OPTION AGREEMENT
OPTION AGREEMENT (this "AGREEMENT") dated as of December 22, 1997, by
and among TELEPHONE AND DATA SYSTEMS, INC. ("GRANTOR"), and TSR WIRELESS LLC
("TSR WIRELESS").
RECITALS:
A. Grantor is the holder of certain indebtedness of American Paging,
Inc. (the "COMPANY").
B. On the date hereof TSR Paging Inc. ("TSR PAGING") owns 100% of
TSR Wireless.
C. Grantor desires to sell and grant to TSR Wireless, and TSR
Wireless desires to purchase and acquire from Grantor, an option (the "OPTION")
to purchase from Grantor all of Grantor's right, title and interest in and to or
arising under or in connection with the Indebtedness (as defined below).
AGREEMENT
In consideration of the mutual agreements contained herein, the
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. DEFINITIONS.
1.1 In addition to terms defined elsewhere in this Agreement, the
following terms shall have the following meanings herein.
"ASSET CONTRIBUTION AGREEMENT": Asset Contribution Agreement dated as of
December 22, 1997 by and among TSR Wireless, Grantor and TSR Paging.
"BUSINESS DAY": Any day when commercial banks are open for regular banking
business in New York City.
"CALL NOTICE": A written notice from TSR Wireless to Grantor in the form
attached hereto as EXHIBIT A.
"COMPANY": American Paging, Inc.
"DISTRIBUTIONS": Any and all cash, interest, fees, securities, dividends
and other property or consideration which may be exchanged for, distributed
or collected in respect of the Indebtedness.
"EXERCISE DATE": Any Business Day during the Exercise Period on which TSR
Wireless exercises the Option in whole or in part.
"EXERCISE PERIOD": Any Business Day occurring during the period from (A)
the earlier to occur of (i) February 12, 1998, but only if the Special
Committee of the Board of Directors of the Company has failed to approve
the merger contemplated in the Asset Contribution Agreement, (ii) the date
on which the Special Committee of the Board of Directors of the Company
withdraws its approval of the Merger contemplated by the Asset Contribution
Agreement, (iii) the date the Company takes board action or the Company's
stockholders take action to liquidate the Company and (iv) the date on
which Grantor has entered into an agreement for the sale of all or
substantially all of the capital stock of the Company owned by Grantor or
the Company has entered into an agreement for the merger, consolidation or
other combination of the Company or the sale of all or substantially all of
the assets of the Company, other than to TSR Wireless, to and including (B)
the earlier of (x) 5:00 p.m. New York City time on September 30, 1998 and
(y) the date on which the Asset Contribution Agreement is terminated
pursuant to Section 15.1.1(iv)(a) or (c) and (z) the Closing occurs under
the Asset Contribution Agreement.
"FURTHER LLC INTEREST": An LLC Interest equal to 18.1% of the LLC Interest
which would have been issued to Grantor pursuant to Section 3.1.2 of the
Asset Contribution Agreement had Grantor contributed the Cracker Jack
Assets to TSR Wireless upon the Closing without regard to any Post-Closing
Adjustment provided by Article III of the Asset Contribution Agreement.
"INDEBTEDNESS": The outstanding principal amount of advances made by
Grantor to the Company under that certain Revolving Credit Agreement, dated
as of January 1, 1994, between Grantor and the Company, as amended,
supplemented or otherwise modified to date (the "CREDIT AGREEMENT"), PLUS
all interest, fees and other amounts owing thereunder.
"INITIAL LLC INTEREST": An LLC Interest equal to 81.9% of the LLC Interest
which would have been issued to Grantor pursuant to Section 3.1.2 of the
Asset Contribution Agreement had Grantor contributed the Cracker Jack
Assets to TSR Wireless upon the Closing without regard to any Post-Closing
Adjustment provided by Article III of the Asset Contribution Agreement.
"LLC INTEREST": A member interest in TSR Wireless.
"TSR ASSET CONTRIBUTION": As defined in Section 2.
"TSR WIRELESS": TSR Wireless LLC, a Delaware limited liability company in
which, as of the date hereof, TSR Paging holds all LLC Interests.
1.2 Other capitalized terms used in this Agreement, but not defined
herein, shall bear the meanings given to them in the Asset Contribution
Agreement.
2. OPTION. Grantor hereby irrevocably grants and sells to TSR
Wireless, and TSR Wireless hereby purchases and accepts from Grantor, the
Option. The Option may be exercised on any Exercise Date selected by TSR
Wireless, by delivery to Grantor of a duly
2
executed Call Notice; provided that the Option may only be exercised if (i) all
of the assets and liabilities of TSR Paging have been contributed by TSR Paging
to TSR Wireless ("TSR ASSET CONTRIBUTION") in exchange for LLC Interests in TSR
Wireless, (ii) the condition set forth in Section 12.6 of the Asset Contribution
Agreement has been satisfied and the Exchange and Registration Rights Agreement
and the TSR Wireless LLC Agreement each has been duly executed by the parties
except Grantor. Within five Business Days after Grantor's receipt from TSR
Wireless of a duly executed Call Notice, Grantor shall transfer the Indebtedness
to TSR Wireless or TSR Wireless's designee, pursuant to an Assignment and
Acceptance Agreement substantially in the form of EXHIBIT B, in exchange for an
assignment of the Initial LLC Interest and shall deliver the Exchange and
Registration Rights Agreement and the TSR Wireless LLC Agreement, each duly
executed by Grantor.
3. PREMIUM. Upon delivery by Grantor and TSR Wireless to the other
of executed counterparts of this Agreement, TSR Wireless shall pay $1.00 (the
"PREMIUM") to Grantor.
4. REPRESENTATIONS AND WARRANTIES.
(a) Each party hereto represents, warrants and acknowledges to the
other parties hereto that: (i) it has full power and authority, and has taken
all action necessary, to execute and deliver this Agreement and all documents
required to be executed and delivered by it hereunder (collectively, the "OPTION
DOCUMENTS"), and to fulfill its obligations under the Option Documents, and to
consummate the transactions contemplated by the Option Documents; (ii) the
making and performance by it of the Option Documents, and the fulfillment of its
obligations under the Option Documents, does not and will not violate any law or
regulation of the jurisdiction under which it exists, any other law or
regulation applicable to it or any other agreement to which it is a party or by
which it is bound; (iii) the Option Documents have been duly executed and
delivered by it and constitute its legal, valid and binding obligation,
enforceable against it in accordance with the respective terms thereof; and (iv)
all approvals, authorizations or other actions by, or filings with, any
governmental authority necessary for the validity or enforceability of its
obligations under the Option Documents have been obtained.
(b) Grantor further represents, warrants and acknowledges to TSR
Wireless as of the date hereof and as of the Exercise Date that:
(i) it is the sole legal and beneficial owner and holder of the
Indebtedness, and will transfer the Indebtedness to TSR Wireless, and
TSR Wireless will acquire the Indebtedness, free and clear of any
liens, claims, charges, encumbrances, or other security or ownership
interests and the Indebtedness is fully and freely transferable to TSR
Wireless;
(ii) Grantor has not pledged or encumbered, nor has it granted
any security interests in or liens upon the Indebtedness;
3
(iii) the Company is indebted to Grantor in respect of the
Indebtedness in principal amounts equal to not less than $170,000,000,
and the Indebtedness is not subject to any claim or right of setoff,
reduction, recoupment, avoidance, disallowance or subordination;
(iv) Grantor has not engaged in any act, conduct or omission
which could reasonably be expected to result in the Indebtedness being
subject to (and it has not received any notice that the Indebtedness
may be subject to) subordination, reduction, disallowance, setoff,
right of recoupment, avoidance, defense, counterclaims or impairment
of any kind except as set forth in that certain letter from Grantor to
the Company dated as of March 5, 1997;
(v) no litigation, arbitration or adversarial proceeding is
pending against it or the Company or, to its actual knowledge, is
threatened against it or the Company, which could reasonably be
expected to in any case have a material adverse effect on the
Indebtedness; and
(vii) without in any way implying that the Option is a "security"
within the meaning of applicable securities laws, no offer to sell or
solicitation of any offer to buy any portion of the Option or the
Indebtedness has been made by it in a manner that would violate or
require registration under such applicable securities laws.
(c) TSR Wireless further represents, warrants and acknowledges to
Grantor that:
(i) Grantor has not given any investment advice or rendered any
opinion to TSR Wireless as to whether the sale of the Option is
prudent and TSR Wireless is not relying on any representation or
warranty by Grantor except as expressly set forth in this Agreement or
the Asset Contribution Agreement;
(ii) TSR Wireless has received, reviewed and relied upon such
information concerning the legal, business and financial condition of
the Company as it considers adequate to make an informed decision
regarding the purchase of the Option; and
(iii) without implying that the Option is a "security" within the
meaning of applicable securities laws, TSR Wireless is a sophisticated
investor with respect to the Option, was not formed for the purpose of
purchasing the Option and is not purchasing the Option with a view to
any public distribution thereof which would violate applicable
securities laws.
5. FURTHER LLC INTEREST. Following the exercise of the Option, upon
the earlier to occur of (i) the transfer by the Company of all of the Company's
Assets (except for Excluded Assets) to TSR Wireless, whether by foreclosure,
conveyance or other transfer and (ii)
4
the entire principal amount of the outstanding Indebtedness is repaid to TSR in
cash, TSR Wireless shall issue the Further LLC Interest to Grantor.
6. DISTRIBUTIONS. If Grantor receives any Distributions in respect
of the Indebtedness on or after an Exercise Date, it will pay the same over to
TSR Wireless or TSR Wireless's designee in the currency received by it or, in
the case of securities (to the extent permissible by law and relevant
documentation), endorse or cause to be registered in TSR Wireless's names or
such names as TSR Wireless may direct in writing (at TSR Wireless's sole
expense) and deliver to TSR Wireless or such persons as TSR Wireless may direct
such securities within three (3) business days after receipt of any such
Distribution. If any cash Distribution is not paid to TSR Wireless within such
time period Grantor will pay interest on such Distribution for the period from
the day on which such Distribution was actually received by Grantor to (but
excluding) the day such Distribution is actually paid to TSR Wireless, at a rate
per annum equal to the London Interbank Offering Rate plus two (2) percent, as
calculated and published from time to time on page 3750 of the Telerate Screen.
Until any Distributions are transferred to TSR Wireless pursuant to this Section
6, Grantor shall hold the same in trust for the benefit of TSR Wireless.
7. COVENANT; INFORMATION; ACTIONS. Grantor shall not amend,
supplement or otherwise modify the terms of the Credit Agreement without the
prior written consent of TSR Wireless, PROVIDED, HOWEVER, that this shall not
prevent an increase by Grantor of the Indebtedness so long as such increase and
a draw in an amount equal to such increase occur simultaneously. If Grantor
receives any documents, notice or correspondence under the Credit Agreement or
in respect of the Indebtedness from and after the date hereof it shall promptly
forward the same to TSR Wireless. TSR Wireless shall have sole authority to
exercise all voting and other rights and remedies under the Credit Agreement and
in respect of the Indebtedness from and after the Exercise Date. If for any
reason, Grantor is entitled to exercise any such rights after the Exercise Date
(including, without limitation, the right to vote), Grantor shall exercise such
rights only in accordance with TSR Wireless's written instructions.
8. NOTICE. Notice (including any Call Notice) will be given by fax,
if to
TSR Wireless at:
TSR Wireless LLC
400 Kelly Street
15th Floor
Fort Lee, NJ 07024
Attention: Mitchell L. Sacks
Fax: (201) 947-7145
5
With copies to:
Latham & Watkins
885 Third Avenue
Suite 1000
New York, New York 10022
Attention: Roger H. Kimmel
Fax: (212) 751-4864
Grantor, at:
Telephone and Data Systems, Inc.
30 North LaSalle Street
Suite 4000
Chicago, IL 60602
Attention: Chief Financial Officer
Fax: (312) 630-9299
With copies to:
Sidley & Austin
1 First National Plaza
Chicago, Illinois 60603
Attention: Michael G. Hron
Fax: (312) 456-5352
Copies of all notices so sent will also be sent by overnight courier to the
parties' respective addresses set forth above (or such other addresses as any
party hereto may specify in writing from time to time). All notices shall be
deemed effective when received.
9. INDEMNIFICATION. (a) Grantor shall indemnify and hold each
of TSR Wireless and TSR Paging (and TSR Wireless's and TSR's fiduciaries,
officers, managers, directors, partners, employees and agents) harmless from
any actual losses, costs or expenses, including reasonable legal fees and
expenses, which are incurred as a result of breaches of any of the
representations, warranties, covenants or agreements made by Grantor in this
Agreement; (b) TSR Wireless shall indemnify and hold Grantor and TSR Paging
(and Grantor's and TSR's officers, directors, trustees, fiduciaries,
managers, employees and agents) harmless from any actual losses, costs or
expenses, including reasonable legal fees and expenses, which are incurred as
a result of breaches of any of the representations, warranties, covenants or
agreements made by TSR Wireless in this Agreement; and (c) TSR Paging shall
indemnify and hold Grantor and TSR Wireless (and Grantor's and TSR Wireless's
officers, directors, trustees, fiduciaries, managers, employees and agents)
harmless from any actual losses, costs or expenses, including
6
reasonable legal fees and expenses, which are incurred as a result of
breaches of any of the representations, warranties, covenants or agreements
made by TSR Paging in this Agreement.
10. COSTS AND EXPENSES. Each party hereto shall be responsible for
its own fees and expenses (including legal fees and costs) in connection with
the preparation, review and execution of this Agreement.
11. MISCELLANEOUS. This Agreement shall be binding upon, enforceable
by and inure to the benefit of the parties hereto and their respective
successors, but shall not be assignable by any party hereto without the consent
of the other parties. The representations, warranties, covenants, agreements
and indemnities contained herein shall survive the execution, delivery and
performance of this Agreement and all other Option Documents. Any amendments
to, or waivers of, this Agreement shall be in writing and signed by Grantor, TSR
Wireless and TSR Paging. This Agreement, together with Asset Contribution
Agreement, constitutes the entire agreement of the parties hereto with respect
to the subject matter hereof. This Agreement may be executed in any number of
counterparts, each of which, when so executed and delivered, shall be an
original, but all of which together shall constitute one agreement binding on
the parties hereto. Transmission by telecopier of an executed counterpart of
this Agreement shall be deemed to constitute due and sufficient delivery of such
counterpart, PROVIDED that the party so delivering such counterpart shall,
promptly after such delivery, deliver the original of such counterpart of this
Agreement to the other parties hereto.
12. GOVERNING LAW. This Agreement shall be construed and the
obligations of the parties hereunder shall be determined in accordance with the
laws of the State of New York.
7
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
Grantor:
TELEPHONE AND DATA SYSTEMS, INC.
By: /s/ Scott H. Williamson
----------------------------------
Name: Scott H. Williamson
Title: Vice President-Acquistions
TSR Wireless:
TSR WIRELESS LLC
By: TSR PAGING INC.,
its sole member
By: /s/ Mitchell L. Sacks
-------------------------------
Name: Mitchell L. Sacks
Title: President
8
EXHIBIT A
FORM OF CALL NOTICE
Telephone and Data Systems, Inc.
30 North LaSalle Street
Suite 4000
Chicago, IL 60602
Attention:
Re: EXERCISE OF OPTION
Ladies and Gentlemen:
The undersigned hereby irrevocably elects to exercise the right, set
forth in that certain Option Agreement dated as of December 22, 1997 (the
"Option Agreement"), to purchase from Telephone and Data Systems, Inc.
("Grantor") all of Grantor's right, title and interest in and to or arising
under or in connection with the Indebtedness, as set forth in the Option
Agreement. Capitalized terms used herein without definition have the same
meanings as in the Option Agreement.
The undersigned has attached the Assignment and Acceptance, and
requests that a Note representing the Indebtedness be made in favor of the
Assignee named therein. The undersigned agrees to cause to be transferred to
Grantor, upon receipt the Note and a counterpart of the Assignment and
Acceptance, the LLC Interest.
Very truly yours,
TSR WIRELESS LLC
By:
------------------------------------
Name:
Title:
Date:
9
EXHIBIT B
FORM OF
ASSIGNMENT AND ACCEPTANCE AGREEMENT
Dated _______, 19__
Reference is made to the Revolving Credit Agreement, dated as of
January 1, 1994, between Telephone and Data Systems, Inc. and American Paging,
Inc. (the "Company") (as amended, modified and supplemented to date, the "Credit
Agreement"). Unless otherwise defined herein, terms defined in the Credit
Agreement are used herein with the same meanings.
Telephone and Data Systems, Inc. (the "Assignor") and
__________________ (the "Assignee") agree as follows:
1. Subject to Section 3 below, the Assignor hereby sells and assigns
to the Assignee, and the Assignee hereby purchases and assumes from the
Assignor, WITHOUT RECOURSE, [all] [a portion] of Assignor's rights and
obligations under the Credit Agreement on the Effective Date (as defined Section
4 below), equal to __________% of the advances owing to, and the Note held by,
the Assignor on the Effective Date.
2. The Assignor: (i) represents and warrants that, (A) as of the
date hereof, its commitment to extend credit under the Credit Agreement (without
giving effect to assignments thereof which have not yet become effective) is
$0.00; and (B) the Credit Agreement has been duly authorized and validly
executed by the Company and constitutes a valid and legally binding agreement of
the Company, enforceable against the Company in accordance with its terms
(assuming the due execution and delivery hereof by the other parties thereto),
subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally and to general principles of equity (regardless of whether
enforcement is sought at law or in equity), and except as rights to indemnity
and contribution thereunder may be limited by public policy considerations
underlying such laws; (ii) makes no representation or warranty and assumes no
responsibility with respect to the financial condition of the Company or the
performance or observance by the Company or any subsidiary of the Company of any
of its obligations under the Credit Agreement or any other instrument or
document furnished pursuant thereto; and (iii) attaches the Note referred to in
paragraph 1 above.
3. The Assignee: (i) confirms that it has received a copy of the
Credit Agreement, together with copies of the financial statements referred to
in Section 7(a)(l) of the Credit Agreement and such other documents and
information as it has deemed appropriate to make its own credit analysis and
decision to enter into this Assignment and Acceptance; (ii) agrees that it will,
independently and without reliance upon the Assignor, and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under the Credit
Agreement; (iii) agrees that it will perform in accordance with their terms all
of the obligations which by the terms of the Credit Agreement are
10
required to be performed by it; and (iv) specifies as its address for notices
the office set forth beneath its name on the signature pages hereof.
4. The effective date of this Assignment and Acceptance shall be
___________, 19___ (the "Effective Date").(1) Following the execution of
this Assignment and Acceptance, a copy will be delivered to the Company.
5. As of the Effective Date, (i) the Assignee shall be a party to
the Credit Agreement and, to the extent provided in this Assignment and
Acceptance, have the rights and obligations which Assignor had thereunder, and
(ii) the Assignor shall, to the extent provided in this Assignment and
Acceptance, relinquish its rights and be released from its obligations under the
Credit Agreement [and cease to be a party thereto].(2)
6. From and after the Effective Date, the Company shall make all
payments under the Credit Agreement in respect of the interest assigned hereby
(including, without limitation, all payments of principal, interest and
commitment fees with respect to the Note) to the Assignee. The Assignor and the
Assignee shall make all appropriate adjustments in payments under the Credit
Agreement for periods prior to the Effective Date directly between themselves.
7. MISCELLANEOUS.
(i) NOTICES. Notices shall be given under this Assignment and
Acceptance in the manner set forth in the Credit Agreement. The addresses
for notice shall be those set forth below the respective signatures of the
Assignor and the Assignee on this Agreement.
(ii) HEADINGS. Headings are for reference only and are to be
ignored in interpreting this Assignment and Acceptance.
(iii) GOVERNING LAW. THIS ASSIGNMENT AND ACCEPTANCE SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK.
(iv) FURTHER ASSURANCES. The Assignor and the Assignee hereby
agree to execute and deliver such other instruments, and take such other
action, as either party may reasonably request in furtherance of the
transactions contemplated by this Assignment and Acceptance.
- -------------------------
(1) Such date shall be at least [5] Business Days after the execution of this
Assignment and Acceptance.
(2) Insert if Assignment and Acceptance covers all or the remaining portion of
the Assignor's rights and obligations under the Credit Agreement.
11
(v) COUNTERPARTS. This Assignment and Acceptance may be executed in
one or more duplicate counterparts, and when executed and delivered by all the
parties listed below shall constitute a single binding agreement.
12
IN WITNESS WHEREOF, the parties hereto have executed this Assignment
and Acceptance Agreement by their duly authorized officers as of the date first
above written.
TELEPHONE AND DATA SYSTEMS, INC.
By:
------------------------------------
Name:
Title:
Notice Address:
[NAME OF ASSIGNEE]
By:
-------------------------------------
Name:
Title:
Notice Address:
Acknowledged this ____ day of
__________________, 19___
AMERICAN PAGING, INC.
By:
-----------------------------------
Name:
Title:
13