, in either case signed
exactly as the name or names of the registered holder or holders appear(s) on
the certificate(s) and signatures on such certificate(s) must be guaranteed by
an Eligible Institution.
If this Letter or any certificates or bond powers are signed by trustees,
executors, administrators, guardians, attorneys-in- fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and, unless waived by the Company,
proper evidence satisfactory to the Company of their authority to so act must
be submitted.
ENDORSEMENTS ON CERTIFICATES FOR OLD NOTES OR SIGNATURES ON BOND POWERS
REQUIRED BY THIS INSTRUCTION 3 MUST BE GUARANTEED BY A FIRM WHICH IS A
FINANCIAL INSTITUTION (INCLUDING MOST BANKS, SAVINGS AND LOAN ASSOCIATIONS AND
BROKERAGE HOUSES) THAT IS A PARTICIPANT IN THE SECURITIES TRANSFER AGENTS
MEDALLION PROGRAM, THE NEW YORK STOCK EXCHANGE MEDALLION SIGNATURE PROGRAM OR
THE STOCK EXCHANGES MEDALLION PROGRAM (EACH AN "ELIGIBLE INSTITUTION").
SIGNATURES ON THIS LETTER NEED NOT BE GUARANTEED BY AN ELIGIBLE INSTITUTION,
PROVIDED THE OLD NOTES ARE TENDERED: (I) BY A REGISTERED HOLDER OF OLD NOTES
(WHICH TERM, FOR PURPOSES OF THE EXCHANGE OFFER, INCLUDES ANY PARTICIPANT IN
THE BOOK-ENTRY TRANSFER FACILITY SYSTEM WHOSE NAME APPEARS ON A SECURITY
POSITION LISTING AS THE HOLDER OF SUCH OLD NOTES) WHO HAS NOT COMPLETED THE
BOX ENTITLED "SPECIAL ISSUANCE INSTRUCTIONS" OR "SPECIAL DELIVERY
INSTRUCTIONS" ON THIS LETTER, OR (II) FOR THE ACCOUNT OF AN ELIGIBLE
INSTITUTION.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS.
Tendering holders of Old Notes should indicate in the applicable box the
name and address to which New Notes issued pursuant to the Exchange Offer and
or substitute certificates evidencing Old Notes not exchanged are to be issued
or sent, if different from the name or address of the person signing this
Letter. In the case of issuance in a different name, the employer
identification or social security number of the person named must also be
indicated. Noteholders tendering Old Notes by book- entry transfer may request
that Old Notes not exchanged be credited to such account maintained at the
Book-Entry Transfer Facility as such noteholder may designate hereon. If no
such instructions are given, such Old Notes not exchanged will be returned to
the name and address of the person signing this Letter.
5. TAXPAYER IDENTIFICATION NUMBER.
Federal income tax law generally requires that a tendering holder whose Old
Notes are accepted for exchange must provide the Company (as payor) with such
holder's correct Taxpayer Identification Number
8
<PAGE>
("TIN") on Substitute Form W-9 below, which in the case of a tendering holder
who is an individual, is his or her social security number. If the Company is
not provided with the current TIN or an adequate basis for an exemption from
backup withholding, such tendering holder may be subject to a $50 penalty
imposed by the Internal Revenue Service. In addition, the Exchange Agent may
be required to withhold 31% of the amount of any reportable payments made
after the exchange to such tendering holder of New Notes. If withholding
results in an overpayment of taxes, a refund may be obtained.
Exempt holders of Old Notes (including, among others, all corporations and
certain foreign individuals) are not subject to these backup withholding and
reporting requirements. See the enclosed Guidelines of Certification of
Taxpayer Identification Number on Substitute Form W-9 (the "W-9 Guidelines")
for additional instructions.
To prevent backup withholding, each tendering holder of Old Notes must
provide its correct TIN by completing the Substitute Form W-9 set forth below,
certifying, under penalties of perjury, that the TIN provided is correct (or
that such holder is awaiting a TIN) and that (i) the holder is exempt from
backup withholding, or (ii) the holder has not been notified by the Internal
Revenue Service that such holder is subject to backup withholding as a result
of a failure to report all interest or dividends or (iii) the Internal Revenue
Service has notified the holder that such holder is no longer subject to
backup withholding. If the tendering holder of Old Notes is a nonresident
alien or foreign entity not subject to backup withholding, such holder must
give the Exchange Agent a completed Form W-8, Certificate of Foreign Status.
These forms may be obtained from the Exchange Agent. If the Old Notes are in
more than one name or are not in the name of the actual owner, such holder
should consult the W-9 Guidelines for information on which TIN to report. If
such holder does not have a TIN, such holder should consult the W-9 Guidelines
for instructions on applying for a TIN, check the box in Part 2 of the
Substitute Form W-9 and write "applied for" in lieu of its TIN. Note: Checking
this box and writing "applied for" on the form means that such holder has
already applied for a TIN or that such holder intends to apply for one in the
near future. If the box in Part 2 of the Substitute Form W-9 is checked, the
Exchange Agent will retain 31% of reportable payments made to a holder during
the sixty (60) day period following the date of the Substitute Form W-9. If
the holder furnishes the Exchange Agent with his or her TIN within sixty (60)
days of the Substitute Form W-9, the Exchange Agent will remit such amounts
retained during such sixty (60) day period to such holder and no further
amounts will be retained or withheld from payments made to the holder
thereafter. If, however, such holder does not provide its TIN to the Exchange
Agent within such sixty (60) day period, the Exchange Agent will remit such
previously withheld amounts to the Internal Revenue Service as backup
withholding and will withhold 31% of all reportable payments to the holder
thereafter until such holder furnishes its TIN to the Exchange Agent.
6. TRANSFER TAXES.
The Company will pay all transfer taxes, if any, applicable to the transfer
of Old Notes to it or its order pursuant to the Exchange Offer. If, however,
New Notes and/or substitute Old Notes not exchanged are to be delivered to, or
are to be registered or issued in the name of, any person other than the
registered holder of the Old Notes tendered hereby, or if tendered Old Notes
are registered in the name of any person other than the person signing this
Letter, or if a transfer tax is imposed for any reason other than the transfer
of Old Notes to the Company or its order pursuant to the Exchange Offer, the
amount of any such transfer taxes (whether imposed on the registered holder or
any other persons) will be payable by the tendering holder. If satisfactory
evidence of payment of such taxes or exemption therefrom is not submitted
herewith, the amount of such transfer taxes will be billed directly to such
tendering holder.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE OLD NOTES SPECIFIED IN THIS LETTER.
7. WAIVER OF CONDITIONS.
The Company reserves the absolute right to waive satisfaction of any or all
conditions enumerated in the Prospectus.
9
<PAGE>
8. NO CONDITIONAL TENDERS.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering holders of Old Notes, by execution of this Letter,
shall waive any right to receive notice of the acceptance of their Old Notes
for exchange.
Neither the Company, the Exchange Agent nor any other person is obligated to
give notice of any defect or irregularity with respect to any tender of Old
Notes nor shall any of them incur any liability for failure to give any such
notice.
9. MUTILATED, LOST, STOLEN OR DESTROYED OLD NOTES.
Any holder whose Old Notes have been mutilated, lost, stolen or destroyed
should contact the Exchange Agent at the address indicated above for further
instructions.
10. WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to 5:00 P.M., New
York City time, on the Expiration Date.
For a withdrawal of a tender of Old Notes to be effective, a written notice
of withdrawal must be received by the Exchange Agent at the address set forth
above prior to 5:00 P.M., New York City time, on the Expiration Date. Any such
notice of withdrawal must (i) specify the name of the person having tendered
the Old Notes to be withdrawn (the "Depositor"), (ii) identify the Old Notes
to be withdrawn (including certificate number or numbers and the principal
amount at maturity of such Old Notes), (iii) contain a statement that such
holder is withdrawing his election to have such Old Notes exchanged, (iv) be
signed by the holder in the same manner as the original signature on the
Letter by which such Old Notes were tendered (including any required signature
guarantees) or be accompanied by documents of transfer to have the Trustee
with respect to the Old Notes register the transfer of such Old Notes in the
name of the person withdrawing the tender and (v) specify the name in which
such Old Notes are registered, if different from that of the Depositor. If Old
Notes have been tendered pursuant to the procedure for book-entry transfer set
forth in "The Exchange Offer--Book-Entry Transfer" section of the Prospectus,
any notice of withdrawal must specify the name and number of the account at
the Book-Entry Transfer Facility to be credited with the withdrawn Old Notes
and otherwise comply with the procedures of such facility. All questions as to
the validity, form and eligibility (including time of receipt) of such notices
will be determined by the Company, whose determination shall be final and
binding on all parties. Any Old Notes so withdrawn will be deemed not to have
been validly tendered for exchange for purposes of the Exchange Offer and no
New Notes will be issued with respect thereto unless the Old Notes so
withdrawn are validly retendered. Any Old Notes that have been tendered for
exchange but which are not exchanged for any reason will be returned to the
Holder thereof without cost to such Holder (or, in the case of Old Notes
tendered by book-entry transfer into the Exchange Agent's account at the Book-
Entry Transfer Facility pursuant to the book-entry transfer procedures set
forth in "The Exchange Offer--Book-Entry Transfer" section of the Prospectus,
such Old Notes will be credited to an account maintained with the Book-Entry
Transfer Facility for the Old Notes) as soon as practicable after withdrawal,
rejection of tender or termination of the Exchange Offer. Properly withdrawn
Old Notes may be retendered by following the procedures described above at any
time on or prior to 5:00 P.M., New York City time, on the Expiration Date.
11. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES.
Questions relating to the procedure for tendering, as well as requests for
additional copies of the Prospectus and this Letter, and requests for Notices
of Guaranteed Delivery and other related documents may be directed to the
Exchange Agent, at the address and telephone number indicated above.
10
<PAGE>
TO BE COMPLETED BY ALL TENDERING HOLDERS
(SEE INSTRUCTION 5)
PAYOR'S NAME: FIRST UNION NATIONAL BANK
PART 1--PLEASE PROVIDE YOUR TIN:
TIN IN THE BOX AT RIGHT AND --------------------
SUBSTITUTE CERTIFY BY SIGNING AND DATING Social Security
BELOW. Number or Employer
Identification
Number
FORM W-9 PART 2--TIN Applied For [_]
----------------------------------------------------------
----------------------------------------------------------
DEPARTMENT OF CERTIFICATION: UNDER THE PENALTIES OF PERJURY, I CERTIFY
THE TREASURY THAT:
INTERNAL
REVENUE
SERVICE
(1)the number shown on this form is my correct Taxpayer
Identification Number (or I am waiting for a number
to be issued to me).
PAYOR'S REQUEST FOR (2)I am not subject to backup withholding either
TAXPAYER because: (a) I am exempt from backup withholding, or
IDENTIFICATION NUMBER (b) I have not been notified by the Internal Revenue
("TIN") AND Service (the "IRS") that I am subject to backup
CERTIFICATION withholding as a result of a failure to report all
interest or dividends, or (c) the IRS has notified
me that I am no longer subject to backup
withholding, and
(3)any other information provided on this form is true
and correct.
SIGNATURE
--------------------------- DATE ---------------
- --------------------------------------------------------------------------------
You must cross out item (2) of the above certification if you have been
notified by the IRS that you are subject to backup withholding because of
underreporting of interest or dividends on your tax return and you have not
been notified by the IRS that you are no longer subject to backup
withholding.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 2 OF
SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or
(b) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a taxpayer identification number by the
time of the exchange, 31 percent of all reportable payments made to me
thereafter will be withheld until I provide a number.
-------------------------------------
----------------------------------
Signature Date
<PAGE>
Exhibit 99.2
NOTICE OF GUARANTEED DELIVERY
FOR
TELIGENT, INC.
This form or one substantially equivalent hereto must be used to accept the
Exchange Offer of Teligent, Inc. (the "Company") made pursuant to the
Prospectus, dated July 10, 1998 (the "Prospectus"), if certificates for the
outstanding 11 1/2% Senior Discount Notes due 2008 of the Company (the "Old
Notes") are not immediately available or if the procedure for book-entry
transfer cannot be completed on a timely basis or time will not permit all
required documents to reach First Union National Bank, as exchange agent (the
"Exchange Agent") prior to 5:00 P.M., New York City time, on the Expiration
Date of the Exchange Offer. Such form may be delivered or transmitted by
facsimile transmission, mail or hand delivery to the Exchange Agent as set
forth below. In addition, in order to utilize the guaranteed delivery
procedure to tender Old Notes pursuant to the Exchange Offer, a completed,
signed and dated Letter of Transmittal (or facsimile thereof) must also be
received by the Exchange Agent prior to 5:00 P.M., New York City time, on the
Expiration Date. Capitalized terms not defined herein are defined in the
Prospectus.
Delivery To: First Union National Bank, Exchange Agent
By Mail: By Overnight Courier:
Mike Klotz Mike Klotz
First Union National Bank First Union National Bank
First Union Customer Information First Union Customer Information
Center Center
Corporate Trust Operations NC1153 Corporate Trust Operations NC1153
1525 West W.T. Harris Blvd-3C3 1525 West W.T. Harris Blvd-3C3
Charlotte, NC 28288-1153 Charlotte, NC 28288-1153
For Information Call:
(704) 590-7408
By Facsimile Transmission
(for Eligible Institutions only):
(704) 590-7628
Attention: Corporate Trust Department
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.
Ladies and Gentlemen:
Upon the terms and conditions set forth in the Prospectus and the
accompanying Letter of Transmittal, the undersigned hereby tenders to the
Company the principal amount of Old Notes set forth below pursuant to the
guaranteed delivery procedure described in "The Exchange Offer--Guaranteed
Delivery Procedures" section of the Prospectus.
<PAGE>
Principal Amount at Maturity of Old Notes
Tendered:*
$
-------------------------------------
Certificate Nos. (if available): If Old Notes will be delivered by
book-entry transfer to The
Depository Trust Company, provide
account number.
- -------------------------------------
Total Principal Amount at Maturity Represented by Old Notes Certificate(s):
$
------------------------------------- Account Number
-------------------------
- -----------------------------------------------------------------------------
ALL AUTHORITY HEREIN CONFERRED OR AGREED TO BE CONFERRED SHALL SURVIVE THE
DEATH OR INCAPACITY OF THE UNDERSIGNED AND EVERY OBLIGATION OF THE UNDERSIGNED
HEREUNDER SHALL BE BINDING UPON THE HEIRS, PERSONAL REPRESENTATIVES,
SUCCESSORS AND ASSIGNS OF THE UNDERSIGNED.
- -------------------------------------------------------------------------------
PLEASE SIGN HERE
X
------------------------- ------------
X
-------------------------
------------
Signature(s) of Owner(s) Date
or Authorized Signatory
Area Code and Telephone Number:
-------------------------
Must be signed by the holder(s) of Old Notes as their name(s) appear(s) on
certificates for Old Notes or on a security position listing, or by person(s)
authorized to become registered holder(s) by endorsement and documents
transmitted with this Notice of Guaranteed Delivery. If signature is by a
trustee, executor, administrator, guardian, attorney-in-fact, officer or other
person acting in a fiduciary or representative capacity, such person must set
forth his or her full title below.
PLEASE PRINT NAME(S) AND ADDRESS(ES)
Name(s):
-------------------------------------------------------------------
-------------------------------------------------------------------
-------------------------------------------------------------------
Capacity:
-------------------------------------------------------------------
Address(es):
-------------------------------------------------------------------
-------------------------------------------------------------------
-------------------------------------------------------------------
- --------
*Must be in denominations of principal amount at maturity of $1,000 and any
integral multiple thereof.
<PAGE>
GUARANTEE
(Not to be used for signature guarantee)
The undersigned, a financial institution (including most banks, savings and
loan associations and brokerage houses) that is a participant in the
Securities Transfer Agents Medallion Program, the New York Stock Exchange
Medallion Signature Program or the Stock Exchanges Medallion Program, hereby
guarantees that the certificates representing the principal amount at maturity
of Old Notes tendered hereby in proper form for transfer, or timely
confirmation of the book-entry transfer of such Old Notes into the Exchange
Agent's account at The Depository Trust Company pursuant to the procedures set
forth in "The Exchange Offer--Guaranteed Delivery Procedures" section of the
Prospectus, together with any required signature guarantee and any other
documents required by the Letter of Transmittal, will be received by the
Exchange Agent at the address set forth above, no later than three New York
Stock Exchange trading days after the Expiration Date.
- ------------------------------------- -------------------------------------
Name of Firm Authorized Signature
- ------------------------------------- -------------------------------------
Address Title
- ------------------------------------- Name: -------------------------------
Zip Code (Please Type or Print)
Area Code and Tel. No.
-------------------- Dated:
-------------------------------
NOTE: DO NOT SEND CERTIFICATES FOR OLD NOTES WITH THIS FORM. CERTIFICATES FOR
OLD NOTES SHOULD BE SENT ONLY WITH A COPY OF YOUR PREVIOUSLY EXECUTED
LETTER OF TRANSMITTAL.
