<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 31, 1996
REGISTRATION NO. 333-04388
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 7
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ADVANCED RADIO TELECOM CORP.
(Currently Advanced Radio Technologies Corporation)
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 4812 52-1348016
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
<TABLE>
<S> <C>
VERNON L. FOTHERINGHAM
CHIEF EXECUTIVE OFFICER
ADVANCED RADIO TELECOM CORP. ADVANCED RADIO TELECOM CORP.
500 108TH AVENUE, N.E., SUITE 2600 500 108TH AVENUE, N.E., SUITE 2600
BELLEVUE, WASHINGTON 98004 BELLEVUE, WASHINGTON 98004
(206) 688-8700 (206) 688-8700
(Address, Including Zip Code, and Telephone (Name, Address, Including Zip Code, and
Number, Including Area Code, of Registrant's Telephone Number, Including Area Code, of
Principal Executive Offices) Agent for Service)
</TABLE>
<TABLE>
<S> <C> <C>
COPIES TO:
JAMES KARDON, ESQ. JOHN D. WATSON, JR., ESQ. W. THEODORE PIERSON, JR., ESQ.
HAHN & HESSEN LLP LATHAM & WATKINS PIERSON & BURNETT, LLP
350 FIFTH AVENUE 1001 PENNSYLVANIA AVE., N.W. 1667 K. STREET, N.W., SUITE 801
NEW YORK, NEW YORK 10118 WASHINGTON, D.C. 20004 WASHINGTON, D.C. 20006
(212) 736-1000 (202) 637-2200 (202) 466-3044
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ADVANCED RADIO TELECOM CORP.
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K SHOWING LOCATION
IN PROSPECTUS OF INFORMATION REQUIRED BY ITEMS OF FORM S-1
<TABLE>
<CAPTION>
ITEM AND CAPTION IN FORM S-1 CAPTION IN PROSPECTUS
- ---------------------------------------------------------------- -----------------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus...................... Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus.......................................... Inside Front Cover Page of Prospectus; Outside Back
Cover Page of Prospectus
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges........................... Prospectus Summary; Risk Factors
4. Use of Proceeds...................................... Use of Proceeds
5. Determination of Offering Price...................... Outside Front Cover Page of Prospectus; Risk Factors;
Underwriting
6. Dilution............................................. Dilution; Shares Eligible for Future Sale
7. Selling Security Holders............................. Not Applicable
8. Plan of Distribution................................. Outside Front Cover Page of Prospectus; Underwriting
9. Description of Securities to be Registered........... Outside Front Cover Page of Prospectus; Prospectus
Summary; Description of Capital Stock; Shares
Eligible for Future Sale
10. Interests of Named Experts and Counsel............... Legal Matters; Experts
11. Information with Respect to the Registrant........... Prospectus Summary; Risk Factors; The Company;
Dividend Policy; Capitalization; Selected Historical
Combined and Pro Forma Financial Data; Management's
Discussion and Analysis of Financial Condition and
Results of Operations; Business; Management;
Principal Stockholders; Certain Transactions;
Description of Capital Stock; Description of Certain
Indebtedness; Financial Statements.
12. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities...................... Not Applicable.
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED OCTOBER 16, 1996
PROSPECTUS
2,750,000 SHARES
[LOGO]
COMMON STOCK
------------------
All of the shares of common stock, par value $.001 per share (the "Common
Stock"), offered hereby (the "Offering") are being sold by Advanced Radio
Telecom Corp. ("ART" or the "Company"). Prior to the Offering, there has been no
public market for the Common Stock. It is currently anticipated that the initial
public offering price for the Common Stock will be between $15.00 and $18.00 per
share. See "Underwriting" for information relating to the determination of the
initial public offering price. The Common Stock has been approved for quotation
on The Nasdaq Stock Market under the symbol "ARTT."
At the Company's request, the Underwriters have reserved up to 275,000
shares for sale at the initial public offering price to certain of the Company's
employees, members of their immediate families and other individuals who are
business associates of the Company. The number of shares available for sale to
the general public will be reduced to the extent these individuals purchase such
reserved shares. Any reserved shares not purchased will be offered by the
Underwriters to the general public on the same basis as the other shares offered
hereby. In addition, certain existing securityholders of the Company, including
affiliates of Advent International, Inc., Ameritech Corp. and certain directors
of the Company, who hold approximately $4.0 million of the approximately $5.0
million of the March Bridge Notes (as defined) that will be repaid by the
Company with a portion of the net proceeds of the Offering, have preliminarily
indicated their intent to purchase approximately 242,424 of the shares of Common
Stock offered hereby for an aggregate purchase price of approximately $4.0
million (based on the mid-point of the range set forth above), for their
respective accounts or those of their affiliates or designees. See "Principal
Stockholders" and "Underwriting."
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT (1) COMPANY (2)
<S> <C> <C> <C>
Per Share................................................ $ $ $
Total (3)................................................ $ $ $
</TABLE>
(1) The Company has agreed to indemnify the several Underwriters against certain
liabilities under the Securities Act of 1933, as amended (the "Securities
Act"). See "Underwriting."
(2) Before deducting expenses of the Offering payable by the Company estimated
at $ .
(3) The Company has granted the several Underwriters an option, exercisable
within 30 days after the date hereof, to purchase up to an aggregate of
412,500 additional shares of Common Stock, on the same terms as set forth
above, solely to cover over-allotments, if any. If all such additional
shares are purchased, the total Price to Public, Underwriting Discount and
Proceeds to Company will be $ , $ and $ , respectively.
See "Underwriting."
--------------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if issued to and accepted by them, subject to
approval of certain legal matters by counsel for the Underwriters and certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part. It is expected that
delivery of the shares of Common Stock will be made in New York, New York on or
about , 1996.
------------------------
MERRILL LYNCH & CO. DEUTSCHE MORGAN GRENFELL
---------------
The date of this Prospectus is , 1996.
<PAGE>
[INSIDE FRONT COVER GATE FOLD]
38 GHz TECHNOLOGY PROVIDES SUPERIOR
BANDWIDTH PER CHANNEL WHICH ALLOWS SIGNIFICANTLY
FASTER DATA TRANSFER RATES.
[GRAPHIC DISPLAYING BANDWIDTH PER CHANNEL
OF FREQUENCIES BETWEEN 530 KHz AND 38 GHz.]
<PAGE>
[GRAPHIC DISPLAYING 38 GHz LINKS
BETWEEN METROPOLITAN FIBER RING,
OFF-FIBER NET BUILDINGS AND ON-FIBER NET BUILDINGS.]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ STOCK MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY SHOULD BE READ IN CONJUNCTION WITH, AND IS QUALIFIED
IN ITS ENTIRETY BY, THE MORE DETAILED INFORMATION, INCLUDING "RISK FACTORS" AND
THE HISTORICAL AND PRO FORMA FINANCIAL STATEMENTS AND THE NOTES THERETO,
APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL
INFORMATION IN THIS PROSPECTUS ASSUMES (I) THE COMPLETION OF THE MERGER (THE
"MERGER") OF A WHOLLY-OWNED SUBSIDIARY OF ADVANCED RADIO TECHNOLOGIES
CORPORATION ("ART") WITH AND INTO ADVANCED RADIO TELECOM CORP. ("TELECOM"), (II)
THE CONVERSION (THE "CONVERSION") OF ALL OUTSTANDING SHARES OF PREFERRED STOCK
OF ART INTO SHARES OF COMMON STOCK OF ART ON THE DATE OF THIS PROSPECTUS, (III)
THE AMENDMENT OF ART'S CERTIFICATE OF INCORPORATION TO CHANGE ITS NAME TO
"ADVANCED RADIO TELECOM CORP.," ("ART" OR THE "COMPANY"), (IV) THE 29,450.16 FOR
ONE SPLIT OF THE COMMON STOCK EFFECTED IN JUNE 1996, (V) THE ONE FOR 2.75
REVERSE SPLIT OF THE COMMON STOCK EFFECTED IN OCTOBER 1996, AND (VI) NO EXERCISE
OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION IN THE OFFERING. AFTER GIVING EFFECT
TO THE MERGER, TELECOM WILL BE A WHOLLY-OWNED SUBSIDIARY OF ART. AS USED IN THIS
PROSPECTUS, THE TERMS "ART" OR THE "COMPANY" REFER EITHER TO ART ON A
STAND-ALONE BASIS OR ON A COMBINED BASIS WITH TELECOM AS THE CONTEXT MAY
REQUIRE. SEE "THE COMPANY." SEE "GLOSSARY" FOR THE DEFINITIONS OF CERTAIN TERMS
AND ACRONYMS USED HEREIN.
THE COMPANY
Advanced Radio Telecom Corp. ("ART" or the "Company") provides wireless
broadband telecommunications services using point-to-point microwave
transmissions in the 38 GHz band of the radio spectrum. The Company is seeking
to address the growing demand for high speed, high capacity digital
telecommunications services on the part of business and government end users who
require cost effective, high bandwidth local access to voice, video, data and
Internet services. Upon completion of its pending acquisition of 129 38 GHz
wireless broadband authorizations (the "CommcoCCC Assets") from CommcoCCC, Inc.
("CommcoCCC"), the Company will own or manage a total of 237 authorizations
(which are also referred to herein as "licenses") granted by the Federal
Communications Commission (the "FCC") covering an aggregate population of
approximately 143 million in 169 U.S. markets. ART's footprint will allow it to
provide 38 GHz wireless broadband services in 47 of the top 50 markets and 82 of
the top 100 markets. Presently, the Company owns or manages 108 licenses
(exclusive of the CommcoCCC Assets) that allow it to provide 38 GHz wireless
broadband services in 89 markets. See "Risk Factors -- Risk of Non-Consummation
of CommcoCCC Acquisition and Other Acquisitions," "Business -- 38 GHz Wireless
Broadband Licenses and Authorizations" and "-- Agreements Relating to Licenses
and Authorizations -- CommcoCCC Acquisition."
The ability to access and distribute information quickly has become critical
to business and government users of telecommunications services. The rapid
growth of local area networks ("LANs"), Internet services, video
teleconferencing and other data intensive applications is significantly
increasing the volume of broadband telecommunications traffic. The inability of
the existing infrastructure to meet this demand is creating a "last mile"
bottleneck in the copper wire networks of the incumbent local exchange carriers
("LECs"). This increasing demand, together with changes in the regulatory
environment, is creating an opportunity to offer cost effective, high capacity
last mile access using both wireline and wireless solutions. See "Business --
Telecommunications Industry Overview."
ART'S WIRELESS BROADBAND SERVICES
The Company is positioned to solve the need for broadband last mile
services, linking end users to facilities of LECs, competitive access providers
("CAPs"), competitive local exchange carriers ("CLECs"), inter-exchange carriers
("IXCs") and Internet service providers ("ISPs"). The Company is also positioned
to link cell sites of mobile communications service providers and to link
metropolitan area network sites using 38 GHz technology. The Company's wireless
broadband links deliver high quality voice and data transmissions at a level of
performance which exceeds the performance of copper based networks and is a
viable alternative to fiber optic based networks. The Company provides point-
to-point wireless digital circuits ranging in capacity from DS-1 (1.544 megabits
per second ("Mbps"), capable of carrying 24 simultaneous voice conversations) to
DS-3 (45 Mbps, capable of carrying 672 simultaneous voice conversations). The
Company believes that it generally owns or manages sufficient
3
<PAGE>
38 GHz bandwidth to satisfy the anticipated service requirements of its target
customers in each of the Company's existing markets and the additional 80
markets to be acquired under the CommcoCCC Agreement (as defined). See "Business
- -- ART's Wireless Broadband Services."
The Company intends initially to market its services as a carrier's carrier
in order to leverage ART's carrier customers' sales forces, channels of
distribution and customer bases. The Company believes that its services will be
attractive to carrier customers which do not currently have broadband networks
that reach the majority of their customers. For example, the Company has entered
into a strategic distribution agreement (the "Ameritech Strategic Distribution
Agreement") with Ameritech Corp. ("Ameritech") for delivery of the Company's
wireless broadband services throughout Ameritech's midwest operating region and
for certain large customers located outside its region. Ameritech has announced
its intention to initiate sales of ART's wireless broadband services beginning
in November 1996. See "Business -- Strategic Alliances -- Ameritech Strategic
Distribution Agreement."
The Company believes that a number of factors provide it with certain
significant competitive advantages in offering broadband last mile services,
including:
- The characteristics of 38 GHz technology (high data transfer rates,
significant channel capacity, rapid deployment, easy installation, very
high transmission quality and efficient network design) are ideal for the
provision of last mile services. See "Business -- 38 GHz Technology."
- The Company deploys capital efficiently because of the
installation-to-meet-demand and redeployable nature of the Company's
wireless broadband equipment, as compared to the significant upfront cost
for installation of fiber based networks.
- As one of the first 38 GHz service providers, the Company enjoys a
time-to-market advantage and is therefore well-positioned to capture a
large percentage of early adopters, which are generally among the heaviest
users. The Company believes it is one of only two 38 GHz service providers
currently offering commercial services.
- The Company is forging strategic alliances with major telecommunications
carriers, equipment vendors and technology development companies, thus
gaining access to important channels of distribution and early deployment
of advanced technologies.
- The broad scope of the Company's footprint enables it to offer wireless
broadband services targeting much of the United States's addressable
business market.
- The Company's network management operational support system provides
24-hour, seven-days-a-week network monitoring and management.
- The Company is developing proprietary Geographic Information Systems
("GIS") that provide ART with 3-D digital modeling of all of its markets,
including all building and landscape features, to reduce the time and
expense of engineering its proposed radio locations. These systems will
allow the Company to determine line of site for proposed links, produce a
list of tenants in the buildings serviceable from such locations and
integrate this information with its marketing databases.
4
<PAGE>
BUSINESS STRATEGY
The Company is seeking to capitalize on its broad footprint of 38 GHz
authorizations to become a leading provider of wireless broadband solutions to a
diverse group of traditional and emerging telecommunications service providers
and end users. See "Business -- Business Strategy." The Company has begun to
implement the following strategic initiatives to achieve this objective:
- CAPITALIZE ON BROAD SPECTRUM POSITION. The Company's spectrum assets
provide it with the foundation on which to create a large scale commercial
network of 38 GHz wireless broadband operations. The Company plans to
continue to build out its infrastructure and to intensify its marketing
effort in its market areas in order to exploit the value inherent in its
spectrum assets. See "Business -- Agreements Relating to Licenses and
Authorizations."
- ESTABLISH AND EXPAND KEY STRATEGIC ALLIANCES. The Company plans to utilize
strategic alliances to bundle its services with those of its partners, to
provide for alternative distribution channels and to gain access to
technological advancements. The Company has established and will seek to
continue to establish key strategic alliances with major service providers,
equipment manufacturers and systems integrators. Under the Ameritech
Strategic Distribution Agreement, Ameritech is targeting certain sales
objectives and has agreed to spend internally up to $7.0 million on its
sales and marketing of ART's services. Ameritech owns a 5.6% beneficial
equity interest in the Company as of October 11, 1996 (4.5% after giving
effect to the Offering without giving effect to any purchases of Common
Stock by Ameritech in the Offering). The Company also has agreements with
Harris Corporation, Farinon Division ("Harris") for marketing ART's 38 GHz
services to PCS providers and with GTE Corporation for installation, field
servicing and network monitoring. See "Business-- Strategic Alliances."
- MARKET INITIALLY AS A CARRIER'S CARRIER. The Company intends to initially
market its services as a carrier's carrier in order to leverage ART's
carrier customers' sales forces, channels of distribution and customer
bases. The Company's initial target customers include LECs, CAPs/CLECs,
IXCs, ISPs and mobile communications service providers. The Company
believes that its services are particularly attractive to carrier customers
who do not currently have broadband networks capable of reaching the
majority of their customers.
- PROACTIVELY IDENTIFY OFF-NET MARKET OPPORTUNITIES FOR CARRIER CUSTOMERS.
ART utilizes its proprietary database tools, such as GIS, to analyze a
particular carrier's network and identify high density off-net customer
locations. The GIS database is then used to pre-clear off-net buildings for
line of site, distance and network design alternatives. After a critical
mass of sites has been pre-qualified, the Company is able to proactively
market to the carrier access to such customer premises and pursue a "team
selling" approach to end users. Utilizing this proactive approach with
multiple carriers is expected to allow the Company incrementally to build a
custom-designed wireless hub network in each of its target markets.
- PURSUE OPPORTUNITIES TO PROVIDE VALUE-ADDED SERVICES. The Company will
also market services such as data, video-conferencing, high resolution
imaging and video on demand directly to end users in conjunction with
system integrators, telecommunications equipment manufacturers and other
service providers. The Company also plans to offer point-to-multipoint
wireless broadband services and may also decide to offer switched-data
services to end users who desire a single source telecommunications
solution.
- MAINTAIN COMPETITIVE ADVANTAGES THROUGH TECHNOLOGY ADVANCEMENTS. As 38 GHz
microwave radios begin to be produced in large volumes with modern
manufacturing techniques, the Company believes that the cost of such
equipment will decline, thereby allowing the Company to meet anticipated
price competition in its markets. In addition, through the Company's
internal technology development efforts, as well as on-going participation
in equipment manufacturers' research and development activities, the
Company continuously seeks to reduce costs by designing equipment that
allows it to more efficiently utilize its spectrum. For example, the
Company anticipates taking delivery of 38 GHz OC-3 radios SONET compatible
(155 Mbps) within 18-24 months.
5
<PAGE>
CUSTOMERS AND APPLICATIONS
The Company began deploying its links principally on a trial basis in
November 1995 and has since been hiring its staff, building its internal
infrastructure and developing its marketing plans and relationships with
potential customers. The Company has generated only nominal revenues from its
operations to date as it is currently finalizing plans to roll out its services
on a wide-scale basis. Currently, the Company is providing or has received
orders to provide wireless broadband services to LECs, CAPs/ CLECs, ISPs and
mobile communications service providers, and is in the process of becoming a
qualified vendor to all the major IXCs. The Company currently provides services
to carriers such as Ameritech, Bell Atlantic NYNEX Mobile, MFS Communications,
UUNet, DIGEX, Incorporated, Electric Lightwave, NEXTLINK Communications LLC,
American PCS, L.P., Western Wireless, Commonwealth Telephone, Public Interest
Network, Chadwick Telephone, CGX Telecom, CAIS, Inc. and Brooks Fiber
Properties, Inc., among others. See "Business--Customers and Applications."
38 GHZ TECHNOLOGY
The 38 GHz band provides for the following additional advantages as compared
to other spectrum bands and wireline alternatives:
- HIGH DATA TRANSFER RATES. The total amount of bandwidth for each 38 GHz
channel is 100 MHz, which exceeds the bandwidth of any other present
terrestrial wireless channel allotment and supports full broadband
capability. For example, one 38 GHz DS-3 link at 45 Mbps today can
transfer data at a rate which is over 1,500 times the rate of the fastest
dial-up modem currently in use (28.8 Kbps) and over 350 times the rate of
the fastest integrated services digital network ("ISDN") line currently in
use (128 Kbps). In addition to accommodating standard voice and data
requirements, 45 Mbps data transmission rates allow end users to receive
real time, full motion video and 3-D graphics at their workstations and to
utilize highly interactive applications on the Internet and other
networks.
- SIGNIFICANT CHANNEL CAPACITY. Because 38 GHz radio emissions have a
narrow beam width, a relatively short range and in most instances the
capability to intersect without creating interference, 38 GHz service
providers can efficiently reuse their bandwidth within a licensed area,
thereby increasing the number of customers to which such services can be
provided. Management believes that by using technology currently employed
by the Company it can serve virtually all of its addressable service
market.
- RAPID DEPLOYMENT. 38 GHz technology can be deployed considerably more
rapidly than wireline and other wireless technologies, generally within 72
hours after obtaining access to customer premises. In contrast to the
relative ease of installing a 38 GHz transmission link, extending fiber or
copper-based networks to reach new customers requires significant time and
expense. In addition, unlike providers of point-to-point microwave service
in most other spectrum bands, a 38 GHz license holder can install and
operate as many transmission links as it can engineer in the licensed area
without obtaining additional approvals from the FCC. This is a substantial
advantage over other portions of the microwave radio spectrum that must be
licensed on a link-by-link basis and that cannot commence service until
frequency coordination has been completed.
- EASE OF INSTALLATION. The equipment used for 38 GHz point-to-point
applications (I.E., antennae, transceivers and digital interface units) is
smaller, less obtrusive and less expensive than that used for microwave
equipment applications at other frequencies, making it less susceptible to
zoning restrictions. In addition, 38 GHz equipment can be easily
redeployed to meet changing customer requirements.
- VERY HIGH TRANSMISSION QUALITY. The Company's wireless broadband services
are engineered to provide 99.999% availability, with better than a 10-13
(unfaded) bit error rate. This level of availability exceeds the
performance of copper based networks and is a viable alternative to fiber
based networks. When measured as the total amount of time "out of service"
over a year, 99.999% availability equates to less than six minutes per
year of down-time, compared to a range of four hours to 44 hours of
historical performance of similar copper-based LEC circuits.
- ADDITIONAL ADVANTAGES OVER OTHER PORTIONS OF RADIO SPECTRUM. At
frequencies above 38 GHz, point-to-point applications become less
practical because attenuation increases and the maximum distance between
transceivers accordingly decreases. Additionally, the FCC has specified
the use of many portions of the spectrum for applications other than
point-to-point, such as satellite and wireless cable services, and,
accordingly, these portions of the radio spectrum often are not available
for point-to-point applications.
6
<PAGE>
RECENT DEVELOPMENTS
There have been a number of recent corporate developments at ART, including:
- AMERITECH ROLLOUT ANNOUNCEMENT. On September 17, 1996, Ameritech
announced that it was planning to initiate wireless digital broadband
service using 38 GHz technology supplied by ART. Ameritech will rely on
ART for the provision of high speed door-to-door connectivity of voice,
data and video to customers in the Midwest beginning in November. See
"Business--Strategic Alliances."
- MASTER SERVICE AGREEMENTS WITH CAPS/CLECS AND ISPS. In September and
October 1996, ART entered into various master service agreements with a
number of CAPs/CLECs and ISPs, including NEXTLINK Communications LLC,
DIGEX, Incorporated, CAIS, Inc., Astrolink Communications, Inc., American
PCS, L.P., Message Center Management, Inc., GST Telecom, Inc., and Brooks
Fiber Properties, Inc. The Company's master service agreements contain the
terms by which customers will place future orders. The terms which are
outlined in these agreements include volume discounts, approximate
geographic location of links needed and representative pricing. Although a
master service agreement is not a take or pay commitment, it lays the
groundwork for future orders by a preferred customer and is utilized to
facilitate the issuance of purchase orders by a customer without any
additional negotiations. See "Business--Strategic Alliances."
- MFS AGREEMENTS. In October 1996, ART entered into various agreements
with MFS Communications Company, Inc. ("MFS") to supply several trial
broadband links to connect MFS sites in and around the New York City
metropolitan area. Upon successful completion of this trial, ART
management believes that it will enter into a broader contractual
relationship with MFS; however, there can be no assurance that the Company
will be able to do so.
- TELEPORT CONTRACT. In October 1996, ART entered into an installation
services agreement pursuant to which ART will act as a sub-contractor to
Teleport Communications Group ("TCG" or "Teleport") to provide
transmission facilities construction services. See "Business--Strategic
Alliances."
- MINORITY INVESTMENT IN ADVANTAGE TELECOM. In October 1996, ART entered
into a binding preliminary agreement with Advantage Telecom, Inc. ("ATI"),
a Canadian company which has applied for licenses to provide 38 GHz
service in the 66 major markets in Canada covering a population of
approximately 25 million people. Upon consummation of the transactions
described in the preliminary agreement, ART will hold a substantial direct
and indirect minority interest in ATI and will be a party to a services
agreement with ATI pursuant to which ART will construct and operate radio
systems based upon licenses granted to ATI and subject to control by ATI.
ATI is responsible for securing the additional funding necessary to
construct the radio systems. The Company believes that pursuant to the
recent Industry Canada policy statement, ATI can apply for provisional
licenses, which if granted would permit ATI immediately to construct and
operate one paired 50 MHz 38 GHz channel in up to 66 markets throughout
Canada. There can be no assurance that ATI will be granted these licenses
or will obtain the funding necessary to construct the radio systems. See
"Business--Foreign Markets."
- ICG AGREEMENT. In October 1996, ART entered into a services agreement
with ICG Telecom Group, Inc. and Pacific & Eastern Digital Transmission
Services, Inc., pursuant to which the Company will have an exclusive
right, as against third parties, to lease for a five-year term ten 38 GHz
wireless broadband authorizations covering an aggregate population of
approximately 13 million in or around the California cities of Beverly
Hills, Los Angeles, Palm Springs, Riverside, Santa Barbara, San
Bernardino, Santa Monica, San Diego, Santa Anna and Ventura. In addition,
the services agreement grants to the Company a right of first refusal with
respect to the purchase of such authorizations, subject to limited
exceptions. The services agreement may be renewed for successive terms of
up to five additional years upon expiration of its initial term. See
"Business--Agreements Relating to Licenses and Authorizations--Additional
Spectrum Rights Leases."
7
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company.......... 2,750,000 shares
Common Stock outstanding after the
Offering.................................... 13,690,546 shares (1)
Use of proceeds.............................. To fund capital expenditures, including the
purchase of equipment and the acquisition of
certain spectrum rights and the expenses
related to such acquisitions, to repay
outstanding indebtedness and for general
corporate purposes, including the funding of
operating cash flow shortfalls, technology
development and the acquisition of additional
unspecified spectrum rights and, potentially,
related businesses.
Listing...................................... The Common Stock has been approved for
quotation on The Nasdaq Stock Market under
the symbol "ARTT," subject to the
consummation of the Offering.
</TABLE>
- ------------------------------
(1) Assumes the Conversion. Excludes (i) 318,959 shares of Common Stock subject
to the Ameritech Warrant (as defined), (ii) 400,000 shares of Common Stock
subject to the March Bridge Warrants (as defined), (iii) 118,181 shares of
Common Stock subject to the Indemnity Warrants (as defined), (iv) 116,363
shares of Common Stock subject to the September Bridge Warrants (as
defined), (v) 816,970 shares of Common Stock subject to outstanding options
under the Equity Incentive Plan (as defined), (vi) 7,800 shares of Common
Stock anticipated to be subject to options under the Directors Plan (as
defined) issuable upon consummation of the Offering, (vii) 87,272 shares
subject to the CommcoCCC Warrants (as defined), (viii) 623,783 shares of
Common Stock anticipated to be subject to the Initial CIBC Warrants (as
defined) and (ix) 6,000,000 shares issuable upon the consummation of the
CommcoCCC Acquisition (as defined). As of the effective date of the
Offering, an additional 583,030 and 67,200 shares of Common Stock were
available for issuance under the Equity Incentive Plan and the Directors
Plan, respectively. See "Certain Transactions" and "Management -- Stock
Option Plans." In addition, does not give effect to the exercise of (i) the
over-allotment option granted to the Underwriters by the Company in the
Offering and (ii) any Additional CIBC Warrants (as defined) issued after the
Initial CIBC Warrants. See "Underwriting" and "Description of Certain
Indebtedness -- CIBC Financing."
CIBC FINANCING
The Company has entered into binding commitment letters (subject to
definitive documentation) with certain investors (the "Noteholders") which
provide for the issuance of $50.0 million of the Company's 12.5% Senior Secured
Notes due 1998 (the "Senior Secured Notes") at any time, at the Company's
option, during the period commencing upon consummation of the Offering until 90
days thereafter (the "CIBC Financing"). The interest rate on the Senior Secured
Notes will increase by 0.5% for each three-month period after the consummation
of the Offering until such time as the Senior Secured Notes have been repaid.
The Company will issue ten-year warrants at a nominal exercise price to the
Noteholders upon each of the following events: (i) the consummation of the
Offering, (ii) the issuance of the Senior Secured Notes and (iii) if the Senior
Secured Notes continue to be outstanding six months after the consummation of
the Offering, at various times thereafter. The Senior Secured Notes must be
repaid with the proceeds of any future debt and equity financings. See
"Description of Certain Indebtedness -- CIBC Financing."
RISK FACTORS
An investment in the Common Stock offered hereby involves a high degree of
risk. See "Risk Factors" beginning on page 11 for a discussion of certain
factors that should be considered by prospective purchasers of the Common Stock
offered hereby.
8
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table presents unaudited summary historical and pro forma
financial data which were derived from, and should be read in conjunction with,
the audited financial statements of ART and Telecom and the notes thereto, the
unaudited interim condensed financial statements of ART and Telecom and the
notes thereto, and the unaudited pro forma condensed financial statements of the
Company and the notes thereto, included elsewhere in this Prospectus. The pro
forma and pro forma as adjusted financial data are not necessarily indicative of
what the actual financial position and results of operations of the Company
would have been as of and for the six months ended June 30, 1996 and for the
year ended December 31, 1995, nor do they purport to represent the Company's
future financial position and results of operations.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995 SIX MONTHS ENDED JUNE 30, 1996
-------------------------------------------------- --------------------------------------------------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
COMBINED (1) PRO FORMA (2) AS ADJUSTED (3) COMBINED (1) PRO FORMA (2) AS ADJUSTED (3)
------------- ---------------- ----------------- ------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Operating revenue.... $ 5,793 $ 5,793 $ 5,793 $ 61,520 $ 61,520 $ 61,520
Non-cash compensation
expense............. 1,089,605 1,089,605 1,089,605 7,362,726 7,362,726 7,362,726
Depreciation and
amortization........ 15,684 15,684 3,758,877 278,375 278,375 2,149,972
Interest, net........ 121,986 3,233,357 30,934,820 578,805 1,654,800 15,595,165
Net loss............. 3,234,843 6,346,214 36,518,185 15,671,864 16,747,859 31,923,479
Pro forma net loss
per share of Common
Stock (4)........... -- $ 0.58 $ 1.79 -- $ 1.52 $ 1.57
Pro forma weighted
average number of
shares of Common
Stock outstanding
(4)................. -- 11,000,350 20,374,133 -- 11,000,350 20,374,133
</TABLE>
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1995 AS OF JUNE 30, 1996
------------------ --------------------------------------------------
HISTORICAL HISTORICAL PRO FORMA
COMBINED (1) COMBINED (1) PRO FORMA (2) AS ADJUSTED (3)
------------------ ------------- ---------------- -----------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital surplus (deficit)........ $ (3,008,510) $(10,543,499) $ (9,822,966) $ 63,615,910
Property and equipment, net.............. 3,581,561 7,411,547 7,411,547 7,411,547
FCC licenses............................. 4,235,734 4,182,734 4,182,734 149,727,734
Total assets............................. 9,876,559 15,737,368 21,737,368 232,395,194
Short-term debt.......................... -- 5,087,534 10,367,001 --
Long-term debt........................... 6,450,000 3,218,207 3,218,207 42,865,923
Total stockholders' equity (deficit)..... (312,860) 1,014,125 1,734,658 149,451,769
</TABLE>
- ------------------------------
(1) The unaudited summary financial data under the caption "Historical Combined"
are presented as if the historical financial statements of ART and Telecom
had been combined and reflect (i) the elimination of transactions and
balances between ART and Telecom and (ii) the elimination of ART's
investment in Telecom and Telecom's investment in ART.
(2) The unaudited summary financial data under the caption "Pro Forma" are
presented as if the following transactions had occurred as of the beginning
of the respective periods for the Statement of Operations Data and as of the
balance sheet date for the Balance Sheet Data: (i) the interest expense
related to the March 1996 issuance of the March Bridge Notes (as defined)
and March Bridge Warrants; (ii) the interest expense related to the April
1996 issuance of the Equipment Note (as defined) and Indemnity Warrants;
(iii) the receipt of the remaining $2.0 million (out of a total of $3.0
million) in cash proceeds from the issuance of the CommcoCCC Notes (as
defined) and CommcoCCC Warrants; (iv) the receipt of $4.0 million in cash
proceeds from the issuance of the September Bridge Notes (as defined) and
September Bridge Warrants; and (v) the Merger, including the issuance of ART
preferred stock and Common Stock to Telecom stockholders and the
cancellation of all outstanding Telecom preferred and common stock. See
"Certain Transactions."
(3) The unaudited summary financial data under the caption "Pro Forma As
Adjusted" are presented as if the transactions referred to in (2) above and
the following transactions had occurred as of the beginning of the
respective periods for the Statement of Operations Data and as of the
balance sheet date for the Balance Sheet Data: (i) the sale by the Company
of
9
<PAGE>
2,750,000 shares of Common Stock offered in the Offering (based on an
assumed initial public offering price of $16.50 per share) and the immediate
drawdown of $50.0 million of gross proceeds from the issuance of Senior
Secured Notes and Initial CIBC Warrants to be offered in the CIBC Financing,
in each case, after deducting the estimated underwriting discount and
related expenses and, in the case of the CIBC Financing, the value ascribed
to the Initial CIBC Warrants of approximately $10.4 million based on an
assumed initial issuance of warrants to purchase an aggregate of 3% of
Common Stock of the Company on a fully-diluted basis after giving effect to
the Offering and the CommcoCCC Acquisition, which increases by issuance of
Additional CIBC Warrants to purchase an aggregate of 623,783 shares of
Common Stock of the Company for each six month period the Senior Secured
Notes remain outstanding, (ii) the receipt and application of the net
proceeds therefrom to repay the March Bridge Notes, the CommcoCCC Notes and
the September Bridge Notes and to acquire the 50% ownership interest of ART
West (as defined) held by Extended (as defined) for $6.0 million in cash and
the DCT Assets (as defined) for $3.6 million in cash, (iii) the Conversion
and (iv) the issuance of 6,000,000 shares of Common Stock based upon an
assumed value of $16.50 per share in connection with the CommcoCCC
Acquisition (as defined). See "Use of Proceeds."
(4) Pro forma net loss per share is computed based on the loss for the period
divided by the weighted average number of shares of Common Stock outstanding
during the period, including the Merger, the Conversion and the issuance of
potentially dilutive instruments issued within one year prior to the
Offering at exercise prices below the assumed initial public offering price
of $16.50 per share. Pro forma as adjusted net loss per share include the
items above noted plus the issuance of 2,750,000 shares of Common Stock in
the Offering, the issuance of 6,000,000 shares of Common Stock in connection
with the CommcoCCC Acquisition and the Initial CIBC Warrants to purchase an
aggregate of 623,783 shares of Common Stock in connection with the CIBC
Financing (representing 3.0% of the Common Stock outstanding, on a
fully-diluted basis, after giving effect to the Offering and the CommcoCCC
Acquisition). In measuring the dilutive effect, the treasury stock method
was used.
10
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, THE
FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING AN
INVESTMENT IN THE COMMON STOCK OFFERED HEREBY.
BUSINESS AND REGULATORY RISKS
LIMITED OPERATIONS; HISTORY OF NET LOSSES
Although the Company's business commenced in 1993, the Company has generated
only nominal revenues from operations to date. The Company's primary activities
have focused on the acquisition of wireless authorizations, the hiring of
management and other key personnel, the raising of capital, the acquisition of
equipment and the development of operating systems. Prospective investors have
limited operating and financial data about the Company upon which to base an
evaluation of the Company's performance and an investment in the Common Stock
offered hereby. The Company's ability to provide commercial service on a
widespread basis and to generate positive operating cash flow will depend on its
ability to, among other things, (i) deploy its 38 GHz technology on a
market-by-market basis, (ii) attract and retain an adequate customer base, (iii)
develop its operational and support systems and (iv) acquire appropriate sites
for its operations. 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, to develop a sufficiently large revenue-generating customer
base, to service its indebtedness or to 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 associated start-up operating expenses, these
capital expenditures will result in negative cash flow until an adequate revenue
generating customer base is established. On a historical combined basis for the
year ended December 31, 1995 and the six-month period ended June 30, 1996, the
Company reported net losses of $3.2 million and $15.7 million, respectively. On
a historical combined basis, from inception through June 30, 1996, the Company
reported net losses of $19.0 million. The financial statements of the Company
included in this Prospectus have been prepared on a going concern basis. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." Through December 31, 1997, the Company currently expects to incur
capital expenditures of approximately $40.0 million as the development and
expansion of its wireless broadband business continues. The Company expects to
generate significant operating and net losses for at least the next several
years. There can be no assurance that the Company will develop a
revenue-generating customer base or will achieve or sustain profitability in the
future.
EMERGING MARKET; UNCERTAIN ACCEPTANCE OF 38 GHZ SERVICES
The Company has only recently begun to market its wireless broadband
services to potential customers and has generated only nominal revenues to date.
The provision of wireless broadband services on 38 GHz frequencies 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 microwave
technologies using frequencies other than 38 GHz. See "Business -- 38 GHz
Technology." There can be no assurance that substantial markets will develop for
38 GHz 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 wireless broadband services is 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 wireless broadband services,
competition from wireline and wireless operators in the same market area,
changes in the federal and state regulatory
11
<PAGE>
schemes affecting the operation of 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 wireless
broadband equipment. In addition, the extent of the potential demand for
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 an adverse effect on the Company's financial condition and results of
operations.
RISK OF NON-CONSUMMATION OF COMMCOCCC ACQUISITION AND OTHER ACQUISITIONS
On July 3, 1996, the Company entered into an agreement (as amended, the
"CommcoCCC Agreement") to acquire the CommcoCCC Assets from CommcoCCC (the
"CommcoCCC Acquisition") in exchange for 6,000,000 shares of Common Stock. See
"Business -- Agreements Relating to Licenses and Authorizations -- CommcoCCC
Acquisition." The CommcoCCC Acquisition is subject to various conditions
including receipt of FCC and other approvals (including approval under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, if required), receipt by
CommcoCCC of an opinion as to the tax-free nature of the transaction,
consummation of the Offering on terms reasonably satisfactory to CommcoCCC,
minimum population coverage requirements for the authorizations of ART and
CommcoCCC, accuracy of representations and warranties except for breaches that
do not have in the aggregate a material adverse effect, no pending or threatened
material litigation and other customary closing conditions. There can be no
assurance that all such conditions will be satisfied. See "Business --
Agreements Relating to Licenses and Authorizations -- CommcoCCC Acquisition." In
order to satisfy the minimum population coverage requirements, the Company will
be obliged to complete the acquisitions of certain spectrum rights from ART
West, DCT and Telecom One, or, in the event it cannot complete one or more of
such acquisitions, to acquire or lease other spectrum rights; however there can
be no assurance that the Company will be able to do so. The Company's
acquisition agreements with DCT, ART West and Telecom One are also subject to
various conditions and consequently there can be no assurance that all such
conditions can be satisfied. See "Business--Agreements Relating to Licenses and
Authorizations-- Additional Spectrum Rights Leases." To obtain FCC approval, the
Company will need to demonstrate that the shareholders of CommcoCCC acquired the
authorizations that are to be assigned to the Company with the intent of
providing service to the public and not for the speculative purpose of reselling
such authorizations and may need certain waivers or consents from the FCC. The
FCC may be unwilling to grant its approval or may grant its approval subject to
conditions that may be adverse to the Company. There can be no assurance that
the FCC will grant such waivers or that there would not be substantial delays in
its doing so. If the Company were unable to complete the CommcoCCC Acquisition
for any reason, the Company's footprint could be considerably smaller than
planned, and the expected development of the Company's business could be
materially adversely affected.
COMPETITION
The telecommunications services industry is highly competitive. The Company
has only recently begun to market its wireless broadband services to potential
customers and is currently providing services on a limited basis. 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.
The Company expects to compete primarily on the basis of wireless broadband
service features, quality, price, reliability, customer service and rapid
response to customer needs. The Company faces significant competition from other
38 GHz providers and incumbent LECs, such as the Regional Bell Operating
Companies ("RBOCs"). The Company may also compete with CAPs, other wireless
service providers, cable television operators, electric utilities, LECs
operating outside their current local service areas and IXCs. There can be no
assurance that the Company will be able to compete effectively in any of its
market areas. See "Business -- Competition."
COMPETITION FROM 38 GHZ SERVICE PROVIDERS. The Company faces competition
from other 38 GHz service providers, such as WinStar Communications, Inc.
("WinStar") and BizTel Communications, Inc. ("BizTel," which is an affiliate of
TCG), within its market areas. In many cases, one or both of these service
providers hold licenses to operate in other portions of the 38 GHz band in
geographic areas
12
<PAGE>
which encompass or overlap the Company's market areas. In certain of the
Company's market areas, other 38 GHz service providers may have a longer history
of operations, a larger geographic footprint or substantially greater financial
resources than the Company. WinStar commenced its 38 GHz operations
approximately one year prior to the Company, has raised significant capital and
has the competitive advantages inherent in being the first to market 38 GHz
services. In addition to WinStar and BizTel, at least one other substantial
entity, Milliwave L.P. ("Milliwave"), and several dozen smaller ones have been
granted 38 GHz authorizations in geographic regions in which the Company plans
to operate. WinStar has recently entered into a definitive agreement with
Milliwave to acquire Milliwave's 38 GHz licenses, subject to FCC approval, and
has agreed to manage such licenses pending the consummation of such acquisition.
Due to the relative ease and speed of deployment of 38 GHz technology, the
Company could face intense price competition and competition for customers from
other 38 GHz service providers.
The Company also faces potential competition from new entrants to the 38 GHz
market, including LECs and other leading telecommunications companies. The NPRM
(as defined) contemplates an auction of certain spectrum assets, including the
lower fourteen proposed 100 MHz channels (which are similar to those used by the
Company) and four proposed 50 MHz channels in the 38 GHz spectrum band, which
have not been previously available for commercial use. See "-- Government
Regulation." The grant of additional authorizations by the FCC in the 38 GHz
band, or other portions of the spectrum with similar characteristics, could
result in increased competition. The Company believes that, assuming that
additional channels are made available as proposed by the NPRM, additional
entities having greater resources than the Company could acquire authorizations
to provide 38 GHz services. See "Business -- Government Regulation -- Federal
Regulation -- FCC Rulemaking."
OTHER WIRELESS COMPETITORS. The Company may also face competition from
other terrestrial wireless services, including 2 GHz and 28 GHz "wireless cable"
systems (MMDS and LMDS), 18 GHz point-to-point microwave services (DEMS), FCC
Part 15 wireless radio devices, and other services that use existing
point-to-point microwave channels on other frequencies. Motorola Satellite
Systems, Inc. has filed an application with the FCC for a global network of
satellites in the 37.5-40.5 GHz band and the 47.2-50.2 GHz band, which is
proposed to be used for broadband voice and data services. Other companies have
filed applications for a global broadband satellite system in the 28 GHz band.
If developed, these systems could also present significant competition to the
Company.
The FCC is planning to hold an auction for 28 GHz spectrum in all markets
for the provision of high capacity wireless cable systems. These auctions are
expected to take place in 1997. The 2 GHz wireless cable spectrum may also
provide competition for metropolitan wireless broadband services. At present,
wireless cable licenses are used primarily (if not exclusively) 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.
According to press reports and FCC records, Associated Communications Group
affiliates and joint venture partners (collectively "ACG") hold licenses in the
18 GHz band in 31 markets. Press reports indicate that ACG plans to use fixed
wireless service to provide voice, data, Internet and videoconferencing
services.
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 for certain
low data-rate transmission services.
COMPETITION FROM INCUMBENT LECS. The Company also faces significant
competition from incumbent LECs, irrespective of whether they provide 38 GHz
services. Incumbent LECs have long-standing relationships with their customers,
generally own significant PCS or cellular assets, have the potential to
subsidize competitive services with revenues from a variety of businesses and
benefit from favorable federal and state policies and regulations. Regulatory
decisions and recent legislation, such as the Telecommunications Act of 1996
(the "Telecommunications Act"), have partially deregulated the
telecommunications industry and reduced barriers to entry into new segments of
the industry. In particular,
13
<PAGE>
the Telecommunications Act, among other things, (i) enhances local exchange
competition by preempting laws prohibiting competition in the local exchange
market, by requiring LECs to provide fair and equal standards for
interconnection and by requiring incumbent LECs to provide unbundling of
services and (ii) permits an RBOC to compete in the interLATA long distance
service market once certain competitive characteristics emerge in such RBOC's
service area. The Company believes that this trend towards greater competition
will continue to provide opportunities for broader entrance into the local
exchange markets. However, as LECs 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 results of operations.
A number of companies are developing enhancements to increase the
performance of LECs legacy copper networks. These generally come under the
description of digital subscriber line products, such as ADSL (asymmetrical
digital subscriber line), HDSL (high-speed digital subscriber line) and VDSL
(video digital subscriber line). There can be no assurance that the Company will
be able to compete effectively with these enhancements.
OTHER COMPETITORS. The Company may compete with CAPs/CLECs for the
provision of last mile access and additional services in most of its market
areas. However, the Company believes that many CAPs/CLECs may utilize 38 GHz
transmission links to augment their own service offerings to IXCs and end users,
and that the Company is well positioned to provide such 38 GHz services to
CAPs/CLECs. However, there can be no assurance that CAPs/CLECs will utilize the
Company's 38 GHz services or that CAPs/CLECs will not seek to acquire their own
38 GHz licenses or use the 38 GHz licenses of other licensees. Furthermore, the
ability of CAPs/CLECs to compete in the local exchange market is limited by lack
of parity with LECs in number portability, dialing parity and interconnection.
The Telecommunications Act requires the FCC and the states to implement
regulations that place CAPs/CLECs on a more equal competitive footing with LECs.
To the extent these changes are implemented, CAPs/CLECs may be able to compete
more effectively with LECs. However, there can be no assurance that CAPs/CLECs
or 38 GHz service providers, such as the Company, will be able to compete
effectively for the provision of last mile access and other services.
The Company may also face competition from cable television operators
deploying cable modems, which provide high speed data capability over installed
coaxial cable television networks. Although cable modems are not widely
available currently, 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 the next generation of hybrid fiber
coaxial network architecture. However, there can be no assurance that cable
television operators will not emerge as a source of competition to the Company.
The Company may also face competition from electric utilities, LECs
operating outside their current local service areas, IXCs and other providers.
These entities provide transmission services using technologies which may enjoy
a greater degree of market acceptance than 38 GHz wireless broadband technology
in the provision of last mile broadband services. In addition, the Company may
face competition from new market entrants using wireless, fiber optic and
enhanced copper based networks to provide local service.
Many of the Company's competitors have long-standing relationships with
customers and suppliers, greater name recognition and greater financial,
technical and marketing resources than the Company. As a result, these
competitors may be able to more quickly develop and exploit new or emerging
technologies, adapt to changes in customer requirements or devote greater
resources to the marketing of their services than the Company. The consolidation
of telecommunications companies and the formation of strategic alliances and
cooperative relationships in the telecommunications and related
14
<PAGE>
industry, as well as the development of new technologies, could give rise to
significant new competitors to the Company. In such case, there can be no
assurance as to the degree to which the Company will be able to compete
effectively.
GOVERNMENT REGULATION
The telecommunications services offered by the Company are subject to
regulation by federal, state and local government agencies. 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 may regulate limited aspects of the Company's
business by, for example, imposing zoning requirements and requiring
installation permits. See "Business -- Government Regulation."
The Company is licensed by the FCC as a common carrier provider of
facilities-based local telecommunications services. For many of its intrastate
services, the Company will need to seek authorizations from the states and, in
most cases, file tariffs. The Company is in the process of filing tariffs for
some of its services with the FCC and with certain state authorities on an
ongoing basis. Certain of its proposed services have not yet been permitted in
most states. Although the Telecommunications Act requires the states to open up
all of the Company's services to competition, there can be no assurance that
this will occur on a timely basis. Challenges to its applications for
authorizations or its tariffs by third parties could cause the Company to incur
substantial legal and administrative expenses and time delay in implementing its
business plan. Although many of the Company's applications for FCC
authorizations were subject to challenge, the Company nonetheless was granted
authorizations for a majority of its applications. The Company's remaining
applications were either dismissed, voluntarily or involuntarily, or are
currently pending before the FCC.
Twenty of the Company's applications were dismissed by the FCC because they
overlapped either with authorizations granted to third parties or with third
party applications that held superior rights by virtue of the timing of their
filing. Five of the Company's applications were dismissed voluntarily by the
Company because they could not be granted under FCC policies. In one instance,
the geographic area sought was larger than that permitted by the FCC's September
1994 Policy Statement. In the other four instances, the dismissed applications
overlapped with each other and thus could not be granted under then-existing FCC
policies. None of the dismissals will impact the financial condition or
operations of the Company because they have not been included in the Company's
business plan. Some of the pending applications propose use of the same channel
in part of the same geographic area as one or more applications filed by third
parties and therefore could not be granted under the FCC rules generally
prohibiting the grant of mutually-exclusive applications. All of the pending
applications are subject to the freeze on the grant of additional authorizations
pending completion of the NPRM, which proposes dismissal of all such
applications. The Company's business plans do not assume that any of these
pending applications will be granted. The Company does not believe that a
failure to grant these applications will impair its ability to operate. See
"Business -- Government Regulation."
In its provision of local wireless broadband services, the Company currently
is not subject to rate regulation by the FCC, but is subject to regulation by
most states. Additionally, the Company is required to comply with all applicable
local zoning and other laws governing the installation and operation of its
wireless broadband networks.
Changes in existing laws and regulations, including those relating to the
provision of wireless local telecommunications services via 38 GHz licenses, or
any failure or significant delay in obtaining necessary regulatory approvals,
could have a material adverse effect on the Company. On November 13, 1995, the
FCC released an order barring the acceptance of new applications for 38 GHz
authorizations. On December 15, 1995, the FCC announced the issuance of a notice
of proposed rulemaking (the "NPRM"), pursuant to which it proposed to amend its
current rules to provide for, among other things, (i) the adoption of an auction
procedure for the issuance of authorizations in the 38 GHz band,
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including a possible auction of the lower fourteen proposed 100 MHz channels
(which are similar to those used by the Company) and the lower four proposed 50
MHz channels in the 38 GHz band that have not been previously available for
commercial use and the possible auction of the unlicensed areas in the upper
fourteen 100 MHz channels, (ii) licensing frequencies using predefined
geographic service areas ("Basic Trading Areas"), (iii) the imposition of
substantially stricter construction requirements for authorizations that are not
received pursuant to auctions as a condition to the retention of such
authorizations and (iv) the implementation of certain technical rules designed
to avoid radio frequency interference among licensees. In addition, the FCC
ordered that those applications subject to mutual exclusivity with other
applicants or placed on public notice by the FCC after September 13, 1995 would
be held in abeyance pending the outcome of the NPRM and might then be dismissed.
Final rules issued in connection with the NPRM may require that 38 GHz service
providers share the 38 GHz band with satellite services. Motorola Satellite
Systems, Inc. ("Motorola Satellite") has filed an application with the FCC with
respect to a global network of satellites to be used to provide broadband voice
and data services. See "-- Other Wireless Competitors." Motorola Satellite
proposes to use 38 GHz frequencies for transmissions from space to earth. If
permitted by the FCC, satellite transmissions in the 38 GHz frequencies could
adversely effect the Company's existing operations or its future expansions by
creating interference or by causing the FCC to impose power and other
limitations upon the Company's transmissions. The Motorola Satellite application
would require the FCC to change certain rules in order to be granted, and the
Company expects that a number of years would elapse before any such system would
be launched. The extent of the adverse impact upon the Company's operations if
the Motorola Satellite application were to be granted in its current form is
unknown. However, there can be no assurance that the Company's operations would
not be adversely affected.
There can also be no assurance that the final rules (if any) issued in
connection with the NPRM will resemble the rules proposed in the NPRM, and there
can also be no assurance that any proposed or final rules will not have a
material adverse effect on the Company. Statutes and regulations which may
become applicable to the Company as it expands could require the Company to
alter methods of operations at costs which could be substantial or otherwise
limit the types of services offered by the Company.
The Company manages the systems of ART West, DCT, Telecom One and CommcoCCC
(during the pendency of certain acquisitions) pursuant to management agreements.
See "Business -- Agreements Relating to Licenses and Authorizations." The
Company believes that the provisions of these management agreements comply with
the FCC's policies concerning licensee control of FCC-licensed facilities.
Because the 38 GHz service is a new service, however, there is no FCC precedent
addressing the limits of such management arrangements for this service. No
assurance can be given that the management arrangements or proposed acquisitions
will, if challenged, be found to satisfy the FCC's policies or what
modifications, if any, may need to be made to satisfy those policies. If the FCC
were to void or require modifications of the management arrangements, the
operations of the Company could be adversely affected.
RISK OF FORFEITURE, NON-RENEWAL AND FLUCTUATION IN VALUE OF FCC LICENSES
Upon completion of the CommcoCCC Acquisition, the Company will own or manage
a total of 237 licenses that will allow it to provide 38 GHz wireless broadband
services in 169 U.S. markets. The Company currently owns or manages 108 licenses
(exclusive of the CommcoCCC Assets) that allow it to provide 38 GHz wireless
broadband services in 89 markets, 73 of which are owned by the Company and the
remaining 35 of which are managed by the Company through the Company's interests
in or arrangements with other companies. Under the current FCC rules, the
recipient of a license for 38 GHz microwave facilities is required to construct
facilities to place the station "in operation" within 18 months of the date of
grant of the authorization. Although under current FCC regulations the term "in
operation" is not defined beyond the requirement that the station be capable of
providing service, the industry custom is to establish at least one link between
two transceivers in each market area for which an authorization is held. In the
event that the recipient fails to comply with this construction deadline, the
license is subject to forfeiture, absent an extension of the deadline. All of
the 108 licenses that the
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Company owns or manages (exclusive of the CommcoCCC Assets) have met the FCC's
construction deadline. Under the terms of the CommcoCCC authorizations and the
Company's management agreement with CommcoCCC, the Company has met the
construction deadline for 54 licenses and must meet the construction deadline
for the remaining 75 licenses between mid-April and mid-August 1997. The Company
believes that, in light of current FCC practice, extensions of construction
periods are highly unlikely. Although the Company believes that it can meet the
construction deadline for all of the CommcoCCC licenses using the proceeds of
the Offering and the CIBC Financing within applicable time limits, there can be
no assurance that it will be able to do so or that the Company will be able to
comply with whatever more stringent construction requirements the FCC ultimately
adopts as a result of the NPRM. As a result, some of the Company's licenses
could be subject to forfeiture, which could have a material adverse effect on
the Company's development and results of operations. In addition, pursuant to
rules that became effective August 1, 1996, if a station does not transmit
operational traffic (not test or maintenance signals) 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 forefeiture, absent a waiver of the FCC's rules. Although
this rule has not been interpreted by the FCC, it is possible that it could be
applied in such a way that could cause one or more of the Company's licenses to
be subject to forfeiture. See "Business -- Government Regulation" and "-- 38 GHz
Wireless Broadband Licenses and Authorizations."
The FCC's current policy aligns the expiration dates of all 38 GHz licenses
so that all licenses expire concurrently. Licenses can be renewed for a period
not to exceed ten years. All of the 38 GHz licenses owned or to be acquired by
the Company will expire in February 2001. Although the Company currently
anticipates that its licenses will be renewed based upon the FCC's custom and
practice in connection with other services which have established a presumption
in favor of licensees that have complied with regulatory obligations during the
initial license period, there can be no assurance that all or any of the
licenses will be renewed upon expiration of their initial terms. In the event
that the FCC does not renew one or more of the licenses, the Company's business
and results of operations could be materially adversely affected.
The Company plans to use its licenses to develop wireless broadband systems
in all of its market areas. In addition, a limited secondary market exists for
38 GHz licenses, and the Company may from time to time purchase such licenses.
The value of licenses held or acquired hereafter by the Company will depend upon
the success of the Company's wireless broadband operations, fluctuations in the
level of supply and demand for such licenses and the telecommunications
industry's response to the availability and efficacy of wireless broadband
systems. In addition, federal and state regulations limit the ability of
licensees to sell their licenses. Assignments of licenses and changes of control
involving entities holding licenses require prior FCC and, in some instances,
state regulatory approval and are subject to restrictions and limitations on the
identity and status of the assignee or successor. These regulatory restrictions
on transfer of licenses may adversely affect the value of the Company's
licenses.
POTENTIAL RIGHTS TO FOREIGN LICENSES
Entities in which the Company has a substantial interest have applied or
intend to apply for licenses to provide wireless broadband services in Canada
and in various Western European countries. Although the Company currently
expects that these entities will be financed on a stand-alone basis without
recourse to the Company, there can be no assurance that such entities will have
access to financing on acceptable terms or at all. See "Business -- Foreign
Markets."
In October 1996, ART entered into a binding letter of intent with Advantage
Telecom, Inc. ("ATI"), a Canadian company which has applied for licenses to
provide 38 GHz service in the 66 major markets in Canada covering a population
of approximately 25 million people. Upon consummation of the transactions
described in the letter of intent, ART will hold a substantial direct and
indirect minority interest in ATI and will be a party to a services agreement
with ATI pursuant to which ART will construct and operate radio systems based
upon licenses granted to ATI and subject to control by ATI. The Company incurred
$300,000 of expenses under the letter of intent, and ATI is responsible for
securing
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any additional funding necessary to construct the radio systems. The Company
believes that pursuant to the recent Industry Canada policy statement, ATI can
apply for provisional licenses, which if granted would permit ATI immediately to
construct and operate one paired 50 MHz 38 GHz channel in up to 66 markets
throughout Canada. There can be no assurance that ATI will be granted these
licenses or will obtain the funding necessary to construct the radio systems.
On September 29, 1996 the Company entered into a shareholders agreement with
Trond Johannessen, pursuant to which the Company anticipates eventually
obtaining licenses and offering its wireless broadband services through separate
subsidiaries in the 17 countries comprising the European Union. The Company has
caused to be formed subsidiaries in Sweden and the United Kingdom for this
purpose. Under the Shareholders Agreement, in consideration for services to be
rendered and his proportionate share of the formation costs, Mr. Johannessen is
entitled to receive a 20% interest in the initial shareholdings in certain of
the subsidiaries in each country, prior to significant funding of each
subsidiary. The Company has no further commitment to fund any such subsidiary.
Mr. Johannessen is also a consultant to the Company, for which he receives
monthly payments of $6,500 plus expenses. The Company is seeking but has not yet
received any operating licenses, strategic alliances or customer commitments in
Europe. Although each member nation of the European Economic Community is
required pursuant to a directive of the European Commission to open its
telecommunication markets to competition over the next several years, the timing
and extent of a relaxation in entry barriers and the degree of cooperation from
the incumbent service providers in such areas as interconnection to customers
and the public networks is unknown. There can be no assurance that the Company,
through such subsidiaries, will be able to acquire the licenses necessary in
each European country, to finance and or implement its business plan or to
operate in any country on a profitable basis.
MANAGEMENT OF GROWTH
The Company is currently experiencing a period of rapid growth and is
pursuing a business plan that, if successfully implemented, will result in
expansion of its operations and the provision of 38 GHz services on a widespread
basis over the next two to five years. The Company's success will depend on its
ability to manage growth effectively, to enhance its operational and financial
control and information systems and to attract, assimilate and retain additional
qualified personnel. 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 development and results of operations.
LINE OF SIGHT; ROOF RIGHTS; OTHER LIMITATIONS
Wireless broadband services over 38 GHz frequencies require a direct line of
sight between two transceivers comprising a link and are subject to distance and
rain attenuation. The maximum length of a single link is generally limited to
three to five miles, and, as a result, intermediate links (or "repeaters") are
required to permit wireless broadband transmission to extend beyond this limit.
In the absence of a direct line of sight, repeaters may be required to
circumvent obstacles, such as buildings in urban areas or hills in rural areas.
In addition, in areas of heavy rainfall, the intensity of rainfall and the size
of raindrops can affect the transmission quality of 38 GHz services.
Transmission links in these areas are engineered for shorter distances and
greater power to maintain transmission quality. The use of intermediate links to
overcome obstructions or rain fade increases the cost of service. 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 installs its
transceivers and antennas on the rooftops of buildings and on other tall
structures. Line of sight and distance limitations generally do not present
problems in urban areas due to the ability of the licensee to select
unobstructed structures from which to transmit and the concentration of
customers within a limited area although the Company may have to install
intermediate links. 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 has generally been able to construct intermediary
repeater links and other solutions to reduce line of sight and distance
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limitations in urban and non-urban areas; however, in a minority of instances
the Company has encountered line of sight and distance limitations that could
not be solved economically. In such instances, sales to certain potential
customers have been or in the future may be adversely affected, and, in some
cases, the Company may determine to provide certain services on terms that are
uneconomical in the near term as a result of these limitations. While the effect
on the financial condition and results of operations of the Company resulting
from such cases has been minimal to date, there can be no assurance that such
limitations will not have a material adverse effect on the Company's future
development and results of operations.
In order to obtain the necessary access to install its transceivers and
antennas, the Company generally must secure roof rights from the owners of each
building or other structure on which its equipment is installed. Failure to
obtain roof rights in a timely fashion may cause potential customers to use
alternative providers of 38 GHz services or to refrain from using 38 GHz
services altogether. There can be no assurance that the Company will succeed in
obtaining the roof rights necessary to establish wireless broadband services to
all potential customers in its market areas on favorable terms, if at all, or
that delays in obtaining such rights will not have a material adverse effect on
the Company's development and results of operations.
The relative significance of the size of a market area served depends on the
concentration within that area of potential customers. The Company's market
areas were defined by the Company in preparing its FCC applications for 38 GHz
licenses. The definitions of these areas were based on the Company's analysis of
the then existing local demographic characteristics in each market, such as
concentrations of employees and income levels. In certain of the Company's
market areas, other 38 GHz service providers have larger geographic footprints
or greater bandwidth. To the extent that the Company's authorizations do not
track the appropriate growth and development patterns of potential customers
within its market areas or that other 38 GHz providers have greater geographic
coverage or more bandwidth, the Company may have a competitive disadvantage.
RELIANCE ON EQUIPMENT SUPPLIERS; LACK OF INDUSTRY STANDARDS
The Company currently purchases the majority of its telecommunications
equipment pursuant to an agreement with P-Com, Inc. ("P-Com") and also has
entered into an equipment purchase agreement with Harris. Any reduction or
interruption in supply from either supplier could have a disruptive effect on
the Company. Although six 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 38 GHz equipment.
Consequently, a single manufacturer's equipment must be used in establishing a
link and generally will be used across an entire market area. As a result, the
failure of the Company to procure sufficient equipment produced by a single
manufacturer for service in a particular market area could adversely affect the
Company's results of operations. See "Business -- Strategic Alliances."
DEPENDENCE ON THIRD PARTIES FOR MARKETING AND SERVICE
The Company is partly dependent upon third parties for marketing its
services and maintaining its operational systems. The Company recently entered
into the Ameritech Strategic Distribution Agreement, which allows Ameritech to
resell the Company's 38 GHz services to customers within Ameritech's midwestern
region and to major Ameritech customers nationwide. The Company also has
agreements with subsidiaries of GTE to provide field service and network
monitoring and a joint marketing agreement with Harris. The failure of any of
these third parties to perform or the loss of any of these agreements could have
a material adverse effect on the Company's results of operations or its ability
to service its customers. The Company plans to enter into sales and marketing
agreements with other companies, and the failure to successfully implement these
agreements could have an adverse effect on the Company's development and results
of operations. See "Business -- Strategic Alliances."
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ACQUISITION OF ADDITIONAL BANDWIDTH IN SELECTED AREAS
Although the Company believes the 38 GHz authorizations it owns, manages or
has agreed to acquire are sufficient in each of its markets to implement its
current business strategy, the Company may seek to acquire or lease additional
authorizations to expand its geographic footprint or to enhance its ability to
provide service to its current target market or customers it may target in the
future. The FCC has suspended the acceptance of new applications and the grant
of certain additional licenses, subject to resolution of the NPRM. The Company
does not believe that the FCC's suspension will have a material effect on the
Company's financial condition, results of operation and plans of expansion since
the Company's business plan does not depend on the grant thereof. See "Business
- -- Government Regulation." However, the Company believes that additional
channels may become available by virtue of (i) the obligations of other 38 GHz
service providers as common carriers to make their services available and (ii)
FCC auctions of and adoption of other licensing procedures for additional 38 GHz
authorizations. Nevertheless, there can be no assurance that access to
additional 38 GHz authorizations will be acquired on favorable terms, if at all.
See "Business -- Business Strategy," "-- 38 GHz Wireless Broadband Licenses and
Authorizations" and "-- Government Regulation."
NEW SERVICES; TECHNOLOGICAL CHANGE
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 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
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 38 GHz equipment
will decline as rapidly as that of competitive alternatives. See "Business."
DEPENDENCE ON KEY EMPLOYEES
The success of the Company is dependent, in part, on its ability to attract
and retain qualified technical, marketing, sales and management personnel,
especially the Company's executive officers. Competition for such personnel is
intense, and the Company's inability to attract and retain additional key
employees or the loss of one or more of its current key employees could have a
material adverse effect on the Company's business and results of operations. The
Company has employment agreements with each of its officers. See "Management."
FINANCIAL RISKS
SIGNIFICANT CAPITAL REQUIREMENTS; NEED FOR ADDITIONAL FINANCING
Management anticipates that, based on its current plan of development,
assuming that no material new acquisitions are consummated, the net proceeds of
the Offering and the CIBC Financing, after the use of approximately $12.0
million to repay existing indebtedness, $9.6 million to complete pending
acquisitions of certain spectrum rights and $3.0 million to pay expenses related
to the CommcoCCC Acquisition, when consummated, will be sufficient to fund the
operations and capital requirements of the Company through December 31, 1997.
See "Use of Proceeds." Management also believes that the Company's future
capital needs will continue to be significant, and management intends to seek
additional sources of financing, commencing immediately after the Offering and
the CIBC Financing. Management also intends to pursue refinancing of the CIBC
Financing, which has a two-year term, at the earliest practicable time. The
Company expects to incur capital expenditures of approximately $40.0 million
through December 31, 1997 as the development and expansion of its wireless
broadband business continues. The Company expects to generate significant
operating losses for at least the next several years. The Company will require
substantial investment capital for the continued development
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and expansion of its wireless broadband operations, the continued funding of
related operating losses, and the possible acquisition of additional licenses,
other assets or other businesses. On a historical combined basis, from its
inception through June 30, 1996, the Company reported a net loss of $19.0
million. In addition, if (i) the Company's plan of development or projections
change or prove to be inaccurate, (ii) the proceeds from the Offering and the
CIBC Financing (including any refinancing thereof), together with other existing
financial resources, prove to be insufficient to fund the operations and capital
requirements of the Company through at least December 31, 1997 or (iii) the
Company completes any material acquisitions not now under contract, the Company
may be required to obtain additional financing earlier than December 31, 1997.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations." There can be no assurance that the Company will be able to
refinance the CIBC Financing or to obtain any additional financing, or, if such
financing is available, that the Company will be able to obtain it on acceptable
terms. In the event that the Company fails to refinance the CIBC Financing
within three months after the Offering, the Company will be obliged to pay an
increased interest rate on the Senior Secured Notes and, within six months of
the date of the Offering, to issue Additional CIBC Warrants. See "Description of
Certain Indebtedness -- CIBC Financing." In the event that the Company fails to
obtain additional financing when required, such failure could result in the
modification, delay or abandonment of some or all of the Company's development
and expansion plans. Any such modification, delay or abandonment is likely to
have a material adverse effect on the Company's business, which could adversely
affect the value of the Common Stock and may limit the Company's ability to make
principal and interest payments on its indebtedness.
RISK OF NON-CONSUMMATION OF CIBC FINANCING
Under the terms of the binding commitment letters relating to the CIBC
Financing, the Company has up to 90 days after consummation of the Offering to
draw down the Senior Secured Notes. The Company's ability to draw down the
Senior Secured Notes within such period is subject to certain conditions,
including the absence of material adverse changes since the date of the
definitive documentation relating to the Senior Secured Notes and compliance
with certain financial and operating covenants contained in the Senior Secured
Notes. In the event the Company is unable to draw down the Senior Secured Notes,
the Company will be obliged to seek additional financing sooner than expected.
Any inability to draw down the Senior Secured Notes is likely to have a material
adverse effect on the Company's business, which could adversely affect the value
of the Company's Common Stock and may require the Company to modify, delay or
abandon substantial portions of its business plan.
LEVERAGE; ABILITY TO SERVICE INDEBTEDNESS
Following the CIBC Financing, the Company will be leveraged and will have
certain restrictions on its operations. As of June 30, 1996, on a pro forma
basis after giving effect to the Equipment Financing, the CommcoCCC Financing,
the Merger, the Conversion, the Offering and the CIBC Financing and use of the
proceeds therefrom and completion of the CommcoCCC Acquisition, all as if they
had occurred on that date, the Company would have had approximately $42.9
million of total indebtedness (which is net of $10.4 million allocated to the
Initial CIBC Warrants) and stockholders' equity of approximately $149.5 million.
See "Capitalization."
The indebtedness expected to be incurred by the Company (including the CIBC
Financing and any refinancing thereof) will have several important consequences
to the holders of the Company's securities, including, but not limited to, the
following: (i) a substantial portion of the Company's cash flow from operations
will be required to pay interest with respect to such indebtedness; (ii) the
Company's flexibility may be limited in responding to changes in the industry
and economic conditions generally; (iii) the Senior Secured Notes or any
refinancing thereof will likely contain numerous financial and other restrictive
covenants, the failure to comply with which may result in an event of default,
which, if not cured or waived, could have a material adverse effect on the
Company; (iv) the ability of the Company to satisfy its obligations pursuant to
such indebtedness will be dependent upon its future performance which, in turn,
will be subject to management, financial, business and other factors
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affecting the business and operations of the Company; (v) the proceeds of any
future financings will be required to be utilized to repay the Senior Secured
Notes; (vi) the Company will be more highly leveraged than many of its
competitors, which may put it at a competitive disadvantage and (vii) the
Company's leverage may make it more vulnerable in the event of an economic
downturn or if the Company's cash flow does not significantly increase. Some of
these factors are beyond the control of the Company. See "Unaudited Pro Forma
Condensed Financial Statements," "Selected Historical and Pro Forma Financial
Data" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations." In addition, although the Senior Secured Notes will
limit the ability of the Company and its subsidiaries to incur additional
indebtedness, the Senior Secured Notes will permit the Company to incur
substantial additional indebtedness, which may or may not be secured, to finance
the construction of networks, the purchase of equipment and the introduction of
new services. See "Description of Certain Indebtedness -- CIBC Financing." Any
future indebtedness (including any refinancing of the Senior Secured Notes) may
contain covenants that may limit the Company's flexibility in responding to
changes in industry and economic conditions generally. The debt service
requirements of any additional indebtedness could make it more difficult for the
Company to make principal and interest payments on other indebtedness and could
exacerbate any of the foregoing consequences.
There can be no assurance that the Company will be able to generate
sufficient cash flow to meet required interest and principal payments associated
with the Senior Secured Notes and its other indebtedness. If the Company is
unable to generate sufficient cash flow to meet its debt obligations, the
Company may be required to renegotiate the payment terms or to refinance all or
a portion of its indebtedness, to sell assets or to obtain additional financing.
If the Company is unable to refinance such indebtedness, substantially all of
the Company's long-term debt would be in default and could be declared
immediately due and payable. In the event the Company fails to comply with these
various covenants, it could be in default under the Senior Secured Notes. In the
event of such default, substantially all of the Company's long-term debt could
be declared immediately due and payable. See "Description of Certain
Indebtedness -- CIBC Financing."
LEGAL AND TRADING RISKS
ABSENCE OF PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common Stock.
While the Common Stock has been approved for quotation on The Nasdaq Stock
Market, there can be no assurance that an active public trading market will
develop or be sustained after the Offering or that the initial public offering
price will correspond to the price at which the Common Stock will trade in the
public market thereafter. The initial public offering price will be determined
solely by negotiations between the Company and the Representatives. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price. The Company believes that factors, such as
(i) announcements of developments related to the Company's business, (ii)
announcements of new services by the Company or its competitors, (iii)
developments in the Company's relationships with its suppliers or customers,
(iv) fluctuations in the Company's results of operations, (v) a shortfall in
revenues or earnings compared to analysts' expectations and changes in analysts'
recommendations or projections, (vi) sales of substantial amounts of securities
of the Company into the marketplace, (vii) regulatory developments affecting the
telecommunications industry or 38 GHz services or (viii) general conditions in
the telecommunications industry or the worldwide economy, could cause the price
of the Common Stock to fluctuate, perhaps substantially.
CONTROL BY MANAGEMENT AND PRINCIPAL STOCKHOLDERS
Upon consummation of the Offering, the Company's executive officers,
directors and their affiliates, as a group, will beneficially own approximately
20.1% of the Company's outstanding Common Stock excluding shares of Common Stock
purchased by directors and certain principal stockholders of the Company in the
Offering (19.5% if the Underwriters' over-allotment option is exercised in full
and 14.1% upon consummation of the CommcoCCC Acquisition). In addition, upon
completion of the
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CommcoCCC Acquisition, Columbia Capital Corporation, as general partner of two
of the stockholders of CommcoCCC, and Commco, L.L.C., the remaining stockholder
of CommoCCC, will beneficially own approximately 16.5% and 14.4%, respectively,
of the Company's outstanding Common Stock excluding any shares of Common Stock
purchased in the Offering (16.2% and 14.1%, respectively, if the Underwriters'
over-allotment option is exercised in full), and the Company has agreed to
nominate one individual designated by the CommcoCCC stockholders and acceptable
to the Company as a director of the Company after the CommcoCCC Acquisition. As
a result, these stockholders will have the ability to exercise significant
influence over the Company and the election of its directors, the appointment of
new management and the approval of any action requiring the approval of the
holders of the Company's voting stock, including adopting certain amendments to
the Company's Certificate of Incorporation and approving mergers or sales of
substantially all of the Company's assets. The directors elected by these
stockholders will have the authority to effect decisions affecting the capital
structure of the Company, including the issuance of additional capital stock,
the implementation of stock repurchase programs and the declaration of
dividends. See "Principal Stockholders."
ABSENCE OF DIVIDENDS ON COMMON STOCK
The Company has not paid and does not anticipate paying any cash dividends
on its Common Stock in the foreseeable future. The Company intends to retain its
earnings, if any, for use in the Company's growth and ongoing operations. In
addition, the terms of the Senior Secured Notes will restrict the ability of the
Company to pay dividends on the Common Stock. See "Description of Certain
Indebtedness -- CIBC Financing."
ANTITAKEOVER PROVISIONS; POSSIBLE FUTURE ISSUANCES OF PREFERRED STOCK
The Company's Certificate of Incorporation and Bylaws and the provisions of
the Delaware General Corporation Law (the "Delaware GCL") contain certain
provisions which may have the effect of discouraging, delaying or making more
difficult a change in control of the Company or preventing the removal of
incumbent directors. The existence of these provisions may have a negative
impact on the price of the Common Stock and may discourage third party bidders
from making a bid for the Company or may reduce any premiums paid to
stockholders for their Common Stock. Furthermore, the Company is subject to
Section 203 of the Delaware GCL, which could have the effect of delaying or
preventing a change in control of the Company. See "Description of Capital Stock
- -- Change in Control Provisions."
The Company's Certificate of Incorporation also allows the Board of
Directors to issue up to 10,000,000 shares of Preferred Stock and to fix the
rights, privileges and preferences of such shares without any further vote or
action by the stockholders. The rights of the holders of Common Stock will be
subject to, and may be adversely affected by, the rights of the holders of any
Preferred Stock that may be issued in the future. While the Company has no
present intention to issue shares of Preferred Stock, any such issuance could be
used to discourage, delay or make more difficult a change in control of the
Company. See "Description of Capital Stock -- Preferred Stock."
DILUTION
Purchasers of shares of Common Stock in the Offering will experience
immediate dilution of $14.63 in net tangible book value per share, assuming an
initial public offering price of $16.50 per share, excluding the effect of any
drawdown of the CIBC Financing and the CommcoCCC Acquisition. To the extent
outstanding options and warrants (including any CIBC Warrants (as defined)) are
exercised, there will be further dilution. Assuming the issuance of 6,000,000
shares of Common Stock in connection with the CommcoCCC Acquisition as of the
date of this Prospectus, the purchasers of shares of Common Stock in the
Offering will experience further dilution of $2.43 in net tangible book value
per share. See "Dilution."
23
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock in the public market
following the Offering could adversely affect the market price of the Common
Stock. Upon consummation of the Offering, the Company will have outstanding
13,690,546 shares of Common Stock, assuming no exercise of outstanding options,
warrants, rights or other convertible securities, 10,940,546 of which will be
subject to resale restrictions (excluding shares of Common Stock purchased by
directors and certain principal stockholders of the Company in the Offering).
Beginning 90 days after the date of this Prospectus, approximately 2,807,711 of
the restricted shares of Common Stock will become available for sale in the
public market pursuant to Rule 144 under the Securities Act, subject in certain
cases to volume and other resale limitations under Rule 144. All of the
restricted shares are subject to lock-up agreements with Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch") which expire 180 days after the
date of this Prospectus or such earlier time as Merrill Lynch, in its sole
discretion, determines. See "Underwriting." An additional 133,864, 635,856 and
53,546 shares of Common Stock will become available for future sale in the
public market pursuant to Rule 144 in April and July 1997 and January 1998,
respectively. The balance of the outstanding restricted shares of Common Stock
(7,309,569 shares) will become available for sale in the public market under
Rule 144 in October 1998. Upon the closing of the CommcoCCC Acquisition,
6,000,000 shares will be issued for the CommcoCCC Assets, which shares will
become available for sale in the public market under Rule 144 two years after
the date of consummation of the CommcoCCC Acquisition. Under a proposal
currently pending before the Securities and Exchange Commission (the
"Commission"), the date on which such shares of Common Stock will become
available for sale under Rule 144 may be accelerated to October 1997 (or one
year after the date of the closing of the CommcoCCC Acquisition in the case of
the 6,000,000 shares issued for the CommcoCCC Assets). Holders of 10,940,546
shares (16,940,546 shares upon consummation of the CommcoCCC Acquisition) of
Common Stock and warrants to purchase 1,345,599 shares of Common Stock have
contractual rights to have those shares registered with the Commission for
resale to the public. See "Shares Eligible For Future Sale."
24
<PAGE>
THE COMPANY
Advanced Radio Telecom Corp. provides wireless broadband telecommunications
services using point-to-point microwave transmissions in the 38 GHz band of the
radio spectrum. The Company is seeking to address the growing demand for high
speed, high capacity digital telecommunications services on the part of business
and government end users who require cost effective, high bandwidth local access
to voice, video, data and Internet services. The Company's last mile services
are a complement and a viable alternative to fiber optic networks and offer
rapidly deployable coverage throughout the 89 markets in which the Company is
currently authorized by the FCC to provide services.
The business of the Company is comprised of (i) the business of Advanced
Radio Technologies Corporation ("ART" or the "Company"), a company organized by
Vernon L. Fotheringham and W. Theodore Pierson, Jr. in 1993 for the purpose of
acquiring 38 GHz licenses, and (ii) the business of Advanced Radio Telecom Corp.
("Telecom"), a corporation organized in Delaware in March 1995 under the name
Advanced Radio Technology, Ltd. for the purposes of acquiring additional 38 GHz
licenses and developing and operating the business of ART and Telecom on a joint
basis. In April 1995, ART entered into the ART West Joint Venture Agreement (as
defined) to apply for, acquire and develop 38 GHz operations in 13 states in the
western United States. In November 1995, the Company completed the EMI
Acquisition (as defined), pursuant to which it acquired thirty-two 38 GHz
licenses and certain related assets in the northeast United States. In July
1996, the Company entered into the CommcoCCC Agreement to acquire the CommcoCCC
Assets and other agreements to acquire authorizations it currently manages. Upon
completion of these pending acquisitions, the Company will own or manage a total
of 237 authorizations to provide 38 GHz wireless broadband services in 169 U.S.
markets. See "Risk Factors -- Risk of Non-Consummation of CommcoCCC Acquisition
and Other Acquisitions," "Business -- Agreements Relating to Licenses and
Authorizations -- ART West Joint Venture," "-- EMI Acquisition" and " --
CommcoCCC Acquisition."
To date, the business of ART has been operated and managed (including all
FCC licenses and construction permits held by ART and Telecom) pursuant to a
services agreement with Telecom. On October 28, 1996, a subsidiary of ART merged
with and into Telecom pursuant to the Merger Agreement (as defined). Upon the
Merger, Telecom became a wholly-owned subsidiary of ART and changed its name to
"ART Licensing Corp.," and ART changed its name to "Advanced Radio Telecom
Corp." See "Certain Transactions -- Merger." Prior to completion of the Merger,
Telecom managed the combined businesses of the Company in accordance with the
terms of the existing services agreement. See "Business -- Agreements Relating
to Licenses and Authorizations -- ART Services Agreement."
DIGIWAVE, ART, OZ BOX and ADVANCED RADIO TELECOM are service marks of the
Company. The Company's principal executive offices are located at 500 108th
Avenue, N.E., Suite 2600, Bellevue, Washington 98004, and its telephone number
is (206) 688-8700.
25
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the Offering and the CIBC Financing are
estimated to be approximately $87.7 million in the aggregate (based on 2,750,000
shares issued in the Offering at an assumed initial public offering price of
$16.50 per share and the assumed drawdown of gross proceeds from the CIBC
Financing of $50.0 million), after deducting estimated underwriting discount and
offering expenses.
Of the net proceeds from the Offering and the CIBC Financing, approximately
$40.0 million (including the cost to complete construction of the remaining
CommcoCCC authorizations which have not been perfected, estimated at less than
$3.0 million) is expected to be used for capital expenditures through December
31, 1997. An additional $9.6 million will be used for the acquisition of certain
spectrum rights from ART West and DCT. See "Business -- Agreements Relating to
Licenses and Authorizations -- ART West Joint Venture" and " -- DCT System
Purchase Agreements." In addition, approximately $12.0 million will be used for
the repayment of indebtedness. Such indebtedness consists of the March Bridge
Notes, which were issued on March 8, 1996 and which bear interest at 10% per
annum, the CommcoCCC Notes, which were issued on June 27 and July 3, 1996 and
which bear interest at 14.75% per annum, and the September Bridge Notes, which
were issued between September and October 1996 and which bear interest at 14.75%
per annum. See "Certain Transactions" and "Description of Certain Indebtedness
- -- March Bridge Notes," "-- CommcoCCC Financing" and "-- September Bridge
Notes." In addition, approximately $3.0 million of the net proceeds will be used
to fund expenses related to the CommcoCCC Acquisition, when consummated. See
"Business -- Agreements Relating to Licenses and Authorizations."
The remainder of the net proceeds (approximately $23.1 million) will be used
for general corporate purposes, including the funding of operating cash flow
shortfalls, technology development and acquisitions of additional spectrum
rights and, potentially, related businesses. Although the Company considers
potential acquisitions from time to time, no agreement, agreement in principle,
understanding or other arrangement, other than the Extended Agreement (as
defined), the DCT Agreements (as defined), the Telecom One Agreements (as
defined) and the CommcoCCC Agreement, has been reached with respect to any
acquisition. The Company anticipates that it will fund approximately an
aggregate of $1.0 million for research and development activities pursuant to a
letter of intent with Helioss Communications Corporation. Although the Company
does not have other material commitments to fund research and development and to
make investments in other companies, the Company expects to incur additional
research and development expenses and may make other investments from time to
time. Management anticipates that, based on its current plan of development and
assuming that no material new acquisitions or investments are consummated, the
remaining net proceeds of the Offering and the CIBC Financing will be sufficient
to fund the operations of the Company through December 31, 1997. See "Risk
Factors -- Significant Capital Requirements; Need for Additional Financing."
DIVIDEND POLICY
The Company has not paid and does not anticipate paying any cash dividends
on the Common Stock in the foreseeable future. The Company intends to retain its
earnings, if any, for use in the Company's growth and ongoing operations. In
addition, the terms of the Senior Secured Notes will restrict the ability of the
Company to pay dividends on the Common Stock. See "Description of Certain
Indebtedness -- CIBC Financing."
26
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1996 (i) on a historical combined basis, giving effect to the elimination of
balances between ART and Telecom and the elimination of ART's investment in
Telecom and Telecom's investment in ART, (ii) on a pro forma basis, giving
effect to the Merger and certain other financing transactions occurring
subsequent to June 30, 1996 as specified in Note 1 hereto and (iii) on a pro
forma as adjusted basis, giving effect to (A) the sale by the Company of (1)
2,750,000 shares of Common Stock offered in the Offering (based on an assumed
initial public offering price of $16.50 per share) and (2) the Senior Secured
Notes and CIBC Warrants, assuming the drawdown of $50.0 million of gross
proceeds, after deducting estimated related fees and expenses, (B) the receipt
and application of the aggregate net proceeds therefrom to repay the March
Bridge Notes, the CommcoCCC Notes and the September Bridge Notes, to acquire
certain spectrum rights from ART West and DCT and to pay expenses related to the
CommcoCCC Acquisition, when consummated (see "Use of Proceeds"), (C) the
Conversion and (D) the issuance of 6,000,000 shares of Common Stock based upon
an assumed value of $16.50 per share in connection with the CommcoCCC
Acquisition. The capitalization information set forth in the table below is
qualified by the more detailed information contained in, and should be read in
conjunction with, the audited financial statements of ART and Telecom and the
notes thereto, the unaudited interim condensed financial statements of ART and
Telecom and the notes thereto and the unaudited pro forma condensed financial
statements of the Company and the notes thereto, all appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
-----------------------------------------------------
HISTORICAL PRO FORMA
COMBINED PRO FORMA (1) AS ADJUSTED
--------------- ------------------ ----------------
<S> <C> <C> <C>
Cash and cash equivalents................................. $ 829,597 $ 6,829,597 $ 69,901,472
--------------- ------------------ ----------------
--------------- ------------------ ----------------
Short-term debt:
March Bridge Notes...................................... $ 4,112,534 $ 4,112,534 $ --
CommcoCCC Notes......................................... 975,000 2,680,486 --
September Bridge Notes.................................. -- 3,573,981 --
--------------- ------------------ ----------------
$ 5,087,534 $ 10,367,001 $ --
--------------- ------------------ ----------------
--------------- ------------------ ----------------
Long-term debt:
Note payable to EMI..................................... $ 1,500,000 $ 1,500,000 $ 1,500,000
Equipment Note.......................................... 1,718,207 1,718,207 1,718,207
Senior Secured Notes (2)................................ -- -- 39,647,716
--------------- ------------------ ----------------
Total long-term debt.................................. 3,218,207 3,218,207 42,865,923
--------------- ------------------ ----------------
Stockholders' equity:
Preferred Stock (3)..................................... -- 921 --
Telecom convertible serial preferred stock (4).......... 921 -- --
Common Stock (5)........................................ 3,641 6,587 19,691
Telecom common stock (6)................................ 6,587 -- --
Additional paid-in capital.............................. 20,044,897 20,769,071 170,106,998
Deficit accumulated during the development stage........ (19,041,921) (19,041,921) (20,674,920)
--------------- ------------------ ----------------
Total stockholders' equity............................ 1,014,125 1,734,658 149,451,769
--------------- ------------------ ----------------
Total capitalization................................ $ 4,232,332 $ 4,952,865 $ 192,317,692
--------------- ------------------ ----------------
--------------- ------------------ ----------------
</TABLE>
- ------------------------
(1) Reflects pro forma adjustments for the following transactions as if they
had occurred as of June 30, 1996: (i) the receipt of $2.0 million (out of a
total of $3.0 million) in cash proceeds from the issuance of the CommcoCCC
Notes and CommcoCCC Warrants, (ii) the receipt of $4.0 million in cash
proceeds from the issuance of the September Bridge Notes and September
Bridge Warrants, and (iii) the Merger, including the issuance of Preferred
Stock and Common Stock to Telecom's stockholders and cancellation of all
outstanding Telecom preferred and common stock. See "Certain Transactions."
(2) Concurrently with the Offering, the Company has obtained a commitment for
the CIBC Financing of $50.0 million. The estimated value of the Initial
CIBC Warrants is $10.4 million (based on an assumed issuance of Initial
CIBC Warrants to purchase in the aggregate 3.0% of the shares of Common
Stock of the Company on a fully diluted basis after giving effect to the
Offering and the CommcoCCC Acquisition at an assumed price of $16.50 per
share). The value ascribed to the Initial
27
<PAGE>
CIBC Warrants has been reflected both as a debt discount and an element of
additional paid-in capital. In order to reflect the pro forma effect of the
CIBC Financing, it is assumed that the entire $50.0 million of gross
proceeds is funded at the time of the Offering; however, the Company has up
to 90 days from the Offering to draw down the Senior Secured Notes.
(3) Consists of Preferred Stock, $.001 par value: 10,000,000 shares authorized;
historical combined--no shares issued and outstanding; pro forma--455,550
shares of Series A, 114,679 shares of Series B, 7,363 shares of Series C,
61,640 shares of Series D, 232,826 shares of Series E and 48,893 shares of
Series F issued and outstanding; pro forma as adjusted--no shares issued
and outstanding.
(4) Consists of Telecom convertible serial preferred stock, $.001 par value per
share: 10,000,000 shares authorized; historical combined -- 455,550 shares
of Series A, 114,679 shares of Series B, 7,363 shares of Series C, 61,640
shares of Series D, 232,826 shares of Series E and 48,893 shares of Series
F issued and outstanding; pro forma and pro forma as adjusted -- no shares
issued and outstanding.
(5) Consists of Common Stock, $.001 par value per share: 100,000,000 shares
authorized; historical combined -- 3,641,111 shares issued and outstanding;
pro forma -- 6,586,958 shares issued and outstanding; pro forma as adjusted
-- 19,690,546 issued and outstanding.
(6) Consists of Telecom common stock, $.001 par value per share: 60,000,000
shares authorized; historical combined -- 6,586,958 shares issued and
outstanding; pro forma and pro forma as adjusted -- no shares issued and
outstanding.
28
<PAGE>
DILUTION
As of June 30, 1996, the pro forma net tangible deficit of the Company was
$4.3 million, or $0.39 per share of Common Stock, after giving effect to the
CommcoCCC Financing (as defined), the September Bridge Financing, the Merger
(including the issuance of ART Preferred Stock and Common Stock to Telecom's
stockholders and cancellation of all Telecom preferred and common stock) and the
Conversion. Pro forma net tangible book value per share represents the amount of
the Company's total tangible assets comprised of cash and cash equivalents,
restricted cash, other current assets, net property and equipment, and equipment
and other deposits, less total liabilities divided by the pro forma number of
shares of Common Stock outstanding. Without taking into account any other
changes in the net tangible book value after June 30, 1996, other than to give
effect to the receipt by the Company of net proceeds of approximately $41.2
million from the sale of 2,750,000 shares of Common Stock offered in the
Offering based on an assumed initial public offering price of $16.50 per share,
after deducting the estimated underwriting discount and offering expenses and
the use of the net proceeds therefrom for the repayment of certain indebtedness
and completion of certain pending acquisitions of spectrum rights, the pro forma
net tangible book value of the Company as of June 30, 1996 would have been
approximately $25.7 million, or $1.87 per share of Common Stock. This represents
an immediate increase in pro forma net tangible book value of $2.26 per share to
existing stockholders and an immediate dilution of $14.63 per share to new
investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................... $ 16.50
Pro forma net tangible deficit per share before giving effect to
the Offering................................................... ($ 0.39)
Increase in pro forma net tangible book value per share
attributable to new investors.................................. 2.26
---------
Pro forma net tangible book value per share after the Offering.... 1.87
---------
Dilution per share to new investors............................... $ 14.63
---------
---------
</TABLE>
The following table summarizes, as of June 30, 1996, after giving effect to
the Offering, the number of shares of Common Stock purchased from the Company,
the total consideration paid to the Company and the average price per share paid
by the existing stockholders and by new investors purchasing shares of Common
Stock in the Offering (based on an assumed initial public offering price of
$16.50 per share before deducting the estimated underwriting discount and
offering expenses). The table below excludes the issuance of 6,000,000 shares of
Common Stock in connection with the CommcoCCC Acquisition.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------------ --------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------- --------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.............. 10,940,546 79.9% $ 9,622,156 17.5% $ 0.88
New investors...................... 2,750,000 20.1 45,375,000 82.5 16.50
------------- --------- -------------- -----------
Total.......................... 13,690,546 100.0% $ 54,997,156 100.0%
------------- --------- -------------- -----------
------------- --------- -------------- -----------
</TABLE>
The foregoing computations do not give effect to the exercise of any of the
following as of June 30, 1996: (i) 318,959 shares of Common Stock subject to the
Ameritech Warrant; (ii) 400,000 shares of Common Stock subject to the March
Bridge Warrants; (iii) 118,181 shares of Common Stock subject to the Indemnity
Warrants; (iv) 87,272 shares of Common Stock subject to the CommcoCCC Warrants;
(v) 116,363 shares of Common Stock subject to the September Bridge Warrants;
(vi) 816,970 shares of Common Stock subject to outstanding options under the
Equity Incentive Plan; (vii) 7,800 shares of Common Stock anticipated to be
subject to outstanding options under the Directors Plan upon the date of the
Offering; and (viii) shares of Common Stock subject to the CIBC Warrants. As of
October 15, 1996, an additional 583,030 shares of Common Stock were available
for issuance under the Equity
29
<PAGE>
Incentive Plan and an additional 67,200 shares of Common Stock were available
for issuance under the Directors Plan. See "Certain Transactions," "Description
of Certain Indebtedness -- CIBC Financing" and "Management -- Stock Option
Plans."
The computations also do not give effect to the drawdown of $50.0 million of
gross proceeds from the CIBC Financing which would result in an increase in net
tangible book value of $6.9 million, or $0.51 per share nor do the computations
give effect to the issuance of 6,000,000 shares of Common Stock in connection
with the CommcoCCC Acquisition based on an assumed value of $16.50 per share
which would result in a decrease in pro forma net tangible book value of $36.7
million, or $2.43 per share. In addition, the above does not give effect to the
exercise of the over-allotment option granted to the Underwriters by the Company
in the Offering. See "Underwriting." To the extent that any outstanding options
or warrants are exercised, there will be further dilution to new investors. See
"Risk Factors -- Dilution."
30
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
THE COMPANY -- HISTORICAL COMBINED AND PRO FORMA DATA
The unaudited selected historical combined and pro forma financial data
presented below as of and for the six months ended June 30, 1996 and for the
year ended December 31, 1995 and the unaudited historical combined financial
data presented below as of December 31, 1995 and as of and for the six months
ended June 30, 1996 were derived from the unaudited pro forma condensed
financial statements of the Company included elsewhere in this Prospectus. For
definitions of certain terms and more information about the transactions cited
in the notes thereto, see "Certain Transactions."
The unaudited selected historical combined and pro forma financial data
should be read in conjunction with the audited financial statements of ART and
Telecom, and the notes thereto, the unaudited condensed interim financial
statements of ART and Telecom, and the notes thereto, and the unaudited pro
forma condensed financial statements of the Company, and the notes thereto,
included elsewhere in the Prospectus. The unaudited selected historical
combined, pro forma and pro forma as adjusted financial data are not necessarily
indicative of what the actual financial position and results of operations of
the Company would have been as of and for the six months ended June 30, 1996 and
1995 and as of and for the year ended December 31, 1995, nor do they purport to
represent the Company's future financial position and results of operations.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, 1995 JUNE 30, 1995 SIX MONTHS ENDED JUNE 30, 1996
--------------------------------------------- ------------- ---------------------------------------------
HISTORICAL PRO FORMA AS HISTORICAL HISTORICAL PRO FORMA AS
COMBINED (1) PRO FORMA (2) ADJUSTED (3) COMBINED (1) COMBINED (1) PRO FORMA (2) ADJUSTED (3)
------------- ------------- --------------- ------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Operating revenue.. $ 5,793 $ 5,793 $ 5,793 $ -- $ 61,520 $ 61,520 $ 61,520
Non-cash
compensation
expense........... 1,089,605 1,089,605 1,089,605 -- 7,362,726 7,362,726 7,362,726
Depreciation and
amortization...... 15,684 15,684 3,758,877 6,054 278,375 278,375 2,149,972
Interest, net...... 121,986 3,233,357 30,934,820 875 578,805 1,654,800 15,595,165
Net loss........... 3,234,843 6,346,214 36,518,185 371,685 15,671,864 16,747,859 31,923,479
Pro forma net loss
per share of
Common Stock (4).. -- $ 0.58 $ 1.79 -- -- $ 1.52 $ 1.57
Pro forma weighted
average number of
shares of Common
Stock outstanding
(4)............... -- 11,000,350 20,374,133 -- -- 11,000,350 20,374,133
</TABLE>
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, AS OF JUNE
1995 30, 1995 AS OF JUNE 30, 1996
------------- ------------- --------------------------------------------------
HISTORICAL HISTORICAL HISTORICAL PRO FORMA AS
COMBINED (1) COMBINED (1) COMBINED (1) PRO FORMA (2) ADJUSTED (3)
------------- ------------- ------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital surplus
(deficit).................... $(3,008,510) $ (98,038) $(10,543,499) $ (9,822,966) $ 63,615,910
Property and equipment, net... 3,581,561 8,522 7,411,547 7,411,547 7,411,547
FCC licenses.................. 4,235,734 -- 4,182,734 4,182,734 149,727,734
Total assets.................. 9,876,559 366,314 15,737,368 21,737,368 232,395,194
Short-term debt............... -- -- 5,087,534 10,367,001 --
Long-term debt................ 6,450,000 -- 3,218,207 3,218,207 42,865,923
Deficit accumulated during the
development stage............ (3,370,057) (506,579) (19,041,921) (19,041,921) (20,674,920)
Total stockholders' equity
(deficit).................... (312,860) 156,851 1,014,125 1,734,658 149,451,769
</TABLE>
31
<PAGE>
ART -- HISTORICAL FINANCIAL DATA
The selected historical financial data of ART below as of and for the years
ended December 31, 1995 and 1994, and for the period from August 23, 1993 (date
of inception) to December 31, 1993 were derived from and should be read in
conjunction with the audited financial statements of ART and the related notes
thereto included elsewhere in this Prospectus. The selected financial data of
ART below as of June 30, 1996 and for the six months ended June 30, 1996 and
1995 were derived from and should be read in conjunction with the unaudited
condensed interim financial statements of ART and the related notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AUGUST 23, 1993
(DATE OF INCEPTION) YEAR ENDED SIX MONTHS ENDED
TO -------------------------------------- --------------------------------
DECEMBER 31, 1993 DECEMBER 31, 1994 DECEMBER 31, 1995 JUNE 30, 1995 JUNE 30, 1996
------------------- ------------------ ------------------ --------------- ---------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Operating revenue......... $ -- $ 137,489 $ -- $ -- $ --
Depreciation and
amortization............. 688 8,281 10,378 6,054 6,052
Net loss.................. $ 6,594 $ 128,620 $ 1,267,655 $ 266,204 $ 5,349,331
Pro forma net loss per
share of Common Stock
(4)...................... -- -- $ 0.12 -- $ 0.49
Pro forma weighted average
number of shares of
Common Stock outstanding
(4)...................... -- -- 11,000,350 -- 11,000,350
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE
AS OF DECEMBER 31, 30,
----------------------------------------------------------- -------------
1993 1994 1995 1996
------------------- ------------------ ------------------ -------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital surplus (deficit).......... $ 13,958 $ (76,556) $ (976,563) $ (495,062)
Property and equipment, net................ -- 3,448 1,723 --
FCC licenses............................... -- -- 8,913 8,913
Total assets............................... 74,513 42,611 5,784,624 1,587,232
Long-term debt............................. -- -- 4,950,000 --
Redeemable Preferred Stock................. -- -- 44,930 44,930
Deficit accumulated during the development
stage..................................... (6,594) (135,214) (1,402,869) (6,752,200)
Total stockholders' equity (deficit)....... 54,542 (39,078) (404,481) 1,041,702
</TABLE>
32
<PAGE>
TELECOM -- HISTORICAL FINANCIAL DATA
The selected historical financial data of Telecom below as of December 31,
1995 and for the period from March 28, 1995 (date of inception) to December 31,
1995 were derived from and should be read in conjunction with the audited
financial statements of Telecom and the related notes thereto included elsewhere
in this Prospectus. The selected financial data of Telecom below for the six
months ended June 30, 1996 and 1995 and as of June 30,1996 were derived from and
should be read in conjunction with the unaudited condensed interim financial
statements of Telecom and the related notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
MARCH 28, 1995
(DATE OF
INCEPTION) SIX MONTHS SIX MONTHS
TO ENDED ENDED
DECEMBER 31, 1995 JUNE 30, 1995 JUNE 30, 1996
------------------ ------------- -------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenue................................................... $ 5,793 $ -- $ 61,520
Non-cash compensation expense....................................... 1,089,605 -- 7,362,726
Depreciation and amortization....................................... 5,306 -- 272,323
Net loss............................................................ 2,981,073 $ 159,819 15,640,202
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, JUNE 30,
1995 1996
------------------ ------------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital surplus (deficit)............................................ $ (2,031,947) $ (10,048,437)
Property and equipment, net.................................................. 3,579,838 7,411,547
FCC licenses................................................................. 4,226,821 4,173,821
Total assets................................................................. 9,830,615 15,959,468
Short-term debt.............................................................. -- 5,087,534
Long-term debt............................................................... 6,500,000 3,218,207
Deficit accumulated during the development stage............................. (2,981,073) (18,621,275)
Total stockholders' equity (deficit)......................................... (119,922) 1,238,725
</TABLE>
- ------------------------------
(1) The unaudited selected financial data under the caption "Historical
Combined" are presented as if the historical financial statements of ART
and Telecom had been combined and reflect (i) the elimination of
transactions and balances between ART and Telecom and (ii) the elimination
of ART's investment in Telecom and Telecom's investment in ART.
(2) The unaudited selected financial data under the caption "Pro Forma" are
presented as if the following transactions had occurred as of the beginning
of the respective periods for the Statement of Operations Data and as of
the balance sheet date for the Balance Sheet Data: (i) the interest expense
related to the March 1996 issuance of the March Bridge Notes and March
Bridge Warrants; (ii) the interest expense related to the April 1996
issuance of the Equipment Note and Indemnity Warrants; (iii) the receipt of
$2.0 million (out of a total of $3.0 million) in cash proceeds from the
issuance of the CommcoCCC Notes and CommcoCCC Warrants; (iv) the receipt of
$4.0 million in cash proceeds from the September Bridge Notes and September
Bridge Warrants; and (v) the Merger, including the issuance of ART
preferred stock and Common Stock to Telecom stockholders and the
cancellation of all outstanding Telecom preferred and common stock. See
"Certain Transactions."
(3) The unaudited selected financial data under the caption "Pro Forma As
Adjusted" are presented as if the transactions referred to in (2) above and
the following transactions had occurred as of the beginning of the
respective periods for the Statement of Operations Data and as of the
balance sheet date for the Balance Sheet Data: (i) the sale by the Company
of 2,750,000 shares of Common Stock offered in the Offering based on an
assumed initial public offering price of $16.50 per share and the immediate
drawdown of $50.0 million of gross proceeds from the issuance of Senior
Secured Notes and Initial CIBC Warrants to be offered in the CIBC
Financing, in each case, after deducting the estimated underwriting
discount and related expenses, and, in the case of the CIBC Financing,
after deducting the value ascribed to the Initial CIBC Warrants of
approximately $10.4 million based on an assumed issuance of Initial CIBC
Warrants to purchase an aggregate of 3% of Common Stock of the Company
(which increases by the issuance of Additional CIBC Warrants to purchase an
aggregate of 3% of Common Stock of the Company for each six month period
the Senior Secured Notes remain outstanding) on a fully-diluted basis after
giving effect to the Offering and the CommcoCCC Acquisition, (ii) the
receipt and application of the net proceeds therefrom to repay the March
Bridge Notes, the CommcoCCC Notes and the September Bridge Notes, and to
acquire the 50% ownership interest of ART West held by Extended for $6.0
million in cash and the DCT Assets for $3.6 million in cash (iii) the
Conversion and (iv) the issuance of 6,000,000 shares of Common Stock based
upon an assumed value of $16.50 per share in connection with the CommcoCCC
Acquisition. See "Use of Proceeds."
(4) Pro forma net loss per share is computed based on the loss for the period
divided by the weighted average number of shares of Common Stock
outstanding during the period including the Merger, the Conversion and the
issuance of potentially dilutive instruments issued within one year prior
to the Offerings at exercise prices below the assumed initial public
offering price of $16.50 per share. Pro forma as adjusted net loss per
share reflects the items noted above plus the issuance of 2,750,000 shares
of Common Stock in the Offering, the issuance of 6,000,000 shares of Common
Stock in connection with he CommcoCCC Acquisition and the issuance of
Initial CIBC Warrants to purchase an aggregate of 623,783 shares of Common
Stock in connection with the CIBC Financing (representing 3.0% of the
Common Stock outstanding, on a fully diluted basis). In measuring the
dilutive effect, the treasury stock method was used.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company provides wireless broadband telecommunications services using
point-to-point microwave transmissions primarily in the 38 GHz portion of the
radio spectrum. The Company is seeking to address the growing demand for high
speed, high capacity digital telecommunications services on the part of business
and government end users who require cost effective, high bandwidth local access
to voice, video, data and Internet services.
To facilitate a meaningful comparison, the following discussion and analysis
is based on the historical combined financial information of Advanced Radio
Technologies Corporation ("ART") and Advanced Radio Telecom Corp. ("Telecom") as
of all dates and for all periods ending after March 28, 1995, the date of
Telecom's inception, and the historical financial statements of ART as of all
dates and for all the periods ended prior to March 28, 1995. All of the above
financial statements appear elsewhere in this Prospectus. The historical
combined financial statements include the elimination of transactions and
balances between the two entities as well as ART's investment in Telecom and
Telecom's investment in ART.
The following discussion includes certain forward-looking statements. For a
discussion of important factors, including, but not limited to, continued
development of the Company's business, actions of regulatory authorities and
competitors, and other factors that could cause actual results to differ
materially from the forward-looking statements, see "Risk Factors."
OVERVIEW
The Company's business commenced in 1993, and the Company has generated only
nominal revenues from operations to date. The Company's primary activities have
focused on the acquisition of wireless construction permits (authorizations for
facilities that are not yet constructed) and licenses (authorizations for
facilities that are constructed), the hiring of management and other key
personnel, the raising of capital, the acquisition of equipment and the
development of its operating and support systems and infrastructure. The Company
has obtained radio spectrum rights under FCC issued licenses and construction
permits throughout the United States by applying to the FCC directly and through
the purchase of such rights held by others. The Company's ability to provide
commercial services on a widespread basis and to generate positive operating
cash flow will depend on its ability, among other things, to (i) deploy its 38
GHz technology on a market-by-market basis, (ii) attract and retain an adequate
customer base, (iii) successfully develop and deploy its operational and support
systems and (iv) acquire appropriate sites for its operations. Proper management
of the Company's anticipated growth and quality of its service will require the
Company to expand its technical, accounting and internal management systems at a
pace consistent with the Company's planned business roll-out. This roll-out will
require substantial capital expenditures. See "Liquidity and Capital Resources"
and "Risk Factors."
The Company has experienced significant operating and net losses and
negative operating cash flow in connection with the development and deployment
of its wireless broadband services and systems 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 attributable to the Company's wireless broadband operations.
See "Risk Factors." The Company expects to achieve positive operating margins
over time by (i) increasing the number of revenue generating customers and
responding to growing demand for capacity among its customers without
significantly increasing related hardware and roof rights costs and (ii)
inducing other telecommunications service providers to utilize and market the
Company's wireless broadband services as part of their own services, thereby
reducing the Company's related marketing costs. The Company anticipates that
operating revenues will increase in 1996; however, the Company also expects that
operating and net losses and negative operating cash flow will increase as the
Company implements its growth strategy and
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that, under its current business plan, operating and net losses and negative
operating cash flow will continue at least through fiscal 1998. Accordingly, the
Company will be dependent on various financing sources to fund its growth as
well as continued losses from operations. See "--Liquidity and Capital
Resources."
ACQUISITIONS, BUSINESS DEVELOPMENT AND CAPITAL EXPENDITURES
From inception through June 30, 1996, the Company has invested an aggregate
of $4.2 million to obtain interests in FCC authorizations and licenses,
including those acquired from EMI, and invested $285,000 in the ART West Joint
Venture. From inception, expenditures for property and equipment have totalled
$7.7 million. In addition, the Company has incurred significant other costs and
expenses in the development of its business and has recorded cumulative losses
from inception through June 30, 1996 of approximately $19.0 million, including
$9.5 million of non-cash compensation and marketing expenses, and used cash in
operating activities of approximately $8.0 million. The Company has agreed to
acquire, subject to FCC approval and other conditions, additional FCC
authorizations and licenses for an aggregate purchase price of $9.6 million in
cash and 6,000,000 shares of the Company's Common Stock. The Company may, when
and if the opportunity arises, acquire other spectrum rights and, potentially,
related businesses, incur expenses in the development of new technologies and
expand its wireless broadband services into new market areas.
The recoverability of property and equipment and intangible assets
representing FCC authorizations is dependent upon the successful development of
systems in each of the respective markets, or through sale of such assets.
Management estimates that it will recover the carrying amounts of those assets
from cash flow generated by the systems once they have been developed. However,
it is possible that such estimate will change as a result of any failure by the
Company to develop its FCC authorizations on a timely basis, or technological,
regulatory or other changes. The Company anticipates that it will fund
approximately $1.0 million for research and development activities pursuant to a
letter of intent with Helioss Communications Corporation. Although the Company
does not have other material commitments to fund research and development or to
make investments in other companies, the Company expects to incur additional
research and development expenses and to make other such investments from time
to time.
In October 1996, ART entered into a binding letter of intent with Advantage
Telecom, Inc. ("ATI"), a Canadian company which has applied for licenses to
provide 38 GHz service in the 66 major markets in Canada covering a population
of approximately 25 million. Upon consummation of the transactions described in
the letter of intent, ART will hold a substantial direct and indirect minority
interest in ATI and will be a party to a services agreement with ATI pursuant to
which ART will construct and operate radio systems based upon licenses granted
to ATI and subject to control by ATI. The Company incurred $300,000 of expenses
under the letter of intent, and ATI is responsible for securing any additional
funding necessary to construct the radio systems. The Company believes that
pursuant to the recent Industry Canada policy statement, ATI can apply for
provisional licenses, which if granted would permit ATI immediately to construct
and operate one paired 50MHz 38 GHz channel in up to 66 markets throughout
Canada. There can be no assurance that ATI will be granted these licenses or
will obtain the funding necessary to construct the radio systems.
On September 29, 1996 the Company entered into a shareholders agreement with
Trond Johannessen, pursuant to which the Company anticipates eventually
obtaining licenses and offering its wireless broadband services through separate
subsidiaries in the 17 countries comprising the European Union. The Company has
caused to be formed subsidiaries in Sweden and the United Kingdom for this
purpose. Under the Shareholders Agreement, in consideration for services to be
rendered and his proportionate share of the formation costs, Mr. Johannessen is
entitled to receive a 20% interest in the initial shareholdings in certain of
the subsidiaries in each country, prior to significant funding of each
subsidiary. The Company has no further commitment to fund any such subsidiary.
Mr. Johannessen is also a consultant to the Company, for which he receives
monthly payments of $6,500 plus expenses. The Company is seeking but has not yet
received any operating licenses, strategic alliances or customer
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commitments in Europe. Although each member nation of the European Economic
Community is required pursuant to a directive of the European Commission to open
its telecommunication markets to competition over the next several years, the
timing and extent of a relaxation in entry barriers and the degree of
cooperation from the incumbent service providers in such areas as
interconnection to customers and the public networks is unknown. There can be no
assurance that the Company will be able to acquire the licenses necessary in
each European country, to finance and to implement its business plan or to
operate in any country on a profitable basis.
The Company entered into a management consulting agreement in November 1995
with Landover Holdings Corporation ("LHC") to provide strategic planning,
corporate development and general management services. Under the agreement,
which terminates on the date of the Offering, the Company pays LHC $35,000 per
month for an initial one year term. In 1995 the Company paid $140,000 to LHC for
consulting services and $391,750 for expenses in connection with the $7.0
million investment made under the LHC Purchase Agreement. See "Certain
Transactions."
RESULTS OF OPERATIONS
The Company has generated nominal revenue from operations to date. From
inception through June 30, 1996, the Company has incurred aggregate expenses of
approximately $19.2 million, including $9.5 million of non-cash compensation and
marketing expenses. The remaining expenses consist of compensation and benefits,
sales and marketing expenses, consulting and legal fees, facilities expenses,
systems development costs, management consulting expenses and depreciation and
amortization related to building the Company's business infrastructure and
marketing its wireless broadband services and net interest expense. The Company
expects to generate increased revenues beginning in 1996; however, there can be
no assurance that this objective will be achieved. The Company expects that it
will not achieve profitable operations at least through fiscal 1998. See "Risk
Factors -- Limited Operations; History of Net Losses."
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO JUNE 30, 1995
Revenue for the six months ended June 30, 1996 was $61,520 compared to no
revenue in 1995. The increase in revenues was due to operating revenues earned
from wireless broadband telecommunications services provided by the Company.
Operating expenses other than interest were $15.2 million for the six months
ended June 30, 1996 compared to $370,810 in 1995. The increase was primarily due
to $7.4 million of non-cash compensation expense, including $6.8 million arising
from the termination of the Escrow Share Arrangement (as defined) and subsequent
release of shares to certain employees in connection with the February 1996
Reorganization (as defined), as well as higher general and administrative,
increased market development, and research and development expenses. See
"Certain Transactions." Excluding the non-cash compensation expense, general and
administrative expenses increased primarily due to higher payroll and consulting
costs relating to the ramp-up in operations of the Company. Market development
expenses increased primarily due to a non-cash marketing expense of $1.1 million
related to the Ameritech Strategic Distribution Agreement. Research and
development costs were incurred as the Company initiated its research and
development of microwave radio technology. The Company expects cash expenses for
general and administrative, marketing and research and development to increase
substantially in future periods as the development and deployment of the
Company's business continues.
Net interest expense was $578,805 for the six months ended June 30, 1996
compared to $875 in 1995. The increase in interest expense was primarily due to
interest on the EMI Note, the Equipment Note and the March Bridge Notes.
Interest expense in the third quarter of 1996 will increase primarily due to
interest expense on the March Bridge Notes and also due to the Equipment Note
executed in April 1996. The Company expects the issuance of these notes and any
future financings will cause interest expense to increase substantially in
future periods. The write-off of unamortized offering
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discount and deferred finance costs associated with the March Bridge Notes, the
CommcoCCC Notes and the September Bridge Notes is expected to result in a
non-cash extraordinary loss of approximately $1.6 million upon repayment at the
closing of the Offering.
FISCAL 1995 COMPARED TO FISCAL 1994
ART was formed in 1993, and, accordingly, the Company's historical financial
statements for 1994 reflect ART's activities in applying for 38 GHz licenses and
building operating systems.
The Company had $137,489 in consulting services income for engineering and
management services related to filing of applications for 38 GHz licenses on
behalf of others, including Extended, in 1994 and $5,793 in operating revenue in
1995 derived from customers for wireless broadband services attributable to the
markets for which licenses were acquired from EMI in November 1995. See
"Business -- Agreements Relating to Licenses and Authorizations -- EMI
Acquisition."
Total expenses other than interest increased from $261,734 in 1994 to $3.1
million in 1995 due to the expansion of the business and the recognition of
non-cash compensation expenses associated with employee stock options of
$287,603 and certain Escrow Shares (as defined) of $802,002 associated with the
release to certain employees of the Company as a result of meeting certain
performance objectives for an aggregate of $1.1 million of non-cash compensation
expenses. See "Certain Transactions -- LHC Purchase Agreement -- February 1996
Reorganization." General and administrative expenses, including these non-cash
compensation expenses, increased to $2.9 million for fiscal 1995, from $253,453
for 1994. Market development expenses increased to $191,693 in 1995 from $0 in
1994. Net interest expenses increased to $121,986 in 1995 from $4,375 in 1994.
As a result, the net loss for 1995 was $3.2 million, as compared to a net loss
of $128,620 in 1994.
FISCAL 1994 COMPARED TO FISCAL 1993
The Company had $137,489 in consulting services income in 1994 compared to
no revenue in 1993. The increase in 1994 was primarily due to consulting
services related to 38 GHz license applications.
Total expenses other than interest expense increased to $261,734 in 1994
from $6,594 in 1993. The increases were due primarily to consulting and legal
fees related to the initial operations of the Company.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations have required substantial capital investment for
the acquisition of FCC authorizations and related assets, the purchase of
telecommunications equipment, staffing, and the development and expansion of the
Company's infrastructure to support anticipated growth. From inception through
June 30, 1996, the Company used $8.0 million of cash in its operating activities
and $7.9 million of cash in its investing activities. These cash outflows were
financed primarily through private equity and debt placements, including the
issuance of convertible notes payable to the Advent Partnerships which were
converted into equity in February 1996. At December 31, 1995 the Company had a
working capital deficit of $3.0 million and cash of $633,654, as compared to a
working capital deficit of $76,556 and cash of $5,133 at December 31, 1994. The
Company had a working capital deficit of $10.5 million and cash of $829,597 at
June 30, 1996. Subsequent to June 30, 1996, the Company received the remaining
$2.0 million (out of a total of $3.0 million) from the CommcoCCC Financing and
$4.0 million in cash from the September Bridge Financing. See "Certain
Transactions."
The Company's total assets increased from $42,611 as of December 31, 1994 to
$9.9 million at December 31, 1995 and $15.7 million at June 30, 1996. Property
and equipment, net of accumulated depreciation, comprised $3.6 million of total
assets at December 31, 1995 and $7.4 million at June 30, 1996. FCC licenses and
the investment in the ART West Joint Venture was $4.5 million at December 31,
1995 and June 30, 1996, as compared to $0.0 at December 31, 1994.
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Cash used in operating activities increased by $1.4 million to $1.5 million
in 1995 over 1994. The increase in cash used in operating activities resulted
primarily from the increase in net loss to $3.2 million, partially offset by
non-cash compensation expenses of $1.1 million and increased payables in 1995.
Cash used in investing activities increased by $4.2 million in 1995 compared
to minimal amounts in 1994. The increase was primarily due to $3.0 million paid
for the EMI acquisition, and approximately $600,000 used for property and
equipment additions in 1995.
Cash provided by financing activities increased by $6.2 million in 1995 over
1994. The increase was primarily due to the issuances of the Advent/ART
Securities of $5.0 million and of Telecom serial preferred stock, net of
redemptions of $2.0 million issued in 1995, partially offset by the use of cash
for stock and debt issuance costs.
Capital expenditures, including deposits on equipment for fiscal 1995 and
1994, were $3.9 million and $5,175, respectively. The Company currently
purchases the majority of its wireless transmission equipment from a single
vendor, P-Com, Inc., under an equipment purchase agreement which expires at the
end of 1998. The Company is committed to purchase a total of $13.3 million of
equipment under this agreement. The Company has also entered into an equipment
purchase agreement, expiring in 1997, with Harris, providing for the purchase of
wireless transmission equipment.
Cash used in operating activities increased to $6.3 million for the six
months ended June 30, 1996 compared to $275,566 for the six months ended June
30, 1995. The increase was primarily due to higher operating costs. Cash used in
investing activities was approximately $3.7 million for the six months ended
June 30, 1996 compared to $302,178 for the six months ended June 30, 1995. The
increase was primarily due to additions to property and equipment. Cash provided
by financing activities increased to $10.2 million in the six months ended June
30, 1996 compared to $576,040 for the six months ended June 30, 1995. The
increase was primarily due to the private equity placement with Ameritech, the
issuance of the Equipment Financing, the March Bridge Financing and the
CommcoCCC Financing.
The Company does not currently manufacture, nor does it have or plan to
develop the capability to manufacture, any of the wireless transmission
equipment necessary to provide its services. Although there are a limited number
of manufacturers who have, or are developing, equipment that would meet the
Company's requirements, there can be no assurance that such equipment would be
available to the Company on comparable terms or on terms more favorable than
those included in its current arrangements in the event that such arrangements
are terminated. Moreover, a change in vendors could cause a delay in the
Company's ability to provide its services, which would affect future operating
results adversely.
The Company has funded approximately $400,000 of research and development
costs with American Wireless Corporation ("American Wireless") related to
wireless transmission equipment. Vernon L. Fotheringham, the Chairman of the
Company, is a director and a 6% shareholder of American Wireless. See "Certain
Transactions -- American Wireless Development Agreement." The Company has also
entered into a letter of intent with Helioss Communications Corporation
("Helioss") for the development of advanced 38 GHz radios. Under the letter of
intent, which is subject to definitive documentation, the Company will fund up
to $1.0 million of Helioss' research and development expenses. The Company will
have a right of first refusal on production capacity of the radios and will
receive a royalty on the sale of a certain number of radios to customers other
than the Company. Although the Company does not have any other material
commitments to fund research and development or to make investments in other
companies, it expects to incur additional expenses for research and development
and to make other such investments from time to time.
The Company currently expects that its capital expenditures (excluding the
acquisition of certain spectrum rights) will aggregate approximately $40.0
million through December 30, 1997. The Company currently expects capital
expenditures through December 31, 1997 to consist of approximately $30.0 million
for wireless transmission equipment, approximately $5.0 million for network
design and
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development and related equipment and approximately $5.0 million for computer
equipment and other capital requirements. Included in these amounts are the
costs of initial construction of the remaining CommcoCCC authorizations which
have not yet satisfied the FCC's construction deadline, estimated to be less
than $3.0 million, including wireless transmission equipment. Although the
Company does not anticipate substantial difficulties in completing such initial
construction on a timely basis, the failure to do so could have a material
adverse effect on the number of licenses available to the Company to carry out
its business. If the Company does not consummate the CommcoCCC Acquisition, the
impact upon capital expenditures in 1997 is not expected to be significant,
other than capital expenditures for the initial construction of the remaining
CommcoCCC authorizations. The Company expects that capital expenditures for the
installation of 38 GHz wireless transmission equipment will increase as demand
for the Company's 38 GHz services increases in the targeted geographic markets
and industry segments over the next several years. In addition, the Company has
agreed to acquire authorizations and licenses for $9.6 million from DCT and ART
West. The Company has entered into an agreement to acquire 129 38 GHz
authorizations from CommcoCCC in exchange for 6,000,000 shares of Common Stock.
CommcoCCC has entered into a management agreement with the Company under which
the Company will construct, manage and operate the authorizations to be acquired
pending consummation of the CommcoCCC Acquisition. See "Business -- Agreements
Relating to Licenses and Authorizations -- CommcoCCC Acquisition" and "Risk
Factors -- Risk of Non-Consummation of CommcoCCC Acquisition and Other
Aquisitions."
The Company is obliged to pay all costs and expenses of construction,
operation and management of the authorizations managed by the Company. The
Company is also obligated under the terms of the service agreements covering
such authorizations to pay fees to the current holders of those authorizations
approximating 10% to 15% of the revenue generated from such assets. See
"Business -- Agreements Relating to Licenses and Authorizations."
The Company expects that it will continue to have substantial capital
requirements in connection with (i) the acquisition of appropriate sites for its
operations, (ii) deployment of its 38 GHz technology on a market-by-market
basis, (iii) capturing and retaining an adequate revenue generating customer
base and (iv) developing and deploying its operational and support systems. The
Company believes it has an opportunity to expand its wireless broadband services
business significantly and that access to capital will enable it to expand more
quickly and effectively. See "Risk Factors -- Significant Capital Requirements;
Need for Additional Financing."
The Company has incurred significant operating and net losses and negative
operating cash flow attributable to the development of its wireless broadband
services and anticipates that such losses and negative operating cash flow will
increase as the Company implements its growth strategy. Accordingly, the Company
will be dependent on additional capital to fund its growth, as well as to fund
continued losses from operations.
Management anticipates that, based on current plans of development, assuming
that no new material acquisitions (other than those currently under contract)
are consummated, the net proceeds of the Offering and the CIBC Financing, after
the use of $12.0 million to repay existing indebtedness, $9.6 million to
complete pending acquisitions and $3.0 million to pay expenses related to the
CommcoCCC Acquisition, when consummated, will be sufficient to fund the
operations of the Company through December 31, 1997. See "Description of Certain
Indebtedness" and "Risk Factors--Significant Capital Requirements; Need For
Additional Financing." Management believes that the Company's future capital
needs will continue to be significant and that thereafter it will be necessary
for the Company to arrange substantial additional sources of financing. Without
limiting the foregoing, under the terms of the CIBC Financing, the Company will
experience substantial additional costs, including the effect of the increases
in the interest rate of the Senior Secured Notes and of the issuance of
Additional CIBC Warrants (as defined), if the Company fails to refinance the
CIBC Financing within three months or six months after the date of the Offering
as the case may be. In addition, if (i) the Company's plan of development or
projections change or prove to be inaccurate, (ii) the proceeds of the
Offerings, together with other existing financial resources, prove to be
insufficient to fund the Company through
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December 31, 1997 or (iii) the Company completes any material acquisitions,
other than those now under contract or buys spectrum at auction, the Company may
be required to obtain additional financing earlier than December 31, 1997. There
can be no assurance that the Company will be able to refinance the CIBC
Financing timely, or at all, or to obtain any additional financing, or, if such
financing is available, that the Company will be able to obtain it on acceptable
terms. In the event that the Company fails to refinance the CIBC Financing
timely, or at all, or to obtain additional financing, such failure could result
in the modification, delay or abandonment of some or all of the Company's
development and expansion plans. Any such modification, delay or abandonment is
likely to have a material adverse effect on the Company's business, which could
adversely affect the value of the Common Stock and may limit the Company's
ability to make principal and interest payments on its indebtedness. See "Risk
Factors -- Significant Capital Requirements; Need for Additional Financing" and
"-- Risk of Non-Consummation of CIBC Financing."
NEW ACCOUNTING PRONOUNCEMENT
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." This Statement encourages, but does not require, accounting for
stock compensation awards granted to employees based on their fair value at the
date the awards are granted. Companies may elect to continue to apply current
accounting requirements for employee stock compensation awards, which generally
will result in no compensation cost for most fixed stock option plans, such as
the Company's Equity Incentive Plan. The expense measurement provisions of the
Statement apply to all equity instruments issued for goods and services provided
by persons other than employees. All companies are required to comply with the
disclosure requirements of the Statement. The Company expects to continue
accounting for employee stock compensation awards using current accounting
requirements.
INFLATION
Management does not believe that its business is impacted by inflation to a
significantly different extent than is the general economy.
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BUSINESS
Advanced Radio Telecom Corp. ("ART" or the "Company") provides wireless
broadband telecommunications services using point-to-point microwave
transmissions in the 38 GHz band of the radio spectrum. The Company is seeking
to address the growing demand for high speed, high capacity digital
telecommunications services on the part of business and government end users who
require cost effective, high bandwidth local access to voice, video, data and
Internet services. Upon completion of its pending acquisition of 129 38 GHz
wireless broadband authorizations (the "CommcoCCC Assets") from CommcoCCC, Inc.
("CommcoCCC"), the Company will own or manage a total of 237 authorizations
(which are also referred to herein as "licenses") granted by the Federal
Communications Commission (the "FCC") covering an aggregate population of
approximately 143 million in 169 U.S. markets.
TELECOMMUNICATIONS INDUSTRY OVERVIEW
The current telecommunications landscape is being reshaped by the
convergence of three major trends: (i) the accelerating growth in demand for
high speed, high capacity digital telecommunications services, (ii) the
deregulation of telecommunications markets and (iii) the rapid advances in
wireless technologies. 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 local area networks ("LANs"), Internet services, video
teleconferencing and other data intensive applications is significantly
increasing the volume of broadband telecommunications traffic. The inability of
the existing infrastructure to meet this demand is creating a "last mile"
bottleneck in the copper wire networks of the incumbent local exchange carriers
("LECs"). This increasing demand, together with changes in the regulatory
environment, is creating an opportunity to offer cost effective, high capacity
last mile access using both wireline and wireless solutions.
The present structure of the U.S. telecommunications industry was shaped
principally by the 1984 court-directed divestiture of the Bell System (the
"Divestiture"). As part of the Divestiture, seven Regional Bell Operating
Companies ("RBOCs") were created and separated from the long distance service
provider, AT&T, resulting in two distinct telecommunications industries: local
exchange and inter-exchange (commonly known as long distance). Local exchange
services typically involve the carriage of telecommunications within defined
local access and transport areas ("LATAs"), and the provision of access, or
connections, between LECs and inter-exchange carriers ("IXCs") for the
completion of long distance calls.
Since the Divestiture, the local exchange segment of the telecommunications
market, with total 1995 revenues estimated by the FCC at over $95.0 billion, has
remained the domain of LECs. Recently, however, regulatory policy has shifted
away from monopoly protection of the LECs. U.S. court decisions, FCC actions
and, most recently, the Telecommunications Act of 1996 (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, such as competitive access providers ("CAPs").
In the late 1980s, CAPs emerged to compete with LECs by providing dedicated
private line transmission and access services. Beginning in 1994, a few states
permitted CAPs to also operate as "competitive local exchange carriers"
("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 points of presence ("POPs")
with customer locations and LEC 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 LECs 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 capacity services than those available from LECs' legacy
copper wire networks. A leading research company estimates that in 1994
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<PAGE>
CAPs/CLECs captured approximately $1.3 billion of the revenues generated by the
local exchange market. Such research company also projects that, as a result of
increased competition and the growth of enhanced services, CAPs/CLECs' revenues
will grow in excess of 150% per year over the next two years. In addition to
CAPs/CLECs, a wide range of alternative access providers, including cable
television operators, wireless local loop service providers and others, are
expected to emerge.
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 LEC 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 LECs'
inability to upgrade their copper networks quickly, (iv) the preference of
competing telecommunications providers to control the points of connection to
their customers and prevent LECs from obtaining confidential marketing
information and (v) new state and federal legislation mandating interconnection
and competition in the local exchange market.
Wireless broadband telecommunications services are developing rapidly to
handle these growing needs for alternative access. In particular, the successful
deployment of 38 GHz links by European cellular service providers and recent
advances in 38 GHz technology, coupled with metropolitan-wide footprint
licensing, has enabled the provision of greater capacity and reliability at a
lower cost per customer than traditional copper wire networks. Furthermore, 38
GHz facilities can be installed, deinstalled and reinstalled elsewhere with
minimal time and cost compared to both fiber optic and copper wire facilities.
ART'S WIRELESS BROADBAND SERVICES
The Company is positioned to solve the need for broadband last mile
services, linking end users to facilities of LECs, CAPs/CLECs, IXCs and Internet
Service Providers ("ISPs"). The Company is also positioned to link cell sites of
mobile communications service providers and to link metropolitan area network
sites using 38 GHz technology. The Company's wireless broadband links deliver
high quality voice and data transmissions at a level of performance which
exceeds the performance of copper based networks and is a viable alternative to
fiber optic based networks. The Company provides point-to-point wireless digital
circuits ranging in capacity from DS-1 (1.544 Megabits per second ("Mbps"),
capable of carrying 24 simultaneous voice conversations) to DS-3 (45 Mbps,
capable of carrying 672 simultaneous voice conversions). The Company believes
that it generally owns or manages sufficient 38 GHz bandwidth to satisfy the
anticipated service requirements of its target customers in each of the
Company's existing markets and the additional 80 markets to be acquired under
the CommcoCCC Agreement (as defined).
The Company intends initially to market its services as a carrier's carrier
in order to leverage ART's carrier customers' sales forces, channels of
distribution and customer bases. The Company believes that its services will be
attractive to carrier customers which do not currently have broadband networks
that reach the majority of their customers. For example, the Company has entered
into a strategic distribution agreement (the "Ameritech Strategic Distribution
Agreement") with Ameritech ("Ameritech") for delivery of the Company's wireless
broadband services throughout Ameritech's midwest operating region and for
certain large customers located outside its region. Ameritech has announced its
intention to initiate sales of ART's wireless broadband services beginning in
November 1996. See "-- Strategic Alliances -- Ameritech Strategic Distribution
Agreement."
Each of ART's wireless broadband links consists of paired millimeter wave
radio transceivers installed at a distance of up to five miles from one another
within a direct line of sight. The transceivers currently used by the Company
are installed primarily on rooftops. In order to deploy its links quickly, the
Company plans to obtain roof rights on buildings with fiber optic points of
termination for transceiver sites. To accomplish this objective, the Company is
developing proprietary site selection and network design software which will
significantly reduce the amount of time necessary to select optimal
42
<PAGE>
network sites. In coordination with its marketing plans, the Company will
dispatch site acquisition specialists locations to obtain renewable site access
options at targeted locations. The Company uses a combination of its own
employees and independent contractors for site acquisition.
Significant features of the Company's wireless broadband services include
(i) sufficient bandwidth and flexibility in each channel for most present day
applications, (ii) minimal channel interference from other sources, resulting
from dedicated spectrum, (iii) range of up to five miles between transmission
links (depending upon path engineering factors), (iv) performance engineered to
provide a minimum of 99.999% availability, (v) transmission accuracy engineered
to provide bit error rates of better than 10-13 (unfaded), (vi) optional forward
error correction for even higher data reliability, insuring the integrity of
transmitted data over wireless broadband paths, (vii) rapid deployment, (viii)
24-hour, seven-days-a-week network monitoring by the Company's network
management control center, (ix) available nationwide four-hour emergency
restoral time in most circumstances and (x) optional "hot" standby links that
remain powered up and switch "on line" if the primary link fails.
The Company believes that a number of factors provide it with certain
significant competitive advantages in offering broadband last mile services,
including:
- The characteristics of 38 GHz technology (high data transfer rates,
significant channel capacity, rapid deployment, easy installation, very
high transmission quality and efficient network design) are ideal for the
provision of last mile services. See "-- 38 GHz Technology."
- The Company deploys capital efficiently because of the
installation-to-meet-demand and redeployable nature of the Company's
wireless broadband equipment, as compared to the significant upfront cost
for installation of fiber based networks.
- As one of the first 38 GHz service providers, the Company enjoys a
time-to-market advantage and is therefore well-positioned to capture a
large percentage of early adopters, which are generally among the heaviest
users. The Company believes it is one of only two 38 GHz service providers
currently offering commercial services.
- The Company is forging strategic alliances with major telecommunications
carriers, equipment vendors and technology development companies, thus
gaining access to important channels of distribution and early deployment
of advanced technologies.
- The broad scope of the Company's footprint enables it to offer wireless
broadband services targeting much of the United States's addressable
business market.
- The Company's network management operational support system that provides
24-hour, seven-days-a-week network monitoring and management. The system
is designed to provide provisioning, link alarm monitoring, link
performance reporting, historical link performance data, remote link
diagnosis, remote link restoral and coordination and testing with
associated network operating centers.
- The Company is developing proprietary Geographic Information Systems
("GIS") that provide ART with 3-D digital modeling of all of its markets,
including all building and landscape features, to reduce the time and
expense of engineering its proposed radio locations. These systems will
allow the Company to determine line of site for proposed links, produce a
list of tenants in the buildings serviceable from such locations and
integrate this information with its marketing databases. The GIS
development enables the Company to remotely determine line-of-sight
availability and provide immediate information regarding network design
alternatives. These systems further provide the Company with a powerful
tool to market its services to telecommunications service providers
seeking to offer broadband connectivity to their customers.
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<PAGE>
BUSINESS STRATEGY
The Company is seeking to capitalize on its broad footprint of 38 GHz
authorizations to become a leading provider of wireless broadband solutions to a
diverse group of traditional and emerging telecommunications service providers
and end users. The Company has begun to implement the following strategic
initiatives to achieve this objective:
- CAPITALIZE ON BROAD SPECTRUM POSITION. The Company's spectrum assets
provide it with the foundation on which to create a large scale commercial
network of 38 GHz wireless broadband operations. The Company plans to
continue to build out its infrastructure and to intensify its marketing
effort in its market areas in order to exploit the value inherent in its
spectrum assets. See " -- Agreements Relating to Licenses and
Authorizations."
- ESTABLISH AND EXPAND KEY STRATEGIC ALLIANCES. The Company plans to utilize
strategic alliances to bundle its services with those of its partners, to
provide for alternative distribution channels and to gain access to
technological advancements. The Company has established and will seek to
continue to establish key strategic alliances with major service providers,
equipment manufacturers and systems integrators. Under the Ameritech
Strategic Distribution Agreement, Ameritech is targeting certain sales
objectives and has agreed to spend internally up to $7.0 million on its
sales or marketing of ART's services. Ameritech owns a 5.6% beneficial
equity interest in the Company as of October 11, 1996 (4.5% after giving
effect to the Offering without giving effect to any purchases of Common
Stock by Ameritech in the Offering). The Company also has agreements with
Harris Corporation, Farinon Division ("Harris") for marketing ART's 38 GHz
services to PCS providers and with GTE Corporation for installation, field
servicing and network monitoring. See "-- Strategic Alliances."
- MARKET INITIALLY AS A CARRIER'S CARRIER. The Company intends to initially
market its services as a carrier's carrier in order to leverage ART's
carrier customers' sales forces, channels of distribution and customer
bases. The Company's initial target customers include LECs, CAPs/CLECs,
IXCs, ISPs and mobile communications service providers. The Company
believes that its services are particularly attractive to carrier customers
who do not currently have broadband networks capable of reaching the
majority of their customers.
- PROACTIVELY IDENTIFY OFF-NET MARKET OPPORTUNITIES FOR CARRIER CUSTOMERS.
ART utilizes its proprietary database tools, such as GIS, to analyze a
particular carrier's network and identify high density off-net customer
locations. The GIS database is then used to pre-clear off-net buildings for
line-of-site, distance and network design alternatives. After a critical
mass of sites has been pre-qualified, the Company is able to proactively
market to the carrier access to such customer premises and pursue a "team
selling" approach to end users. Utilizing this proactive approach with
multiple carriers is expected to allow the Company incrementally to build a
custom-designed wireless hub network in each of its target markets.
- PURSUE OPPORTUNITIES TO PROVIDE VALUE-ADDED SERVICES. The Company will
also market services such as data, video-conferencing, high resolution
imaging and video on demand directly to end users in conjunction with
system integrators, telecommunications equipment manufacturers and other
service providers. The Company also plans to offer point-to-multipoint
wireless broadband services and may also decide to offer switched-data
services to end users who desire a single source telecommunications
solution.
- MAINTAIN COMPETITIVE ADVANTAGES THROUGH TECHNOLOGY ADVANCEMENTS. As 38 GHz
microwave radios begin to be produced in large volumes with modern
manufacturing techniques, the Company believes that the cost of such
equipment will decline, thereby allowing the Company to meet anticipated
price competition in its markets. In addition, through the Company's
internal technology development efforts, as well as on-going participation
in equipment manufacturers' research and development activities, the
Company continuously seeks to reduce costs by designing equipment that
allows it to more efficiently utilize its spectrum. For example, the
Company anticipates taking delivery of 38 GHz OC-3 SONET compatible radios
(155 Mbps) within 18-24 months.
44
<PAGE>
MARKETING PLANS
ART is addressing its initial target markets as a carrier's carrier, while
expanding its marketing efforts to include direct sales to end users of its
services. The Company is augmenting its marketing and sales channels through
resale agreements with strategic marketing partners and through alliances with
selected LECs, CAPs/CLECs, ISPs, IXCs, interconnect providers (PBX suppliers),
LAN, MAN and WAN systems integrators and other telecommunications equipment
manufacturers and service providers.
To develop the market potential of its wireless broadband authorizations,
ART has organized its operations into four geographic regions: Northeastern,
Central, Southern and Western. Each region has its own General Manager in charge
of operations, field service and sales and marketing. Factors that determine the
extent of proactive sales activity in each market include (i) number of license
areas, (ii) geographic size of license areas, (iii) end user density within
license areas, (iv) radio link design variables such as precipitation patterns
and topography and (v) the strategies of the incumbent LECs and CAPs/CLECs.
Organizing its markets into regions provides ART with significant operating cost
efficiencies through the centralization of its administrative functions, and
allows ART to provide superior service to its key customers.
The Company's internal salesforce is currently marketing the Company's
wireless broadband services by (i) team selling with the carriers' sales forces
(ii) performing field demonstrations of 38 GHz service, (iii) making
presentations at industry trade shows, (iv) providing an interactive Internet
home page, (v) running promotional advertisements in selected trade media and
(vi) conducting extensive one-on-one presentations and demonstrations through
its carrier sales force. The sales organization is supported by the product
marketing group which has developed programs for each of the targeted sectors.
As a non-dominant carrier, ART does not have to cost-justify its rates to
regulatory bodies and therefore has a wide latitude to exercise individual case
based pricing, subject to certain policies against discriminatory treatment. As
a result, ART expects to enter into customer-specific and service-specific
arrangements, which include volume, capacity and term discounts and customized
billing and payment options. The services offered by ART are expected to be
competitively priced with those of the incumbent LECs. The Company also intends
to charge for installation and network monitoring services where appropriate.
The Company also anticipates offering metered services to various end users at
an appropriate point in the future.
CUSTOMERS AND APPLICATIONS
The Company began deploying its links principally on a trial basis in
November 1995 and has since been hiring its staff, building its internal
infrastructure and developing its marketing plans and relationships with
potential customers. The Company has generated only nominal revenues from its
operations to date as it is currently finalizing plans to roll out its services
on a wide-scale basis. Currently, the Company is providing or has received
orders to provide wireless broadband services to LECs, CAPs/ CLECs, ISPs and
mobile communications service providers and is in the process of becoming a
qualified vendor to all the major IXCs. The Company currently provides services
to carriers such as Ameritech, Bell Atlantic NYNEX Mobile, MFS Communications,
UUNet, DIGEX, Incorporated, Electric Lightwave, NEXTLINK Communications LLC,
American PCS, L.P., Western Wireless, Commonwealth Telephone, Public Interest
Network, Chadwick Telephone, CGX Telecom, CAIS, Inc. and Brooks Fiber
Properties, Inc., among others.
The Company currently provides, or anticipates providing, wireless broadband
services to the following types of customers, among others:
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<PAGE>
LOCAL EXCHANGE CARRIERS AND COMPETITIVE ACCESS PROVIDERS/COMPETITIVE LOCAL
EXCHANGE CARRIERS. Currently, CAPs/CLECs compete with LECs by installing fiber
optic cable rings in the highest density business locations to connect with long
distance carriers and for intra-ring transmissions. Due to the high cost
inherent in building fiber networks, CAPs/CLECs generally target densely
populated areas with high concentrations of large end-users. In order to reach
"off-net" customers, CAPs/CLECs must either lease or purchase facilities and
services from LECs or alternative suppliers until such time as it becomes
economical to extend the CAP/CLEC fiber networks to these customers.
CAPs/CLECs face certain implementation obstacles that the Company's wireless
broadband services can assist in solving. CAPs/CLECs need to reach new customers
that are off-net quickly and inexpensively, and are expected to prefer to obtain
additional network facilities from (and share proprietary information with)
someone other than a direct competitor, such as a LEC. CAPs/CLECs can utilize
the Company's wireless broadband services as an alternative to copper,
fiber-based or other such network facilities provided to the CAPs/CLECs by LECs
(see diagram below), to extend their own networks to reach areas where such
extension is neither cost-efficient nor feasible, because of rights-of-way or
other restrictions, or to provide redundant and back-up capacity to their
existing networks.
LECs are encountering many of the same obstacles CAPs/CLECs are encountering
in seeking to enhance their networks to deliver broadband services. Certain LECs
have sought to utilize 38 GHz technology to expand the range of their service
offerings to match those offered by CAPs/CLECs. Further, as LECs are permitted
to provide inter-LATA long distance services, they may seek to use 38 GHz
technology to bypass other LECs outside of their region. See "-- Strategic
Alliances -- Ameritech Strategic Distribution Agreement."
[GRAPHIC]
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<PAGE>
INTERNET SERVICE PROVIDERS. The expanding demand for Internet access, the
growing importance of audio, video and graphic Internet applications to both
business and residents and the lack of high capacity access through local
telephone company facilities has created a growing market for wireless broadband
services similar to ART's services. The Company offers ISPs timely, reliable and
affordable access at the required high speed data rates -- both 45 Mbps and
1.544 Mbps -- allowing ISPs to keep pace with their customers' need for
increased capacity. The Company provides wireless broadband links between
customers and their ISPs and between ISP POPs and the Internet backbone. A
single 38 GHz DS-1 circuit linking a corporate user to an ISP's POP is
approximately 53 times faster than a 28.8 Kbps dial-up modem and 12 times faster
than the fastest ISDN connection. Each of the Company's 38 GHz DS-3 links can
support 28 DS-1 circuits per channel, or one DS-3 circuit per channel, which can
transfer data at a rate which is over 1,500 times the rate of the fastest
dial-up modems currently in use (28 Kbps) and over 350 times the rate of the
fastest ISDN lines currently in use (128 Kbps).
[GRAPHIC]
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MOBILE COMMUNICATIONS SERVICE PROVIDERS. ART's wireless broadband services
have begun to help cellular, wireless dispatch and emerging PCS carriers compete
in expanding domestic mobile communications markets by providing cost-effective
backbone network connections between cell sites, base stations and wireline
networks, regardless of location. Similar 38 GHz mobile communications
connections have been proven effective in Europe, and ART's easily installed,
economical wireless broadband links have begun to give domestic mobile carriers,
such as American Personal Communications and Western Wireless, a competitive
edge in building or expanding their networks through reduced construction time
and installation costs.
[GRAPHIC]
48
<PAGE>
INTER-EXCHANGE CARRIERS. To minimize costly LEC access charges and to gain
more direct contact with the consumer, IXCs have begun to utilize the Company's
wireless broadband services to connect call origination or termination points
either directly to the IXCs' POPs or by way of CAP intermediate fiber rings.
These providers have also begun to use 38 GHz services to connect two or more of
their respective POPs in a single market area. By utilizing the Company's
wireless broadband services, IXCs are able to avoid the capacity barriers
inherent in copper wire connections, which have typically prevented them from
providing their customers with the end-to-end, high bandwidth, full digital
services available from a fiber optic or wireless-based system. Wireless
broadband services also may be utilized to provide carriers with viable,
cost-efficient physical diversity routes (I.E., back-up capacity) for traffic in
situations when primary routes become incapacitated or network reliability
concerns demand alternate telecommunications paths.
[GRAPHIC]
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PRIVATE USER NETWORKS. ART's wireless broadband services enable business,
government and other heavy usage customers to create efficient, high speed, high
capacity private voice, data and video communications networks within and among
their local facilities and buildings. These customers include universities,
hospitals, hotels, shopping centers and multi-location manufacturing, business
and governmental institutions. Working directly with ART or through ART
resellers, customers will be able to access cost-effective alternatives to LEC
copper networks.
Providing high speed data and video transmission and real time
communications services by linking customer computers in local, metropolitan and
wide area network configurations will be an important part of ART's private
networking business. The ability to send large amounts of data quickly and
efficiently and to interconnect personal computers both within and among
buildings in campus settings is a growing customer need. ART's wireless
broadband services are designed to serve this rapidly expanding market.
[GRAPHIC]
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INTERACTIVE VIDEO SERVICES USERS. ART's wireless broadband services provide
high speed, high capacity access to communications networks for customers who
require reliable videoconferencing, video on demand, and Internet video
services. The Company believes the increasing popularity and use of these
services, particularly by large business and government customers, provide a
promising market for ART's wireless links. Videoconferencing requires high speed
communications both to and from the participants. The Company's services meet
this requirement for high bandwidth, full duplex communications.
[GRAPHIC]
38 GHZ TECHNOLOGY
The FCC has allocated the 37.0-40.0 GHz (the "38 GHz") band for wireless
broadband transmissions. The FCC has authorized the use of fourteen 100 MHz
channels between 38.6 GHz and 40.0 GHz, which enables licensees to provide
point-to-point wireless telecommunications services within a specified
geographic footprint usually of up to a 50-mile radius inscribed within a
rectangle.
38 GHz technology was first widely deployed in Europe by cellular telephone
service providers for the interconnection of cell sites with switches. In the
early 1990s, technological advances resulted in a substantial reduction in the
cost and size of millimetric microwave components with a simultaneous increase
in reliability and quality, allowing for the provision of wireless broadband
telecommunication links at competitive prices. By 1993, advances in 38 GHz
technology, combined with its growing use in Europe and Central America, led to
increasing awareness of and interest in the potential uses of 38 GHz in the
United States.
The 38 GHz band provides for the following additional advantages as compared
to other spectrum bands and wireline alternatives:
- HIGH DATA TRANSFER RATES. The total amount of bandwidth for each 38 GHz
channel is 100 MHz, which exceeds the bandwidth of any other present
terrestrial wireless channel allotment and supports full broadband
capability. For example, one 38 GHz DS-3 link at 45 Mbps today can
transfer data at a rate which is over 1,500 times the rate of the fastest
dial-up modem currently in use (28.8 Kbps) and over 350 times the rate of
the fastest integrated services digital network ("ISDN") line currently in
use (128 Kbps). In addition to accommodating standard voice and
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<PAGE>
data requirements, 45 Mbps data transmission rates allow end users to
receive real time, full motion video and 3-D graphics at their
workstations and to utilize highly interactive applications on the
Internet and other networks.
- SIGNIFICANT CHANNEL CAPACITY. Because 38 GHz radio emissions have a
narrow beam width, a relatively short range and in most instances the
capability to intersect without creating interference, 38 GHz service
providers can efficiently reuse their bandwidth within a licensed area,
thereby increasing the number of customers to which such services can be
provided. Management believes that by using technology currently employed
by the Company it can serve virtually all of its addressable service
market.
- RAPID DEPLOYMENT. 38 GHz technology can be deployed considerably more
rapidly than wireline and other wireless technologies, generally within 72
hours after obtaining access to customer premises. In contrast to the
relative ease of installing a 38 GHz transmission link, extending fiber or
copper-based networks to reach new customers requires significant time and
expense. In addition, unlike providers of point-to-point microwave service
in most other spectrum bands, a 38 GHz license holder can install and
operate as many transmission links as it can engineer in the licensed area
without obtaining additional approvals from the FCC. This is a substantial
advantage over other portions of the microwave radio spectrum that must be
licensed on a link-by-link basis and that cannot commence service until
frequency coordination has been completed.
- EASE OF INSTALLATION. The equipment used for 38 GHz point-to-point
applications (I.E., antennae, transceivers and digital interface units) is
smaller, less obtrusive and less expensive than that used for microwave
equipment applications at other frequencies, making it less susceptible to
zoning restrictions. In addition, 38 GHz equipment can be easily
redeployed to meet changing customer requirements.
- VERY HIGH TRANSMISSION QUALITY. The Company's wireless broadband services
are engineered to provide 99.999% availability, with better than a 10-13
(unfaded) bit error rate. This level of availability exceeds the
performance of copper based networks and is a viable alternative to fiber
based networks. When measured as the total amount of time "out of service"
over a year, 99.999% availability equates to less than six minutes per
year of down-time, compared to a range of four hours to 44 hours of
historical performance of similar copper-based LEC circuits.
- ADDITIONAL ADVANTAGES OVER OTHER PORTIONS OF RADIO SPECTRUM. At
frequencies above 38 GHz, point-to-point applications become less
practical because attenuation increases and the maximum distance between
transceivers accordingly decreases. Additionally, the FCC has specified
the use of many portions of the spectrum for applications other than
point-to-point, such as satellite and wireless cable services, and,
accordingly, these portions of the radio spectrum often are not available
for point-to-point applications.
38 GHZ WIRELESS BROADBAND LICENSES AND AUTHORIZATIONS
The Company was granted the first of its authorizations to construct and
operate 38 GHz wireless broadband facilities in February 1995. Upon completion
of the CommcoCCC Acquisition, the Company will own or manage a total of 237
authorizations that will allow it to provide 38 GHz wireless broadband services
in 169 U.S. markets. The Company currently owns or manages 108 licenses
(exclusive of the CommcoCCC Assets) that allow it to provide 38 GHz wireless
broadband services in 89 markets, 73 of which are owned by the Company and the
remaining 35 of which are managed by the Company through the Company's interests
in or arrangements with other companies.
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The table below lists the amount of bandwidth covered by authorizations
which the Company owns, manages or has a definitive agreement to acquire in the
top 100 U.S. markets, in descending order of size based on the estimated
population of the market:
<TABLE>
<CAPTION>
BANDWIDTH COVERED BY AUTHORIZATIONS (MHZ)
--------------------------------------------------------
UNDER
DEFINITIVE
AGREEMENT TO
MARKET OWNED MANAGED (1) ACQUIRE TOTAL
- ----------------------------------------- ----------- --------------- ------------- -----
<S> <C> <C> <C> <C>
300 MHZ OR MORE MARKETS
New York, NY 300 -- -- 300
Washington, D.C. 300 -- -- 300
Boston, MA 200 -- 100 300
Baltimore, MD 200 100 -- 300
Cincinnati, OH 100 -- 200 300
Portland, OR -- 100 200 300
Norfolk/Virginia Beach, VA -- 100 300 400
Columbus, OH -- 100 200 300
Providence, RI/Fall River, MA 200 -- 200 400
Memphis, TN 100 -- 200 300
Oklahoma City, OK -- 100 200 300
Birmingham, AL 100 -- 200 300
Buffalo/Niagara Falls, NY 300 -- 100 400
Dayton/Springfield, OH 100 100 100 300
Richmond/Petersburg, VA 100 -- 200 300
Rochester, NY 300 -- 200 500
Hartford, CT 200 100 200 500
Albany/Schenectady, NY 300 -- 200 500
Knoxville, TN 100 -- 200 300
New Haven/Waterbury, CT 200 -- 100 300
Syracuse, NY 200 -- 100 300
Harrisburg, PA 200 -- 100 300
Scranton/Wilkes-Barre, PA 300 -- 100 400
Springfield/Holyoke, MA 200 -- 200 400
Jackson, MS 100 -- 200 300
Shreveport, LA 100 -- 200 300
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
BANDWIDTH COVERED BY AUTHORIZATIONS (MHZ)
--------------------------------------------------------
UNDER
DEFINITIVE
AGREEMENT TO
MARKET OWNED MANAGED (1) ACQUIRE TOTAL
- ----------------------------------------- ----------- --------------- ------------- -----
<S> <C> <C> <C> <C>
200 MHZ MARKETS
Philadelphia, PA/Trenton, NJ 200 -- -- 200
Miami/Fort Lauderdale, FL 100 -- 100 200
Cleveland/Akron, OH 100 -- 100 200
Seattle/Tacoma, WA -- 100 100 200
St. Louis, MO 100 -- 100 200
Pittsburgh, PA 200 -- -- 200
Charlotte/Gastonia, NC -- -- 200 200
Nashville, TN 100 -- 100 200
Indianapolis, IN 100 -- 100 200
Louisville, KY 100 -- 100 200
Greensboro/Winston-Salem, NC -- 100 100 200
Las Vegas, NV -- 100 100 200
Austin, TX -- 100 100 200
Grand Rapids, MI -- 100 100 200
Omaha, NE -- -- 200 200
Honolulu, HI -- 100 100 200
Albuquerque, NM -- 100 100 200
Des Moines, IA 100 -- 100 200
Tucson, AZ -- 100 100 200
El Paso, TX -- -- 200 200
Worcester, MA 200 -- -- 200
Allentown/Bethlehem, PA 200 -- -- 200
Baton Rouge, LA 100 -- 100 200
Charleston, SC 100 100 -- 200
Mobile, AL 100 100 -- 200
100 MHZ MARKETS
Chicago, IL 100 -- -- 100
Detroit, MI -- -- 100 100
Dallas/Fort Worth, TX 100 -- -- 100
Houston, TX 100 -- -- 100
Atlanta, GA 100 -- -- 100
Minneapolis, MN 100 -- -- 100
Phoenix, AZ -- 100 -- 100
San Diego, CA -- 100 -- 100
Tampa-St. Petersburg, FL -- -- 100 100
Denver, CO -- 100 -- 100
Kansas City, MO 100 -- -- 100
Sacramento, CA -- 100 -- 100
Milwaukee, WI -- -- 100 100
San Antonio, TX 100 -- -- 100
Salt Lake City, UT -- 100 -- 100
Orlando, FL -- -- 100 100
New Orleans, LA 100 -- -- 100
Raleigh-Durham, NC -- -- 100 100
Little Rock, AR -- -- 100 100
Tulsa, OK -- -- 100 100
Greenville/Spartanburg, SC -- -- 100 100
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
BANDWIDTH COVERED BY AUTHORIZATIONS (MHZ)
--------------------------------------------------------
UNDER
DEFINITIVE
AGREEMENT TO
MARKET OWNED MANAGED (1) ACQUIRE TOTAL
- ----------------------------------------- ----------- --------------- ------------- -----
<S> <C> <C> <C> <C>
Toledo, OH -- -- 100 100
Spokane, WA -- 100 -- 100
Kingsport, TN/Bristol, VA -- -- 100 100
Fort Wayne, IN -- -- 100 100
Madison, WI 100 -- -- 100
Wichita, KS 100 -- -- 100
Springfield, MO -- -- 100 100
Sarasota/Bradenton, FL -- -- 100 100
Corpus Christi, TX -- -- 100 100
Chattanooga, TN -- -- 100 100
</TABLE>
- ------------------------------
(1) Includes authorizations (i) held by ART West, (ii) managed by ART under the
DCT services agreement and (iii) managed under the Telecom One services
agreement pursuant to a revenue-sharing arrangement. Does not include
authorizations included in the CommcoCCC Assets which are managed by the
Company on a short-term basis, pending the CommcoCCC Acquisition. The
Company recently has entered into definitive agreements to acquire all
outstanding interests in the authorizations held by ART West, DCT and
Telecom One. See "Business -- Agreements Relating to Licenses and
Authorizations."
In addition to the above authorizations, the Company has 71 applications
pending before the FCC for additional authorizations. However, due to the
"freeze" imposed by the FCC and the conflicts with other applicants in same
markets, there can be no assurance that it or any other company will receive
additional authorizations with respect to any pending applications. See "Risk
Factors -- Government Regulation" and "-- Government Regulation."
Excluding the CommcoCCC Assets, the Company presently owns or manages
between 100 and 300 MHz of transmission capacity within each of its markets.
Because 38 GHz paths are very narrow and because certain microwave paths can
intersect each other without creating interference, each market area can
accommodate thousands of paths. The Company believes it generally owns or
manages sufficient 38 GHz bandwidth to satisfy the anticipated service
requirements of its target customers in each of the Company's existing markets
and the additional 80 markets to be acquired under the CommcoCCC Agreement.
Consistent with the Company's growth strategy, the Company may seek to obtain
additional spectrum by either leasing excess capacity from other 38 GHz
licensees, entering into management agreements or acquiring interests in other
38 GHz authorizations. See "Risk Factors -- Acquisition of Additional Bandwidth
in Selected Areas."
Under the terms of the CommcoCCC authorizations and the Company's management
agreement with CommcoCCC, the Company must meet the FCC's construction deadline
for 75 licenses between mid-April and mid-August 1997. The Company has met the
construction deadline for 54 authorizations on a timely basis and expects it
will meet its other FCC deadlines. All of the 38 GHz licenses owned or to be
acquired by the Company are due to expire in February 2001. The Company believes
that, in keeping with common FCC practices, the licenses will be renewed for
successive 10-year periods upon expiration.
AGREEMENTS RELATING TO LICENSES AND AUTHORIZATIONS
COMMCOCCC ACQUISITION. On July 3, 1996, the Company entered into an
agreement (as amended, the "CommcoCCC Agreement") to acquire 129 38 GHz wireless
broadband authorizations (the "CommcoCCC Assets") from CommcoCCC, Inc.
("CommcoCCC") in exchange for 6,000,000 shares of Common Stock (the "CommcoCCC
Acquisition"). CommcoCCC was formed in a transaction arranged by Columbia
Capital Corporation to acquire, own and operate the 38 GHz authorizations owned
by Columbia Capital Corporation and its affiliates and those owned by Commco,
L.L.C. The CommcoCCC Acquisition is subject to various conditions including
receipt of FCC and other approvals (including approval under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, if required), receipt by
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CommcoCCC of an opinion as to the tax-free nature of the transaction,
consummation of the Offering on terms reasonably satisfactory to CommcoCCC,
minimum population coverage requirements for the authorizations of the Company
and CommcoCCC, accuracy of representations and warranties except for breaches
that do not have in the aggregate a material adverse effect, no pending or
threatened material litigation and other customary closing conditions. There can
be no assurance that all such conditions will be satisfied. In order to satisfy
the minimum population coverage requirements, the Company will be obliged to
complete the acquisitions of certain spectrum rights from ART West, DCT and
Telecom One, or, in the event it cannot complete one or more of such
acquisitions, to acquire or lease other spectrum rights. The Company's
acquisition agreements with DCT, ART West and Telecom One are also subject to
various conditions. See "--Additional Spectrum Rights Leases." To obtain FCC
approval, the Company will need to demonstrate that the shareholders of
CommcoCCC acquired the authorizations that are to be assigned to the Company
with the intent of providing service to the public and not for the speculative
purpose of reselling such authorizations and may need certain waivers or
consents from the FCC. The FCC may be unwilling to grant its approval or may
grant its approval subject to conditions that may be adverse to the Company. The
CommcoCCC Agreement, as amended, may be terminated by CommcoCCC if the Offering
is not completed by November 30, 1996 or by either party if the CommcoCCC
Acquisition is not consummated before October 15, 1997. See "Risk Factors --
Risk of Non-Consummation of CommcoCCC Acquisition and Other Acquisitions."
In the CommcoCCC Agreement, the Company and Telecom have each agreed that,
prior to the consummation of the transaction, except in certain circumstances or
with the consent of CommcoCCC, they will not issue equity, incur debt, acquire
spectrum, make investments, consolidate, merge or sell all or substantially all
of its assets. CommcoCCC has entered into a management agreement with the
Company pursuant to which the Company bears the responsibility during the
pendency of the CommcoCCC Acquisition to construct, manage and operate the
CommcoCCC Assets, consistent with FCC rules. Under the management agreement,
CommcoCCC is obligated to reimburse ART for up to $100,000 of operating
expenses, which obligation will be cancelled if the CommcoCCC Acquisition is
consummated. In the event the management agreement is terminated other than as a
result of the consummation of the CommcoCCC Acquisition, CommcoCCC is obligated
to purchase and ART is obligated to sell at the Company's original cost the
equipment purchased by ART necessary to meet the FCC construction requirements
for the CommcoCCC authorizations.
The stockholders of CommcoCCC loaned the Company $3.0 million payable
December 31, 1996 pursuant to a subordinated bridge financing facility (the
"CommcoCCC Financing") and, in connection therewith, received three-year
warrants to purchase 18,182 shares of Common Stock at a price of $24.75 per
share. In connection with an October 1996 amendment to the CommcoCCC Agreement
the Company modified the terms of such warrants, reduced the exercise price of
such warrants to $17.1875 per share and increased the number of shares issuable
upon exercise thereof to 87,272 shares (the "CommcoCCC Warrants"). The CommcoCCC
Financing is secured by a security interest in all of the assets of the Company,
including a pledge of the Company's stock in Telecom. The CommcoCCC Financing
will be repaid with the proceeds of the Offering.
The Company has given Commco, L.L.C., a stockholder of CommcoCCC, an option
(the "Commco Option") to purchase one authorization in each of 12 specified
market areas in which the Company will have more than one authorization, which
authorizations cover in the aggregate approximately 19 million people. The
Commco Option will be exercisable only if (i) the CommcoCCC Acquisition is
consummated and (ii) Commco, L.L.C. obtains authorizations pursuant to certain
pending applications frozen under the NPRM in market areas covering an aggregate
population of at least 40 million people, and will terminate on the date nine
months after the consummation of the Offering. The purchase price for any
authorizations acquired under the Commco Option is determined by a formula based
upon the fair market value at the time the Commco Option is exercised of up to
945,455 shares of Common Stock depending upon the number of authorizations
purchased. The purchase price is payable in cash or, if the Commco Option is
exercised within the later of 120 days after the closing of the CommcoCCC
Acquisition or the date of grant by the FCC of the authorizations necessary to
exercise the Commco Option, with a two-year note secured by shares of Common
Stock having a value on the date of exercise
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equal to two times the principal amount of the note. In addition, if the Commco
Option becomes exerciseable, an affiliate of Commco LLC will have the right to
sublease channel capacity from the Company in the New York and Washington, D.C.
markets on terms agreed to by the Company and Commco LLC.
In arranging the CommcoCCC Acquisition, Columbia Capital Corporation and its
affiliates agreed not to compete with the Company in the provision of wireless
broadband telecommunication services in the 38 GHz band of the radio spectrum
for a five-year period commencing upon the closing of the CommcoCCC Acquisition
and have granted the Company a right of first offer to acquire any 38 GHz
authorizations that Columbia Capital Corporation or its affiliates may acquire
in the future with respect to their pending applications.
Promptly upon closing of the CommcoCCC Acquisition, the Company has agreed
to nominate one individual designated by CommcoCCC's stockholders and acceptable
to the Company as a director of the Company. CommcoCCC has designated James B.
Murray, Jr. as a director of the Company effective upon the consummation of the
CommcoCCC Acquisition.
In late 1994 and 1995, Columbia Capital Corporation and certain of its
affiliates ("Columbia") entered into several letter agreements (the "Letter
Agreements") with Video/Phone Systems, Inc. ("Video/Phone"). In consideration
for services to be rendered under the Letter Agreements, Columbia granted or
agreed to grant to Video/Phone options to purchase minority equity interests in
entities formed or to be formed to apply for 38 GHz licenses. Columbia agreed
not to assign these licenses to any person controlling, controlled by or under
common control with Columbia unless such transferee granted to Video/Phone an
equivalent option. The CommcoCCC Assets include 67 authorizations transferred by
Columbia to CommcoCCC, subject to FCC approval. Columbia and Video/Phone are in
a dispute with respect to the performance and obligations of the parties under
the Letter Agreements. Columbia has agreed to indemnify and hold harmless the
Company with respect to any loss or damage resulting from the Letter Agreements.
In connection with the CommcoCCC Acquisition, Montgomery Securities has been
retained by the Company as its financial adviser for which it will receive fees
of up to approximately $2.7 million and the reimbursement of reasonable
out-of-pocket expenses incurred in connection therewith.
EMI ACQUISITION. On April 4, 1995, ART entered into an agreement with EMI
Communications Corporation ("EMI") to acquire EMI's thirty two 38 GHz wireless
broadband licenses and related assets in the northeastern United States (the
"EMI Assets") in exchange for $3.0 million in cash and a $1.5 million three-year
non-negotiable and non-transferable promissory note (the "EMI Note"). In
November 1995, ART assigned all of its rights and obligations under the purchase
agreement to Telecom. The FCC subsequently approved the transfer of the EMI
Assets to Telecom, and the EMI Assets were acquired by Telecom in November 1995.
ART has also agreed to provide wireless broadband services to EMI for a period
of five years from the date of the agreement and to certain of EMI's customers
on behalf of EMI for the terms provided in such EMI service agreements, and EMI
agreed to provide certain services to Telecom for an initial period of one year
from the date of the agreement. See "Description of Certain Indebtedness -- EMI
Note."
ART WEST JOINT VENTURE. On April 4, 1995, ART and Extended Communications,
Inc. ("Extended") entered into a joint venture agreement (the "ART West
Agreement") resulting in the formation of ART West Joint Venture ("ART West"), a
Delaware partnership equally owned by ART and Extended. Under the terms of the
ART West Agreement, ART and Extended transferred to ART West all of their
respective interests in all of their 38 GHz authorizations (currently, 12
authorizations) in Alaska, Arizona, California, Colorado, Hawaii, Idaho,
Montana, Nevada, New Mexico, Oregon, Utah, Washington and Wyoming (the "ART West
Markets"). Under a separate management agreement between ART and ART West, ART
is obligated to bear all costs and expenses relating to construction, operation
and management of the ART West Markets and has agreed to utilize the ART West
authorizations before other authorizations owned or managed by ART in the ART
West Markets. As compensation, ART receives 90% of the recurring revenues of ART
West, with ART West receiving the remaining 10%. To
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date, Extended has had no significant responsibilities with respect to ART West,
and is not expected to invest in or contribute any services to ART West pending
the proposed acquisition of Extended's interest described below. See "Certain
Transactions -- ART West Joint Venture."
In June 1996, the Company entered into an agreement (the "Extended
Agreement") to acquire Extended's interest in ART West for an aggregate of $6.0
million in cash, subject to adjustment and subject to closing conditions
including final FCC approval. Of the $6.0 million purchase price, $3.0 million
is payable upon consummation of the Offering as a non-refundable deposit (the
"ART West Deposit") and the balance is payable upon consummation of the
transaction. Under this agreement, upon payment by ART of the ART West Deposit,
Extended has agreed to surrender its rights under the ART West Agreement (i) to
participate in the acquisition of additional licenses or authorizations in
certain of the ART West Markets through ART West and (ii) to prohibit the
acquisition by ART of additional licenses or authorizations in certain other ART
West Markets. See "Certain Transactions -- LHC Agreements."
DCT SYSTEMS SERVICES AND PURCHASE AGREEMENTS. On June 28, 1996 the Company
entered into a definitive agreement (the "DCT Agreement") with DCT to acquire
DCT's interest in sixteen 38 GHz licenses (the "DCT Systems") covering a
population of approximately 15 million in exchange for $3.6 million in cash,
subject to FCC approval, consummation of the DCT Agreement by August 28, 1997
and other customary closing conditions including accuracy of representations and
warranties, absence of litigation and receipt of opinion of counsel. ART has
entered into a services agreement with DCT pursuant to which ART bears the
responsibility for the construction, operation and management of the DCT
Systems. The agreement expires on December 31, 1998 and may be terminated
earlier by DCT if the DCT Agreement terminates. DCT has alleged that the Company
has failed to satisfy a provision of the DCT Agreement which required the
Company to obtain $3.6 million of debt or equity proceeds by August 31, 1996,
and based on that alleged failure, may seek termination of the DCT Agreement and
retention of a $100,000 deposit paid by the Company against the purchase price.
The Company believes that it has complied with its obligations under the DCT
Agreement and intends to proceed to consummate the transactions contemplated
thereby; however, there can be no assurance as to the outcome of such dispute
and, therefore, no assurance that the Company will consummate the acquisition of
the DCT Systems. If the Company does not consummate the acquisition of the DCT
Systems, the Company would use the unpaid purchase price for general corporate
purposes. See "Certain Transactions -- LHC Agreements."
Under the terms of the services agreement, ART is obligated to bear all
costs and expenses relating to construction, operation and management of the DCT
Systems. As compensation, ART is entitled to receive all of the revenues
generated by the DCT Systems until December 31, 1996. From January 1, 1997 until
the later of January 1, 1998 and the termination of the DCT Agreement, a license
fee equal to 15% of the gross revenue generated by the DCT Systems will be paid
to DCT, and thereafter a license fee based on the number and types of circuits
operated by ART over the DCT Systems will be paid to DCT. After December 31,
1997, DCT has the right to market to third parties utilizing the DCT Systems.
The services agreement terminates with respect to each DCT 38 GHz license upon
the acquisition by ART of such license. The Company has completed construction
of all of the DCT authorizations.
TELECOM ONE SERVICES AGREEMENT. On April 24, 1996, the Company and Telecom
One, Inc. ("Telecom One") entered into a services agreement (the "Telecom One
Services Agreement") pursuant to which the Company constructed, and has agreed
to operate and manage, all 38 GHz wireless broadband licenses and related
telecommunications systems owned by Telecom One that are granted by the FCC. At
present Telecom One has been granted two authorizations. The Company has
completed construction of the two authorizations. Under the Telecom One Services
Agreement, the Company is obligated to pay all costs and expenses related to
construction, operation and management of the systems. As compensation, the
Company receives 90% of the net revenues generated by the systems and Telecom
One receives the remaining 10% for ten years. On June 27, 1996, the Company and
Telecom One entered into an agreement pursuant to which the Company will
acquire, subject to FCC approval, from
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Telecom One the two currently granted authorizations that are the subject of the
Telecom One Services Agreement for approximately $111,000 in cash. In addition,
the Company will have a right of first refusal on all future grants of 38 GHz
authorizations to Telecom One or its current stockholders.
ADDITIONAL SPECTRUM RIGHTS LEASES. In October 1996, ART entered into a
services agreement with ICG Telecom Group, Inc. and Pacific & Eastern Digital
Transmission Services, Inc., pursuant to which the Company will have an
exclusive right, as against third parties, to lease for a five-year term ten
38GHz wireless broadband authorizations covering an aggregate population of
approximately 13 million in or around the California cities of Beverly Hills,
Los Angeles, Palm Springs, Riverside, Santa Barbara, San Bernardino, Santa
Monica, San Diego, Santa Anna and Ventura. In addition, the services agreement
grants to the Company a right of first refusal with respect to the purchase of
such authorizations, subject to limited exceptions. The services agreement may
be renewed for successive terms of up to five additional years upon expiration
of its initital term.
STRATEGIC ALLIANCES
AMERITECH STRATEGIC DISTRIBUTION AGREEMENT. On April 29, 1996, the Company
and Ameritech entered into a three-year strategic distribution agreement (the
"Ameritech Strategic Distribution Agreement") pursuant to which the Company
provides 38 GHz services to Ameritech, who will in turn market the Company's
services under the Ameritech name. Ameritech has agreed to be the primary
provider of the Company's services in the midwest. Ameritech has announced that
in November 1996 it will launch its "Ameritech Wireless Broadband Service,"
which will be a local access component of Ameritech's GlobalDesk Managed Access
Service, allowing seamless high-speed connectivity for LAN interconnection,
desktop videoconferencing and Internet access. Under the Ameritech Strategic
Distribution Agreement, Ameritech is targeting certain sales objectives and will
spend internally up to $7.0 million on its sales and marketing of the Company's
services. The Company believes that Ameritech's sales and marketing expertise
and its access to extensive distribution channels within its region will
accelerate the rollout of the Company's business plan. The Ameritech Strategic
Distribution Agreement is subject to termination at any time by either party on
90 days' notice. See "Risk Factors -- Dependence on Third Parties for Marketing
and Service."
GTE SERVICES AGREEMENT. On April 25, 1996, the Company entered into a
two-year agreement with GTE Government Systems Corporation, a subsidiary of GTE
Corporation ("GTE"). GTE will provide equipment staging and outfitting, site
preparation, equipment installation and maintenance for the Company's wireless
broadband services. Under the agreement, it is anticipated that GTE will perform
at least 75% of the Company's installations. The Company will pay a fee equal to
$1,550 for the installation of each link and a maintenance fee equal to $85 per
hour. The aggregate amount of the fee will depend on the Company's rate of
growth. The Company believes that GTE's nationwide presence and experience will
provide the Company with efficient, quality installation and maintenance for its
nationwide services. See "Risk Factors -- Dependence on Third Parties for
Marketing and Service."
GTE SOFTWARE LICENSE AGREEMENT. On March 29, 1996, the Company entered into
a software license agreement with GTE's Network Management Organization. Under
this agreement, the Company purchased software and developed its network
management and provisioning functions to produce a reliable network management
system and increase system performance. GTE's "Integrated Network Management
Products" enable the Company to quickly identify service interruptions and to
simultaneously alert the field service teams, who are able to restore services
in a timely manner. The Company will pay a license fee of approximately $1.9
million and an annual maintenance support fee of approximately $145,000. The
license fee will be paid in monthly installments commencing January 1, 1997 of
$67,000 per month, including interest. After the first year, fees are subject to
renegotiation based on market prices and conditions. See "Risk Factors --
Dependence on Third Parties for Marketing and Service."
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HARRIS AGREEMENTS. On April 26, 1996, the Company and Harris Corporation,
Farinon Division ("Harris") entered into a one-year PCS marketing agreement (the
"Harris Marketing Agreement") pursuant to which the Company granted to Harris
the right to use its 38 GHz authorizations, including associated coordination
services, installation and network monitoring and field services. Pursuant to
the Harris Marketing Agreement, Harris agreed to market the Company's services
in the emerging PCS market. The Harris Marketing Agreement is automatically
renewable for successive one-year terms unless either party delivers notice of
non-renewal at least 60 days prior to the end of the initial term or any
successive term. The agreement is also subject to termination at any time by
either party on 90 days' notice.
Concurrently with the Harris Marketing Agreement, the parties entered into a
one-year purchase agreement (the "Harris Purchase Agreement") pursuant to which
the Company agreed to purchase certain microwave transmission equipment,
software and services relating thereto (the "Harris Products"). The agreement
sets minimum purchase goals for the purchase by the Company of Harris Products.
If either the Harris Purchase Agreement or the Harris Marketing Agreement shall
terminate, the other shall also terminate.
TECHNOLOGY DEVELOPMENT AGREEMENTS. The Company has had discussions with
several microwave equipment or technology development companies for development
of technologies owned by such companies, for advanced 38 GHz radios highspeed
converters and other technologies. The Company will continue to monitor new
developments in technology and may elect to fund research and development
activity in such new technology.
The Company has entered into a letter of intent with Helioss Communications
Corporation ("Helioss") for the development of advanced 38 GHz radios. Under the
letter of intent, which is subject to definitive documentation, the Company will
fund up to $1.0 million of Helioss' research and development expenses. The
Company will have a right of first refusal on production capacity of the radios
for three years from delivery of the first radios produced, and will receive a
royalty on the sale of a certain number of radios to customers other than the
Company; however, the Company will have no other rights to any technology
developed.
Through October 1, 1996, the Company has incurred approximately $650,000 of
research and development expenses, including amounts incurred with American
Wireless (as defined) and Helioss. See "Certain Transactions -- American
Wireless Development Agreement." There can be no assurance that the Company can
complete a definitive agreement with Helioss or that Helioss can develop
technologies with commercial value for the Company. Although the Company does
not have any other material commitments to fund research and development or to
make investments in other companies, the Company expects to incur additional
research and development expenses or to make other such investments from time to
time.
MASTER SERVICE AGREEMENTS. The Company's master service agreements contain
the terms by which customers will place future orders. The terms which are
outlined in these agreements include volume discounts, approximate geographic
location of links needed and representative pricing. Although a master service
agreement is not a take or pay commitment, it lays the groundwork for future
orders by a preferred customer and is utilized to facilitate the issuance of
purchase orders by a customer without any additional negotiations between the
companies.
ART has entered into master service agreements with a number of CAPs/CLECs
and ISPs, including NEXTLINK Communications LLC, DIGEX, Incorporated, CAIS,
Inc., Astrolink Communications, Inc., American PCS, L.P., Message Center
Management, Inc., Telecom, Inc., GST and Brooks Fiber Properties, Inc.
SITE ACQUISITION AGREEMENTS. In order to reduce the lag time in the
provisioning of services and ensure that the Company can respond rapidly to
customer orders, the Company has initiated a program to obtain access to antenna
sites in advance of receiving a customer order in those situations where it can
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be anticipated that there may be difficulty in obtaining such rights through the
customer's contracts and where the sites fit within the Company's marketing and
network development plans. The Company has signed an agreement with MCM which
will give the Company access to 4800 sites nationwide.
TCG INSTALLATION AGREEMENT. Under an Installation Services Agreement dated
October 2, 1996, the Company will act as a sub-contractor to Teleport to provide
transmission facilities construction services. Total payments to the Company
under this agreement are expected to be approximately $2.6 million.
FOREIGN MARKETS
Entities in which the Company has a substantial interest have applied or
intend to apply for licenses to provide wireless broadband services in Canada
and in various European countries. See "Risk Factors--Potential Rights to
Foreign Licenses."
In October 1996, ART entered into a binding letter of intent with Advantage
Telecom, Inc. ("ATI"), a Canadian company which has applied for licenses to
provide 38 GHz service in the 66 major markets in Canada covering a population
of approximately 25 million people. Upon consummation of the transactions
described in the letter of intent, ART will hold a substantial direct and
indirect minority interest in ATI and will be a party to a services agreement
with ATI pursuant to which ART will construct and operate radio systems based
upon licenses granted to ATI and subject to control by ATI. The Company incurred
$300,000 of expenses under the letter of intent, and ATI is responsible for
securing any additional funding necessary to construct the radio systems. The
Company believes that pursuant to the recent Industry Canada policy statement,
ATI can apply for provisional licenses, which if granted would permit ATI
immediately to construct and operate one paired 50 MHz 38 GHz channel in up to
66 markets throughout Canada. There can be no assurance that ATI will be granted
these licenses or will obtain the funding necessary to construct the radio
systems.
On September 29, 1996 the Company entered into a shareholders agreement with
Trond Johannessen, pursuant to which the Company anticipates eventually
obtaining licenses and offering its wireless broadband services through separate
subsidiaries in the 17 countries comprising the European Union. The Company has
caused to be formed subsidiaries in Sweden and the United Kingdom for this
purpose. Under the Shareholders Agreement, in consideration for services to be
rendered, and his proportionate share of the formation costs, Mr. Johannessen is
entitled to receive a 20% interest in the initial shareholdings in certain of
the subsidiaries in each country, prior to significant funding of each
subsidiary. The Company has no further commitment to fund any such subsidiary.
Mr. Johannessen is also a consultant to the Company, for which he receives
monthly payments of $6,500 plus expenses. The Company is seeking but has not yet
received any operating licenses, strategic alliances or customer commitments in
Europe. Although each member nation of the European Economic Community is
required pursuant to a directive of the European Commission to open its
telecommunication markets to competition over the next several years, the timing
and extent of a relaxation in entry barriers and the degree of cooperation from
the incumbent service providers in such areas as interconnection to customers
and the public networks is unknown. There can be no assurance that the Company,
through such subsidiaries, will be able to acquire the licenses necessary in
each European country, to finance and implement its business plan or to operate
in any country on a profitable basis.
COMPETITION
The telecommunications services industry is highly competitive. The Company
has only recently begun to market its wireless broadband services to potential
customers and is currently providing services on a limited basis. 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.
The Company expects to compete primarily on the basis of wireless broadband
service features, quality, price, reliability, customer service and response to
customer needs. The Company faces significant competition from other 38 GHz
providers and incumbent LECs, such as the RBOCs. The Company
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may also compete with CAPs/CLECs, other wireless service providers, cable
television operators, electric utilities, LECs operating outside their current
local service areas and IXCs. There can be no assurance that the Company will be
able to compete effectively in any of its market areas.
COMPETITION FROM 38 GHZ SERVICE PROVIDERS. The Company faces competition
from other 38 GHz service providers, such as WinStar and BizTel (an affiliate of
TCG), within its market areas. In many cases, one or both of these service
providers hold licenses to operate in other portions of the 38 GHz band in
geographic areas which encompass or overlap the Company's market areas. In
certain of the Company's market areas, other 38 GHz service providers may have a
longer history of operations, a larger geographic footprint or substantially
greater financial resources than the Company. WinStar commenced its 38 GHz
operations approximately one year prior to the Company, has raised significant
capital and has the competitive advantages inherent in being the first to market
38 GHz services. In addition to WinStar and BizTel, at least one other
substantial entity, Milliwave, L.P. ("Milliwave"), and several dozen smaller
ones have been granted 38 GHz authorizations in geographic regions in which the
Company plans to operate. WinStar has recently entered into a definitive
agreement with Milliwave to acquire Milliwave's 38 GHz licenses, subject to FCC
approval, and has agreed to manage such licenses pending the consummation of
such acquisition. Due to the relative ease and speed of deployment of 38 GHz
technology, the Company could face intense price competition and competition for
customers (including other telecommunications service providers) from other 38
GHz service providers.
The Company also faces potential competition from new entrants to the 38 GHz
market, including LECs and other leading telecommunications companies. The NPRM
contemplates an auction of certain spectrum assets, including the lower fourteen
proposed 100 MHz channels (which are similar to those used by the Company) and
four proposed 50 MHz channels in the 38 GHz spectrum band, which have not been
previously available for commercial use. See "Risk Factors -- Government
Regulation." The grant of additional authorizations by the FCC in the 38 GHz
band, or other portions of the spectrum with similar characteristics, could
result in increased competition. The Company believes that, assuming that
additional channels are made available as proposed by the NPRM, additional
entities having greater resources than the Company could acquire authorizations
to provide 38 GHz services.
OTHER WIRELESS COMPETITORS. The Company may also face competition from
other terrestrial wireless services, including 2 GHz and 28 GHz wireless cable
systems (MMDS and LMDS), 18 GHz point-to-point microwave services (DEMS), FCC
Part 15 wireless radio devices, and other services that use existing
point-to-point microwave channels on other frequencies. Motorola Satellite
Systems, Inc. has filed an application with the FCC for a global network of
satellites in the 37.5-40.5 GHz band and the 47.2-50.2 GHz band, which is
proposed to be used for broadband voice and data services. Other companies have
filed applications for a global broadband satellite system in the 28 GHz band.
If developed, these systems could also present significant competition to the
Company.
The FCC is planning to hold an auction for 28 GHz spectrum in all markets
for the provision of high capacity "wireless cable" systems. These auctions are
expected to take place in 1997. The 2 GHz wireless cable spectrum may also
provide competition for metropolitan wireless broadband services. At present,
wireless cable licenses are used primarily (if not exclusively) 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.
According to press reports and FCC records Associated Communications Group,
affiliates and joint venture partners (collectively "ACG") hold licenses in the
18 GHz band in 31 markets. Press reports indicate that ACG plans to use fixed
wireless service to provide voice, data, Internet and videoconferencing
services.
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 for certain
low data-rate transmission services.
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COMPETITION FROM INCUMBENT LECS. The Company also faces significant
competition from incumbent LECs, irrespective of whether they provide 38 GHz
services. Incumbent LECs have long-standing relationships with their customers,
generally own significant PCS or cellular assets, have the potential to
subsidize competitive services with revenues from a variety of businesses and
benefit from favorable federal and state policies and regulations. Regulatory
decisions and recent legislation, such as the Telecommunications Act, have
partially deregulated the telecommunications industry and 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 competition in the local exchange market, by requiring LECs to
provide fair and equal standards for interconnection and by requiring incumbent
LECs to provide unbundling of services and (ii) permits an RBOC to compete in
the interLATA long distance service market once certain competitive
characteristics emerge in such RBOC's service area. The Company believes that
this trend towards greater competition will continue to provide opportunities
for broader entrance into the local exchange markets. However, as LECs 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 results of operations.
A number of companies are in the process of developing enhancements to
increase the performance of LECs legacy copper networks. These generally come
under the description of digital subscriber line products, such as ADSL
(asymmetrical digital subscriber line), HDSL (high-speed digital subscriber
line), and VDSL (video digital subscriber line). There can be no assurance that
the Company will be able to compete effectively with these enhancements.
OTHER COMPETITORS. The Company may compete with CAPs/CLECs for the
provision of last mile access and additional services in most of its market
areas. However, the Company believes that many CAPs/CLECs have begun to utilize
38 GHz transmission links to augment their own service offerings to IXCs and end
users, and that the Company is well positioned and has begun to provide such 38
GHz services to CAPs/CLECs. However, there can be no assurance that CAPs/CLECs
will utilize the Company's 38 GHz services or that CAPs/CLECs will not seek to
acquire their own 38 GHz licenses or use the 38 GHz licenses of other licensees.
Furthermore, the ability of CAPs/CLECs to compete in the local exchange market
is limited by lack of parity with LECs in number portability, dialing parity and
reasonable interconnection. The Telecommunications Act requires the FCC and the
states to implement regulations that place CAPs/CLECs on a more equal
competitive footing with LECs. To the extent these changes are implemented,
CAPs/CLECs may be able to compete more effectively with LECs. However, there can
be no assurance that CAPs/CLECs or 38 GHz service providers, such as the
Company, will be able to compete effectively for the provision of last mile
access and other services.
The Company may also face competition from cable television operators
deploying cable modems, which provide high speed data capability over installed
coaxial cable television networks. Although cable modems are not widely
available currently, 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 the next generation of hybrid fiber
coaxial network architecture. However, there can be no assurance that cable
television operators will not emerge as a source of competition to the Company.
The Company may also face competition from electric utilities, LECs
operating outside their current local service areas, IXCs and other providers.
These entities provide transmission services using technologies which may enjoy
a greater degree of market acceptance than 38 GHz wireless broadband
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technology in the provision of last mile broadband services. In addition, the
Company may face competition from new market entrants using fiber optic and
enhanced copper based networks to provide local service.
Many of the Company's competitors have long-standing relationships with
customers and suppliers, greater name recognition and greater financial,
technical and marketing resources than the Company. As a result, these
competitors may be able to more quickly develop and exploit new or emerging
technologies, adapt to changes in customer requirements, or devote greater
resources to the marketing of their services than the Company. The consolidation
of telecommunications companies and the formation of strategic alliances and
cooperative relationships in the telecommunications and related industry, as
well as the development of new technologies, could give rise to significant new
competitors to the Company. In such case, there can be no assurance as to the
degree to which the Company will be able to compete effectively.
GOVERNMENT REGULATION
The Company's wireless broadband services are subject to regulation by
federal, state and local governmental agencies. The Company believes that it is
in substantial compliance with all material laws, rules and regulations
governing its operations and has obtained, or is in the process of obtaining,
all authorizations, tariffs and approvals necessary and appropriate to conduct
its operations. Nevertheless, changes in existing laws and regulations,
including those relating to the provision of wireless local telecommunications
services via 38 GHz and/or the future granting of 38 GHz authorizations, or any
failure or significant delay in obtaining necessary regulatory approvals, could
have a material adverse effect on the Company.
FEDERAL REGULATION
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 may regulate
limited aspects of the Company's business by, for example, imposing zoning
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.
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 38 GHz microwave facilities is required to construct
facilities to place the station "in operation" within 18 months of the date of
grant of the authorization. Although, under current FCC regulations, the term
"in operation" is not defined beyond the requirement that the station be capable
of providing service, the industry custom is to establish at least one link
between two transceivers in each market area for which it holds a license. In
the event that the recipient fails to comply with the construction deadline, the
license is subject to forfeiture, absent an extension of the deadline. Upon
completion of the CommcoCCC Acquisition, the Company will own or manage a total
of 237 authorizations that will allow it to provide 38 GHz wireless broadband
services in 169 U.S. markets. The Company currently owns or manages 108 licenses
(exclusive of the CommcoCCC Assets) that allow it to provide 38 GHz wireless
broadband services in 89 markets to construct and operate 38 GHz wireless
broadband facilities, 73 of which are owned by the Company and the remaining 35
of which are managed by the Company through the Company's interests in or
arrangements with other companies. All of the 108 licenses (exclusive of the
CommcoCCC Assets) which the Company owns or manages have met the FCC's
construction deadline. Under the terms of the CommcoCCC authorizations and the
Company's management agreement with CommcoCCC, the Company has met the
construction deadline for 54 licenses and must meet the construction deadline
for the remaining 75 licenses between mid-April and August 1997. The Company
believes that, in light of current FCC practice, extensions of construction
periods are highly unlikely. In addition, pursuant to
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rules that became effective August 1, 1996, if a station does not transmit
operational traffic (not test or maintenance signals) 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. Although
this rule has not been interpreted by the FCC, it is possible that it could be
applied in such a way that could cause one or more of the Company's licenses to
be subject to forfeiture. See "Risk Factors -- Risk of Forfeiture, Non-Renewal
and Fluctuation in Value of FCC Licenses."
COMMON CARRIER REGULATION. 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 discriminating among its customers, the Communications Act, as currently
interpreted by the FCC, does permit the Company substantial discretion in
classifying its customers and discriminating among such classifications. The
Company generally is obligated to furnish service to its competitors and might
be obligated to allow other 38 GHz providers to install links within one of the
Company's market areas for a non-discriminatory fee. Under the FCC's streamlined
regulation of non-dominant carriers, the Company, as a non-dominant carrier,
must file tariffs with the FCC for certain interstate services on an ongoing
basis. The Company is in the process of filing tariffs with the FCC, to the
extent required, with respect to its provision of interstate service. The FCC
has recently initiated a rulemaking proceeding to eliminate the tariff filing
requirement pursuant to new forbearance authority contained in the
Telecommunications Act. The Company, as a non-dominant carrier, is not currently
subject to rate regulation.
The Company manages the systems of ART West, DCT, Telecom One and CommcoCCC
(during the pendency of certain acquisitions) pursuant to management agreements.
See "Business -- Agreements Relating to Licenses and Authorizations." The
Company believes that the provisions of these management agreements comply with
the FCC's policies concerning licensee control of FCC-licensed facilities.
Because the 38 GHz service is a new service, however, there is no FCC precedent
addressing the limits of such management arrangements for these services. No
assurance can be given that the management arrangements or proposed acquisitions
will, if challenged, be found to satisfy the FCC's policies or what
modifications, if any, may need to be made to satisfy those policies. If the FCC
were to void or require modifications of the management arrangements, the
Company's operating results would be adversely affected.
FCC REPORTING. The Company, as an operator of millimeter wave radio
facilities, was subject to the FCC's semiannual reporting requirements with
respect to the deployment of wireless local telecommunications services in its
licensed areas. The Company believes that it fully complied with its reporting
obligation. Since August 1, 1996, the FCC rules have not required semiannual
reporting.
COMPETITION. Over the last several years, the FCC has issued a series of
decisions and Congress has recently enacted legislation making the interstate
access services market more competitive by requiring reasonable and fair
interconnection by LECs. Concomitant with its decision to require such
interconnection, the FCC has provided LECs with a greater degree of pricing
flexibility between services (such as the ability to reduce local access charges
paid by long distance carriers utilizing LECs' local networks) and between
geographic markets (such as cross-subsidizing price cuts across geographic
markets). The Company anticipates that this pricing flexibility will result in
LECs lowering their prices in high density zones. To the extent that LECs choose
to take advantage of increased pricing flexibility to lower their rates, the
ability of the Company and CAP customers of the Company to compete for certain
markets and services and the Company's operating results may be adversely
affected.
THE TELECOMMUNICATIONS ACT. The Telecommunications Act 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
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that LECs (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 carriers,
(iii) permit interconnection by competitors to a LEC's network at any
technically feasible point on the same terms as LEC charges for its own
services, (iv) unbundle their network services and facilities by permitting
competitors and others to use some but not all of their facilities at cost-based
and nondiscriminatory rates and (v) ensure that the end user does not have to
dial any more digits to reach local competitors than to reach the LEC to the
extent technically feasible ("dialing parity"). The Telecommunications Act also
allows RBOCs to provide interLATA services once certain competitive
characteristics emerge in their local exchange markets. 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 CAPs and others can
compete effectively. The FCC, with advice from the United States Department of
Justice, and the states are given jurisdiction to enforce these requirements.
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.
FCC RULEMAKING. On November 13, 1995, the FCC released an order barring the
acceptance of new applications for 38 GHz authorizations. On December 15, 1995,
the FCC announced the issuance of the NPRM, pursuant to which it proposed to
amend its current rules to provide for, among other things, (i) the adoption of
an auction procedure for the issuance of authorizations in the 38 GHz band,
including a possible auction of the lower fourteen proposed 100 MHz channels
(which are similar to those used by the Company) and the lower four proposed 50
MHz channels in the 38 GHz band that have not been previously available for
commercial use and a possible auction of the unlicensed areas in the upper
fourteen 100 MHz channels, (ii) licensing frequencies using predefined
geographic service areas ("Basic Trading Areas"), (iii) the imposition of
substantially stricter construction requirements for authorizations that are not
received pursuant to auctions as a condition to the retention of such
authorizations and (iv) the implementation of certain technical rules designed
to avoid radio frequency interference among licensees. In addition, the FCC
ordered that those applications subject to mutual exclusivity with other
applicants or placed on public notice by the FCC after September 13, 1995 would
be held in abeyance pending the outcome of the NPRM and might then be dismissed.
Final rules issued in connection with the NPRM may require that 38 GHz service
providers share the 38 GHz band with satellite services. Motorola Satellite
Systems, Inc. has filed an application with the FCC for a global network of
satellites to be used for broadband voice and data services. Motorola proposes
to use 38 GHz frequencies for transmissions from space to earth. Satellite
transmissions in the 38 GHz frequencies could adversely effect the Company's
existing operations or its future expansions by creating interference or by
inducing the FCC to impose power and other limitations upon the Company's
transmissions. However, the Motorola application would require changes in the
FCC's rules to be granted, and it would likely be a number of years before any
such system could be launched. The extent of the adverse impact upon the
Company's operations if the Motorola application were to be granted in its
current form is unknown, and there can be no assurance that the Company's
operations would not be adversely effected. The NPRM proposes substantial
strengthening of the current rules concerning the steps that a grantee of a 38
GHz authorization must take to satisfy the FCC's construction requirements. At
present, the holder of a construction permit is only required to certify that it
is operational. Although under current FCC regulations the term "operational" is
not specifically defined, the industry custom is to install one link, which may
be only temporary and may not be producing revenue for the operator. The NPRM
expresses concern that this lenient standard might allow the warehousing of 38
GHz spectrum. As a consequence, the NPRM proposes much more stringent
construction requirements for authorizations other than those received pursuant
to an auction. There can be no assurance that the final rules (if any) issued in
connection with the NPRM will resemble the rules proposed in the NPRM. There
also can be no assurance that any proposed or final rules will not have a
material adverse effect on the Company. Statutes and regulations which may
become applicable to the Company as it expands could require the Company to
alter methods of operations at costs which could be substantial or otherwise
limit the types of services offered by the Company.
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The NPRM also proposes that 38 GHz authorizations be awarded by auction. The
NPRM would specify the geographic areas that could be licensed instead of
continuing to allow the applicants to design the geographic circumferences of
the licenses. The Company has not determined whether to seek additional licenses
in the event of an auction. The Company believes that the FCC is likely to award
38 GHz authorizations by auction, but there can be no assurance that this will
occur. The Company does not believe that awards by auction will adversely effect
the Company and that the auction of additional spectrum could enable the Company
to broaden its geographic reach as desired.
STATE REGULATION
Many of the Company's services, either now or in the future, may be
classified as intrastate and therefore may be subject to state regulation. The
Company is in the process of obtaining state authorizations deemed to be
sufficient to conduct most, if not all, of its proposed business in the
near-term, but there can be no assurance that some portion of the Company's
proposed transmissions might not be considered to be subject to state
jurisdiction in a state in which the Company does not have appropriate
authority. The Company expects that as its business and product lines expand and
the requirements of the Telecommunications Act favoring competition in the
provision of local communications services are implemented, it will offer an
increased number and type of intrastate services. The Company is implementing a
program to expand the scope of its intrastate certifications in various state
jurisdictions as its product line expands and as the Telecommunications Act is
implemented.
Under current state regulatory schemes, entities can compete with LECs in
the provision of (i) local access services, (ii) dedicated access services,
(iii) private network services, including WAN services, for businesses and other
entities and (iv) long distance toll services. The remaining local
telecommunications services, including switched local exchange services
encompassing calls originating and terminating within a single LATA, are not
currently subject to competition in most states. The Telecommunication Act
requires each of these states to remove these barriers to competition. No
assurance can be given as to how quickly and how effectively each state will act
to implement the new legislation.
INTELLECTUAL PROPERTY RIGHTS
The Company has one registered service mark, ART, and has filed for
protection for three other service marks: DigiWave (the Company's wireless
broadband trademark), OZ Box (the Company's proprietary network management
interface) and Advanced Radio Telecom. These first filings are block mark
applications, which if allowed by the Patent and Trademark Office, would protect
future variations. The Company will seek the maximum protection for its future
service marks. There can be no assurance that the service marks applied for will
be granted nor that the Company's future efforts will be successful. Although
the Company is developing various proprietary processes, software products and
databases and intends to protect its rights vigorously and to continue to
develop such proprietary systems and databases, there can be no assurance that
these measures will be successful in establishing its proprietary rights in such
assets.
EMPLOYEES
As of October 11, 1996, the Company had a total of 100 employees, including
30 in engineering and field services, 38 in sales and marketing, 6 in
administration and finance, 14 in operations and 12 in corporate development and
advanced services. None of the Company's employees is represented by a
collective bargaining agreement. The Company has never experienced a work
stoppage and believes that its employee relations are good.
PROPERTIES
The Company leases approximately 22,000 square feet of office, technical
operations and engineering field services depot space in Bellevue, Washington.
The Company's corporate headquarters, network operations center and western
regional sales office occupy approximately 15,000 square feet
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under a sublease expiring in January 2000. The Company's engineering department
leases approximately 5,000 square feet and 2,000 square feet for technical
operations and an engineering field services depot, respectively, pursuant to
leases expiring in May 1997. In addition the Company leases 1,100 square feet of
office space in Portland, Oregon for sales and marketing personnel pursuant to a
lease expiring in March 1998. The Company also leases temporary office space in
Washington, D.C. under a sub-lease from Pierson & Burnett, L.L.P. See "Certain
Transactions -- Pierson & Burnett Transactions."
LITIGATION
The Company is not a party to any litigation. A holder of 10% of the March
Bridge Notes has indicated that it is reserving the right to assert a claim for
additional March Bridge Warrants to purchase up to 20,000 shares of Common Stock
under the terms of the March Bridge Notes. The claim arises out of a delay and
alleged default in payment of interest due in September 1996.
DCT has alleged that the Company has failed to satisfy a provision of the
DCT Agreement which required the Company to obtain $3.6 million of debt or
equity proceeds by August 31, 1996, and based on that alleged failure, may seek
termination of the DCT Agreement and retention of a $100,000 deposit paid by the
Company against the purchase price. The Company believes that it has complied
with its obligations under the DCT Agreement and intends to proceed to
consummate the transactions contemplated thereby; however, there can be no
assurance as to the outcome of such dispute and, therefore, no assurance that
the Company will consummate the acquisition of the DCT Systems.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers, directors and certain other key officers of the
Company, their ages and their positions are as follows (after giving effect to
the Merger):
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------------------- --- -------------------------------------------------------
<S> <C> <C>
Vernon L. Fotheringham (1)(2)(3)............ 48 Chairman of the Board of Directors and Chief Executive
Officer
Steven D. Comrie............................ 40 President, Chief Operating Officer and Director
Thomas A. Grina............................. 39 Executive Vice President and Chief Financial Officer
W. Theodore Pierson, Jr..................... 59 Executive Vice President, Secretary and General Counsel
James D. Miller............................. 54 Senior Vice President, Sales and Marketing
James C. Cook (6)(7)(8)..................... 36 Director Designate
J.C. Demetree, Jr. (3)(4)(5)................ 38 Director
Mark C. Demetree (1)(2)..................... 39 Director
Andrew I. Fillat (2)(3)(4).................. 48 Director
Matthew C. Gove (2)(4)(5)................... 31 Director
James B. Murray, Jr. (9).................... 50 Director Designate
Laurence S. Zimmerman (1)(3)(5)............. 36 Director
</TABLE>
- ------------------------------
(1) Member of Option Committee.
(2) Member of Compensation Committee.
(3) Member of Finance Committee.
(4) Member of Audit Committee.
(5) These directors will resign effective on the date of this Prospectus. See
"--Board Composition."
(6) Mr. Cook will be elected to the Board of Directors effective on the date of
this Prospectus. See "-- Board Composition."
(7) Member of Option Committee effective on the date of this Prospectus.
(8) Member of Audit Committee effective on the date of this Prospectus.
(9) Designated by CommcoCCC for election upon consummation of the CommcoCCC
Acquisition.
VERNON L. FOTHERINGHAM has served as Chairman of the Board of Directors,
Chief Executive Officer of the Company and Telecom since inception. From 1993 to
1995, Mr. Fotheringham served as president and chief executive officer of Norcom
Networks Corporation, a nationwide provider of mobile satellite services. In
1992, Mr. Fotheringham co-founded Digital Satellite Broadcasting Corporation
("DSBC"), a development stage company planning to provide satellite radio
services nationwide, served as its chairman from 1992 to 1993 and currently
serves as one of its directors. From 1988 to 1994, Mr. Fotheringham served as
senior vice president of The Walter Group, Inc. ("TWG"), a wireless
telecommunications consulting and project management firm. From 1983 to 1986,
Mr. Fotheringham served as vice president of marketing of Omninet Corporation,
which was the original developer of the current Qualcomm Omni TRACS network.
Over the last ten years, Mr. Fotheringham has advised several businesses in the
telecommunications industry, including American Mobile Satellite Corporation,
ClairCom Communications ("ClairCom") and McCaw Cellular Communications, Inc.
STEVEN D. COMRIE has served as President, Chief Operating Officer and a
director of the Company since July 1995. From 1992 to 1995, Mr. Comrie served as
vice president and general manager of Cypress Broadcasting Inc., a
California-based television subsidiary of Ackerley Communications Inc., a
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diversified media company based in Seattle, Washington. From 1990 to 1992, Mr.
Comrie served as president of First Communication Media Inc. and as an investor,
advisor and manager of satellite, broadcast and telecommunications businesses in
the United States and Canada. In 1986, Mr. Comrie co-founded Netlink, the first
commercial direct broadcast satellite service operating in the U.S. which was
subsequently acquired by Tele-Communications Inc. ("TCI"). Previously, Mr.
Comrie served in a variety of management positions with cable and media
companies.
THOMAS A. GRINA has served as Executive Vice President and Chief Financial
Officer of the Company since April 1996. From June 1989 to April 1996, Mr. Grina
was Executive Vice President, Finance and Chief Financial Officer of DialPage,
Inc. and Executive Vice President of its wholly-owned subsidiary, Dial Call
Communications, Inc., a wireless communications company operating in the
southeastern U.S.
W. THEODORE PIERSON, JR. has served as Executive Vice President and General
Counsel of the Company and Telecom since inception. He served as a director of
the Company from its inception until July 1996. For more than three years, Mr.
Pierson has been a partner of the firm of Pierson & Burnett, L.L.P. (and its
predecessor firms) in Washington, D.C., which specializes in telecommunications
law. Prior to becoming a partner at Pierson & Burnett, L.L.P., Mr. Pierson was a
partner of the law firm Reed, Smith Shaw & McClay. In his 32 years of practicing
law, Mr. Pierson has advised a number of start-up telecommunications companies,
including Home Box Office, Satellite Business Systems, Omninet Corporation and
DSBC. Mr. Pierson currently serves as a director of DSBC. Mr. Pierson was also
counsel to the Competitive Telecommunications Association (the largest
association of long distance carriers) from 1984 to 1988 and the Association for
Local Telecommunications Services from 1993 to 1995.
JAMES D. MILLER has served as Senior Vice President, Sales and Marketing of
the Company since December 1995. From 1993 to 1995, Mr. Miller was vice
president and general manager of U.S. Intelco Wireless. Mr. Miller served as
executive vice president of Atlas Telecom from 1987 to 1993 and as national
sales manager of Sidereal Corporation from 1977 to 1987.
JAMES C. COOK will become a director of the Company upon the date of this
Prospectus. Mr. Cook is currently senior vice president of First Union Capital
Partners, Inc. ("FUCPI"), the private equity investment affiliate of First Union
Corporation, where he has been employed since 1989. Prior to joining FUCPI, Mr.
Cook served in various capacities at The Bank of New York from 1982 to 1987 and
at Kidder, Peabody & Co. Inc. in 1988.
J.C. DEMETREE, JR. has served as a director of the Company since May 1995.
Since 1987, Mr. Demetree has served as president of Demetree Brothers, Inc., a
real estate service company. Since 1980, he has been a partner and trustee of
Pentagon Properties, a privately-held trust with investments in commercial real
estate and other operating businesses including banking and chemical. Mr.
Demetree has served since 1995 as a director and officer of CFB Bancorp.
MARK C. DEMETREE has served as a director of the Company since May 1995.
Since 1993, Mr. Demetree has been president of North American Salt Company, the
second largest salt producer in North America. From 1991 through 1993, Mr.
Demetree served as president of Trona Railway Company, a shortline railroad
division of North American Chemical Company. Mr. Demetree currently is a
director of J.C. Nichols Company, a real estate company, and serves on the Board
of Governors of the Canadian Chamber of Maritime Commerce for the Great
Lakes/St. Lawrence Seaway and is the current chairman of the CEO Council of the
Salt Institute.
ANDREW I. FILLAT has served as a director of the Company since November
1995. Mr. Fillat has been employed since 1989 by Advent International
Corporation ("Advent"), a global venture capital and private equity management
firm and currently serves as senior vice president. Prior to 1989, Mr. Fillat
was a partner at Fletcher and Company, a consulting firm specializing in
assisting venture-backed enterprises, and was an operating executive with
Fidelity Investments. Mr. Fillat is also a director of:
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Interlink Computer Sciences, a systems management and communications software
company; Lightbridge, Inc., a company providing customer acquisition and
marketing related services for cellular and PCS carriers; Voxware, Inc., a
software company providing advanced voice compression and processing; and
several private companies in the Advent portfolio.
MATTHEW C. GOVE has served as a director of the Company since May 1995.
Since 1991, Mr. Gove has been, through Hedgerow Corporation of Maine
("Hedgerow"), a consultant to certain corporations, specializing in domestic and
international telecommunications transactions, spreadsheet modeling and
financial analysis. Former clients include LHC, among others. In May of 1993, he
received an MBA from the Columbia University Graduate School of Business. Prior
to 1991, he was custodial manager of foreign currency derivative funds at The
Boston Company.
JAMES B. MURRAY, JR. will become a director of the Company upon consummation
of the CommcoCCC Acquisition. Since its inception in March 1989, Mr. Murray has
been a Managing Director of Columbia Capital Corporation and since January 1995,
has been a director of The Columbia Group Incorporated. From January 1990 to
January 1993, Mr. Murray was also the President of Randolph Cellular Corp., a
cellular communications company. Mr. Murray is a member of the Board of
Directors of Saville Systems, a publicly-traded entity providing billing
solutions for service providers in the telecommunications industry as well as
several privately-held telecommunications companies, including GO Communications
Corporation, Merrick Tower Corporation, Contact New Mexico, Inc. and Columbia
Spectrum Management, Inc.
LAURENCE S. ZIMMERMAN has served as a director of the Company since May
1995. Since 1985, Mr. Zimmerman has been President of Landover Holdings
Corporation ("LHC"), of which he is the founder and beneficial owner. LHC is a
private investment firm with interests in wireless cable, wireless telephone,
cellular, managed healthcare and specialty retail companies as well as other
investments in the United States and abroad. From 1989 to 1990, Mr. Zimmerman
was a managing director of Renaissance Capital Group Inc., a leveraged buyout
firm which concentrated on emerging market and middle market telecommunications
and healthcare opportunities. In 1993, Mr. Zimmerman was a founder of, and
provided the seed capital for, National Wireless Holdings Inc., a wireless cable
company serving markets in Southern Florida. On February 1, 1995, Mr. Zimmerman
consented to the entry of an order of the Securities and Exchange Commission,
without admitting or denying the matters referred to therein, barring him from
association with any broker, dealer, municipal securities dealer, investment
company or investment adviser during the period February 1, 1995 to February 1,
1996 and requiring him not to violate certain provisions of the Federal
securities laws. The order relates to alleged violations arising out of alleged
conduct by Mr. Zimmerman in 1986 as a broker for Breuer Capital, in connection
with trading and selling shares of Balchem Corporation. See "Principal
Stockholders -- Voting Trust Agreement."
BOARD COMPOSITION
Under the terms of the Stockholders Agreement (as described in "Certain
Transactions -- February 1996 Reorganization"), (i) the Landover Stockholders
(as defined in the Stockholders Agreement) have the right to designate two
members of the Board of Directors of the Company and have designated Messrs.
Gove and Zimmerman as directors, (ii) an affiliate of Messrs. J.C. Demetree, Jr.
and Mark C. Demetree has the right to designate two members of the Board of
Directors of the Company and has designated Messrs. J.C. Demetree, Jr., and Mark
C. Demetree as directors and (iii) the Advent Partnerships (as defined in the
Stockholders Agreement) and Ameritech, as holders of Series E and F preferred
stock respectively, have the right to designate one member of the Board of
Directors of the Company and have designated Mr. Fillat as a director. Pursuant
to the Stockholders Agreement, the right of the Advent Partnerships to designate
a director terminates at such time as the Advent Partnerships cease to own at
least 50% of the aggregate amount of equity securities of the Company currently
owned by them. See "Certain Transactions -- LHC Purchase Agreement -- Advent
Private Placement." The Stockholders Agreement will terminate upon consummation
of the Offering.
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All directors hold office until their successors have been elected and
qualified. Effective as of the date of this Prospectus, Messrs. J.C. Demetree,
Jr., Gove and Zimmerman will resign as directors, and James C. Cook will be
elected to the Board. After consummation of the Offering, Mr. Zimmerman may
attend meetings of the Board of Directors as an observer, at the invitation of
the Board of Directors. In addition, upon consummation of the Offering, the
Company's Board of Directors will be divided into three classes, with each class
of directors to serve three-year staggered terms (after their initial terms).
Mr. Comrie will be elected as a Class I director for an initial one-year term
expiring in 1997. Messrs. Cook and Fotheringham will be elected as Class II
directors for an initial two-year term expiring in 1998. Messrs. Mark C.
Demetree and Fillat will be elected as Class III directors for an initial three-
year term expiring in 1999.
Promptly after closing of the CommcoCCC Acquisition, the Company has agreed
to nominate Mr. Murray, who was designated by the CommcoCCC stockholders, as a
Class III director of the Company.
Upon the consummation of the Offering, there will be one vacant seat on the
Company's Board of Directors. The Company intends to fill such vacancy with an
unaffiliated person within 90 days after the consummation of the Offering, which
new director will be elected as a Class I director.
DIRECTOR COMPENSATION
Upon consummation of the Offering, directors who are not employees of the
Company will receive $4,000 per year for services rendered as a director and
$500 for attending each meeting of the Board of Directors or one of its
Committees. In addition, directors may be reimbursed for certain expenses
incurred in connection with attendance at any meeting of the Board of Directors
or Committees. Other than reimbursement of expenses, directors who are employees
of the Company receive no additional compensation for service as a director.
In May 1996, the Company adopted the Directors Plan (as defined) which
provides for automatic grants of options to purchase an aggregate of 75,000
shares of Common Stock to non-employee directors of the Company. See "-- Stock
Option Plans." Upon consummation of the Offering, options to purchase an
aggregate of 7,800 shares at an exercise price equal to the initial offering
price of the Common Stock are anticipated to be granted to non-employee
directors under the Directors Plan.
BOARD COMMITTEES
The Company's bylaws, as amended (the "Bylaws"), provide that the Board of
Directors may establish committees to exercise certain powers delegated by the
Board of Directors. Pursuant to that authority, the Board of Directors has
established an Option Committee, Compensation Committee, Finance Committee and
Audit Committee.
The Option Committee reviews, interprets and administers the Equity
Incentive Plan (as defined), prescribes rules and regulations relating thereto
and determines the stock options to be granted by the Company to its employees.
Messrs. Mark C. Demetree, Fotheringham and Zimmerman currently serve on the
Option Committee. Upon consummation of the Offering, Messrs. Cook, Mark C.
Demetree and Fillat will serve on the Option Committee.
The Compensation Committee has responsibility for reviewing and
administering the Company's program with respect to the compensation of its
officers, employees and consultants and reviewing transactions with its
officers, directors and affiliates. As a policy, the Compensation Committee
directs the Company to pay officers, directors and affiliates of the Company for
services rendered outside the scope of their respective obligations to the
Company, in accordance with industry standards for such services, which may
include introducing major transactions or providing legal services to the
Company. Messrs. Mark C. Demetree, Fillat, Fotheringham and Gove currently serve
on the Compensation Committee. Upon consummation of the Offering, Messrs. Mark
C. Demetree, Fillat and Fotheringham will serve on the Compensation Committee.
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The Finance Committee has responsibility for reviewing and negotiating
financing proposals for the Company and submitting such proposals to the Board
of Directors for approval. Messrs. J.C. Demetree, Jr., Fillat, Fotheringham and
Zimmerman currently serve on the Finance Committee. Upon consummation of the
Offering, the Finance Committee will be disbanded.
The Audit Committee recommends the engagement of independent accountants to
audit the Company's financial statements and perform services related to the
audit, reviews the scope and results of the audit with the accountants, reviews
with management and the independent accountants the Company's year-end operating
results, and considers the adequacy of internal accounting procedures. Messrs.
J.C. Demetree, Jr., Fillat and Gove currently serve on the Audit Committee. Upon
consummation of the Offering, Messrs. Cook and Fillat will serve on the Audit
Committee.
RELATED PARTY TRANSACTIONS
On February 2, 1996, the Company adopted a policy that all transactions,
including compensation, between the Company and its officers, directors and
affiliates will be on terms no less favorable to the Company than could be
obtained from unrelated third parties and shall be approved by a majority of the
disinterested members of the Compensation Committee or by a majority of the
disinterested members of the Board of Directors.
EXECUTIVE COMPENSATION
The following table sets forth all compensation received by (i) the
Company's Chief Executive Officer and (ii) the three highest-paid executive
officers of the Company other than the Company's Chief Executive Officer
(collectively, the "Named Executive Officers"), for services rendered to the
Company in all capacities during the fiscal year ended December 31, 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
--------------
ANNUAL COMPENSATION SECURITIES
--------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS(#) COMPENSATION
- --------------------------------------------------- -------------- ----------- -------------- --------------
<S> <C> <C> <C> <C>
Vernon L. Fotheringham, Chief Executive Officer $ 90,000 -- -- $ 6,400(1)
Steven D. Comrie, President and Chief Operating
Officer(2) 70,000 -- 275,160 33,200(1)(3)
W. Theodore Pierson, Jr., Executive Vice President 77,000 -- -- 216,400(1)(4)
James D. Miller, Senior Vice President, Sales and
Marketing (2) -- -- 18,182 --
</TABLE>
- ------------------------------
(1) Automobile reimbursement benefits equal to $6,400 in the case of Messrs.
Fotheringham and Pierson and $3,200 in the case of Mr. Comrie.
(2) Reflects compensation for a partial year. See "-- Employment and Consulting
Agreements."
(3) Includes $30,000 relating to the forgiveness of a loan on January 1, 1996
that has been accounted for as compensation expense on the 1995 statement
of operations of the Company.
(4) The Company paid Pierson & Burnett, L.L.P., of which Mr. Pierson is a
partner, $210,000 for services rendered to the Company through December 31,
1995.
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OPTION GRANTS. The following table sets forth certain information regarding
stock option grants made to the Named Executive Officers in fiscal year 1995.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS (2) POTENTIAL REALIZABLE
---------------------------------------------------- VALUE AT ASSUMED ANNUAL
NUMBER OF PERCENT OF RATES OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR OPTION
UNDERLYING GRANTED TO EXERCISE TERM (1)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION ------------------------
NAME GRANTED FISCAL YEAR SHARE DATE 5% 10%
- -------------------------------- ------------ --------------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Steven D. Comrie 275,160 71.9% $ 1.6244 6/17/05 $ 179,428 $ 427,102
James D. Miller 18,182 4.8% 4.543 12/29/00 -- 14,031
</TABLE>
- ------------------------------
(1) The potential realizable value is calculated based on the term of the
option at its time of grant (five years). It is calculated by assuming that
the stock price on the date of grant appreciates at the indicated annual
rate, compounded annually for the entire term of the option. The actual
realizable value of the options based on the price to public in the Common
Stock Offering will substantially exceed the potential realizable value
shown in the table. The exercise prices were determined by the Option
Committee, which considered the fair market value of the Company's
securities at the time of grant based upon analysis of recent private
placements of securities. Subsequently, the Company engaged an independent
appraisal firm who conducted a more thorough analysis of the value of the
Company's securities and who considered such placements as well as
comparable market transactions and other relevant factors specific to the
placements (such as underlying security interest and liquidity). In all
cases, the exercise price was equal to, or in excess of, the estimated fair
value of the Company's Common Stock at the date of grant as determined by
the independent appraisal firm.
(2) See "-- Stock Option Plans -- Equity Incentive Plan -- Grants."
AGGREGATE STOCK OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION VALUES. The following table sets forth the number and value as of
December 31, 1995 of shares underlying unexercised options held by each of the
Named Executive Officers. As of December 31, 1995, no stock options had been
exercised by any Named Executive Officers.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
FISCAL YEAR END FISCAL YEAR END (1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------------------- ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
Steven D. Comrie 110,064 165,096 $ 184,420 $ 276,631
James D. Miller 3,636 14,546 -- --
</TABLE>
- ------------------------------
(1) Based on the estimated fair market value of the Company's Common Stock as
of December 31, 1995 of $3.30 per share, less the exercise price payable
upon exercise of such options. Such estimated fair market value as of
December 31, 1995 is substantially lower than the price to the public in
the Common Stock Offering.
STOCK OPTION PLANS
EQUITY INCENTIVE PLAN.
The Equity Incentive Plan was adopted by the Company on May 30, 1996 and
amended on October 11, 1996 and approved by the stockholders on June 25, 1996
and October 14, 1996.
The Equity Incentive Plan is designed to advance the Company's interests by
enhancing its ability to attract and retain employees and others in a position
to make significant contributions to the success of the Company through
ownership of shares of Common Stock. The Equity Incentive Plan provides for the
grant of incentive stock options ("ISOs"), non-statutory stock options
("NQSOs"), stock appreciation rights ("SARs"), restricted stock, unrestricted
stock, deferred stock grants, and performance awards, loans to participants in
connection with awards, supplemental grants and combinations of the above. A
total of 1,400,000 shares of common stock are reserved for issuance under the
Equity Incentive
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Plan. The maximum number of shares as to which options or SARs may be granted to
any participant in any one calendar year is 300,000. The shares of Common Stock
issuable under the Equity Incentive Plan are subject to adjustment for stock
dividends and similar events. Awards under the Equity Incentive Plan may also
include provision for payment of dividend equivalents with respect to the shares
subject to the award.
The Equity Incentive Plan is administered by the Option Committee of the
Board of Directors (the "Option Committee"). The Option Committee shall consist
of at least two directors. If the Common Stock is registered under the
Securities Exchange Act of 1934, all members of the Option Committee shall be
"outside directors" as defiined. All employees of the Company and any of its
subsidiaries and other persons or entities (including non-employee directors of
the Company and its subsidiaries) who, in the opinion of the Option Committee,
are in a position to make a significant contribution to the success of the
Company or its subsidiaries are eligible to participate in the Equity Incentive
Plan.
STOCK OPTIONS. The exercise price of an ISO granted under the Equity
Incentive Plan may not be less than 100% (110% in the case of 10% shareholders)
of the fair market value of the Common Stock at the time of grant. The exercise
price of a nonstatutory option granted under the Equity Incentive Plan is
determined by the Option Committee. The term of each option may be set by the
Option Committee but cannot exceed ten years from grant (five years from grant
in the case of an incentive stock option granted to a 10% shareholder), and each
option will be exercisable at such time or times as the Option Committee
specifies. The option price may be paid in cash or check acceptable to the
Company or, if permitted by the Option Committee and subject to certain
additional limitations, by tendering shares of Common Stock, by using a
promissory note, by delivering to the Company an unconditional and irrevocable
undertaking by a broker promptly to deliver sufficient funds to pay the exercise
price, or a combination of the foregoing.
STOCK APPRECIATION RIGHTS. SARs may be granted either alone or in tandem
with stock option grants. Each SAR entitles the participant, in general, to
receive upon exercise the excess of a share's fair market value in cash or
common stock at the date of exercise over the share's fair market value on the
date the SAR was granted. The Option Committee may also grant SARs which provide
that following a change in control of the Company as determined by the Option
Committee, the holder of such right will be entitled to receive an amount
measured by specified values or averages of values prior to the change in
control. If an SAR is granted in tandem with an option, the SAR will be
exercisable only to the extent the option is exercisable. To the extent the
option is exercised, the accompanying SAR will cease to be exercisable, and vice
versa. An SAR granted in tandem with an ISO may be exercised only when the
market price of common stock subject to the option exceeds the exercise price of
such option. SARs not granted in tandem shall be exercisable at such time, and
on such conditions, as the Option Committee may specify.
STOCK AWARDS. The Equity Incentive Plan provides for awards of
nontransferable shares of restricted Common Stock subject to forfeiture as well
as of unrestricted shares of Common Stock. Awards may provide for acquisition of
restricted and unrestricted Common Stock for a purchase price specified by the
Option Committee, but in no event less than par value. Restricted Common Stock
is subject to repurchase by the Company at the original purchase price or to
forfeiture if no cash was paid by the participant if the participant ceases to
be an employee before the restrictions lapse. Other awards under the Equity
Incentive Plan may also be settled with restricted Common Stock. Restricted
securities shall become freely transferable upon the completion of the
Restricted Period including the passage of any applicable period of time and
satisfaction of any conditions to vesting. The Option Committee, in its sole
discretion, may waive all or part of the restrictions and conditions at any
time.
The Equity Incentive Plan also provides for deferred grants entitling the
recipient to receive shares of Common Stock in the future at such times and on
such conditions as the Option Committee may
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<PAGE>
specify, and performance awards entitling the recipient to receive cash or
Common Stock following the attainment of performance goals determined by the
Option Committee. Performance conditions and provisions for deferred stock may
also be attached to other awards under the Equity Incentive Plan.
A loan may be made under the Equity Incentive Plan either in connection with
the purchase of Common Stock under an award or with the payment of any federal,
state and local tax with respect to income recognized as a result of an award.
The Option Committee will determine the terms of any loan, including the
interest rate (which may be zero). No loan may have a term exceeding ten years
in duration. In connection with any award, the Option Committee may also provide
for and grant a cash award to offset federal, state and local income taxes or to
make a participant whole for certain taxes.
Except as otherwise provided by the Option Committee, if a participant dies,
options and SARs held by such participant immediately prior to death, to the
extent then exercisable, may be exercised by the participant's executor,
administrator or transferee during a period of one year following such death (or
for the remainder of their original term, if less). Except as otherwise
determined by the Option Committee, options and SARs not exercisable at a
participant's death terminate. Outstanding awards of restricted Common Stock
must be transferred to the Company upon a participant's death and, similarly,
deferred Common Stock grants, performance awards and supplemental awards to
which a participant was not irrevocably entitled prior to death will be
forfeited, except as otherwise determined by the Option Committee.
In the case of termination of a participant's association with the Company
for reasons other than death, options and SARs remain exercisable, to the extent
they were exercisable immediately prior to termination, for three months (or for
the remainder of their original term, if less), shares of restricted Common
Stock must be resold to the Company, and other awards to which the participant
was not irrevocably entitled prior to termination will be forfeited, unless
otherwise determined by the Option Committee. If any such association is
terminated due to the participant's discharge for cause which, in the opinion of
the Option Committee, casts such discredit on the participant as to justify
immediate termination of any award under the Equity Incentive Plan, such
participant's options and SARs may be terminated immediately.
In the event of a consolidation or merger in which the Company is not the
surviving corporation or which results in the acquisition of substantially all
of the Company's outstanding Common Stock by a single person or entity or by a
group of persons and/or entities acting in concert or in the event of the sale
or transfer of substantially all of the Company's assets, the Option Committee
may determine that (i) each outstanding option and SAR will become immediately
exercisable unless otherwise provided at the time of grant, (ii) each
outstanding share of restricted Common Stock will immediately become free of all
restrictions and conditions, (iii) all conditions on deferred grants,
performance awards and supplemental grants which relate only to the passage of
time and continued employment will be removed and (iv) all loans under the
Equity Incentive Plan will be forgiven. The Committee may also arrange to have
the surviving or acquiring corporation or affiliate assume any award held by a
participant or grant a replacement award. If the optionee is terminated after a
change in control by the Company without cause, or in the case of certain
officers designated from time to time by the Option Committee resigns under
certain circumstances, within two years following the change in control, all
unvested options will vest and all options will be exercisable for the shorter
of four years or their original duration and all other awards will vest. If the
option committee makes no such determination, outstanding awards to the extent
not fully vested will be forfeited.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES. The following discussion, which is
based on the law as in effect on October 1, 1996, summarizes certain federal
income tax consequences of participation in the Equity Incentive Plan. The
summary does not purport to cover federal employment tax or other federal tax
consequences that may be associated with the plans, nor does it cover state,
local or non-U.S. taxes.
In general, an optionee realizes no taxable income upon the grant or
exercise of an ISO. However, the exercise of an ISO increases alternative
minimum taxable income by an amount equal to the
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<PAGE>
difference (the "option spread") between the value of the Common Stock purchased
and the price. This increase may result in an alternative minimum tax liability
to the optionee. With certain exceptions, a disposition of shares purchased
under an ISO within two years from the date of grant or within one year after
exercise produces ordinary income to the optionee (and a corresponding deduction
is available to the company) equal to the value of the shares at the time of
exercise less the exercise price if the disposition was a sale (other than to a
related party), and if the Common Stock was sold for less then what it was worth
on the date the ISO was exercised, the ordinary income is limited to the gain on
the sale, if any. If, on the other hand, the optionee has additional gain on a
disqualifying disposition, any additional gain recognized in the disposition is
treated as a capital gain for which the Company is not entitled to a deduction.
If the optionee does not dispose of the shares until after the expiration of
these one- and two-year holding periods, any gain or loss recognized upon a
subsequent sale is treated as a long-term capital gain or loss for which the
Company is not entitled to a deduction. In certain cases, an optionee may be
treated as disposing of ISO shares for purposes of the "disqualifying
disposition" rules even though the optionee has not sold the shares (I.E., if
the optionee makes a gift of the shares (other than to a spouse), or if the
optionee uses them to exercise another ISO within the one and two-year holding
periods described above).
In general, in the case of a nonstatutory option the optionee has no taxable
income at the time of grant but realizes ordinary income in connection with
exercise of the option in an amount equal to the excess (at the time of
exercise) of the fair market value of the shares acquired upon exercise over the
exercise price. If the optionee is an employee, such income is subject to tax
withholding. The Company may claim a corresponding deduction provided it
satisfies applicable withholding and reporting requirements. Upon a subsequent
sale or exchange of the shares, appreciation or depreciation after the date of
exercise is treated as capital gain or loss for which the Company is not
entitled to a deduction.
In general, an ISO that is exercised more than three months after
termination of employment (other than termination by reason of death) is treated
as a nonstatutory option. ISOs granted by the Company are also treated as
nonstatutory options to the extent they first become exercisable by an
individual in any calendar year for shares having a fair market value
(determined as of the date of grant) in excess of $100,000.
Special tax rules may apply if an optionee is subject to the reporting and
short-swing profit rules of Section 16 of the Exchange Act (a "Section 16
optionee"). If an optionee is a Section 16 optionee, any Common Stock acquired
under the Equity Incentive Plan will be treated as subject to a "substantial
risk of forfeiture" until six months after (i) the date of grant of the option,
if the Common Stock was acquired by exercising an option; (ii) six months after
the award (promise) of deferred Common Stock, if the Common Stock is transferred
pursuant to a deferred stock grant; or (iii) six months after the transfer of
the Common Stock, in every other case. To the extent an optionee acquires Common
Stock that is subject to a "substantial risk of forfeiture" by reason of the
preceding sentence, any ordinary income that would have been realized at the
time of transfer or exercise but for such risk of forfeiture will be deferred
until the risk (and any other risks of forfeiture associated with the shares)
lapse, unless an optionee makes an "83(b) election." If a Section 16 optionee
exercises an ISO within six months of the date of grant, and later has a
"disqualifying disposition" of the ISO shares, ordinary income in connection
with the disqualifying disposition may be measured as of the date the Section 16
restrictions lapsed, rather than as of the date of exercise.
Under Section 162(m) of the Code, the Company may not deduct more than $1.0
million for remuneration paid to any of its five highest paid executive
officers. Some types of remuneration are not subject to this limit, including
certain performance-based compensation. It is intended that remuneration
attributable to ISOs, non-statutory stock options, and SARs will qualify for the
exception from the $1.0 million deduction for performance-based compensation.
The grant of an SAR does not itself result in any taxable income to the
recipient, nor does taxable income result merely because an SAR becomes
exercisable. Upon exercise of an SAR (or receipt of
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<PAGE>
payment in cancellation of an option), an optionee will have ordinary income,
subject to withholding, equal to the amount of any cash received plus the fair
market value of any Common Stock the optionee received.
In certain circumstances an SAR may result in taxable income prior to
exercise. Such a result could occur (i) if an optionee holds a stand-alone SAR
(I.E., an SAR granted independent of any option) under which appreciation rights
were capped at a specified level of stock appreciation, and the cap was reached,
or (ii) if an optionee holds an SAR that was "in the money" and was about to
expire.
Under the so-called "golden parachute" provisions of the Internal Revenue
Code, the vesting or accelerated exercisability of awards in connection with a
change in control of the Company may be required to be valued and taken into
account in determining whether participants have received compensatory payments,
contingent on the change in control, in excess of certain limits. If these
limits are exceeded, a substantial portion of amounts payable to the
participant, including income recognized by reason of the grant, vesting or
exercise of awards under the Equity Incentive Plan, may be subject to an
additional 20% federal tax and may be nondeductible to the Company.
GRANTS. Mr. Comrie has been granted NQSOs expiring on various dates through
June 17, 2005 to purchase 275,160 shares of Common Stock at a price of $1.6244
per share. Of the NQSOs, 151,888 are currently exercisable, and 40,724 will
become exercisable on July 17, 1997 and up to an additional 82,548 shares (the
"Additional Shares") will become exercisable on June 17, 2000. The vesting of
NQSOs to purchase 20,637 Additional Shares will be accelerated in each year
based upon the attainment of certain performance goals as determined by the
Board of Directors. Each of Mr. Comrie's options are exercisable for a period of
five years from the date of vesting.
Mr. Grina has been granted NQSOs expiring on various dates through April 26,
2004 to purchase 109,091 shares of Common Stock at a price of $17.1875 per
share. The NQSOs are subject to vesting over a three-year period, of which
36,364 are fully vested and currently exercisable. NQSOs to purchase 72,727
shares will become exercisable on April 26, 1999; however, the vesting of 36,364
of such shares will be accelerated on each of the first and second anniversary
of the date of grant based upon attainment of certain performance goals as
determined by the Board of Directors. Each of Mr. Grina's options are
exercisable for a period of five years from the date of vesting. All of the
foregoing options will be fully vested, notwithstanding the attainment of
performance goals, on April 26, 1999. In addition, Mr. Grina has been granted
NQSOs expiring on various dates through October 11, 2005 to purchase 72,727
shares of Common Stock at a price of $17.1875 per share. These NQSOs vest at a
rate of 25% on each anniversary of the date of grant commencing October 14,
1997. In addition, all of his options become immediately exercisable, without
regard to the vesting period, upon a Change of Control (as defined in the Equity
Incentive Plan) and upon other corporate changes described in the agreement
evidencing his options.
Mr. Miller has been granted NQSOs expiring December 29, 2000 to purchase
18,182 shares of Common Stock at a price of $4.543 per share. The NQSOs vest at
a rate of 20% on each anniversary of the date of grant. In addition, Mr. Miller
has been granted NQSOs expiring on various dates through October 11, 2005 to
purchase 36,364 shares of Common Stock at a price of $17.1875 per share. These
NQSOs vest at a rate of 25% on each anniversary of the date of grant commencing
October 14, 1997.
THE DIRECTORS PLAN.
On May 30, 1996, the Company adopted the 1996 Non-Employee Directors
Automatic Stock Option Plan, as amended (the "Directors Plan"), which provides
for the automatic grant of stock options to non-employee directors to purchase
up to an aggregate of 75,000 shares. Under the Directors Plan, options to
acquire 2,200 shares of Common Stock are automatically granted to each
non-employee director who is a director on January 1 of each year. In addition,
each non-employee director serving on the Board of Directors immediately after
the date of the Offering will receive, and in the future each newly elected
non-employee director on the date of his or her first appointment or election to
the Board of Directors will receive, an automatic grant of options to acquire
2,600 shares of Common Stock.
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Although grants of the options under the Directors Plan are automatic, and
the Directors Plan is intended to be largely self-administering, the Directors
Plan will be administered by either the Board of Directors or a committee
designated by the Board of Directors, which will, to the extent necessary,
administer and interpret the Directors Plan (the "Plan Administrator"). Stock
options awarded under the Directors Plan are priced automatically at an exercise
price equal to the market price of the Common Stock on the date of grant. If at
any time no public market for the Common Stock exists, the Plan Administrator is
empowered to determine the fair market value. Under the Directors Plan, initial
option grants vest over a three-year period and are exercisable for a period of
10 years from the date of grant. On the date of the Offering, options to
purchase an aggregate of 7,800 shares at an exercise price equal to the initial
offering price of the Common Stock will be granted to non-employee directors
under the Directors Plan.
EMPLOYMENT AND CONSULTING AGREEMENTS
The Company has entered into a three-year employment agreement with Mr.
Fotheringham providing for full-time employment at an annualized base salary of
$250,000 for 1996, $275,000 for 1997 and $300,000 for 1998. In addition, Mr.
Fotheringham is entitled to receive an annual bonus of up to $100,000 depending
on the achievement of specified annual link installation goals. The goal for
each year will be established based on the operating budget approved by the
Board of Directors. The agreement precludes Mr. Fotheringham from competing with
the Company for one year after the cessation of his employment, regardless of
the reason for such cessation.
The Company has entered into a three-year employment agreement with Mr.
Comrie providing for full time employment at an annualized base salary of
$160,000 through December 31, 1995, $200,000 from January 1, 1996 to July 16,
1997 and $240,000 from July 17, 1997 to July 16, 1998. Mr. Comrie is entitled to
receive an annual bonus of up to $100,000 depending on the achievement of
specified annual link installation goals. The goal for each year will be
established based on the operating budget approved by the Board of Directors. As
part of the employment agreement, the Company provided Mr. Comrie an
interest-free loan in the amount of $30,000 and forgave payment of such loan on
January 1, 1996. The forgiveness of such loan has been accounted for as
compensation expense on the 1995 statement of operations of the Company. The
agreement also precludes Mr. Comrie from competing with the Company for one year
after the cessation of employment, regardless of the reason for such cessation.
The agreement may be terminated at any time by either party and provides that,
if the Company terminates Mr. Comrie without cause or Mr. Comrie's employment is
terminated due to his disability or death, Mr. Comrie will be entitled to
continue to receive the full amount of his base salary and any other benefits to
which he would have otherwise been entitled for a period of one year from the
date of such termination. See "-- Stock Option Plans" regarding stock options
granted to Mr. Comrie pursuant to his employment agreement.
The Company has entered into an employment agreement with Mr. Grina,
providing for full time employment on an at will basis at an annualized base
salary of $190,000 through April 30, 1997. In addition, Mr. Grina is entitled to
receive an annual bonus of up to $100,000 depending upon the achievement of
specified annual link installation goals. The goal for each year will be
established based on the operating budget approved by the Board of Directors.
The agreement precludes Mr. Grina from competing with the Company for one year
after the cessation of his employment, regardless of the reason for such
cessation. The agreement may be terminated at any time by either party and
provides that, if the Company terminates Mr. Grina without cause or Mr. Grina's
employment is terminated due to his disability or death, Mr. Grina will be
entitled to continue to receive the full amount of his base salary and any other
benefits to which he would have otherwise been entitled for a period of six
months from the date of such termination. See "-- Stock Option Plans" regarding
stock options granted to Mr. Grina pursuant to his employment agreement.
The Company has also entered into an employment agreement with Mr. Miller,
providing for full time employment at an annual base salary equal to $150,000.
His employment agreement provides for the payment by the Company of an annual
bonus in designated amounts based upon the achievement of
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specified performance goals. The agreement has a term of three years and
precludes him from competing with the Company for one year after the cessation
of employment, regardless of the reason for such cessation. See "-- Stock Option
Plans" regarding stock options granted to Mr. Miller pursuant to his employment
agreement. The employment agreement may be terminated at any time by the Company
or Mr. Miller and provides that, if the Company terminates Mr. Miller's
employment without cause or his employment is terminated due to his disability
or death, Mr. Miller may continue to receive the full amount of his base salary
and any other benefits to which he would have otherwise been entitled for a
period of six months from the date of such termination.
The Company has entered into a three-year consulting agreement with Mr.
Pierson on May 8, 1995, under which Mr. Pierson agreed to provide strategic,
business and other advisory services to the Company for base fees of $80,000 for
1995, $140,000 for 1996 and $80,000 for 1997, subject to extension at the option
of the Company. The agreement also precludes Mr. Pierson from competing with the
Company for one year after termination of the agreement, regardless of the
reason for such termination. The agreement may be terminated at any time by
either party and provides that, if the Company terminates Mr. Pierson without
cause or Mr. Pierson terminates his consulting agreement for "good reason" (as
specified in the agreement), Mr. Pierson will be entitled to continue to receive
the full amount of his base fees and any other benefits to which he would have
otherwise been entitled for a period of one year from the date of such
termination. See "Certain Transactions -- Pierson & Burnett Transactions."
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information, as of October 29, 1996,
regarding the beneficial ownership of the Company's Common Stock by (i) the
directors and executive officers of the Company, (ii) each person known by the
Company to own beneficially more than five percent of the outstanding shares of
the Company's Common Stock and (iii) all executive officers and directors as a
group assuming the Landover Partnerships (as defined) have been dissolved.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP AFTER
PRIOR TO OFFERING OFFERING+
------------------------- ----------------------------------
NAME NUMBER PERCENT NUMBER PERCENT
- ----------------------------------------------------- ------------- ---------- -------------------- ------------
<S> <C> <C> <C> <C>
Vernon L. Fotheringham (1)........................... 1,289,114 11.8% 1,289,114 9.4%
W. Theodore Pierson, Jr. (2)......................... 873,741 8.0 873,741 6.4
High Sky Inc. (3).................................... 654,990 6.0 654,990 4.8
Landover Holdings Corporation (4).................... 2,936,065 26.8 2,936,065 21.4
Advent International Corporation (5)................. 1,173,178 10.7 1,173,178 8.5
Ameritech Development Corp. (6)...................... 631,908 5.6 631,908 4.5
Steven D. Comrie (7)................................. 151,888 1.4 151,888 1.1
James C. Cook (8).................................... 48,702 * 51,302(16) *
J.C. Demetree, Jr. (9)............................... 383,741 3.5 383,741 2.8
Mark C. Demetree (10)................................ 383,741 3.5 386,341(16) 2.8
Andrew I. Fillat (11)................................ 2,233 * 4,833(16) *
Matthew C. Gove (12)................................. 160,637 1.5 160,637 1.2
James Murray (13).................................... 0 0 0 0
Laurence S. Zimmerman (4)............................ 2,936,065 26.8 2,936,065 21.4
Thomas A. Grina (14)................................. 36,364 * 36,364 *
James D. Miller (15)................................. 3,636 * 3,636 *
All executive officers and directors as a group
(1)(2)(4)(7)(8)(9)(10)(11)(12)(14)(15).............. 6,221,160 55.8% 2,797,219(8)(15 17) 20.1%
</TABLE>
- ------------------------
Unless otherwise indicated, the business address of each director and executive
officer named above is c/o Advanced Radio Telecom Corp., 500 108th Avenue N.E.,
Suite 2600, Bellevue, Washington 98004.
* Less than 1.0%.
+ Amounts (i) assume no exercise of the Underwriters' over-allotment option
and (ii) exclude, based on preliminary indications of interest, up to an
aggregate of 133,333 shares of Common Stock expected to be purchased by
James C. Cook, the Advent Partnerships, Ameritech Development Corp. and
affiliates of J.C. Demetree, Jr. and Mark C. Demetree upon repayment of
March Bridge Notes. See "Underwriting."
(1) Includes 37,917 shares of Common Stock subject to an option owned by SERP.
See "Certain Transactions -- SERP Agreement."
(2) Includes 16,252 shares of Common Stock subject to an option owned by SERP.
See "Certain Transactions -- SERP Agreement." Also includes 17,229 shares of
Common Stock subject to an option owned by High Sky. Mr. Pierson's address
is c/o Pierson & Burnett L.L.P., 1667 K. Street, N.W., Washington, D.C.
20006.
(3) High Sky Inc. is the general partner of High Sky and High Sky II and may be
deemed the beneficial owner of all shares held by such partnerships.
Includes 527,819 and 127,171 shares of Common Stock owned by High Sky and
High Sky II, respectively. Also includes 43,335 and 10,835 shares of Common
Stock held by High Sky and High Sky II, respectively, subject to an option
owned by SERP. See "Certain Transactions -- SERP Agreement." Does not
include 17,229 shares of Common Stock owned by Mr. Pierson subject to an
option owned by High Sky. High Sky Inc.'s address is c/o Frank S. Phillips
Company, 6106 MacArthur Blvd., Bethesda, Maryland 20816.
(4) Includes 13,636 shares and 2,036 shares of Common Stock issuable upon
exercise of Indemnity Warrants and September Bridge Warrants, respectively.
Does not include 36,364 shares of Common Stock owned by the wife and 36,364
shares of Common Stock owned by a family trust of Laurence S. Zimmerman, of
which shares LHC and Mr. Zimmerman disclaim beneficial ownership. Does not
include 107,087 shares, 500,254 shares, and 34,807 shares of Common Stock
held by E1, E2 and E2-3, respectively, each a limited partnership whose
general partner is controlled by LHC. Upon the date of this Prospectus these
partnerships will dissolve. Including the shares owned by such partnerships,
LHC beneficially owns 3,578,213 shares of Common Stock constituting 32.7% of
the Company's outstanding securities prior to the Offering. Does not reflect
the contingent effect of the Series D Option covering 145,685 shares. LHC is
controlled by Mr. Zimmerman. LHC's address is 667 Madison Avenue, New York,
New York 10021. See "-- Voting Trust Agreement" and "Certain Transactions --
Series D Preferred Stock Issuance."
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(5) Includes 1,048,240 shares, 1,101 shares and 51,291 shares of Common Stock
and 55,239 shares, 58 shares and 2,703 shares of Common Stock issuable upon
exercise of March Bridge Warrants, respectively, owned by Global Private
Equity II, L.P., Advent International Investors II, L.P. and Advent
Partners, L.P. (collectively, the "Advent Partnerships"), each a limited
partnership whose general partner is controlled by Advent International
Corporation ("Advent"). Also includes 13,868 shares and 678 shares of Common
Stock issuable upon exercise of September Bridge Warrants, respectively,
owned by Global Private Equity II, L.P. and Advent Partners, L.P. Mr. Fillat
is an officer of Advent. The address of Advent and each of the Advent
Partnerships is 101 Federal Street, Boston, Massachusetts 02110.
(6) Includes 318,959 shares, 60,000 shares and 21,818 shares of Common Stock
issuable upon exercise of the Ameritech Warrant, March Bridge Warrants and
September Bridge Warrants, respectively. The address of Ameritech is 30
South Wacker Drive, Chicago, Illinois 60601. See "Certain Transactions --
Ameritech Financing; Ameritech Strategic Distribution Agreement."
(7) Consists of 151,888 shares of Common Stock currently issuable upon exercise
of options. Does not include 123,272 shares of Common Stock issuable upon
exercise of the non-vested portion of options. See "Management -- Stock
Option Plans."
(8) Consists of 48,702 shares beneficially owned by James C. Cook including
8,000 shares of Common Stock issuable upon exercise of March Bridge Warrants
and 26,779 shares and 13,923 shares of Common Stock as a limited partner in
E2 and E2-3, respectively. Mr. Cook will become a director of the Company
upon the date of this Prospectus.
(9) Does not include 56,000 shares and 2,909 shares of Common Stock issuable
upon exercise of March Bridge Warrants and September Bridge Warrants,
respectively, 59,090 shares of Common Stock issuable upon exercise of
Indemnity Warrants or 1,534,964 shares of Common Stock beneficially owned in
each case by E2-2, members of Mr. Demetree's family or a trust for their
benefit, of which he disclaims beneficial ownership. J.C. Demetree, Jr.'s
address is c/o Demetree Brothers, 3740 Beach Boulevard, Suite 300,
Jacksonville, Florida 32207. E2-2, which is currently managed jointly by
J.C. Demetree, Jr. and Mark C. Demetree, will be dissolved on the date of
this Prospectus.
(10) Does not include 56,000 shares and 2,909 shares of Common Stock issuable
upon exercise of March Bridge Warrants and September Bridge Warrants,
respectively, 59,090 shares of Common Stock issuable upon exercise of
Indemnity Warrants or 1,534,964 shares of Common Stock beneficially owned in
each case by E2-2, members of Mr. Demetree's family or a trust for their
benefit, of which he disclaims beneficial ownership. E2-2, which is
currently managed jointly by J.C. Demetree, Jr. and Mark C. Demetree, will
be dissolved on the date of this Prospectus. Mark C. Demetree's address is
505 Lancaster Street, #8AB, Jacksonville, FL 32204.
(11) Mr. Fillat disclaims beneficial ownership of the shares of Common Stock and
shares of Common Stock issuable upon exercise of March Bridge Warrants and
September Bridge Warrants held by the Advent Partnerships, except for 2,201
shares of Common Stock, and 3 shares and 29 shares issuable upon exercise of
March Bridge Warrants and September Bridge Warrants, respectively.
(12) Includes 160,637 shares of Common Stock issuable upon the Merger owned by
Hedgerow Corporation of Maine ("Hedgerow"), which is controlled by Mr. Gove.
Mr. Gove's address is 215 West 84th Street, New York, New York 10024.
(13) Mr. Murray will become a director upon consummation of the CommcoCCC
Acquisition. He is a managing director of Columbia Capital Corporation,
which, upon consummation of the CommcoCCC Acquisition, will beneficially own
3,267,784 shares of Common Stock, including 46,627 shares and 15,543 shares
issuable upon exercise of the CommcoCCC Warrants and the September Bridge
Warrants, respectively. Upon becoming a director, he will receive an option
to purchase 2,600 shares of Common Stock under the Directors Plan.
(14) Includes 36,364 shares of Common Stock currently issuable upon exercise of
an option.
(15) Includes 3,636 shares of Common Stock currently issuable upon exercise of
an option.
(16) Includes 2,600 shares of Common Stock issuable upon exercise of options
anticipated to be granted under the Directors Plan upon the consummation of
the Offering.
(17) Reflects the resignations of Messrs. J.C. Demetree, Jr., Gove and Zimmerman
and the election of Mr. Cook as a director upon the date of this Prospectus.
Does not include 2,936,065 shares of Common Stock beneficially owned by LHC
and held in trust by trustees, all of whom are directors of the Company,
pursuant to a Voting Trust Agreement, of which such trustees disclaim
beneficial ownership. See "-- Voting Trust Agreement." Includes 2,600 shares
of Common Stock beneficially owned by each of Messrs. Mark C. Demetree,
Fillat and Cook issuable upon exercise of options to be granted under the
Directors Plan upon the consummation of the Offering.
Upon completion of the CommcoCCC Acquisition, Columbia Capital Corporation,
as general partner of two of the stockholders of CommcoCCC, and Commco, L.L.C.,
the remaining stockholder of CommcoCCC, will beneficially own 3,267,784 and
2,848,579 shares, respectively, of Common Stock, including 46,627 and 40,645
shares, respectively, issuable upon exercise of the CommcoCCC Warrants and
15,543 and 13,548 shares, respectively, issuable upon exercise of the September
Bridge Warrants, constituting 16.5% and 14.4%, respectively, of the Company's
Common Stock after the Offering (assuming the Underwriters' over-allotment
option is not exercised and excluding any shares of Common Stock purchased in
the Offering). Assuming the consummation of the Offering and the CommcoCCC
Acquisition as of the date of this Prospectus, the Company would have 19,690,546
shares of Common Stock outstanding.
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VOTING TRUST AGREEMENT
Pursuant to a Voting Trust Agreement, to be entered into on the date of this
Prospectus, LHC and the wife and a trust for the benefit of the family of
Laurence S. Zimmerman will deposit all of their shares of ART Common Stock in
trust with Messrs. Mark C. Demetree, Andrew I. Fillat and Vernon L. Fotheringham
with irrevocable instructions to vote such shares on all matters submitted to a
vote of the stockholders of the Company in proportion to the vote of other
stockholders of the Company. The voting trust will expire on the tenth
anniversary of the date of this Prospectus, but is subject to early termination
in the event of (i) a business combination in which ART stockholders own less
than 50%, and ART directors constitute less than 50% if the board of directors,
of the combined entity and LHC owns less than 5% of the voting power of such
entity, (ii) the death of Laurence S. Zimmerman or (iii) the sale by LHC of such
shares to unaffiliated parties. The trustees of the trust will be indemnified by
the Company.
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CERTAIN TRANSACTIONS
FORMATION OF ART
The Company was organized in August 1993 by Vernon L. Fotheringham and W.
Theodore Pierson, Jr., for the purpose of obtaining 38 GHz licenses from the
FCC. The initial stockholders, including Messrs. Fotheringham and Pierson,
purchased for $.01 per share ART Common Stock in a private placement which, net
of certain subsequent transfers, currently constitutes an aggregate of 2,162,855
shares of Common Stock.
HIGH SKY PRIVATE PLACEMENTS
In November 1993 and March 1994, ART raised $60,000 and $30,000 through the
sale of its common stock (which, net of sales and acquisitions of additional
shares, now constitute an aggregate of 527,819 shares and 127,171 shares of
Common Stock, respectively) to High Sky Limited Partnership and High Sky II
Limited Partnership ("High Sky II" and, collectively, the "High Sky
Partnerships"). In March 1994, ART borrowed $70,000 from High Sky II. The loan
was evidenced by a promissory note executed by ART and payable to High Sky II
(the "High Sky Note"). Pursuant to an Agreement dated March 1, 1995, High Sky II
sold the High Sky Note to Vernon L. Fotheringham and W. Theodore Pierson, Jr. in
exchange for two new promissory notes, bearing interest at 7.5% per annum,
executed by Messrs. Fotheringham and Pierson in the principal amounts of $52,675
and $22,575, respectively (the "Fotheringham/Pierson Notes"), with payment
secured by pledges of shares of Common Stock owned by them. The terms of the
notes were as favorable as could be negotiated with unrelated third parties.
After the assignment and exchange, Messrs. Fotheringham and Pierson transferred
the High Sky Note to the Company as a capital contribution. The
Fotheringham/Pierson Notes, which are due in August 1997 and which are now
unsecured, are currently held by LHC (as defined below).
ART WEST JOINT VENTURE
The Company is party to the ART West Management Agreement, pursuant to which
it manages the business and assets of ART West, a joint venture between ART and
Extended. Mark T. Marinkovich, Vice President and General Manager, Western
Region of the Company, is also the President and a stockholder of Extended. See
"Business -- Agreements Relating to Licenses and Authorizations -- ART West
Joint Venture" and "Principal Stockholders." In connection with the ART West
Joint Venture, ART issued to Extended 133,864 shares of Common Stock. Of these
133,864 shares, 5,701 shares are subject to an option owned by Southeast
Research Partners. See "-- SERP Agreement." In June 1996, the Company agreed to
acquire Extended's interest in ART West for $6,000,000 in cash, subject to FCC
approval.
ORGANIZATION OF TELECOM
ART and Landover Holdings Corporation ("LHC") organized Advanced Radio
Telecom Corp. ("Telecom") on March 28, 1995, and purchased for $.001 per share
340,000 shares of Class A common stock and 640,000 shares of Class B common
stock of Telecom, respectively, which, after giving effect to anti-dilution
adjustments resulting from issuances of preferred stock as described in "-- LHC
Purchase Agreement," certain transfers and the transactions described in "--
February 1996 Reorganization" and "-- Merger," currently are equivalent to
3,641,111 shares and 2,650,414, shares respectively, after giving effect to the
November 1995 redemption of shares of Common Stock. In addition, Hedgerow
Corporation of Maine ("Hedgerow") and Toro Financial Corp. ("Toro") purchased
for $.001 per share 15,000 shares and 5,000 shares, respectively, of Telecom
Class A common stock which, after such anti-dilution adjustments and the Merger,
currently are equivalent to 160,637 shares and 53,546 shares of Common Stock,
respectively. LHC is controlled by Laurence S. Zimmerman, a director of the
Company, and Hedgerow is controlled by Matthew C. Gove, also a director of the
Company. From May 1994 until August 1996 Hedgerow and, from May 1994 until
September 1996, Toro provided management and strategic consulting services to
LHC, including services relating to analysis and negotiation of acquisitions.
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LHC PURCHASE AGREEMENT
GENERAL. Pursuant to a Purchase Agreement, dated April 21, 1995 (the "LHC
Purchase Agreement") among ART, LHC and Telecom, LHC, on behalf of itself and
its designees, agreed to purchase additional securities of Telecom (the "LHC
Stock") for an aggregate purchase price of $7,000,000 (the "Purchase Price"),
which additional securities would dilute only LHC's interest in the Company. In
addition, ART and Telecom entered into the ART Services Agreement. Moreover, ART
and its stockholders agreed with Telecom and its stockholders to enter into a
revised stockholders agreement (the "May 1995 Stockholders Agreement"), a
registration rights agreement and a merger agreement. Messrs. Fotheringham and
Pierson deposited 733,711 and 662,495 shares of Common Stock, respectively (the
"Escrow Shares"), under such agreement to be released upon achievement by the
Company of certain performance goals (the "Escrow Arrangement"). The Escrow
Shares were released to Messrs. Fotheringham and Pierson in part on November 13,
1995 as a result of the EMI Asset Acquisition, and the balance was released on
February 2, 1996 in connection with the February 1996 Reorganization (as
defined).
Upon the first closing under the LHC Purchase Agreement, on May 8, 1995,
Telecom received $700,000 from E2-2 Holdings, L.P. ("E2-2") and E2 Holdings,
L.P. ("E2"). In addition, E2-2 committed to subscribe for up to 50.0% of the
Purchase Price, matching other investors under the LHC Purchase Agreement with
protection from dilution to the extent such matching funds were not required.
The general partner of E2-2 and E2 is controlled by LHC. E2-2's limited partners
include J.C. Demetree, Jr. and Mark C. Demetree, directors of the Company, and
their affiliates. In addition, E2-2 granted to LHC an option to purchase from
E2-2 35,873 shares of Series A preferred stock (which convert into 169,581
shares of Common Stock simultaneously with the Offering). This option was
exercised in November 1995. See "Principal Stockholders."
The additional payments on the Purchase Price were made by the Landover
Partnerships (as defined below) as follows: $700,000 on August 22, 1995 and
$600,000 on October 19, 1995. On November 13, 1995, the Advent Partnerships (as
described below) paid the $5.0 million balance of the Purchase Price and the
Company paid LHC an aggregate of $391,750 for expenses. Also, on November 13,
1995, Telecom, ART and LHC agreed that the LHC Purchase Agreement was
substantially completed.
ART SERVICES AGREEMENT. Pursuant to the LHC Purchase Agreement, ART and
Telecom entered into a Services Agreement, dated May 8, 1995 (the "ART Services
Agreement"), pursuant to which, for a 20-year term, Telecom provides management
services for, and receives 75.0% of the cash flow from, operations after
deducting certain related direct expenses under wireless licenses held by ART.
LANDOVER PARTNERSHIPS. Between May 8, 1995 and November 13, 1995, the LHC
Stock was diluted by purchases of series of Telecom preferred stock by E2-2, E2,
E1 Holdings L.P. ("E1") and E2-3 Holdings, L.P. ("E2-3" and collectively with
E1, E2 and E2-2, the "Landover Partnerships"), each a limited partnership whose
general partner is controlled by LHC, in separate private placements. E2-2,
which committed to purchase up to $3.5 million of Telecom preferred stock
matching other investors under the LHC Purchase Agreement, purchased 405,880
shares of Telecom Series A preferred stock (which convert into 1,918,705 shares
of Common Stock simultaneously with the Offering) for an aggregate of $946,600,
and LHC purchased 35,873 shares of such Series A preferred stock (which convert
into 169,581 shares of Common Stock simultaneously with the Offering) from E2-2
for $1.1 million pursuant to an option. E2 purchased an aggregate of 105,823
shares of Telecom Series B preferred stock (which convert into 500,254 shares of
Common Stock simultaneously with the Offering) for an aggregate of $842,400. E1
purchased 13,797 shares of Telecom Series A preferred stock (which convert into
65,222 shares of Common Stock simultaneously with the Offering) for an aggregate
of $60,000 and 8,856 shares of Telecom Series B preferred stock (which convert
into 41,865 shares of Common Stock simultaneously with the Offering) for an
aggregate of $38,300. E2-3 purchased an aggregate of 7,363 shares of Telecom
Series C preferred stock (which convert into 34,807 shares of Common Stock
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simultaneously with the Offering) for an aggregate of $112,700. Control of E2-2
was transferred to an affiliate of J.C. Demetree, Jr. and Mark C. Demetree in
August 1996. All of the Landover Partnerships will liquidate upon the date of
this Prospectus. See "Principal Stockholders."
ADVENT PRIVATE PLACEMENT. On November 13, 1995, ART sold, for an aggregate
of $5.0 million, $4.95 million principal amount of 10% notes due May 13, 1997
(the "Advent Notes") and $50,000 stated amount of ART Series A Preferred Stock
(collectively, with the Advent Notes, the "Advent/ART Securities") to Global
Private Equity II, L.P., Advent International Investors II, L.P. and Advent
Limited Partnership (collectively the "Advent Partnerships"), each a limited
partnership whose general partner is controlled by Advent International Corp.
("Advent"), pursuant to a Securities Purchase Agreement, dated November 13,
1995, among the Advent Partnerships, ART, Telecom, Vernon L. Fotheringham and W.
Theodore Pierson, Jr. (the "Advent Agreement"). The Advent Agreement provided
among other things that the Advent/ART Securities were convertible into, and in
the February 1996 Reorganization described below, were converted into, 232,826
shares of Telecom Series E preferred stock (which convert into 1,100,632 shares
of Common Stock simultaneously with the Offering). The Telecom Series E
preferred stock provides, among other things, that the holders thereof have a
right to designate a director of Telecom (and, after the Merger, the Company),
which director's term was extended to an initial term of three years pursuant to
the Stockholders Agreement, as described below.
LHC AGREEMENTS
Pursuant to the LHC Purchase Agreement, LHC and Telecom entered into a
strategic and financial consulting agreement, dated May 8, 1995, under which LHC
agreed to provide financial and strategic planning and other advisory and
management services to the Company for a fee of $10,000 per month. The strategic
and financial consulting agreement was terminated on November 13, 1995, and
Telecom entered into a management consulting agreement with LHC, dated November
13, 1995, for an initial term of one year under which the Company will pay LHC
$420,000 per year and may pay a fee in the event LHC provides other services,
such as merger and acquisition advisory services to the Company. In October
1996, the Company approved payment to LHC of compensation of an aggregate of
$300,000 in connection with merger and acquisition advisory services relating to
the acquisition of DCT Systems and Extended's interest in ART West, payable upon
consummation of such transactions. See "Business -- Agreements Relating to
Licenses and Authorizations -- ART West Joint Venture" and "-- DCT Systems
Services and Purchase Agreement." Upon the date of this Prospectus, this
management consulting agreement will be terminated and LHC will receive amounts
otherwise due under this agreement through November 13, 1996.
SERP AGREEMENT
Pursuant to a letter agreement, dated July 12, 1995, among Southeast
Research Partners ("SERP") ART, Vernon L. Fotheringham, W. Theodore Pierson,
Jr., High Sky Limited Partnership, High Sky II Limited Partnership and Extended
(the "SERP Agreement"), SERP agreed to procure additional capitalization or
financial assistance on behalf of ART. Under the SERP Agreement, the other
parties to such agreement agreed to grant SERP options to purchase, for an
aggregate consideration of $210,000, 114,040 shares of Common Stock and $245,000
in cash as a fee for introducing LHC to ART.
SERIES D PREFERRED STOCK ISSUANCE
On November 9, 1995, Telecom sold 61,640 shares of Telecom Series D
preferred stock (which will convert into 291,390 shares of Common Stock
simultaneously with the Offering) for $2.0 million in a private placement.
Telecom simultaneously redeemed 293,791 shares of Telecom common stock from LHC
for $2.0 million. In connection with the February 1996 Reorganization described
below, LHC granted to the holders of such Series D preferred stock a contingent
option ("Series D Option") to purchase 145,685 shares of Telecom common stock
owned by LHC at a nominal price.
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FEBRUARY 1996 REORGANIZATION
On February 2, 1996, Telecom, ART and their respective stockholders agreed
(the "February 1996 Reorganization") to an amendment and restatement of the May
1995 Stockholders Agreement (as amended, the "Stockholders Agreement") providing
for (i) termination effective on consummation of the Offering, (ii)
reorganization of the capital structure of Telecom, including providing for the
conversion of Telecom Class A and Class B common stock into Telecom common
stock, the revision of the terms and conversion into ART Common Stock (upon
consummation of the Offering) of the Series A, B, C, D, E and F preferred stock
(originally issued by Telecom and converted to ART preferred stock in the
Merger) and a 13 for 1 stock split, (iii) the exchange of the Advent/ART
Securities for Telecom Series E preferred stock, (iv) revision of provisions for
election of directors, (v) amendment and restatement of the Company's
registration rights agreement, including waiver of registration rights relating
to this offering, (vi) release of the remaining Escrow Shares to the original
owners thereof, (vii) the change of name of Telecom to Advanced Radio Telecom
Corp. and (viii) approval of a revised merger agreement (the "Old Merger
Agreement") providing for the merger of ART into Telecom (the "Old Merger").
AMERITECH FINANCING; AMERITECH STRATEGIC DISTRIBUTION AGREEMENT
On February 2, 1996, Ameritech Development Corp. ("Ameritech") purchased for
an aggregate of $2.5 million 48,893 shares of Telecom Series F preferred stock,
par value $0.001 per share, (the "Ameritech Financing") which convert into
231,131 shares of Common Stock simultaneously with the Offering. In addition,
Telecom entered into a letter of intent with Ameritech Corp., the parent of
Ameritech, to enter into the Ameritech Strategic Distribution Agreement and in
connection therewith granted to Ameritech a ten-year warrant to purchase 318,959
shares of Common Stock of the Company exercisable at a nominal price per share
(the "Ameritech Warrant"). On April 29, 1996, Telecom entered into the Ameritech
Strategic Distribution Agreement. See "Business -- Strategic Alliances --
Ameritech Strategic Distribution Agreement."
MARCH BRIDGE FINANCING
On March 8, 1996, Telecom entered into a financing (the "March Bridge
Financing") pursuant to which it issued $5.0 million of 10% unsecured notes due
in 1998 (the "March Bridge Notes") and five-year warrants to purchase up to an
aggregate of 400,000 shares of Telecom common stock at a price of $17.1875 per
share (the "March Bridge Warrants") to private investors including (i)
affiliates of J.C. Demetree, Jr. and Mark C. Demetree, directors of the Company,
(ii) the Advent Partnerships and (iii) Ameritech, who invested $700,000,
$725,000 and $750,000, respectively, in the March Bridge Notes and March Bridge
Warrants. See "Principal Stockholders.'
EQUIPMENT FINANCING
On April 1, 1996 CRA, Inc. ("CRA") provided the Company with $2.5 million in
equipment financing (the "Equipment Financing") for the purchase from P-Com of
38 GHz radio equipment secured by the equipment, the Company's $1.0 million
letter of credit and a $500,000 letter of credit provided by J.C. Demetree, Jr.
and Mark C. Demetree, directors of the Company, and LHC, a principal stockholder
of the Company (the "Indemnitors"). To evidence its obligations under the
Equipment Financing the Company executed in favor of CRA its $2.5 million
Promissory Note (the "Equipment Note") which note is payable in 24 monthly
installments of $92,694 with a final payment of $642,305 due April 1, 1998. The
Indemnitors also agreed to provide the Company with funds and support for up to
$2.0 million of its obligations in the event of default on the Equipment Note or
draw against the Company's letter of credit. Pursuant to an arrangement approved
by the Company's disinterested directors on February 16, 1996, the Company paid
to the Indemnitors or their designees an aggregate of $225,000 in cash and
five-year warrants to purchase an aggregate of 118,181 shares of Common Stock
(the "Indemnity Warrants") on terms substantially similar to the March Bridge
Warrants as compensation for such indemnity. LHC has assigned Indemnity Warrants
to purchase 45,455 shares of Common Stock to a consultant to LHC.
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SEPTEMBER BRIDGE FINANCING
In August 1996, the Company received commitments for $3.0 million of 14.75%
unsecured notes due March 1998 (the "September Bridge Financing"). Such notes
(the "September Bridge Notes") were funded from August 1996 to October 1996. In
October 1996, the Company also received a commitment for an additional $1.0
million. The Company also issued five-year warrants to purchase up to an
aggregate of 116,363 shares of Common Stock at a price of $17.1875 per share
(the "September Bridge Warrants") to private investors who participated in the
financing, including the Advent Partnerships, Ameritech, affiliates of
CommcoCCC, LHC and affiliates of J.C. Demetree, Jr. and Mark C. Demetree. The
September Bridge Warrants are not exercisable for a period of one year following
their date of issuance.
PIERSON & BURNETT TRANSACTIONS
W. Theodore Pierson, Jr., Executive Vice President, General Counsel and
Secretary of the Company is a principal in the law firm of Pierson & Burnett,
L.L.P., which regularly provides legal services to the Company. During the year
ended December 31, 1995, the Company paid Pierson & Burnett, L.L.P. $210,000 for
such services. The Company believes that the terms of its relationship with
Pierson & Burnett, L.L.P. are at least as favorable to the Company as could be
obtained from an unaffiliated party. See "Management -- Executive Compensation"
and "Principal Stockholders" for a description of Mr. Pierson's consulting
agreement with the Company and for information regarding his share ownership.
The Company subleases office space for its regional office in Washington, D.C.
from Pierson & Burnett, L.L.P. The Company believes that the terms of its
sublease are at least as favorable to the Company as could be obtained from an
unaffiliated party. See "Business -- Properties."
AMERICAN WIRELESS DEVELOPMENT AGREEMENT
In early 1996 ART entered into a memorandum of understanding with American
Wireless Corporation ("American Wireless") to jointly develop a quick-to-market
38 GHz Receive Only Radio. Discoveries made as a result of this initial directed
work served to define ART's requirements for a series of low cost 38 GHz
Transmit/Receive link equipment, ranging from 4 x DS-1 to DS-3 payload capacity.
In response to this requirement American Wireless did extensive design,
performance, and cost modelling that has enabled ART to accelerate its planned
implementation of more cost effective shared network topologies. The Company has
funded approximately $400,000 of research and development costs with American
Wireless related to the development of the 38 GHz Receive Only Radio. Vernon L.
Fotheringham, the Chairman of the Company, is a director and a 6.0% stockholder
of American Wireless. Mr. Fotheringham has recused himself in all negotiations
regarding agreements between the Company and American Wireless.
COMMCOCCC ACQUISITION
On July 3, 1996, the Company entered into the CommcoCCC Agreement with
CommcoCCC which provides for the acquisition, subject to FCC approval, of 129 38
GHz wireless broadband authorizations in exchange for 6,000,000 shares of Common
Stock, or 30.5% of the Company on a fully diluted basis after giving effect to
the Offering. The stockholders of CommcoCCC simultaneously loaned $3.0 million
to the Company, bearing interest at the prime rate and payable on September 30,
1996, and received three-year warrants to purchase up to an aggregate of 18,182
shares of Common Stock at a price of $24.75 per share. In connection with an
October 1996 amendment to the CommcoCCC Agreement, the Company modified the
terms of such warrants, reduced the exercise price of such warrants to $17.1875
per share and increased the number of shares issuable upon exercise thereof to
87,272 shares and increased the interest rate of the CommcoCCC Notes to 14.75%
and extended the maturity date thereof to December 31, 1996. The CommcoCCC
Financing is secured by a security interest in all of the assets of the Company,
including a pledge of the Company's stock in Telecom. After closing of the
CommcoCCC Acquisition, the Company has agreed to nominate one individual
designated by CommcoCCC's stockholders and acceptable to the Company as a
director of the Company. James B. Murray is the individual designated by
CommcoCCC's stockholders. See "Management -- Executive Officers and Directors."
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MERGER
On October 11, 1996, Telecom, ART and a wholly-owned subsidiary of ART
("Merger Sub") entered into a revised merger agreement (the "Merger Agreement"),
which provided for the Merger of Merger Sub into Telecom. Upon completion of the
Merger on October 28, 1996, the holders of Telecom Common Stock became entitled
to receive 2,945,848 shares of Common Stock, the holders of Telecom serial
preferred stock became entitled to receive 920,951 shares of ART preferred stock
and Telecom became a wholly-owned subsidiary of ART and changed its name to "ART
Licensing Corp."
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DESCRIPTION OF CAPITAL STOCK
After giving effect to the Merger, the authorized capital stock of the
Company will consist of 100,000,000 shares of Common Stock, $0.001 par value,
and 10,000,000 shares of Serial Preferred Stock, $0.001 par value (the
"Preferred Stock").
COMMON STOCK
As of October 29, 1996, there were 6,586,959 shares of Common Stock
outstanding held of record by 16 stockholders (without giving effect to any
exercise of outstanding warrants or options). The holders of Common Stock are
entitled to one vote per share on all matters to be voted on by the
stockholders. Subject to preferences that may be applicable to the outstanding
shares of Preferred Stock, the holders of Common Stock are entitled to receive
ratably such dividends as may be declared from time to time by the Board of
Directors out of funds legally available therefor. In the event of the
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to share ratably in all assets remaining after payment of
liabilities, subject to prior liquidation rights of the Preferred Stock then
outstanding. The Common Stock has no preemptive conversion rights or other
subscription rights. There are no redemption or sinking fund provisions
applicable to the Common Stock. All outstanding shares of Common Stock are fully
paid and non-assessable, and the shares of Common Stock to be outstanding upon
consummation of the Common Stock Offering will be fully paid and non-assessable.
PREFERRED STOCK
As of October 29, 1996, there was 920,951 shares of ART preferred stock
outstanding held of record by 17 stockholders. Upon the consummation of the
Offering, all outstanding shares of ART preferred stock will automatically
convert to a total of 4,353,587 shares of Common Stock, and the 920,951 shares
of ART preferred stock will be cancelled. See "Principal Stockholders." The
Board of Directors will have the authority to issue Preferred Stock in one or
more series and to fix the rights, preferences, privileges and restrictions
granted to or imposed upon any wholly unissued shares of Preferred Stock and to
fix the number of shares constituting any series in the designations of such
series, without any further vote or action by the stockholders. The Board of
Directors, without stockholder approval, can issue Preferred Stock with voting
and conversion rights which could adversely affect the voting power of the
holders of Common Stock. The issuance of Preferred Stock may have the effect of
delaying, deferring or preventing a change in control of the Company. The
Company does not presently intend to issue Preferred Stock.
CHANGE IN CONTROL PROVISIONS
Certain provisions of the Company's Certificate of Incorporation and Bylaws
may have the effect of preventing, discouraging or delaying any change in the
control of the Company any may maintain the incumbency of the Board of Directors
and management. The authorization of Preferred Stock makes it possible for the
Board of Directors to issue Preferred Stock with voting or other rights or
preferences that could impede the success of any attempt to effect a change in
control of the Company. In addition, on the effectiveness of the Offering,
certain provisions of the Certificate of Incorporation will create three classes
of directors serving for staggered three-year terms and prevent any amendment to
such provisions without the consent of holders of at least two-thirds of the
then outstanding shares of Common Stock. These provisions could also impede the
success of any attempt to effect a change in control of the Company.
The Company is subject to Section 203 ("Section 203") of the Delaware
General Corporation Law (the "Delaware GCL"). Section 203 prohibits a
publicly-held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless (i)
prior to such date, the board of directors of the corporation approves either
the business combination or the transaction which
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resulted in the stockholder becoming an interested stockholder, (ii) upon
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder, the interested stockholder owns at least 85% of the
outstanding voting stock (excluding certain shares held by persons who are both
directors and officers of the corporation and certain employee stock plans), or
(iii) on or after the consummation date, the business combination is approved by
the board of directors and by the affirmative vote of at least 66 2/3% of the
outstanding voting stock that is not owned by the interested stockholder. For
purposes of Section 203, a "business combination" includes, among other things,
a merger, asset sale or other transaction resulting in a financial benefit to
the interested stockholder, and an "interested stockholder" is generally a
person who, together with affiliates and associates, owns (or within three
years, owned) 15% or more of the corporation's voting stock.
INDEMNIFICATION OF DIRECTORS AND OFFICERS AND LIMITATION OF DIRECTOR LIABILITY
The Company's Certificate of Incorporation contains provisions that
eliminate the personal liability of its directors to the fullest extent
permitted by the Delaware GCL for monetary damages resulting from breaches of
their fiduciary duty. The Certificate of Incorporation also contains provisions
requiring the indemnification of the Company's directors and officers to the
fullest extent permitted by the Delaware GCL against all losses or liabilities
which he or she may sustain or incur on or about the execution of the duties of
his or her office or otherwise in relation thereto. The Company believes that
these provisions are necessary to attract and retain qualified persons as
directors and officers.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is Continental Stock
Transfer & Trust Company.
LISTING
The Common Stock has been approved for quotation on The Nasdaq Stock Market
under the symbol "ARTT."
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SHARES ELIGIBLE FOR FUTURE SALE
GENERAL
Upon consummation of the Offering, the Company will have outstanding
13,690,546 shares of Common Stock (assuming no exercise of the Underwriters'
over-allotment option and options or warrants after October 29, 1996). Of these
shares, the 2,750,000 shares being sold in the Offering will be freely tradable
without restriction under the Securities Act, unless purchased by "affiliates"
of the Company.
The remaining 10,940,546 shares of Common Stock held by existing
stockholders are "restricted" shares under the Securities Act (the "Restricted
Shares"), all of which are also subject to certain lock-up agreements between
certain stockholders and the Representatives (as defined). Beginning 90 days
after the date of this Prospectus, 2,807,711 shares (excluding shares of Common
Stock purchased by directors and certain principal stockholders of the Company
in the Offering) will become available for immediate sale to the public market
subject to certain volume and other resale restrictions pursuant to Rule 144
promulgated under the Securities Act, as described below, unless such shares are
registered. See "Registration Rights." An additional 133,864, 635,856, 53,546
and 7,309,569 shares of Common Stock will become available for sale in the
public market pursuant to Rule 144 in April and July 1997 and January and
October 1998, respectively. Upon the closing of the CommcoCCC Acquisition,
6,000,000 shares will be issued for the CommcoCCC Assets, which shares will
become available for sale in the public market under Rule 144 two years after
the date of consummation of the CommcoCCC Acquisition. In addition, under a
proposal currently pending before the Securities and Exchange Commission, the
date on which shares of Common Stock become available for sale under Rule 144
may be significantly accelerated.
As of October 29, 1996, an aggregate of 2,481,528 shares of Common Stock
will be subject to outstanding options and warrants and an aggregate of 658,030
shares are reserved for future issuance pursuant to the Company's Equity
Incentive Plan and Directors Plan (collectively, the "Plans"). As of October 29,
1996, 233,602 of such shares were vested, and, 180 days following the date of
the Offering, an additional 78,765 of such shares will be vested. The Company
intends to file a Registration Statement on Form S-8 to register the shares of
Common Stock to be issued and issuable pursuant to the Plans. Thereafter, shares
of Common Stock issued under the Plans will be available for sale in the public
market upon vesting of such shares, subject, with respect to affiliates of the
Company, to certain volume limitations under Rule 144.
In general, under Rule 144 as currently in effect, beginning 90 days after
the Effective Date, a person (or persons whose shares are aggregated) who has
beneficially owned Restricted Shares for at least two years, will be entitled to
sell in any three-month period a number of shares that does not exceed the
greater of (i) 1% of the number of shares of Common Stock then outstanding
(approximately 136,905 shares immediately after the Offering assuming no
exercise of the Underwriters' over-allotment option) and (ii) the average weekly
trading volume of the Company's Common Stock in the Nasdaq National Market
during the four calendar weeks immediately preceding the date on which notice of
the sale is filed with the Securities and Exchange Commission. Sales pursuant to
Rule 144 are subject to certain requirements relating to manner of sale, notice
and availability of current public information about the Company. A person (or
persons whose shares are aggregated) who is not deemed to have been an affiliate
of the Company at any time during the 90 days immediately preceding the sale and
who has beneficially owned Restricted Shares for at least three years is
entitled to sell such shares pursuant to Rule 144(k) without regard to the
limitations and requirements described above.
All holders of the Company's Common Stock, as well as all holders of
warrants or options to purchase Common Stock, have agreed not to sell, offer to
sell, contract to sell or otherwise sell, dispose of, loan, pledge or grant any
rights with respect to any shares of Common Stock, any options or warrants to
purchase Common Stock, or any securities convertible or exchangeable for Common
Stock, owned directly by such holders or with respect to which they have power
of disposition for a period of 180 days after the date of this Prospectus
without the prior written consent of Merrill Lynch. Merrill Lynch may,
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in its sole discretion and at any time without notice, release all or any
portion of the securities subject to these lock-up agreements. In addition, the
Company has agreed not to sell, offer to sell, contract to sell or otherwise
sell or dispose of any shares of Common Stock or any rights to acquire Common
Stock, other than pursuant to the Equity Incentive Plan, upon exercise of
outstanding warrants and options or pursuant to the CommcoCCC Agreement, for a
period of 180 days after the date of this Prospectus without the prior consent
of Merrill Lynch. See "Underwriting."
Prior to the Offering, there has been no public market for the Common Stock
and there can be no assurance that a significant public market for the Common
Stock will develop or be sustained after the Offering. Sales of substantial
amounts of Common Stock in the public market could adversely affect the market
price of the Common Stock and could impair the Company's future ability to raise
capital through the sale of its equity securities.
REGISTRATION RIGHTS
Under the terms of an amended and restated registration rights agreement,
dated as of July 3, 1996, among the Company, Telecom, their respective
stockholders and the holders of the March Bridge Warrants, Indemnity Warrants,
CommcoCCC Warrants, the September Bridge Warrants and Initial CIBC Warrants (as
amended, the "Registration Rights Agreement"), following the consummation of the
Offering, such stockholders and the holders of the March Bridge Warrants,
Indemnity Warrants, the September Bridge Warrants, CommcoCCC Warrants and
Initial CIBC Warrants, who are the holders of an aggregate 12,286,145 shares of
Common Stock on a fully-diluted basis (the "Registrable Securities"), will be
entitled to certain demand rights with respect to the registration of such
shares under the Securities Act. In addition, under the Registration Rights
Agreement, if the Company proposes to register any of its securities under the
Securities Act, either for its own account or the account of other security
holders, the holders of Registrable Securities are entitled to notice of such
registration and are entitled to include their Registrable Securities in any
such registration; PROVIDED, that, among other things, that the underwriters
have the right, subject to certain limitations, to limit the number of such
shares included therein.
Upon the consummation of the CommcoCCC Acquisition, the 6,000,000 shares to
be issued in connection therewith will also be subject to the Registration
Rights Agreement.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
CIBC FINANCING
The Company has entered into binding commitment letters (subject to
definitive documentation) with the Noteholders which provide that upon
consummation of the Offering the Company may draw down $50.0 million of 12.5%
Senior Secured Notes, due in two years. The Company and CIBC have agreed to
defer drawing the Senior Secured Notes for up to 90 days after this Offering.
See "Risk Factors--Risk of Non-Consummation of CIBC Financing." The interest
rate on the Senior Secured Notes increases by 0.50% three months after the
closing of the Offering and by an additional 0.50% for each three-month period
thereafter.
The Senior Secured Notes are secured by a first priority security interest
in substantially all the assets of the Company, including a pledge of the
Company's stock in its subsidiaries. The Senior Secured Notes are guaranteed by
the Company's domestic subsidiaries. The Senior Secured Notes contain covenants
that restrict the ability of the Company to pay dividends and make other
restricted payments, to incur additional debt, guarantees and liens, to sell its
assets, to enter into mergers and consolidations, to conduct sale and leaseback
transactions and to enter into affiliate transactions, among other restrictions.
The Company must apply the net proceeds received by it or any of its
subsidiaries from the net cash proceeds of any bank financing, sale of senior or
subordinated debt securities (excluding vendor financing and indebtedness
assumed in acquisitions) or any sale of equity securities (other than the
Offering and equity issuances in permitted acquisitions) to prepay the Senior
Secured Notes. Upon a Change of Control, the Company must make an offer to
repurchase the Senior Secured Notes at 101% of principal plus accrued and unpaid
interest. The Company may prepay the Senior Secured Notes at any time at par
plus accrued interest.
Based on an assumed initial offering price of the Common Stock in the
Offering of $16.50 per share, the Company has agreed to deliver to the
Noteholders upon the date of the Offering warrants to purchase 1.5% of the fully
diluted Common Stock of the Company (after giving effect to the Offering and the
CommcoCCC Acquisition) at an exercise price of $.01 per share (the "First CIBC
Warrants") and additional warrants to purchase 1.5% of the fully diluted Common
Stock upon first drawing down of the Senior Secured Notes (the "Second CIBC
Warrants", collectively with the First CIBC Warrants, the "Initial CIBC
Warrants"). If the Senior Secured Notes are outstanding six months after the
consummation of the Offering, the Company shall issue to the Noteholders
additional such warrants to purchase 3% of the fully diluted Common Stock (the
"Third CIBC Warrants"), and if the Senior Secured Notes are outstanding after
such initial six month period, the Company will issue to the Noteholders
additional such warrants (the "Fourth CIBC Warrants", and collectively with the
Third CIBC Warrants, the "Additional CIBC Warrants") until the repayment date of
the Senior Secured Notes on the basis of 3% of the fully diluted Common Stock
for every six month period, pro-rated for any partial periods. The Initial CIBC
Warrants and Additional CIBC Warrants are referred to collectively as the "CIBC
Warrants." The CIBC Warrants have anti-dilution protection and demand and
piggyback registration rights under the Company's Registration Rights Agreement.
See "Shares Eligible for Future Sale--Registration Rights." For every $2.75 that
the initial offering price is below $16.50 per share, the Initial CIBC Warrants
and Additional CIBC Warrants issuable shall increase by 0.5% of the
fully-diluted Common Stock of the Company. For every $2.75 that the initial
offering price is above $16.50 per share, up to and including $22.00 per share,
the Initial CIBC Warrants and Additional CIBC Warrants issuable shall decrease
by 0.5% of the fully-diluted Common Stock of the Company. Following the first
full $2.75 adjustment, such adjustments shall be made on a pro rata basis based
upon the initial offering price.
The sale of the Senior Secured Notes and the CIBC Warrants (the "CIBC
Financing") was arranged by CIBC Wood Gundy Securities Corp. ("CIBC"). In
connection with the CIBC Financing, the Company will pay to CIBC a
structuring/placement fee of 5% of the principal amount of the Senior
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Secured Notes and will pay to the Noteholders a commitment fee of 2% of the
principal amount of the Senior Secured Note, payable 50% on consummation of this
Offering and 50% upon the earlier of draw down or March 31, 1997. Under an
exclusive placement agent agreement, the Company has agreed to indemnify CIBC
and its affiliates for liabilities resulting from the CIBC Financing and certain
future financings.
EMI NOTE
In connection with the acquisition by Telecom of the EMI Assets, Telecom
issued to EMI a $1.5 million principal amount non-negotiable and
non-transferable, unsecured promissory note (the "EMI Note"). Interest on the
EMI Note accrues at a rate equal to the prime rate plus 2%. The Company is
obligated to make quarterly principal repayments of $187,500, commencing January
1, 1997. The EMI Note matures on November 14, 1998. See "Business -- Agreements
Relating to Licenses and Acquisitions -- EMI Acquisition."
EQUIPMENT FINANCING
On April 1, 1996, CRA, Inc. ("CRA") entered into secured Equipment Financing
with the Company for the purchase from P-Com of 38 GHz radio equipment. To
evidence its obligations under the Equipment Financing, the Company issued in
favor of CRA a $2,445,000 Equipment Note, payable in twenty four monthly
installments of $92,694 with a final payment equal to $642,305 due April 1,
1998. See "Certain Transactions -- Equipment Financing."
MARCH BRIDGE FINANCING
On March 8, 1996, the Company issued $5.0 million principal amount of March
Bridge Notes in connection with the March Bridge Financing. See "Certain
Transactions -- March Bridge Financing." The March Bridge Notes are subordinated
in right of payment to the EMI Note and will be repaid with proceeds from the
Offering. See "Use of Proceeds."
COMMCOCCC FINANCING
On June 27 and July 3, 1996, the Company issued to stockholders of
CommcoCCC, in connection with the CommcoCCC Agreement, $3.0 million principal
amount of subordinated bridge notes (the "CommcoCCC Notes"), bearing interest at
the prime rate and payable September 30, 1996. In connection with an October
1996 amendment to the CommcoCCC Agreement, the Company modified the terms of the
CommcoCCC Notes to increase the interest rate to 14.75% and extend the maturity
date to December 31, 1996. The CommcoCCC Notes are secured by a security
interest in all of the assets of the Company, including a pledge of the
Company's stock in Telecom. See "Certain Transactions -- CommcoCCC Acquisition."
The CommcoCCC Notes are subordinated in right of payment to the EMI and the
Bridge Notes and will be repaid with proceeds from the Offering. See "Use of
Proceeds."
SEPTEMBER BRIDGE FINANCING
From August, 1996 to October, 1996, the Company issued $4.0 million
principal amount of September Bridge Notes in connection with the September
Bridge Financing. See "Certain Transactions -- September Bridge Financing." The
September Bridge Notes will be repaid with the proceeds from the Offering.
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UNDERWRITING
Subject to the terms and conditions set forth in a purchase agreement (the
"Purchase Agreement") between the Company and each of the underwriters named
below (the "Underwriters"), the Company has agreed to sell to each of the
Underwriters, and each of the Underwriters, and each of the Underwriters for
whom Merrill Lynch, Pierce, Fenner & Smith Incorporated and Deutsche Morgan
Grenfell Inc. are acting as representatives (the "Representatives"), severally
has agreed to purchase from the Company, the aggregate number of Common Stock
set forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..........................................
Deutsche Morgan Grenfell Inc.....................................
---------
Total.............................................. 2,750,000
---------
---------
</TABLE>
In the Purchase Agreement, the several Underwriters have agreed, subject to
the terms and conditions set forth therein, to purchase all of the shares of
Common Stock being sold pursuant to such Purchase Agreement if any of the shares
of Common Stock being sold are purchased. Under certain circumstances, the
commitments of non-defaulting Underwriters may be increased under the Purchase
Agreement.
The Representatives have advised the Company that the Underwriters propose
to offer the shares of Common Stock offered hereby to the public initially at
the public offering price set forth on the cover page of this Prospectus and to
certain dealers at such price less a concession not in excess of $ per share of
Common Stock, and that the Underwriters may allow, and such dealers may reallow,
a discount not in excess of $ per share of Common Stock on sales to certain
other dealers. After the initial public offering, the public offering price,
concession and discount may be changed.
The Company has granted to the Underwriters an option to purchase up to an
aggregate of 412,500 shares of Common Stock at the initial public offering
price, less the underwriting discount. Such option, which will expire 30 days
after the date of this Prospectus, may be exercised solely to cover
over-allotments. To the extent that the Underwriters exercise such option, each
of the Underwriters will have a firm commitment, subject to certain conditions,
to purchase approximately the same percentage of the option shares that the
number of shares to be purchased initially by that Underwriter is of the
2,750,000 shares of Common Stock initially purchased by the Underwriters.
At the Company's request, the Underwriters have reserved up to 275,000
shares for sale at the initial public offering price to certain of the Company's
employees, members of their immediate families and other individuals who are
business associates of the Company. The number of shares available for sale to
the general public will be reduced to the extent these individuals purchase such
reserved shares. Any reserved shares not purchased will be offered by the
Underwriters to the general public on the same basis as the other shares offered
hereby. In addition, certain existing stockholders of the Company, including
affiliates of Advent International, Inc., Ameritech Corp. and certain directors
of the Company, who hold approximately $4.0 million of the approximately $5.0
million of the March Bridge Notes that will be repaid by the Company with a
portion of the net proceeds of the Offering, have preliminarily indicated their
intent to purchase approximately 242,424 of the shares of Common Stock offered
hereby for an aggregate purchase price of approximately $4.0 million (based on
the mid-point of the range set forth above), for their respective accounts or
those of their affiliates or designees. See "Principal Stockholders."
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The Company has granted to Merrill Lynch a right of first refusal with
respect to the performance of certain investment banking services for which
Merrill Lynch will receive customary compensation.
All holders of the Company's Common Stock prior to the Offering, as well as
all holders of options, warrants or other rights to purchase Common Stock, and
holders of March Bridge Notes, have agreed, and recipients of Common Stock or
options, warrants or other rights to purchase Common Stock pursuant to the
Company's employee benefit plans or the CommcoCCC Agreement will agree, not to
sell, offer to sell, contract to sell or otherwise sell, dispose of, loan,
pledge or grant any rights with respect to any shares of Common Stock, any
options or warrants to purchase Common Stock, or any securities convertible or
exchangeable for Common Stock, owned directly by such holders or with respect to
which they have power of disposition for a period of 180 days after the date of
this Prospectus without the prior written consent of Merrill Lynch. Merrill
Lynch may, in its sole discretion and at any time without notice, release all or
any portion of the securities subject to these lock-up agreements. In addition,
the Company has agreed not to sell, offer to sell, contract to sell or otherwise
sell or dispose of any shares of Common Stock or any rights to acquire Common
Stock, other than pursuant to the Company's employee benefit plans or pursuant
to the CommcoCCC Agreement, for a period of 180 days after the Effective Date
without the prior consent of Merrill Lynch.
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority in excess of 5% of the number of shares of Common Stock offered
hereby.
Prior to the Offering, there has been no public market for the shares of
Common Stock. The initial public offering price of the Common Stock will be
determined by negotiations between the Company and the Representatives. Among
the factors considered in such negotiations, in addition to prevailing market
conditions, will be current market valuations of publicly-traded companies that
the Company and the Underwriters believe to be reasonably comparable to the
Company, an assessment of the Company's results of operations in recent periods,
estimates of the business potential and earnings prospects of the Company, the
current state of the Company's development and the current state of the
Company's industry and the economy as a whole. The initial public offering price
set forth on the cover of the Prospectus should not, however, be considered an
indication of the actual value of the Common Stock. Such price will be subject
to change as a result of market conditions and other factors. There can be no
assurance that an active trading market will develop for the Common Stock or
that the Common Stock will trade in the public market subsequent to the Offering
at or above the initial public offering price.
The Company has agreed to indemnify the several underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments the Underwriters may be required to make in respect thereof.
LEGAL MATTERS
The validity of the issuance of shares of Common Stock offered hereby will
be passed upon for the Company by Hahn & Hessen LLP, New York, New York. Certain
legal matters in connection with the Offering will be passed upon for the
Underwriters by Latham & Watkins, Washington, D.C. As of the date of this
Prospectus, a member of Hahn & Hessen LLP owns $25,000 of the March Bridge Notes
and beneficially owns 6,952 shares of Common Stock (including 2,000 shares
issuable upon exercise of March Bridge Warrants). Latham & Watkins, Washington,
D.C., currently represents the Company with respect to certain FCC matters.
97
<PAGE>
EXPERTS
The historical financial statements of Advanced Radio Technologies
Corporation as of December 31, 1995 and 1994, for the years then ended, and for
the period from August 23, 1993 (date of inception) to December 31, 1993 and of
Advanced Radio Telecom Corp. as of December 31, 1995 and for the period from
March 28, 1995 (date of inception) to December 31, 1995 included in this
Prospectus, have been included herein in reliance on the reports, each of which
includes an explanatory paragraph regarding the substantial doubt which exists
about the respective entity's ability to continue as a going concern, of Coopers
& Lybrand L.L.P., independent accountants, given on the authority of that firm
as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission a registration statement on Form
S-1 (together with all amendments, exhibits, schedules and supplements thereto,
the "Registration Statement") under the Securities Act with respect to the
securities offered hereby. This Prospectus, which forms a part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement, certain parts of which have been omitted in accordance
with the rules and regulations of the Commission. For further information with
respect to the Company and the securities offered hereby, reference is made to
the Registration Statement and to the schedules and exhibits filed therewith.
Statements contained in this Prospectus as to the contents of certain documents
are not necessarily complete, and, in each instance, reference is made to the
copy of the document filed as an exhibit to the Registration Statement. The
Registration Statement, including the exhibits and schedules thereto, can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the following regional offices of the Commission: New York
Regional Office, 7 World Trade Center, New York, New York 10007; and Chicago
Regional Office, Suite 1400, Northwestern Atrium Center, 500 West Madison
Street, Chicago, Illinois 60661. Copies of such material can also be obtained
from the Commission at prescribed rates through its Public Reference Section at
450 Fifth Street, N.W., Washington, D.C. 20549. The Commission also maintains a
site on the World Wide Web at http://www.sec.gov that contains reports, proxy
and information statements and other information that registrants file with the
Commission.
Immediately following the Offerings, the Company will be subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and in accordance therewith will be required to file
reports and other information with the Commission. Such reports may be inspected
and copied at the public reference facilities at the addresses set forth above
and at the Public Reference Section of the Commission at the address set forth
above. The Company intends to furnish its stockholders with annual reports
containing financial statements audited by independent certified public
accountants and with quarterly reports containing unaudited financial
information for each of the first three quarters of each fiscal year.
98
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained or incorporated by reference in this
Prospectus, including, without limitation, statements containing the words
"believes," "anticipates," "expects" and words of similar import, constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors that may cause the actual
results, performance or achievements of the Company, or industry results, to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following: the limited nature of the Company's operations and
its history of net losses; the uncertain acceptance of 38 GHz services;
competition; the risk of the Company's failure to consummate the CommcoCCC
Acquisition or the CIBC Financing; existing government regulations and changes
in, or the failure to comply with, government regulations; the risk of loss,
non-renewal or fluctuation in value of the Company's FCC licenses; the ability
of the Company to sustain, manage or forecast its growth; technological
limitations with respect to 38 GHz technology; dependence on significant
suppliers and marketers and the potential loss thereof; the availability of
additional 38 GHz bandwidth; the changing nature of wireless broadband services
and the telecommunications industry; the ability to attract and retain qualified
personnel; the Company's significant capital requirements and need for
additional financing; the Company's leverage and ability to service its
indebtedness; ownership of Common Stock; volatility of stock price; the use of
proceeds of the Offering; retention of earnings; dilution; and other factors
referenced in this Prospectus. Certain of these factors are discussed in more
detail elsewhere in this Prospectus, including, without limitation, under the
captions "Risk Factors," "Use of Proceeds," "Dividend Policy," "Capitalization,"
"Dilution," "Selected Historical and Pro Forma Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business" and "Principal Stockholders." GIVEN THESE UNCERTAINTIES, PROSPECTIVE
INVESTORS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON SUCH FORWARD-LOOKING
STATEMENTS. The Company disclaims any obligation to update any such factors or
to publicly announce the result of any revisions to any of the forward-looking
statements contained or incorporated by reference herein to reflect future
events or developments.
99
<PAGE>
GLOSSARY
38 GHZ -- The fourteen 100 MHz channels between 38.6 GHz and 40.0 GHz and
the frequency between 37.0 and 38.5 GHz allocated by the FCC for wireless
broadband transmissions.
10-13 BIT ERROR RATE -- The measurement of a transmission path's ability to
pass data in an uncorrupted format. Bit error rate ("BER") is defined as the
number of erroneous bits ("errors"), divided by the number of bits over a
stipulated period of time. In the example of a BER of 10-13, a BER tester (a
test and measurement instrument), placed in line to measure the transmission
path (in real time) would have to measure, and analyze, ten trillion bits of
data before it detected one bit of erroneous data.
ACCESS CHARGES -- The fees paid by long distance carriers to LECs for
originating and terminating long distance calls on their local networks.
ATM (ASYNCHRONOUS TRANSFER MODE) -- A data transmission protocol that
achieves network efficiency through the use of standard 53 bit packets. The
transmission rate is scalable depending upon the underlying capacity of the
network media.
BANDWIDTH -- At any given level of compression, the amount of information
transportable over a link per unit of time. A DS-1, or Digital Service 1,
circuit will carry up to 1,544,000 bits (or 1.544 megabits) per second.
BPS -- Bits per second. 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 communication 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.
BTA (BASIC TRADING AREA) -- An area erected by Rand McNally based upon
various business demographics to establish a contiguous urban area, without
reference to political or similar boundaries. The FCC has proposed to use BTAs
to auction 38 GHz authorizations.
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 transceiver(s)
typically located at one site. A cellular phone connects to the transceiver in
its current cell, then the connection is handed-off as and when the user moves
to any other cell.
COMPRESSION -- Any process that transforms a signal to a more compact form
(fewer bits) for easier transfer, and then restores the signal after transfer.
CLEC (COMPETITIVE LOCAL EXCHANGE CARRIER) -- A company that provides local
exchange services in competition with the incumbent local exchange carrier.
CMRS -- Commercial mobile radio services.
COPPER WIRE -- A shorthand reference to traditional telephone lines using
electric current to carry signals over copper wire.
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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 infomation as opposed to the
continously 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.
DIALING PARITY -- Dialing parity is one of the changes, intended to level
the competitive playing field, that is required by the Telecommunication Act.
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.
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.
ESMR (ENHANCED SPECIALIZED MOBILE RADIO) -- A recent mobile radio services
category involving technical and service enhancements to traditional "push to
talk" dispatch services.
ETHERNET -- A data transmission protocol that operates at 10 megabits per
second using a carrier sense multiple access with collision detection scheme to
support large numbers of users of a shared network facility.
FAST ETHERNET -- Ethernet that operates at 100 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.
GHZ (GIGAHERTZ) -- Billions of cycles or hertz per second.
HERTZ -- Cycles per second. A Hertz is one full cycle (an s-shaped 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.
ISP -- Internet service provider.
ITC (INDEPENDENT TELEPHONE COMPANY) -- A telephone company not associated or
formerly associated with the Bell Telephone system.
IXC (INTER-EXCHANGE CARRIERS) -- Usually referred to as long distance
providers. There are many facilities-based IXCs, including AT&T, MCI, WorldCom,
Sprint and Frontier.
KILOBIT -- One thousand bits of information. The information-carrying
capacity (i.e., bandwidth) of a circuit may be measured in "kilobits per
second".
KBPS -- 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
101
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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 Net (MAN) or other Wide Area Net (WAN) may be used.
LAST MILE -- A shorthand reference to the last section of a
telecommunications path to the ultimate end user which may be less than or
greater than a mile.
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 164 LATAs in the
United States. LATAs have one or more area codes and may cross state lines.
LEC (LOCAL EXCHANGE CARRIER) -- A company providing local exchange services.
The traditional local telephone companies (also known as incumbent local
exchange carriers), such as the RBOCs, which until recently were monopolies.
LINE OF SIGHT -- An unobstructed view between two transceivers.
LINK -- A transmission link between two transceivers.
MAN -- Metropolitan Area Network.
MARKET -- The potential and actual customers within the boundaries of a
wireless license. For simplicity, the definition of the market in this
Prospectus has been based on Basic Trading Areas, though each application as
granted defines its own actual boundaries.
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.
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.
MILLIMETRIC MICROWAVE OR MILLIMETER WAVE -- Those portions of the microwave
radio spectrum having wave lengths measured in millimeter lengths and generally
used to refer to frequencies above 20 GHz. A shorter wave length means a higher
frequency and vice versa.
MHZ (MEGAHERTZ) -- Millions of cycles or hertz per second.
MBPS -- Megabits per second.
NARROWBAND -- Data streams less than 64 kilobits per second.
NPRM (NOTICE OF PROPOSED RULEMAKING) -- A term used in governmental,
principally FCC, rulemaking proceedings to refer to initiation of the process.
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.
OC-3 RADIOS -- A transmission protocol most often deployed on fiber optic
SONET networks that operates at 155 megabits per second when provisioned using
electronic rather than optical media referred to as STS-3.
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OFF-NET CUSTOMERS -- A customer that is not physically connected to a
carrier's network but who is accessed through interconnection with a LEC network
or an alternative provider such as a 38 GHz licensee.
ON-NET CUSTOMERS -- A customer that is physically connected to a carrier's
network.
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.
PIPE -- A generic term for telecommunications transmission media, whether
wired or wireless, used to carry signals between the signal generating unit and
the user.
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.
PSTN (PUBLIC SWITCHED TELEPHONE NETWORK) -- The traditional LEC networks
that switch calls between different customers.
RBOCS (REGIONAL BELL OPERATING COMPANIES) -- The holding companies owning
LEC affiliates of the old AT&T or Bell system.
REPEATER -- An intermediate transceiver between two transceivers each of
which is connected to end users and established to circumvent obstacles in the
line of sight between communication ports, such as buildings in urban areas and
hills in rural areas.
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 antennas and transceivers) on the roofs of buildings, on special
towers or even on utility poles or pylons.
SONET (SYNCHRONOUS OPTICAL NETWORK) -- A set of standards for 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.
WIDEBAND -- Data streams between 64 kilobits and 1.544 megabits per second.
103
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ADVANCED RADIO TECHNOLOGIES CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Advanced Radio Technologies Corporation
Unaudited Pro Forma:
Unaudited Pro Forma Condensed Balance Sheets as of December 31, 1995 and June 30, 1996................ F-3
Unaudited Pro Forma Condensed Balance Sheets -- Supplementary Combining Balance Sheet Data as of
December 31, 1995 and June 30, 1996.................................................................. F-4
Unaudited Pro Forma Condensed Statement of Operations for the six months ended June 30, 1996 and for
the year ended December 31, 1995..................................................................... F-5
Notes to Unaudited Pro Forma Condensed Financial Statements........................................... F-6
Historical:
Report of Independent Accountants..................................................................... F-9
Balance Sheets as of December 31, 1995 and 1994....................................................... F-10
Statements of Operations for the years ended December 31, 1995 and 1994, for the period from August
23, 1993 (date of inception) to December 31, 1993 and cumulative for the period from August 23, 1993
(date of inception) to December 31, 1995............................................................. F-11
Statements of Stockholders' Equity (Deficit) for the years ended December 31, 1995 and 1994, for the
period from August 23, 1993 (date of inception) to December 31, 1993 and cumulative for the period
from August 23, 1993 (date of inception) to December 31, 1995........................................ F-12
Statements of Cash Flows for the years ended December 31, 1995 and 1994, for the period from August
23, 1993 (date of inception) to December 31, 1993 and cumulative for the period from August 23, 1993
(date of inception) to December 31, 1995............................................................. F-13
Notes to Financial Statements......................................................................... F-14
Unaudited Interim Condensed Balance Sheets as of June 30, 1996 and 1995............................... F-25
Unaudited Interim Condensed Statements of Operations for the six months ended June 30, 1996 and
1995................................................................................................. F-26
Unaudited Interim Condensed Statements of Cash Flows for the six months ended June 30, 1996 and
1995................................................................................................. F-27
Notes to Unaudited Interim Condensed Financial Statements............................................. F-28
Advanced Radio Telecom Corp.
Historical:
Report of Independent Accountants..................................................................... F-33
Balance Sheet as of December 31, 1995................................................................. F-34
Statement of Operations for the period from March 28, 1995 (date of inception) to December 31, 1995... F-35
Statement of Stockholders' Deficit for the period from March 28, 1995 (date of inception) to December
31, 1995............................................................................................. F-36
Statement of Cash Flows for the period from March 28, 1995 (date of inception) to December 31, 1995... F-37
Notes to Financial Statements......................................................................... F-38
Unaudited Interim Condensed Balance Sheets as of June 30, 1996 and 1995............................... F-50
Unaudited Interim Condensed Statements of Operations for the six months ended June 30, 1996 and for
the period from March 28, 1995 (date of inception) to June 30, 1995.................................. F-51
Unaudited Interim Condensed Statement of Stockholders' Equity (Deficit) for the six months ended June
30, 1996............................................................................................. F-52
Unaudited Interim Condensed Statements of Cash Flows for the six months ended June 30, 1996 and for
the period from March 28, 1995 (date of inception) to June 30, 1995.................................. F-53
Notes to Unaudited Interim Condensed Financial Statements............................................. F-54
</TABLE>
F-1
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma condensed financial statements are
presented as if all of the following transactions had occurred: (i) the March
1996 issuance of the March Bridge Notes and March Bridge Warrants; (ii) the
April 1996 issuance of the Equipment Note and Indemnity Warrants; (iii) the
receipt of $2,000,000 (out of a total of $3,000,000) in cash proceeds from the
issuance of the CommcoCCC Notes and the CommcoCCC Warrants; (iv) the receipt of
$4,000,000 in cash proceeds from the September Bridge Financing and the
September Bridge Warrants; and (v) the Merger, including the issuance of ART
Preferred Stock and Common Stock to Telecom stockholders and the cancellation of
all outstanding Telecom preferred and common stock.
The following unaudited pro forma as adjusted condensed financial statements
reflect further adjustments assuming (i) the sale by the Company of 2,750,000
shares of Common Stock offered in the Offering based on an assumed initial
public offering price of $16.50 per share and the immediate drawdown of
$50,000,000 in gross proceeds from the CIBC Financing, in each case, after
deducting the estimated underwriting discount and related expenses and, in the
case of the CIBC Financing, the value ascribed to the Initial CIBC Warrants of
approximately $10.4 million based on an assumed initial issuance of warrants to
purchase an aggregate of 3% of the Common Stock of the Company on a fully-
diluted basis after giving effect to the Offering and the CommcoCCC Acquisition;
(ii) the receipt and the application of the net proceeds therefrom to repay the
March Bridge Notes, the CommcoCCC Notes and the September Bridge Notes, to
acquire the 50% ownership interest of ART West held by Extended for $6.0 million
in cash and the DCT Assets for $3.6 million in cash; (iii) the Conversion; and
(iv) the consummation of the acquisition by the Company of the CommcoCCC Assets
in exchange for 6,000,000 shares of Common Stock at an assumed value of $16.50
per share and the payment of $3.0 million of expenses related to the CommcoCCC
Acquisition.
All such transactions are reflected as if they had occurred as of the
beginning of the respective periods for the unaudited pro forma condensed
statements of operations and at the respective balance sheet date for the
unaudited pro forma condensed balance sheet.
These unaudited pro forma condensed financial statements were derived from
and should be read in conjunction with the audited financial statements and
unaudited interim condensed financial statements of ART and Telecom and the
related notes thereto, included elsewhere herein. In management's opinion, all
adjustments necessary to reflect the foregoing and related transactions have
been made.
The unaudited pro forma condensed financial statements are not necessarily
indicative of what the actual financial position or results of operations would
have been assuming that the transactions described in the preceding paragraphs
had occurred on the dates indicated, nor does it purport to represent the future
financial position or results of operations of the Company.
F-2
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED PRO FORMA CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, AS OF JUNE
1995 30, 1996
------------ ------------
HISTORICAL HISTORICAL
COMBINED (A) COMBINED (A)
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents...... $ 633,654 $ 829,597
Other current
assets........... 52,325 131,940
------------ ------------
Total current
assets......... 685,979 961,537
Restricted cash..... -- 1,000,000
Property and
equipment, net..... 3,581,561 7,411,547
Equity
investments........ 285,000 285,000
FCC licenses........ 4,235,734 4,182,734
Deferred financing
costs, net......... 778,897 1,540,678
Equipment and other
deposits........... 284,012 334,393
Other assets........ 25,376 21,479
------------ ------------
$9,876,559 $15,737,368
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable
and accrued
liabilities...... $3,694,489 $ 6,417,502
March Bridge
Notes............ -- 4,112,534
CommcoCCC Notes... -- 975,000
September Bridge
Notes............ -- --
------------ ------------
Total current
liabilities.... 3,694,489 11,505,036
Convertible notes
payable............ 4,950,000 --
Note payable to
EMI................ 1,500,000 1,500,000
Equipment financing
note payable....... -- 1,718,207
Senior Secured
Notes.............. -- --
Deferred tax
liability.......... -- --
------------ ------------
Total
liabilities.... 10,144,489 14,723,243
------------ ------------
Redeemable Preferred
Stock.............. 44,930 --
------------ ------------
Stockholders'
equity:
Serial preferred
stock, $.001
par.............. 488 921
Common stock,
$.001 par........ 9,202 10,228
Additional paid-in
capital.......... 3,047,507 20,044,897
Accumulated
deficit.......... (3,370,057 ) (19,041,921)
------------ ------------
Total
stockholders'
equity
(deficit)...... (312,860 ) 1,014,125
------------ ------------
$9,876,559 $15,737,368
------------ ------------
------------ ------------
<CAPTION>
PRO FORMA OFFERING PRO FORMA
ADJUSTMENTS (B) PRO FORMA ADJUSTMENTS (C) AS ADJUSTED
--------------- ------------ ------------- -----------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash
equivalents...... $2,000,000(2)
4,000,000(3) $ 6,829,597 41,17$1,875(1)
46,500,000(2)
(12,000,000)(3)
(3,000,000)(4)
(6,000,000)(5)
(3,600,000)(6) 69$,901,472
Other current
assets........... 131,940 131,940
--------------- ------------ ------------- -----------
Total current
assets......... 6,000,000 6,961,537 63,071,875 70,033,412
Restricted cash..... 1,000,000 1,000,000
Property and
equipment, net..... 7,411,547 7,411,547
Equity
investments........ 285,000 (285,000)(5) --
FCC licenses........ 4,182,734 135,660,000(4)
6,285,000(5)
3,600,000(6) 149,727,734
Deferred financing
costs, net......... 1,540,678 (1,174,049)(1)
3,500,000(2) 3,866,629
Equipment and other
deposits........... 334,393 334,393
Other assets........ 21,479 21,479
--------------- ------------ ------------- -----------
$6,000,000 $ 21,737,368 210,6$57,826 232$,395,194
--------------- ------------ ------------- -----------
--------------- ------------ ------------- -----------
LIABILITIES AND STO
Current liabilities:
Accounts payable
and accrued
liabilities...... $ 6,417,502 6$,417,502
March Bridge
Notes............ 4,112,534 (4,11$2,534)(3) --
CommcoCCC Notes... $1,705,486(2) 2,680,486 (2,680,486)(3) --
September Bridge
Notes............ 3,573,981(3) 3,573,981 (3,573,981)(3) --
--------------- ------------ ------------- -----------
Total current
liabilities.... 5,279,467 16,784,503 (10,367,001) 6,417,502
Convertible notes
payable............ -- --
Note payable to
EMI................ 1,500,000 1,500,000
Equipment financing
note payable....... 1,718,207 1,718,207
Senior Secured
Notes.............. -- 39,647,716(2) 39,647,716
Deferred tax
liability.......... -- 33,660,000(4) 33,660,000
--------------- ------------ ------------- -----------
Total
liabilities.... 5,279,467 20,002,710 62,940,715 82,943,425
--------------- ------------ ------------- -----------
Redeemable Preferred
Stock.............. -- --
--------------- ------------ ------------- -----------
Stockholders'
equity:
Serial preferred
stock, $.001
par.............. --(1) 921 (921)(1) --
Common stock,
$.001 par........ (3,641) (1) 6,587 2,750(1)
4,354(1)
6,000(4) 19,691
Additional paid-in
capital.......... 3,641(1)
294,514(2)
426,019(3) 20,769,071 39,995,076(1)
(3,433)(1)
10,352,284(2)
98,994,000(4) 170,106,998
Accumulated
deficit.......... (19,041,921) (1,632,999)(3) (20,674,920)
--------------- ------------ ------------- -----------
Total
stockholders'
equity
(deficit)...... 720,533 1,734,658 147,717,111 149,451,769
--------------- ------------ ------------- -----------
$6,000,000 $ 21,737,368 210,6$57,826 232$,395,194
--------------- ------------ ------------- -----------
--------------- ------------ ------------- -----------
</TABLE>
See accompanying notes to unaudited pro forma condensed financial statements.
F-3
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED PRO FORMA CONDENSED BALANCE SHEETS
SUPPLEMENTARY COMBINING BALANCE SHEET DATA
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1995
-----------------------------------------------------------------
HISTORICAL
-----------------------------------------------------------------
ADVANCED RADIO ADVANCED RADIO
TECHNOLOGIES TELECOM HISTORICAL
CORPORATION (D) CORP. (E) ELIMINATIONS (F) COMBINED
-------------- -------------- ---------------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents...... $ 6,069 $ 627,585 $ 633,654
Due from ART...... -- 738,680 $ (738,680) --
Other current
assets........... -- 52,325 52,325
-------------- -------------- ---------------- ------------
Total current
assets......... 6,069 1,418,590 (738,680) 685,979
Restricted cash..... -- -- --
Note receivable from
Telecom............ 5,000,000 -- (5,000,000) --
Property and
equipment, net..... 1,723 3,579,838 3,581,561
Equity investments.. 285,000 -- 285,000
FCC licenses........ 8,913 4,226,821 4,235,734
Deferred financing
costs, net......... 457,543 321,354 778,897
Equipment and other
deposits........... -- 284,012 284,012
Investment in ART... -- -- --
Other assets........ 25,376 -- 25,376
-------------- -------------- ---------------- ------------
$ 5,784,624 $ 9,830,615 $(5,738,680) $ 9,876,559
-------------- -------------- ---------------- ------------
-------------- -------------- ---------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable
and accrued
liabilities...... $ 243,952 $ 3,450,537 $ 3,694,489
Due to Telecom.... 738,680 -- $ (738,680) --
March Bridge
Notes............ -- -- --
CommcoCCC Notes... -- -- --
-------------- -------------- ---------------- ------------
Total current
liabilities.... 982,632 3,450,537 (738,680) 3,694,489
Convertible notes
payable............ 4,950,000 -- 4,950,000
Losses in excess of
equity investment.. 211,543 -- (211,543) --
Note payable to
ART................ -- 5,000,000 (5,000,000) --
Note payable to
EMI................ -- 1,500,000 1,500,000
Equipment Note...... -- -- --
-------------- -------------- ---------------- ------------
Total
liabilities.... 6,144,175 9,950,537 (5,950,223) 10,144,489
-------------- -------------- ---------------- ------------
Redeemable Preferred
Stock.............. 44,930 -- 44,930
-------------- -------------- ---------------- ------------
Stockholders'
equity:
Preferred stock,
par.............. -- 488 488
Common stock,
par.............. 3,641 5,561 9,202
Additional paid-in
capital.......... 994,747 2,855,102 (802,342) 3,047,507
Accumulated
deficit.......... (1,402,869) (2,981,073) 1,013,885 (3,370,057)
-------------- -------------- ---------------- ------------
Total
stockholders'
equity
(deficit)...... (404,481) (119,922) 211,543 (312,860)
-------------- -------------- ---------------- ------------
$ 5,784,624 $ 9,830,615 $(5,738,680) $ 9,876,559
-------------- -------------- ---------------- ------------
-------------- -------------- ---------------- ------------
<CAPTION>
AS OF JUNE 30, 1996
-------------------------------------------------------------
HISTORICAL
-------------------------------------------------------------
ADVANCED
ADVANCED RADIO RADIO
TECHNOLOGIES TELECOM HISTORICAL
CORPORATION (D) CORP. (E) ELIMINATIONS (F) COMBINED
--------------- ------------ --------------- -----------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash
equivalents...... $ 5,538 $ 824,059 $829,597
Due from ART...... -- 498,100 (49$8,100) --
Other current
assets........... -- 131,940 131,940
--------------- ------------ --------------- -----------
Total current
assets......... 5,538 1,454,099 (498,100) 961,537
Restricted cash..... -- 1,000,000 1,000,000
Note receivable from
Telecom............ -- -- --
Property and
equipment, net..... -- 7,411,547 7,411,547
Equity investments.. 1,551,302 (1,266,302) 285,000
FCC licenses........ 8,913 4,173,821 4,182,734
Deferred financing
costs, net......... -- 1,540,678 1,540,678
Equipment and other
deposits........... -- 334,393 334,393
Investment in ART... -- 44,930 (44,930) --
Other assets........ 21,479 -- 21,479
--------------- ------------ --------------- -----------
$1,587,232 $15,959,468 (1,80$9,332) 15$,737,368
--------------- ------------ --------------- -----------
--------------- ------------ --------------- -----------
Current liabilities:
Accounts payable
and accrued
liabilities...... $ 2,500 $6,415,002 6$,417,502
Due to Telecom.... 498,100 -- (49$8,100) --
March Bridge
Notes............ -- 4,112,534 4,112,534
CommcoCCC Notes... -- 975,000 975,000
--------------- ------------ --------------- -----------
Total current
liabilities.... 500,600 11,502,536 (498,100) 11,505,036
Convertible notes
payable............ -- -- --
Losses in excess of
equity investment.. -- -- --
Note payable to
ART................ -- -- --
Note payable to
EMI................ -- 1,500,000 1,500,000
Equipment Note...... -- 1,718,207 1,718,207
--------------- ------------ --------------- -----------
Total
liabilities.... 500,600 14,720,743 (498,100) 14,723,243
--------------- ------------ --------------- -----------
Redeemable Preferred
Stock.............. 44,930 -- (44,930) --
--------------- ------------ --------------- -----------
Stockholders'
equity:
Preferred stock,
par.............. -- 921 921
Common stock,
par.............. 3,641 6,587 10,228
Additional paid-in
capital.......... 7,790,261 19,852,492 (7,597,856) 20,044,897
Accumulated
deficit.......... (6,752,200) (18,621,275 ) 6,331,554 (19,041,921)
--------------- ------------ --------------- -----------
Total
stockholders'
equity
(deficit)...... 1,041,702 1,238,725 (1,266,302) 1,014,125
--------------- ------------ --------------- -----------
$1,587,232 $15,959,468 (1,80$9,332) 15$,737,368
--------------- ------------ --------------- -----------
--------------- ------------ --------------- -----------
</TABLE>
See accompanying notes to unaudited pro forma condensed financial statements.
F-4
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1996
--------------------------------------------------------------------------------------------
HISTORICAL
--------------------------------------------------------------
ADVANCED RADIO ADVANCED RADIO
TECHNOLOGIES TELECOM PRO FORMA
CORPORATION (D) CORP. (E) ELIMINATIONS (F) COMBINED ADJUSTMENTS (B) PRO FORMA
---------------- -------------- --------------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Operating revenue.... $ -- $ 61,520 $ 61,520 $ 61,520
---------------- -------------- ----------- -----------
Expenses:
General and
administrative
(H)............... 24,939 13,276,859 13,301,798 13,301,798
Market development
(I)............... -- 1,053,000 1,053,000 1,053,000
Research &
development....... -- 521,406 521,406 521,406
Depreciation and
amortization...... 6,052 272,323 278,375 278,375
Interest, net...... 671 578,134 578,805 $ 198,425(4)
157,316(5)
327,755(6)
437,006(7)
(44,507)(8) 1,654,800
---------------- -------------- ----------- --------------- -----------
Total expenses... 31,662 15,701,722 15,733,384 1,075,995 16,809,379
Equity loss in
Telecom............. 5,317,669 -- $(5,317,669) -- --
---------------- -------------- --------------- ----------- --------------- -----------
Pretax loss.......... 5,349,331 15,640,202 (5,317,669) 15,671,864 1,075,995 16,747,859
Deferred tax
benefit............. -- -- -- --
---------------- -------------- --------------- ----------- --------------- -----------
Net loss....... $ 5,349,331 $ 15,640,202 $(5,317,669) $15,671,864 $ 1,075,995 $16,747,859
---------------- -------------- --------------- ----------- --------------- -----------
---------------- -------------- --------------- ----------- --------------- -----------
Pro forma net loss
per share of Common
Stock (G)........... $ 0.49 $ 1.52
---------------- -----------
---------------- -----------
Pro forma weighted
average number of
shares of Common
Stock outstanding
(G)................. 11,000,350 11,000,350
---------------- -----------
---------------- -----------
<CAPTION>
OFFERING PRO FORMA
ADJUSTMENTS (C) AS ADJUSTED
---------------- ------------
<S> <C> <C>
Operating revenue.... $ 61,520
------------
Expenses:
General and
administrative
(H)............... 13,301,798
Market development
(I)............... 1,053,000
Research &
development....... 521,406
Depreciation and
amortization...... $ 1,871,597(8) 2,149,972
Interest, net......
(264,658)(3)
(327,755)(3)
(437,006)(3)
14,969,784(7) 15,595,165
---------------- ------------
Total expenses... 15,811,962 32,621,341
Equity loss in
Telecom............. --
---------------- ------------
Pretax loss.......... 15,811,962 32,559,821
Deferred tax
benefit............. (636,342)(8) (636,342)
---------------- ------------
Net loss....... $ 15,175,620 $ 31,923,479
---------------- ------------
---------------- ------------
Pro forma net loss
per share of Common
Stock (G)........... $ 1.57
------------
------------
Pro forma weighted
average number of
shares of Common
Stock outstanding
(G)................. 20,374,133
------------
------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
--------------------------------------------------------------
HISTORICAL
--------------------------------------------------------------
ADVANCED RADIO ADVANCED
TECHNOLOGIES RADIO TELECOM
CORPORATION (D) CORP. (E) ELIMINATIONS (F) COMBINED
-------------- ------------- ---------------- ----------
<S> <C> <C> <C> <C>
Operating revenue... $ -- $ 5,793 $ 5,793
-------------- ------------- ----------
Expenses:
General and
administrative
(G).............. 204,937 2,706,336 2,911,273
Market
development...... -- 191,693 191,693
Depreciation and
amortization..... 10,378 5,306 15,684
Interest, net..... 38,455 83,531 121,986
-------------- ------------- ----------
Total
expenses....... 253,770 2,986,866 3,240,636
Equity loss in
Telecom............ 1,013,885 -- $(1,013,885) --
-------------- ------------- ---------------- ----------
Pretax loss......... 1,267,655 2,981,073 (1,013,885) 3,234,843
Deferred tax
benefit............ -- -- --
-------------- ------------- ---------------- ----------
Net loss...... $1,267,655 $ 2,981,073 $(1,013,885) $3,234,843
-------------- ------------- ---------------- ----------
-------------- ------------- ---------------- ----------
Pro forma net loss
per share of Common
Stock (G).......... $ 0.12
--------------
--------------
Pro forma weighted
average number of
shares of Common
Stock outstanding
(G)................ 11,000,350
--------------
--------------
<CAPTION>
PRO FORMA OFFERING PRO FORMA
ADJUSTMENTS (B) PRO FORMA ADJUSTMENTS (C) AS ADJUSTED
--------------- ---------- --------------- -----------
<S> <C> <C> <C> <C>
Operating revenue... $ 5,793 $5,793
---------- -----------
Expenses:
General and
administrative
(G).............. 2,911,273 2,911,273
Market
development...... 191,693 191,693
Depreciation and
amortization..... 15,684 3,7$43,193(8) 3,758,877
Interest, net..... $1,019,145(4)
673,534(5)
655,512(6)
874,008(7)
(110,828)(8) 3,233,357 (1,019,145)(3)
(655,512)(3)
(874,008)(3)
30,250,128(7) 30,934,820
--------------- ---------- --------------- -----------
Total
expenses....... 3,111,371 6,352,007 31,444,656 37,796,663
Equity loss in
Telecom............ -- --
--------------- ---------- --------------- -----------
Pretax loss......... 3,111,371 6,346,214 31,444,656 37,790,870
Deferred tax
benefit............ -- (1,272,685)(8) (1,272,685)
--------------- ---------- --------------- -----------
Net loss...... $3,111,371 $6,346,214 30,1$71,971 36$,518,185
--------------- ---------- --------------- -----------
--------------- ---------- --------------- -----------
Pro forma net loss
per share of Common
Stock (G).......... $ 0.58 $ 1.79
---------- -----------
---------- -----------
Pro forma weighted
average number of
shares of Common
Stock outstanding
(G)................ 11,000,350 20,374,133
---------- -----------
---------- -----------
</TABLE>
See accompanying notes to unaudited pro forma condensed financial statements.
F-5
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
(A) Represents the historical combined balance sheets of ART and Telecom. See
supplementary combining balance sheet data on page F-4.
(B) Pro forma adjustments:
(1) Conversion of Telecom serial preferred stock into ART Prefered Stock,
issuance of ART Common Stock to Telecom common stockholders, and
cancellation of the outstanding Telecom common stock and the ART
Redeemable Preferred Stock in connection with the Merger.
(2) The receipt of the remaining $2,000,000 out of a total of $3,000,000 in
cash from the CommcoCCC Financing in exchange for the CommcoCCC Notes and
CommcoCCC Warrants. The value ascribed to the CommcoCCC Warrants was
$294,514 (total of $319,514).
(3) Proceeds of $4,000,000 in cash from the September Bridge Financing in
exchange for the September Bridge Notes and September Bridge Warrants.
The value ascribed to the September Bridge Warrants totaled $426,019.
(4) Interest expense from the March Bridge Financing, at the effective
interest rate after giving effect to the value ascribed to the March
Bridge Warrants, as if the March Bridge Notes were issued as of the
beginning of the respective periods.
(5) Interest expense from the Equipment Financing, at the effective interest
rate after giving effect to the value ascribed to the Indemnity Warrants,
as if the Equipment Notes were issued as of the beginning of the
respective periods.
(6) Interest expense from the CommcoCCC Financing, at the effective interest
rate after giving effect to the value ascribed to the CommcoCCC Warrants,
as if the CommcoCCC Notes were issued as of the beginning of the
respective periods.
(7) Interest expense from the September Bridge Financing, at the effective
interest rate after giving effect to the value ascribed to the September
Bridge Warrants, as if the September Bridge Notes were issued as of the
beginning of the respective periods.
(8) Elimination of interest expense from the Advent Notes that were
converted into shares of Telecom stock on February 2, 1996.
(C) Offering adjustments:
(1) Issuance of 2,750,000 shares of Common Stock offered in the Offering,
based on an assumed initial public offering price of $16.50 per share,
after deducting the estimated offering discount and related expenses of
$5,377,174, and the conversion of the ART Preferred Stock into ART Common
Stock.
(2) Assumed gross proceeds of the immediate drawdown of $50,000,000 from the
CIBC Financing in exchange for the Senior Secured Notes and the CIBC
Warrants and the estimated related expenses of approximately $3,500,000.
The value ascribed to the Initial CIBC Warrants totaled $10,352,284 based
on an assumed initial issuance of warrants to purchase an aggregate of 3%
of Common Stock of the Company on a fully diluted basis after giving
effect to the Offering and the CommcoCCC Acquisition. The number of
warrants to purchase shares of Common Stock increases by an additional 3%
of Common Stock of the Company for each six month period the Senior
Secured Notes remain outstanding. The value of such Additional CIBC
warrants will be recognized as issued.
(3) Repayment of the March Bridge Financing, CommcoCCC Financing and the
September Bridge Financing out of the net proceeds from the Offering and
the reversal of the related
F-6
<PAGE>
interest expense. The unamortized offering discount and deferred finance
costs associated with the March Bridge Financing, CommcoCCC Financing and
the September Bridge Financing will result in an extraordinary loss of
approximately $1,633,000, which has been excluded from the pro forma as
adjusted condensed statement of operations.
(4) The acquisition of the CommcoCCC Assets, accounted for as a business
combination, in exchange for 6,000,000 shares of Common Stock of the
Company based on an assumed value of $16.50 per share, the related
deferred tax liabilities and the estimated related expenses of
$3,000,000.
(5) The acquisition of the 50% ownership interest of ART West held by
Extended for $6 million in cash, to be paid out of the net proceeds from
the Offering.
(6) The acquisition of the DCT assets for $3.6 million in cash, to be paid
out of the net proceeds from the Offering.
(7) Interest expense on Senior Secured Notes, at the effective interest
after giving effect to the value ascribed to the CIBC Warrants and
related fees as if the Senior Secured Notes were issued as of the
beginning of the respective periods and were to be outstanding for the
entire two year term. Interest expense includes $10,352,284 and
$21,015,136 for the six months ended June 30, 1996 and the year ended
December 31, 1995, respectively, related to the value ascribed to the
CIBC Warrants. Refinancing of the Senior Secured Notes at the end of the
respective periods would result in an extraordinary loss of approximately
$1,860,000 and $2,790,000 for the year ended December 31, 1995 and six
months ended June 30, 1996, respectively, which has been excluded from
the pro forma as adjusted presentation.
(8) Depreciation and amortization expense related to the acquisition of the
CommcoCCC Assets, the 50% ownership interest in ART West, the DCT Assets
and the related deferred taxes.
(D) Represents the historical amounts of ART as of and for the six months ended
June 30, 1996 and as of and for the year ended December 31, 1995.
(E) Represents the historical amounts of Telecom as of and for the six months
ended June 30, 1996, as of December 31, 1995 and for the period from March
28, 1995 (date of inception) to December 31, 1995.
(F) Represents the elimination of inter-entity transactions and balances
consisting of (i) receivables and payables, (ii) ART's investment in
Telecom, Telecom's corresponding paid-in capital and the recognition by ART
of its equity in losses of Telecom and (iii) Telecom's investment in ART
Redeemable Preferred Stock.
(G) Pro forma net loss per share and the weighted average number of shares of
Common Stock reflect (i) the conversion of all shares of Telecom serial
preferred stock to ART Serial Preferred Stock; (ii) issuance of ART Common
Stock to Telecom common stockholders, (iii) the cancellation of the
outstanding Telecom common stock and the ART Series A Redeemable Preferred
Stock; (iv) the conversion of the ART Serial Preferred Stock into ART Common
Stock; and (v) the issuance of
F-7
<PAGE>
potentially dilutive instruments issued within one year prior to a proposed
initial public offering at exercise prices below the assumed initial public
offering price of $16.50 per share as if they were outstanding as of the
beginning of the respective periods.
<TABLE>
<S> <C>
Pro Forma:
Weighted average number of shares of Common Stock outstanding for
primary computation.............................................. 3,641,111(1)
Issuances of shares of Telecom serial preferred stock as converted
into shares of ART Common Stock.................................. 3,777,829
Issuances of shares of Telecom common stock as converted into
shares of ART Common Stock....................................... 2,945,785(2)
Options and warrants issued and outstanding....................... 635,625
--------------
Pro forma weighted average number of shares of Common Stock....... 11,000,350(3)
--------------
--------------
Pro Forma As Adjusted:
Pro forma weighted average number of shares of Common Stock....... 11,000,350
Common Stock issued in connection with the Offering and the
acquisition of the CommcoCCC Assets.............................. 8,750,000
Warrants to purchase shares of Common Stock issued in connection
with the CIBC Financing.......................................... 623,783(4)
--------------
Pro forma as adjusted weighted average number of shares of Common
Stock............................................................ 20,374,133(3)
--------------
--------------
</TABLE>
(1) The weighted average number of shares of Common Stock for primary
computation exclude all common stock equivalents, which are
anti-dilutive.
(2) Excludes shares of Telecom common stock owned by ART.
(3) The Securities and Exchange Commission requires that potentially
dilutive instruments issued within one year prior to a proposed initial
public offering at exercise prices below the expected initial public
offering price be treated as outstanding for the entire period presented.
The weighted average number of shares of Common Stock on a pro forma and
a pro forma as adjusted basis reflects those potentially dilutive
instruments assuming the sale of shares of Common Stock offered in the
Offering based on an assumed initial public offering price of $16.50 per
share. In measuring the dilutive effect, the treasury stock method was
used.
(4) Represents warrants to purchase shares of Common Stock, equal to 3.0% of
the fully diluted shares of Common Stock, in connection with the CIBC
Financing, after giving effect to the Offering and the CommcoCCC
Acquisition.
(H) General and administrative expense includes non-recurring, non-cash
compensation expense of $802,002 and $6,795,514 for the year ended December
31, 1995 and for the six months ended June 30, 1996, respectively,
associated with the release of Escrow Shares in 1995 and the termination of
the Escrow Shares arrangement in 1996.
(I) Market development expense for the six months ended June 30, 1996 represents
the value ascribed to the Ameritech Strategic Distribution Agreement in
connection with the February 1996 investment in Telecom by Ameritech.
F-8
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of
Advanced Radio Technologies Corporation:
We have audited the accompanying balance sheets of Advanced Radio
Technologies Corporation (a development stage company) as of December 31, 1995
and 1994, and the related statements of operations, stockholders' deficit and
cash flows for the years ended December 31, 1995 and 1994, for the period from
August 23, 1993 (date of inception) to December 31, 1993 and for the cumulative
period from August 23, 1993 (date of inception) to December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 Advanced Radio Technologies
Corporation as of December 31, 1995 and 1994, and the results of its operations
and its cash flows for the years ended December 31, 1995 and 1994, and for the
period from August 23, 1993 (date of inception) to December 31, 1993, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared on the going
concern basis of accounting, which contemplates realization of assets and
liquidation of liabilities in the ordinary course of business. As described in
Note 1, the Company has a substantial working capital deficit at December 31,
1995, has incurred operating losses since inception and does not expect to
generate significant operating revenues until fiscal 1996. The Company estimates
that revenues in 1996 will not be sufficient to fund its initial capital
requirements, operating expenses and other working capital needs. In addition,
as set forth in Notes 5, 7, 8, and 11, the Company has significant financial
commitments. The Company's continued funding of its initial capital
requirements, operating expenses, working capital needs and contractual
commitments is dependent upon its ability to raise additional financing.
Management's plans in this regard are discussed in Note 1. These conditions
raise substantial doubt about the Company's ability to continue as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
COOPERS & LYBRAND L.L.P.
New York, New York
April 26, 1996, except for Note 5B
as to which the date is June 26, 1996 and except
for the first paragraph of Note 2A, Note 2C and
the second paragraph of Note 9 as to which the
date is October 11, 1996
F-9
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
-------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash.............................................................................. $ 6,069 $ 5,133
-------------- ------------
Total current assets.......................................................... 6,069 5,133
Note receivable from Telecom (Note 4)............................................... 5,000,000
Equity investments (Note 5)......................................................... 285,000
Deferred financing costs, net....................................................... 457,543
FCC licenses........................................................................ 8,913
Property and equipment, net......................................................... 1,723 3,448
Other assets........................................................................ 25,376 34,030
-------------- ------------
Total assets.................................................................. $ 5,784,624 $ 42,611
-------------- ------------
-------------- ------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued liabilities.......................................... $ 243,952 $ 11,689
Due to Telecom (Note 11).......................................................... 738,680
Note payable to related party (Note 11)........................................... 70,000
-------------- ------------
Total current liabilities..................................................... 982,632 81,689
Equity loss in excess of investment (Note 5)........................................ 211,543
Convertible note payable (Note 4)................................................... 4,950,000
-------------- ------------
Total liabilities............................................................. 6,144,175 81,689
-------------- ------------
Redeemable Preferred Stock, $.01 par value; 1,000 shares authorized; 1 share issued
and outstanding at December 31,
1995 (Note 4)...................................................................... 44,930
-------------- ------------
Commitments and contingencies (Notes 1, 5, 7, 8, 11 and 12).........................
Stockholders' deficit (Note 9):
Common Stock, $.001 par value; 58,900,320 shares authorized; 3,641,111 and
2,141,830 shares issued and outstanding.......................................... 3,641 2,142
Additional paid-in capital........................................................ 994,747 93,994
Deficit accumulated during the development stage.................................. (1,402,869) (135,214)
-------------- ------------
Total stockholders' deficit................................................... (404,481) (39,078)
-------------- ------------
Total liabilities and stockholders' deficit................................. $ 5,784,624 $ 42,611
-------------- ------------
-------------- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-10
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994,
FOR THE PERIOD FROM AUGUST 23, 1993 (DATE OF INCEPTION)
TO DECEMBER 31, 1993 AND CUMULATIVE FOR THE PERIOD
FROM AUGUST 23, 1993 (DATE OF INCEPTION) TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
CUMULATIVE
PERIOD FROM FROM AUGUST
AUGUST 23, 23, 1993
YEARS ENDED 1993 (DATE OF (DATE OF
DECEMBER 31, INCEPTION) TO INCEPTION) TO
-------------------------- DECEMBER 31, DECEMBER 31,
1995 1994 1993 1995
------------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Consulting income......................................... $ -- $ 137,489 $ -- $ 137,489
------------- ----------- ------------- -------------
Expenses:
General and administrative expenses..................... 204,937 253,453 5,906 464,296
Depreciation and amortization........................... 10,378 8,281 688 19,347
Interest expense, net (Note 11)......................... 38,455 4,375 42,830
------------- ----------- ------------- -------------
Total expenses...................................... 253,770 266,109 6,594 526,473
Equity loss on investment in Telecom (Note 5)............. 1,013,885 1,013,885
------------- ----------- ------------- -------------
Net loss............................................ $ 1,267,655 $ 128,620 $ 6,594 $ 1,402,869
------------- ----------- ------------- -------------
------------- ----------- ------------- -------------
Pro forma net loss per share (unaudited).................. $ 0.12
-------------
-------------
Pro forma weighted average number of shares of Common
Stock outstanding (unaudited)............................ 11,000,350
-------------
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-11
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994,
FOR THE PERIOD FROM AUGUST 23, 1993 (DATE OF INCEPTION)
TO DECEMBER 31, 1993 AND CUMULATIVE FOR THE PERIOD
FROM AUGUST 23, 1993 (DATE OF INCEPTION) TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
ADDITIONAL DURING
COMMON PAID-IN DEVELOPMENT
STOCK CAPITAL STAGE TOTAL
--------- ----------- -------------- --------------
<S> <C> <C> <C> <C>
Net issuance of 1,070,915 shares of Common Stock for cash... $ 1,071 $ 60,065 $ 61,136
Net loss.................................................... $ (6,594) (6,594)
--------- ----------- -------------- --------------
Balance, December 31, 1993.................................. 1,071 60,065 (6,594) 54,542
Issuance of 1,070,915 shares of Common Stock for cash....... 1,071 33,929 35,000
Net loss.................................................... (128,620) (128,620)
--------- ----------- -------------- --------------
Balance, December 31, 1994.................................. 2,142 93,994 (135,214) (39,078)
Issuance of 26,773 shares of Common Stock to ART West....... 27 24,973 25,000
Issuance of 1,472,508 shares of Common Stock to existing
shareholders............................................... 1,472 (1,472)
Conversion of note payable and interest to paid-in
capital.................................................... 75,250 75,250
Investment in Telecom as a result of the release of escrow
shares..................................................... 802,002 802,002
Net loss.................................................... (1,267,655) (1,267,655)
--------- ----------- -------------- --------------
Balance, December 31, 1995.................................. $ 3,641 $ 994,747 $ (1,402,869) $ (404,481)
--------- ----------- -------------- --------------
--------- ----------- -------------- --------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-12
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994,
FOR THE PERIOD FROM AUGUST 23, 1993 (DATE OF INCEPTION)
TO DECEMBER 31, 1993 AND CUMULATIVE FOR THE PERIOD
FROM AUGUST 23, 1993 (DATE OF INCEPTION) TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERIOD FROM CUMULATIVE
AUGUST 23, FROM AUGUST
YEARS ENDED 1993 (DATE OF 23, 1993 (DATE
DECEMBER 31, INCEPTION) TO OF INCEPTION)
----------------------------- DECEMBER 31, TO DECEMBER
1995 1994 1993 31, 1995
-------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss................................................ $ (1,267,655) $ (128,620) $ (6,594) $ (1,402,869)
Adjustments to reconcile net loss to net cash used in
operating activities:
Non-cash interest expense............................. 110,828 110,828
Depreciation and amortization......................... 10,378 8,281 688 19,347
Equity loss on investment in Telecom.................. 1,013,885 1,013,885
Changes in operating assets and liabilities:
Accounts payable and accrued liabilities.............. (3,939) (8,282) 19,971 7,750
-------------- ------------- ------------- --------------
Net cash (used in) provided by operating
activities......................................... (136,503) (128,621) 14,065 (251,059)
-------------- ------------- ------------- --------------
Cash flows from investing activities:
Additions to property and equipment..................... (5,175) (5,175)
Investment in ART West and Telecom...................... (255,340) (255,340)
Note receivable from Telecom............................ (5,000,000) (5,000,000)
Acquisition of FCC Licenses............................. (13,912) (13,912)
Increase in other assets................................ (41,272) (41,272)
-------------- ------------- ------------- --------------
Net cash used in investing activities............... (5,269,252) (5,175) (41,272) (5,315,699)
-------------- ------------- ------------- --------------
Cash flows from financing activities:
Proceeds from issuance of Common Stock.................. 35,000 61,136 96,136
Proceeds from loan and note payable..................... 8,500 70,000 78,500
Proceeds from issuance of Preferred Stock............... 50,000 50,000
Preferred Stock issuance costs.......................... (5,070) (5,070)
Repayment of loan....................................... (8,500) (8,500)
Proceeds from convertible note payable.................. 4,950,000 4,950,000
Deferred financing costs................................ (326,919) (326,919)
Due to Telecom.......................................... 738,680 738,680
-------------- ------------- ------------- --------------
Net cash provided by financing activities........... 5,406,691 105,000 61,136 5,572,827
-------------- ------------- ------------- --------------
Net increase (decrease) in cash..................... 936 (28,796) 33,929 6,069
Cash, beginning of period................................. 5,133 33,929
-------------- ------------- ------------- --------------
Cash, end of period....................................... $ 6,069 $ 5,133 $ 33,929 $ 6,069
-------------- ------------- ------------- --------------
-------------- ------------- ------------- --------------
Supplemental cash flow information:
Non-cash investing and financing activities:
Release of escrow shares and increase in the investment
in Telecom............................................. $ 802,002 $ 802,002
Issuance of stock and contribution of licenses to ART
West................................................... $ 30,000 $ 30,000
Conversion of note payable and interest to Common
Stock.................................................. $ 75,250 $ 75,250
Accrued deferred financing costs........................ $ 175,000 $ 175,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-13
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
1. FORMATION OF THE COMPANY AND BASIS OF PRESENTATION:
THE COMPANY
Advanced Radio Technologies Corporation ("ART" or the "Company") was
organized as a Delaware corporation on August 23, 1993, to provide broadband
wireless digital telecommunications services to the domestic telecommunications
market. The Company's operations to date include the application for and
acquisition of certain 38 GHz licenses granted by the Federal Communications
Commission ("FCC") and costs incurred for the deployment of such services.
During 1995 the Company established a strategic alliance with Extended
Communications, Inc. ("Extended") to form the ART West joint venture. ART West
was formed on April 4, 1995 to develop and expand the Company's wireless digital
telecommunications services in various markets throughout the western United
States (see Note 5).
During 1995, Advanced Radio Telecom Corp. ("Telecom") was organized by the
Company and Landover Holdings Corporation ("Landover") with one of its initial
objectives to acquire certain 38 GHz licenses in the northeastern United States
from EMI Communications, Corp. ("EMI"). Under the terms of a purchase agreement
between the Company, Landover, and Telecom dated April 21, 1995, (the "Purchase
Agreement") Landover was obligated to purchase $7,000,000 of securities of
Telecom. Pursuant to the Purchase Agreement and a stockholders' agreement
between the Company, Telecom and their respective shareholders dated May 8, 1995
(the "Stockholders' Agreement"), the Company and Telecom were to merge once
approval from the FCC had been granted. (See Note 2).
INITIAL CAPITALIZATION
The Company was formed on August 23, 1993 by two of its executives (the
"Founding Stockholders") by issuing 1,070,915 shares of Common Stock in exchange
for $1,136. During November 1993, ART redeemed 428,366 shares of Common Stock
from the Founding Stockholders and through a private placement issued 428,366
shares of Common Stock to High Sky Limited Partnership ("High Sky") in exchange
for $60,000. During March 1994, High Sky II Limited Partnership ("High Sky II"),
an affiliate of High Sky (collectively referred to as the "High Sky
Partnerships") contributed $100,000 to the Company in exchange for 214,183
shares of Common Stock and a $70,000 Promissory Note. In connection with the
High Sky II financing, ART issued an additional aggregate of 856,732 shares to
the Founding Stockholders and High Sky whereby the Founding Stockholders and the
High Sky Partnerships would each own a 50% interest in ART. Additionally, during
1994, one of the Founding Stockholders contributed an additional $5,000 for
which contribution there were no shares issued.
Pursuant to an agreement dated March 1, 1995, High Sky II agreed to assign
the $70,000 Promissory Note, plus accrued interest, to the Founding Stockholders
in exchange for two new promissory notes executed by the Founding Stockholders.
Concurrent with the exchange of the promissory notes, the Founding Stockholders
contributed the $70,000 Promissory Note plus accrued interest of $5,250 to the
Company, for which contribution there were no additional shares issued.
BASIS OF PRESENTATION
The financial statements have been prepared on the going concern basis of
accounting, which contemplates realization of assets and liquidation of
liabilities in the ordinary course of business. The Company has a substantial
working capital deficit, has incurred operating losses since inception and does
not expect to recognize significant operating revenues until the commencement of
its commercial services, which is anticipated to occur in fiscal 1996. The
Company estimates that revenues in 1996 will not be sufficient to fund its
initial operating expenses and other working capital needs, including
F-14
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
1. FORMATION OF THE COMPANY AND BASIS OF PRESENTATION, CONTINUED:
consulting, service and purchase commitments set forth in Notes 5, 7, 8 and 11.
The Company's continued funding of its initial operating expenses, working
capital needs and contractual commitments is dependent upon its ability to raise
additional financing. The Company and Telecom have engaged various investment
bankers to assist them in raising financing through a public equity and debt
offering. There can be no assurance that the Company and Telecom will be
successful in their effort to raise additional financing through these offerings
or, if available, that the Company and Telecom will be able to obtain it on
acceptable terms. These conditions raise substantial doubt about the Company's
ability to continue as a going concern. The financial statements do not include
any adjustments that might result from the outcome of these uncertainties.
2. PURCHASE AGREEMENT:
A -- INITIAL CAPITALIZATION OF TELECOM
Pursuant to the Purchase Agreement, as its initial capitalization, an
aggregate of 3,120,000 shares of Class B and Class A common stock were issued by
Telecom to Landover and consultants to Landover, respectively, for an aggregate
cash consideration of $1,020. Such shares of Class B and Class A common stock
represented 64% and 2%, respectively, of the total number shares of capital
stock of Telecom then outstanding. Concurrently, the Company received 1,607,273
shares of Class A common stock, representing 34% of the total number of shares
of capital stock of Telecom then outstanding in exchange for $340. All of the
above references to shares of common stock of Telecom have been adjusted to
reflect a 13 for 1 stock split which occurred in February 1996 and a 1 for 2.75
reverse stock split which occurred in October 1996, but are prior to the
issuance of anti-dilutive shares described below.
Under the Purchase Agreement, Landover agreed to invest or cause to be
invested $7,000,000 in ART, Telecom and their affiliates (the "Landover Funding
Commitment"). In consideration for this $7,000,000 investment, Telecom agreed to
issue preferred stock, the number of shares of which would be designated by
Landover. Under the anti-dilution provisions of the Class A common stock, in
respect of each such preferred stock issuance, Telecom agreed to issue, for no
consideration, additional shares of Class A common stock in number necessary to
maintain the 36% ownership interest in Telecom of the holders of Class A common
stock.
Under the Purchase Agreement, the individual shareholders of the Company
were required to place 1,874,101 shares of Common Stock in the Company in escrow
(the "Escrow Shares") to be released upon the completion of the then pending EMI
Asset acquisition (see Note 8), Telecom's attainment of specific operating
income levels for the years 1997 through 1999 and the acquisition of interests
in a specified number of FCC license authorizations by April 30, 2000. As a
result of the consummation of the EMI Asset acquisition, in November 1995,
681,102 of the Escrow Shares of ART were released. The fair value of the Escrow
Shares released in 1995, amounting to $802,002, has been accounted for as an
equity investment in Telecom, the effect of which has been recognized as
additional paid-in capital in the Company. Pursuant to the February 2, 1996
Reorganization, the Escrow Shares arrangement was terminated and all of the
remaining Escrow Shares were released to the stockholders of the Company. The
fair value of the remaining Escrow Shares released, in the amount of
approximately $6.8 million, will be accounted for in the same manner during
1996.
B -- MERGER
Under the terms of the Purchase Agreement, the Company and Telecom intend to
operate both companies as a single enterprise and are committed to merge if and
when permitted by the FCC.
F-15
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
2. PURCHASE AGREEMENT, CONTINUED:
Concurrent with the Purchase Agreement, the Company and Telecom entered into an
exclusive 20-year services agreement (the "Services Agreement") for the
construction, development and operation of systems in the Company's markets (see
Note 6).
On February 2, 1996, the Company, Telecom and their respective shareholders
agreed to an amendment and restatement of the Stockholders' Agreement providing
for (i) termination effective on the closing of a public share offering, (ii)
amendment and restatement of the Certificate of Incorporation and reorganization
of the capital structure of Telecom; (iii) the exchange of the Advent Notes and
one share of ART Series A Redeemable Preferred Stock for shares of Series E
preferred stock of Telecom (see Note 4); (iv) revision of provisions for
election of directors; (v) amendment and restatement of ART's registration
rights agreements; (vi) release of shares escrowed in connection with the
original Stockholders' Agreement; and (vii) approval of a definitive agreement
to merge the Company and Telecom (the "Reorganization").
C -- AMENDED MERGER
The definitive merger agreement, as entered into on February 2, 1996 and
subsequently restated and amended on June 26, 1996 and October 11, 1996, (the
"Merger Agreement") provides for the merger of a newly-formed wholly-owned
subsidiary of the Company ("Merger Sub") into Telecom (the "Merger") subject to
certain conditions, including the receipt of FCC approval. Prior to the Merger,
each outstanding share of each series of Telecom's serial preferred stock will
be converted into a share of a similar series of the Company's Preferred Stock.
Upon an initial public offering, all series of the Company's Preferred Stock
shall automatically convert into shares of the Company's Common Stock. Such
shares of preferred stock of Telecom outstanding at October 11, 1996 (920,951)
shall convert into 4,353,587 shares of Common Stock. In the Merger, each
outstanding share of common stock of Telecom will be exchanged for the right to
receive an equal number of shares of Common Stock of the Company. As a result,
Telecom will become a wholly owned subsidiary of the Company. The Merger
Agreement provides that if the Merger is not consummated by May 13, 1997, the
shares of Telecom's common stock owned by the Company will be surrendered to
Telecom, and the Services Agreements is to be revised to, among other revisions,
extend the term to 40 years and provide for a proportionate participation by the
Company's stockholders in any dividends paid by Telecom or the proceeds from any
sale of Telecom. The Merger Agreement also provides for the assignment of
Telecom's interests in all of its agreements, including the various services
agreements, employment agreements, equipment purchase agreements and purchase
option agreements, to the Company. Further, upon the Merger, the holders of
warrants to purchase an aggregate of 1,040,776 shares of Telecom common stock
will be entitled to purchase an equivalent number of shares of Common Stock.
Employee stock options to purchase 813,342 shares of Telecom's common stock will
be replaced by stock options to purchase an equivalent number of shares of
Common Stock of the Company. The terms of the warrants and stock options are
similar except that the exercise price of the warrants and options, and the
number of shares subject thereto, have been adjusted on a proportional basis to
reflect the 1 for 2.75 reverse stock split.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DEVELOPMENT STAGE ENTERPRISE
The Company is a development stage enterprise as defined in Statement of
Financial Accounting Standards No. 7, "Accounting and Reporting by Development
Stage Enterprises." The financial statements have been prepared on the going
concern basis of accounting.
F-16
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation and amortization is
computed using the straight-line method over the estimated useful lives of three
years.
INVESTMENTS
The Company accounts for its 50% interest in the ART West joint venture and
its 34% interest in Telecom under the equity method.
FCC LICENSES
The Company has obtained radio spectrum rights under FCC issued
authorizations and licenses throughout the United States by petitioning the FCC
directly and through the purchase of such rights held by others. Such licenses
are issued for an initial term of six years and are renewable subject to review
by the FCC. The costs associated with the acquisition of such licenses are
capitalized and amortized on a straight-line basis over a 40-year period
beginning upon commencement of operations in the related market. The 40-year
period is based upon management's license renewal expectations.
RECOVERABILITY OF LONG-LIVED ASSETS
The recoverability of property and equipment and capitalized FCC
authorizations and licenses is dependent upon the successful development of
systems in each of the respective markets, or through sale of such assets.
Management estimates that it will recover the carrying amount of those costs
from cash flow generated by the systems once they have been developed. However,
it is reasonably possible that such estimate will change as a result of the
failure to develop the FCC authorizations on a timely basis, or technological,
regulatory or other changes.
The Company's policy is to assess annually any impairment in value based
upon a comparison of projected operating cash flows from each market over its
expected period of operation, on an undiscounted basis, to the carrying amount
of the property and equipment, licenses and other capitalized costs related to
the market.
FINANCING COSTS
Direct costs associated with obtaining debt financing are deferred and
charged to interest expense using the effective interest rate method over the
term of the debt. Direct costs associated with obtaining equity financing are
deferred and charged to additional paid-in capital as the related funds are
raised. Deferred costs associated with unsuccessful financings are charged to
expense.
Accumulated amortization of deferred financing costs totaled $44,376 at
December 31, 1995.
REVENUE RECOGNITION
Revenue from telecommunications services are recognized ratably over the
period such services are provided.
During 1994, the Company recognized income from consulting fees associated
with the application of FCC licenses on behalf of third parties, including
consulting fees of approximately $80,000 from Extended.
F-17
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
INCOME TAXES
The Company accounts for income taxes under the liability method of
accounting. Under the liability method, deferred taxes are determined based on
the differences between the financial statement and tax bases of assets and
liabilities at enacted tax rates in effect in the year in which the differences
are expected to reverse. Valuation allowances are established, when necessary,
to reduce deferred tax assets to the amounts expected to be realized.
NET LOSS PER SHARE
Historical net loss per share is computed based on the loss for the period
divided by the weighted average number of shares of Common Stock outstanding
during the period. Historical net loss per share and the weighted average number
of shares of Common Stock outstanding are as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEARS ENDED FROM AUGUST 23,
DECEMBER 31, 1993 (DATE OF
----------------------------- INCEPTION) TO
1995 1994 DECEMBER 31, 1993
-------------- ------------- ------------------
<S> <C> <C> <C>
Net loss per share.................................. $ 0.35 $ 0.04 $ --
-------------- ------------- ------------------
-------------- ------------- ------------------
Weighted average number shares of Common Stock
outstanding........................................ 3,641,111 3,337,685 1,820,555
-------------- ------------- ------------------
-------------- ------------- ------------------
</TABLE>
The Securities and Exchange Commission requires that potentially dilutive
instruments issued within one year prior to a proposed initial public offering
at exercise prices below the expected initial public offering price be treated
as outstanding for all periods presented. Accordingly, an additional 7,359,239
shares are reflected in the weighted average number of shares of Common Stock
outstanding in computing the unaudited pro forma net loss per share for the year
ended December 31, 1995.
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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
4. NOTE RECEIVABLE FROM TELECOM AND CONVERTIBLE NOTES PAYABLE TO ADVENT:
The Company, Telecom and several entities affiliated with Advent
International Corp. (collectively, "Advent"), entered into a securities purchase
agreement (the "Advent Purchase Agreement") dated November 13, 1995 under which
Advent agreed to acquire a 10% interest in the combined entities of the Company,
Telecom and certain specified affiliates. Pending the merger of these entities
(see Note 2), the Company issued promissory notes (the "Advent Notes") with an
aggregate principal amount of $4,950,000 and one share of the Company's Series A
Redeemable Preferred Stock in exchange for $5,000,000 in cash.
The Advent Notes carried interest at a rate of 10% per annum and were
payable on demand at any time on or after May 13, 1997. The Advent Notes were
collateralized by certain assets of the Company and Telecom. The Advent Notes
were convertible into that number of shares of preferred stock which represented
in the aggregate at least 10% of the fully diluted capital stock of the combined
entities
F-18
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
4. NOTE RECEIVABLE FROM TELECOM AND CONVERTIBLE NOTES PAYABLE TO
ADVENT, CONTINUED:
described above, as defined in the Advent Purchase Agreement. The Advent Notes
were convertible either (i) immediately prior to an initial public offering with
aggregate gross proceeds of at least $10,000,000 or (ii) at Advent's election.
At December 31, 1995, the Company accrued interest expense of $66,542 on the
Advent Notes, which has been included in accounts payable and accrued
liabilities.
On November 13, 1995, the gross proceeds of $5,000,000 received by the
Company from Advent were transferred to Telecom in exchange for a note with
terms equivalent to the terms of the Advent Notes. On February 2, 1996, the
Company, Telecom and Advent entered into an exchange agreement under which the
Advent Notes, including accrued interest, and the one share of ART Series A
Redeemable Preferred Stock held by Advent were exchanged for 232,826 shares of
Series E preferred stock of Telecom, and the note was canceled. As a result, the
Advent Notes were canceled and Telecom became the owner of the one share of the
ART Series A Redeemable Preferred Stock.
5. EQUITY INVESTMENTS:
A -- INVESTMENT IN ART WEST JOINT VENTURE
On April 4, 1995, the Company entered into an agreement with Extended to
form ART West, a jointly controlled general partnership established to acquire,
develop, and operate radio systems using 38 GHz licenses in certain western
states of the U.S. The ART West joint venture will continue until December 31,
2055, unless terminated earlier. The Company's initial capital contribution
consisted of $255,000 in cash, FCC licenses and related assets with a carrying
value of approximately $5,000, and 26,773 shares of Common Stock of ART.
Extended's initial capital contribution consisted of $5,000 in cash and FCC
licenses. The combined systems are collectively referred to as the ART West
Systems. Additionally, Extended received distributions of $250,000 in cash and
the 26,773 shares of Common Stock contributed by the Company to ART West. As a
result of these contributions and distributions, the Company and Extended share
equally in the partnership interests of ART West. The Company recorded its
investment in ART West in the amount of $285,000. The excess of the Company's
share of the underlying net assets of ART West over the Company's recorded
investment will be amortized over the life of the ART West Systems.
On October 1, 1994, ART entered into an exclusive services agreement with
Extended, whereby ART is responsible for the construction, operation and
management of Extended's telecommunications systems. The term of the Agreement
is for five years. In connection with the formation of ART West, Extended
assigned its interest in the services agreement to ART West. Under the terms of
the services agreement, ART will incur all costs and expenses related to
construction, operation and management of the systems. As compensation, ART will
receive all revenues generated by the systems after deducting certain related
direct expenses, less 45% which is to be paid to ART West. ART's interest in
this service agreement was subsequently assigned to Telecom (Note 6). An officer
of ART is also the President and a shareholder of Extended.
B -- ART WEST JOINT VENTURE ACQUISITION AND MANAGEMENT AGREEMENTS
In June 1996, the Company agreed to acquire Extended's 50% ownership
interest in ART West for $6,000,000 in cash upon consummation of public equity
and debt offerings with aggregate net proceeds of $125.0 million to the Company
and receipt of FCC approval. In addition, the Company entered into a ten-year
management agreement which, effective June 1, 1996, replaces the services
agreement referred to above with an arrangement whereby the Company agrees to
construct, operate and manage the ART West Systems in exchange for a license fee
equal to 10% of recurring operating revenues.
F-19
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
5. EQUITY INVESTMENTS, CONTINUED:
C -- INVESTMENT IN TELECOM
The Company acquired 1,607,273 shares of Class A common stock of Telecom, or
34% of the outstanding and issued shares, for cash of $340 (see Note 2). The
Company also recorded $802,002 as an investment in Telecom based upon the fair
value of Escrow Shares released in 1995 (see Note 2). The excess of the
Company's share of the underlying net assets of Telecom over the Company's
recorded investment will be amortized over the estimated useful life of
Telecom's FCC licenses.
The Company recognizes its proportionate share of the losses of Telecom in
excess of its investment to the extent of its funding and financial commitments.
During 1995, the Company recognized its proportionate share of Telecom's loss in
the amount of $1,013,885. Summarized financial information for Telecom as of
December 31, 1995 and for the period from March 28, 1995 (date of inception) to
December 31, 1995 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
---------------
<S> <C>
Total current assets................................................................... $ 1,418,590
Property and equipment, net............................................................ 3,579,838
FCC licenses........................................................................... 4,226,821
Other assets........................................................................... 605,366
---------------
Total assets......................................................................... $ 9,830,615
---------------
---------------
Total current liabilities.............................................................. $ 3,450,537
Note payable to EMI.................................................................... 1,500,000
Note payable to ART.................................................................... 5,000,000
Total stockholders' deficit............................................................ (119,922)
---------------
Total liabilities and stockholders' deficit.......................................... $ 9,830,615
---------------
---------------
<CAPTION>
MARCH 28, 1995
(DATE OF
INCEPTION) TO
DECEMBER 31,
1995
---------------
<S> <C>
Operating revenue...................................................................... $ 5,793
Expenses............................................................................... 2,986,866
---------------
Net loss............................................................................... $ 2,981,073
---------------
---------------
</TABLE>
6. TELECOM SERVICES AGREEMENT:
The Company entered into an exclusive Services Agreement with Telecom, for
the construction, operation and management of the FCC licenses and related
telecommunications systems that are owned by ART or for which ART has existing
services agreements. Under the Services Agreement, Telecom will incur all costs
and expenses related to construction, operation and management of the systems.
As compensation, Telecom will receive all revenues generated by the systems
after deducting certain related direct expenses, less 25% which is to be paid to
the Company. The Services Agreement is for a period of 20 years.
Through this Services Agreement, the Company has assigned its interests in
other similar services agreements with ART West (see Note 5) and DCT (see Note
7). There have been no services provided through December 31, 1995 on any of the
services agreements.
F-20
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
7. DCT AGREEMENTS:
SYSTEM PURCHASE AGREEMENT
On September 1, 1994, the Company entered into an agreement with DCT
Communications, Inc. ("DCT"), in which the Company obtained the option to
purchase certain FCC licenses (the "Systems") from DCT for $500,000 and shares
of ART Common Stock that represent 5% of its fully diluted equity as of the date
of transfer. The option is exercisable at any time after December 31, 1995 and
up to the date that is three years after the FCC issues DCT's first license. At
any time after December 31, 1995, DCT may require that the Company purchase the
Systems for $50,000, plus reimbursement of certain costs defined in the
agreement.
SERVICES AGREEMENT
On September 1, 1994, the Company entered into an exclusive services
agreement with DCT whereby the Company is responsible for the construction,
operation and management of DCT's Systems. The term of the agreement is for five
years. Under the terms of the services agreement, the Company will incur all
costs and expenses related to construction, operation and management of the
systems. As compensation, the Company will receive all revenues generated by the
systems after deducting certain related direct expenses, less 45% which is to be
paid to DCT.
CONSULTING AND LOAN AGREEMENT
On March 13, 1995, the Company entered into a consulting and loan agreement
(the "Consulting and Loan Agreement"). Under the terms of the Consulting and
Loan Agreement, DCT agreed to loan the Company $8,500, bearing interest at 9%
per annum. The loan, including interest of $431, was due and paid on August 31,
1995.
DCT PRELIMINARY AGREEMENT
On April 25, 1996, the Company and Telecom entered into a preliminary
agreement with DCT to acquire DCT's interest in certain FCC authorizations and
licenses in exchange for $3.6 million in cash, subject to the completion of a
definitive purchase agreement and services agreement. The definitive purchase
agreement will supersede and replace all other existing agreements between DCT
and the Company. The definitive purchase agreement must be signed by June 28,
1996 and the closing of the transaction is subject to FCC approval.
8. COMMITMENTS:
ACQUISITION OF ASSETS OF EMI
On April 4, 1995, the Company entered into a purchase option agreement with
EMI to acquire EMI's interest in certain 38 GHz radio spectrum licenses and
related assets in the northeastern United States (the "EMI Assets") in exchange
for $3,000,000 in cash and a three year non-negotiable promissory note in the
amount of $1,500,000. Pursuant to the Purchase Agreement (see Note 1), in
November, 1995, the Company assigned its rights and obligations under the
purchase option agreement to Telecom. The FCC subsequently approved the transfer
of the EMI licenses and Telecom directly acquired the EMI Assets in November
1995. The Company has also issued a guarantee to EMI of the obligations of
Telecom under the promissory note.
TELECOM ONE OPTION
On May 25, 1995, the Company entered into an agreement with TeleCom One
Incorporated ("TeleCom One") whereby the Company agreed to assist TeleCom One in
its applications for certain
F-21
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
8. COMMITMENTS, CONTINUED:
FCC licenses (the "TeleCom One Agreement"). Under the terms of the TeleCom One
Agreement, in exchange for its services, the Company acquired options to
purchase a 49% interest in each of the FCC licenses obtained by TeleCom One at a
purchase price of $.0133 per person covered by the geographic license area. The
term of the TeleCom One Agreement is five years. The Company has not exercised
any of its options.
EMPLOYMENT AND CONSULTING AGREEMENTS
On May 8, 1995, the Company and Telecom jointly entered into consulting
agreements with two executive officers of the Company and Telecom, effective as
of January 1, 1995 and continuing for a term of three years, with minimum
payments aggregating approximately $170,000 annually. The costs associated with
these contracts have been recorded by Telecom and no amounts have been charged
to the Company.
On December 16, 1995, one of the executive officers of the Company and
Telecom, previously a party to one of the consulting agreements described above,
entered into a full-time employment agreement. The employment agreement is for a
three-year term with an annual salary of $250,000 in the first year, $275,000 in
the second year and $300,000 in the third year. In addition, the agreement
provides for a cash bonus of up to $100,000 for each year based upon achievement
of specific performance objectives. The costs associated with this contract have
been recorded by Telecom and no amounts have been charged to the Company.
On July 11, 1995, the Company and Telecom entered into an employment
agreement, as amended January 8, 1996, with an officer of the Company and
Telecom. The term of the agreement is three years at an annual salary of
$160,000 in the first year, $200,000 in the second year and $240,000 in the
third year. Options to purchase shares of Telecom common stock were awarded to
this officer equivalent to 2.5% of the outstanding capital stock of Telecom. The
agreement also provides for an engagement bonus of $17,000 upon execution of the
agreement and a cash bonus of up to $100,000 for each year based upon
achievement of specific performance objectives. The costs associated with this
contract have been recorded by Telecom and no amounts have been charged to the
Company.
The Company and Telecom have also entered into employment agreements with
other executives that provide for annual base salaries and cash bonuses based on
achievement of specific performance goals. These contracts may be terminated at
any time by management.
FINANCING AGREEMENT
During 1994, the Company entered into an agreement with Southeast Research
Partners ("SERP"), a subsidiary of Josephthal, Lyons & Ross, a Florida broker
dealer, to procure additional financing for the Company in exchange for cash and
options to purchase capital stock of the Company. Pursuant to a letter agreement
dated July 12, 1995, the Company and Telecom paid SERP $245,000 and the
shareholders of the Company granted SERP options to purchase 114,041 shares of
the Company's Common Stock directly from the Founding Stockholders for an
aggregate consideration of $210,000.
As of December 31, 1995, the Company and Telecom have accounted for the fee
of $245,000 as part of the financing provided by Landover and, accordingly,
$175,000 has been recorded as deferred financing costs related to the issuance
of the Advent Notes (See Note 4) and the balance of $70,000 has been recognized
as an offset against the proceeds from the issuance of the serial preferred
stock of Telecom.
F-22
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
9. COMMON STOCK:
On April 5, 1994, the Board of Directors authorized a 5 for 1 stock split.
Subsequently, on April 5, 1995, the Board of Directors authorized a 1 for 5
reverse stock split and simultaneously issued an additional 1,472,508 shares of
Common Stock.
On May 30, 1996, the Board of Directors authorized a 29,450.16 for 1 stock
split, increased the number of authorized shares of Preferred Stock and Common
Stock to 10,000,000 and 100,000,000, respectively, and changed the par value per
share from $.01 to $.001. On October 11, 1996, the Board of Directors authorized
a 1 for 2.75 reverse stock split of shares of Common Stock issued and
outstanding. All references to the number of shares and per share amounts of the
Company's Common Stock in the accompanying financial statements have been
restated to reflect the 5 for 1 stock split, the 1 for 5 reverse stock split,
the 29,450.16 for 1 stock split and the 1 for 2.75 reverse stock split, unless
otherwise indicated. All par value amounts have been restated to reflect the
change in par value to $.001 per share.
10. INCOME TAXES:
As of December 31, 1995 and 1994, the Company has net operating loss
carry-forwards for income tax purposes of approximately $390,000 and $134,000,
respectively, which will expire between 2008 and 2010. Deferred tax assets of
approximately $130,000 and $46,000 at December 31, 1995 and 1994, respectively,
principally comprised of such net operating tax loss carry-forwards, have been
offset in full by a valuation allowance.
11. RELATED PARTY TRANSACTIONS:
On May 8, 1995, the Company and Telecom entered into a consulting agreement
with Landover as a strategic and financial consultant. Telecom paid Landover
$70,000 for services under this agreement during 1995. The consulting agreement
was terminated on November 13, 1995.
On November 13, 1995, the Company and Telecom entered into a management
consulting agreement with Landover to provide strategic planning, corporate
development and general management. Under the agreement, the Company and Telecom
will pay Landover $35,000 per month for an initial one year term, renewable by
the Company and Telecom for two additional one year terms. The aggregate expense
recognized by Telecom under this agreement during 1995 amounted to $70,000.
These expenses have been recorded by Telecom and no portion of such costs have
been charged to the Company. The agreement also provides that in the event
Landover arranges financing, acquisitions or certain other transactions for the
Company and Telecom, Landover will be paid a fee in accordance with industry
standards.
Pursuant to the Purchase Agreement, the Company and Telecom paid Landover
$391,750 for expenses in connection with the Landover Funding Commitment, of
which $250,000 has been capitalized as deferred financing costs by the Company
and the balance of $141,750 has been charged to paid-in capital of Telecom.
Telecom has funded certain expenses and investments of the Company,
including the Company's investment in ART West and payments of financing and
other operating costs. The amounts funded by Telecom to date totaling $805,803,
offset by accrued interest income of $67,123 related to the note receivable from
Telecom (see Note 4) have been included in the amount due to Telecom.
In 1994, the Company shared office space with a law firm in which a
principal of the law firm was also one of the Founding Stockholders. The Company
paid rent in the amount of $6,353 to the law firm for the use of their office
space. The law firm also regularly provides legal services to the Company.
During 1995 and 1994, the Company incurred fees of $34,770 and $74,550,
respectively, for such services.
F-23
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
12. FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amounts and fair values of the Company's financial instruments
at December 31 were as follows:
<TABLE>
<CAPTION>
1995 1994
---------------------------- --------------------
CARRYING CARRYING FAIR
AMOUNT FAIR VALUE AMOUNT VALUE
------------- ------------- --------- ---------
<S> <C> <C> <C> <C>
Note receivable from Telecom................................ $ 5,000,000 $ 5,000,000 -- --
Notes payable............................................... 4,950,000 4,950,000 $ 70,000 $ 70,000
</TABLE>
Note receivable from Telecom: The carrying amounts reported in the balance
sheet are a reasonable estimate of fair values.
Notes payable: The carrying amounts reported in the balance sheet
approximate fair values based upon interest rates that are currently available
to the Company for issuance of similar debt with similar terms and maturities.
F-24
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED INTERIM CONDENSED BALANCE SHEETS
AS OF JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
-------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash.............................................................................. $ 5,538 $ 2,989
-------------- ------------
Total current assets.......................................................... 5,538 2,989
Equity investments.................................................................. 1,551,302 150,000
FCC licenses........................................................................ 8,913
Property and equipment, net......................................................... 6,344
Other assets........................................................................ 21,479 29,703
-------------- ------------
Total assets.................................................................. $ 1,587,232 $ 189,036
-------------- ------------
-------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities.......................................... $ 2,500 $ 25,070
Due to Telecom.................................................................... 498,100 315,000
-------------- ------------
Total current liabilities..................................................... 500,600 340,070
Equity loss in excess of investment................................................. 53,998
-------------- ------------
Total liabilities............................................................. 500,600 394,068
-------------- ------------
Redeemable Preferred Stock, $.01 par value; 10,000,000 shares authorized; 1 share
issued and outstanding at June 30, 1996............................................ 44,930
-------------- ------------
Commitments and contingencies
Stockholders' equity (deficit):
Common Stock, $.001 par value; 100,000,000 shares authorized; 3,641,111 shares
issued and outstanding........................................................... 3,641 3,641
Additional paid-in capital........................................................ 7,790,261 192,745
Deficit accumulated during the development stage.................................. (6,752,200) (401,418)
-------------- ------------
Total stockholders' equity (deficit).......................................... 1,041,702 (205,032)
-------------- ------------
Total liabilities and stockholders' equity (deficit)........................ $ 1,587,232 $ 189,036
-------------- ------------
-------------- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-25
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED INTERIM CONDENSED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
-------------- -----------
<S> <C> <C>
Expenses:
General and administrative........................................................... $ 24,939 $ 204,937
Depreciation and amortization........................................................ 6,052 6,054
Interest expense, net................................................................ 671 875
-------------- -----------
Total expenses................................................................... 31,662 211,866
Equity loss on investment in Telecom................................................... 5,317,669 54,338
-------------- -----------
Net loss......................................................................... $ 5,349,331 $ 266,204
-------------- -----------
-------------- -----------
Pro forma net loss per share........................................................... $ 0.49
--------------
--------------
Pro forma weighted average number of shares of Common Stock outstanding................ 11,000,350
--------------
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-26
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED INTERIM CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
-------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss.............................................................................. $ (5,349,331) $ (266,204)
Adjustments to reconcile net loss to net cash used in operating activities:
Non-cash interest expense........................................................... 44,507
Depreciation and amortization....................................................... 6,052 6,054
Equity loss on investment in Telecom................................................ 5,317,669 54,338
Changes in operating assets and liabilities:
Accounts payable and accrued liabilities............................................ (19,428) 14,008
-------------- ------------
Net cash used in operating activities............................................. (531) (191,804)
-------------- ------------
Cash flows from investing activities:
Investment in ART West................................................................ (125,000)
-------------- ------------
Net cash used in investing activities............................................. (125,000)
-------------- ------------
Cash flows from financing activities:
Due to Telecom........................................................................ 315,000
Investment in Telecom................................................................. (340)
-------------- ------------
Net cash provided by financing activities......................................... 314,660
-------------- ------------
Net decrease in cash.............................................................. (531) (2,144)
Cash, beginning of period............................................................... 6,069 5,133
-------------- ------------
Cash, end of period..................................................................... $ 5,538 $ 2,989
-------------- ------------
-------------- ------------
Supplemental cash flow information:
Non-cash investing and financing activities:
Investment in ART West................................................................ $ 25,000
Conversion of note payable and interest into Common Stock............................. $ 75,250
Release of escrow shares and increase in investment in Telecom........................ $ 6,795,514
Exchange of Advent Notes and ART Notes for Telecom serial preferred stock, net of
deferred financing costs............................................................. $ 4,673,186
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-27
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS
1. FORMATION OF THE COMPANY AND BASIS OF PRESENTATION:
THE COMPANY
Advanced Radio Technologies Corporation ("ART" or the "Company") was
organized as a Delaware corporation on August 23, 1993, to provide broadband
wireless digital telecommunications services to the domestic telecommunications
market.
BASIS OF PRESENTATION
The unaudited interim condensed financial statements included herein have
been prepared by the Company. The foregoing statements contain all adjustments
(consisting only of normal recurring adjustments) which are, in the opinion of
the Company's management, necessary to present fairly the financial position of
the Company as of June 30, 1996 and 1995, and the results of its operations and
its cash flows for the six months ended June 30, 1996 and 1995.
Certain information and footnote disclosures normally included in financial
statements have been condensed or omitted pursuant to the rules and regulations
of the Securities and Exchange Commission. These condensed financial statements
should be read in conjunction with the Company's December 31, 1995 audited
financial statements and notes thereto.
The financial statements have been prepared on the going concern basis of
accounting, which contemplates realization of assets and liquidation of
liabilities in the ordinary course of business. The Company has limited
financial resources, incurred operating losses since inception and does not
expect to recognize material operating revenues until the commencement of its
commercial services, which is anticipated to occur in fiscal 1996. The Company
estimates that revenues in 1996 will not be sufficient to fund its initial
operating expenses and other working capital needs, including consulting,
service and purchase commitments. The Company's continued funding of its initial
operating expenses, working capital needs and contractual commitments is
dependent upon its ability to raise additional financing. The Company and
Advanced Radio Telecom Corp. ("Telecom") (see Note 2) have engaged various
investment bankers to assist them in raising financing through a public equity
and debt offering. There can be no assurance that the Company and Telecom will
be successful in their effort to raise additional financing through this public
offering or, if available, that the Company and Telecom will be able to obtain
it on acceptable terms. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. The financial statements do
not include any adjustments that might result from the outcome of these
uncertainties.
2. STOCKHOLDERS' AGREEMENT:
On February 2, 1996, the Company, Telecom and their respective shareholders
agreed to an amendment and restatement of the Stockholders' Agreement providing
for (i) termination effective on the closing of a public share offering, (ii)
amendment and restatement of the Certificate of Incorporation and reorganization
of the capital structure of Telecom; (iii) the exchange of the Advent Notes and
one share of ART Series A Redeemable Preferred Stock for shares of Series E
preferred stock of Telecom; (iv) revision of provisions for election of
directors; (v) amendment and restatement of ART's registration rights
agreements; (vi) release of shares escrowed in connection with the original
Stockholders' Agreement; and (vii) approval of the definitive merger agreement.
The definitive merger agreement, as entered into on February 2, 1996 and
subsequently restated and amended on June 26, 1996 and October 11, 1996 (the
"Merger Agreement"), provides for the merger of a newly-formed wholly owned
subsidiary of the Company ("Merger Sub") into Telecom (the "Merger") subject to
certain conditions, including the receipt of FCC approval. Prior to the Merger,
each outstanding share of each series of Telecom's serial preferred stock will
be converted into a share of a similar series of the Company's Preferred Stock.
Upon an initial public offering, all shares of all series of the Company's
Preferred Stock shall automatically convert into shares of the Company's Common
Stock. Such shares of preferred stock of Telecom outstanding at October 11, 1996
(920,951) shall
F-28
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS, CONTINUED
2. STOCKHOLDERS' AGREEMENT: CONTINUED:
convert into 4,353,587 shares of Common Stock. In the Merger, each outstanding
share of common stock of Telecom will be exchanged for the right to receive an
equal number of shares of Common Stock of the Company. As a result, Telecom will
become a wholly owned subsidiary of the Company. The Merger Agreement provides
that if the Merger is not consummated by May 13, 1997, the shares of Telecom's
common stock owned by the Company will be surrendered to Telecom and the
Services Agreement is to be revised to, among other revisions, extend the term
to 40 years and provide for a proportionate participation by the Company's
stockholders in any dividends paid by Telecom or the proceeds from any sale of
Telecom. The Merger Agreement also provides for the assignment of Telecom's
interests in all of its agreements, including the various services agreements,
employment agreements, equipment purchase agreements and purchase option
agreements, to the Company. Further, upon the Merger, the holders of warrants to
purchase an aggregate of 1,040,776 shares of Telecom common stock will be
entitled to purchase an equal number of shares of Common Stock. Employee stock
options to purchase 813,342 shares of Telecom's common stock will be replaced by
stock options to purchase an equal number of shares of common stock of the
Company. The terms of the warrants and stock options are similar except that the
exercise price of the warrants and stock options and the number of shares
subject thereto, have been adjusted on a proportional basis to reflect the 1 for
2.75 reverse stock split.
3. NET LOSS PER SHARE
Historical net loss per share is computed based on the loss for the period
divided by the weighted average number of shares of Common Stock outstanding
during the period. Historical net loss per share and the weighted average number
of shares of Common Stock outstanding are as follows:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30,
----------------------------
1996 1995
------------- -------------
<S> <C> <C>
Net loss per share.............................................. $ 1.47 $ .07
------------- -------------
------------- -------------
Weighted average number shares of Common Stock outstanding...... 3,641,111 3,641,111
------------- -------------
------------- -------------
</TABLE>
The Securities and Exchange Commission requires that potentially dilutive
instruments issued within one year prior to a proposed initial public offering
at exercise prices below the expected initial public offering price be treated
as outstanding for all periods presented. Accordingly, an additional 7,359,239
shares are reflected in the weighted average number of shares of Common Stock
outstanding in computing the unaudited pro forma net loss per share for the six
months ended June 30, 1996.
4. NOTES RECEIVABLE FROM TELECOM AND CONVERTIBLE NOTE PAYABLE TO ADVENT:
On February 2, 1996, the Company, Telecom and Advent entered into an
exchange agreement under which the Advent Notes, including accrued interest, and
the one share of ART's Series A Redeemable Preferred Stock held by Advent were
exchanged for 232,826 shares of Series E preferred stock of Telecom, and the
notes payable by the Company to Advent and by Telecom to the Company were
canceled, the related interest forgiven, and Telecom became the owner of the one
share of ART Series A Redeemable Preferred Stock.
5. INVESTMENTS:
The Company accounts for its 50% interest in the ART West joint venture and
its 34% interest in Telecom under the equity method.
In June 1996, the Company agreed to acquire Extended's 50% ownership
interest in ART West for $6 million in cash upon consummation of public equity
and debt offerings with aggregate net proceeds
F-29
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS, CONTINUED
5. INVESTMENTS: CONTINUED:
of $125 million to the Company and receipt of FCC approval. In addition, the
Company entered into a ten-year management agreement which, effective June 1,
1996, replaced the services agreement with ART West with an arrangement whereby
the Company agrees to construct, operate, and manage the ART West systems in
exchange for a license fee equal to 10% of recurring operating revenues.
During 1995, the Company recorded $802,002 as an investment in Telecom based
upon the fair value of Escrow Shares released in 1995, the effect of which was
recognized as additional paid-in capital in the Company. On February 2, 1996,
the Company recorded an additional $6,795,514 based on the fair value of the
remaining Escrow Shares released, which was accounted for in the same manner.
The Company recognizes its proportionate share of the losses of Telecom to
the extent of its investment, funding and financial commitments. During 1996 and
1995, the Company has recognized its proportionate share of the losses of
Telecom in the amount of $5,317,669 and $54,338, respectively.
6. COMMCOCCC ASSET ACQUISITION:
During July 1996, the Company entered into an agreement with CommcoCCC, Inc.
("CommcoCCC") to acquire CommcoCCC's interests in certain 38 GHz FCC
authorizations (the "CommcoCCC Assets") in exchange for 6.0 million shares of
Common Stock. The acquisition of the CommcoCCC Assets is subject to various
conditions including (i) minimum population coverage of the authorizations of
the Company and CommcoCCC, (ii) receipt of final FCC and other approvals, (iii)
receipt by CommcoCCC of an opinion as to the tax-free nature of the transaction
(iv) the accuracy of representations and warranties except for breaches that do
not have in the aggregate a material adverse effect, (v) no pending or
threatened material litigation, (vi) consummation of public equity and debt
offerings on terms reasonably satisfactory to CommcoCCC and (vii) other
customary closing conditions. Pending the completion of the acquisition, the
Company has agreed to construct, manage and operate the CommcoCCC Assets.
The Company has given a stockholder ("Commco LLC") of CommcoCCC an option
(the "Option") to purchase FCC authorizations in specified market areas in which
the Company will have more than one authorization. The Option is exercisable
only in the event that the CommcoCCC Acquisition is consummated and Commco LLC
receives authorizations pursuant to pending applications covering a minimum
specified population and expires nine months after the consummation of the
Common Stock Offering. The price of authorizations to be purchased under the
Option is based upon a formula that considers the market price of Common Stock
on the date of exercise.
In connection with the agreement to acquire the CommcoCCC Assets, certain
stockholders of CommcoCCC loaned the Company and Telecom $3,000,000 in cash in
exchange for notes due September 30, 1996 (the "CommcoCCC Notes") with interest
at the prime rate and received three year warrants to purchase 18,182 shares of
Common Stock at a price of $17.1875 per share, as adjusted. The CommcoCCC Notes
are collateralized by all of the assets of the Company and, if not paid in full
when due, the unpaid balance is convertible into Common Stock, at the option of
each holder, at stipulated per share prices based upon the timing of exercise.
As a result of a delay in the September 30, 1996 repayment, the Company and
Telecom have obtained waivers from the lenders to extend the payment terms until
the earlier of the effective date of an initial public offering of the Company's
Common Stock or December 31, 1996. In exchange the Company and Telecom agreed to
issue additional warrants to purchase 69,090 shares of the Company's Common
Stock at a price of $17.1875 per share and increase the interest rate to 14.75%.
7. RELATED PARTY TRANSACTIONS:
Telecom has funded the payment of certain expenses of the Company, including
financing costs. The amounts funded by Telecom during the six months ended June
30, 1996 totaled $175,000. The
F-30
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS, CONTINUED
7. RELATED PARTY TRANSACTIONS: CONTINUED:
balance resulting from the funding activities, offset by the net effect of the
conversion of the Advent Notes and the cancellation of the note receivable from
Telecom (Note 3), is shown as due to Telecom in the accompanying balance sheet.
8. FINANCINGS:
A -- CIBC FINANCING
During October 1996, the Company entered into a commitment letter which
provides that upon consummation of an initial public offering (the "IPO") the
Company may draw down $50.0 million of 12.5% Senior Secured Notes, due in two
years. The interest rate on the Senior Secured Notes increases by 0.50% three
months after the closing of the IPO and by an additional 0.50% for each
three-month period thereafter.
The Senior Secured Notes are collateralized by a first priority security
interest in substantially all the assets of the Company, including a pledge of
the Company's stock in its subsidiaries. The Senior Secured Notes contain
covenants that restrict the ability of the Company to pay dividends and make
other restricted payments, to incur additional debt, guarantees and liens, to
sell its assets, to enter into mergers and consolidations, to conduct sale and
leaseback transactions and to enter into affiliate transactions, among other
restrictions.
Subject to completion of the IPO, the Company has agreed to deliver warrants
to purchase 1.5% of the fully diluted Common Stock of the Company (after giving
effect to the IPO and the CommcoCCC Acquisition) at a nominal exercise price and
additional warrants to purchase 1.5% of the fully diluted Common Stock upon the
first draw down of the Senior Secured Notes. If the Senior Secured Notes are
outstanding six months after the IPO, the Company shall issue to the lenders
additional warrants to purchase 3% of the fully diluted Common Stock, and if the
Senior Secured Notes are outstanding after such initial six month period.
The total number of warrants issued under the CIBC Financing is also subject
to adjustment based on the actual price per share in the initial public
offering. For every $2.75 that the price is below $16.50 per share, the warrants
will increase by 0.5% and every $2.75 that the price is above $16.50 per share,
the warrants will decrease by 0.5%, subject to certain limitations.
In connection with the CIBC Financing, the Company will pay a placement fee
and a commitment fee equal to 5% and 2%, respectively, of the principal amount
of the Senior Secured Notes.
B -- SEPTEMBER BRIDGE FINANCING
Subsequent to June 30, 1996, the Company and Telecom issued in a private
placement $4,000,000 in notes due March 1998 with interest at 14.75%, payable
quarterly, and warrants to purchase 116,364 shares of Common Stock at a purchase
price of $17.1875 per share. In the event of non-payment or default, the Company
would be required to issue additional warrants to purchase shares of Common
Stock at a price ranging from $8.25 to $17.1875 per share.
C -- MARCH BRIDGE FINANCING
On March 8, 1996, Telecom issued in a private placement, $5,000,000 of two
year, 10% notes, interest payable on a semi annual basis, and warrants to
purchase up to an aggregate of 400,000 shares of common stock at a price of
$17.1875 per share to certain holders of serial preferred stock. In the event of
default, Telecom is required to issue additional warrants to purchase additional
shares of common stock of Telecom (the "Default Warrants"). As a result of a
delay of its September interest payment, Telecom obtained waivers from holders
of $4,500,000 of the Notes to extend the interest payment terms. One holder of
the Notes was tendered payment of the September interest payment but
F-31
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS, CONTINUED
8. FINANCINGS: CONTINUED:
has reserved his right to claim Default Warrants to purchase 20,000 shares of
common stock at a price of $17.1875 per share. The Company believes that such
holder will not be able to successfully maintain its claim.
F-32
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Advanced Radio Telecom Corp.:
We have audited the accompanying balance sheet of Advanced Radio Telecom
Corp. (a development stage company) as of December 31, 1995, and the related
statements of operations, stockholders' deficit and cash flows for the period
from March 28, 1995 (date of inception) to December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Advanced Radio Telecom Corp.
as of December 31, 1995, and the results of its operations and its cash flows
for the period from March 28, 1995 (date of inception) to December 31, 1995, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared on the going
concern basis of accounting, which contemplates realization of assets and
liquidation of liabilities in the ordinary course of business. As described in
Note 1, the Company has a substantial working capital deficit at December 31,
1995, has incurred operating losses since inception and does not expect to
generate significant operating revenues until fiscal 1996. The Company estimates
that revenues in 1996 will not be sufficient to fund its initial capital
requirements, operating expenses and other working capital needs. In addition,
as set forth in Notes 8 and 12, the Company has significant financial
commitments. The Company's continued funding of its initial capital
requirements, operating expenses, working capital needs and contractual
commitments is dependent upon its ability to raise additional financing.
Management's plans in this regard are discussed in Note 1. These conditions
raise substantial doubt about the Company's ability to continue as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
COOPERS & LYBRAND L.L.P.
New York, New York
April 26, 1996, except for the second paragraph
of Note 1B and Note 2B as to which the date is
October 11, 1996
F-33
<PAGE>
ADVANCED RADIO TELECOM CORP.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
DECEMBER 31, 1995
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents.................................................... $ 627,585
Due from ART (Note 12)....................................................... 738,680
Other current assets......................................................... 52,325
-----------
Total current assets....................................................... 1,418,590
Property and equipment, net (Note 5)........................................... 3,579,838
FCC licenses (Note 4).......................................................... 4,226,821
Equipment and other deposits (Note 8).......................................... 284,012
Deferred financing costs....................................................... 321,354
-----------
Total assets............................................................. $ 9,830,615
-----------
-----------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued liabilities (Note 6)............................ $ 3,450,537
-----------
Total current liabilities................................................ 3,450,537
Note payable to ART (Note 7)................................................... 5,000,000
Note payable to EMI (Note 4)................................................... 1,500,000
-----------
Total liabilities........................................................ 9,950,537
-----------
Commitments and contingencies (Notes 1, 8, 12 and 14)
Stockholders' deficit (Note 9):
Serial preferred stock, $.001 par value, 488,492 shares issued and
outstanding................................................................. 488
Class A common stock, $.001 par value, 2,828,776 shares issued and
outstanding................................................................. 2,829
Class B common stock, $.001 par value, 2,731,664 shares issued and
outstanding................................................................. 2,732
Additional paid-in capital................................................... 2,855,102
Deficit accumulated during the development stage............................. (2,981,073)
-----------
Total stockholders' deficit.............................................. (119,922)
-----------
Total liabilities and stockholders' deficit............................ $ 9,830,615
-----------
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-34
<PAGE>
ADVANCED RADIO TELECOM CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM MARCH 28, 1995 (DATE OF INCEPTION)
TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
Operating revenue.............................................................. $ 5,793
<S> <C>
----------
Expenses:
General and administrative expenses (Notes 8, 9 and 10)...................... 2,706,336
Market development expenses.................................................. 191,693
Depreciation and amortization................................................ 5,306
Interest expense, net (Notes 4 and 7)........................................ 83,531
----------
Total expenses............................................................. 2,986,866
----------
Net loss................................................................. $2,981,073
----------
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-35
<PAGE>
ADVANCED RADIO TELECOM CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE PERIOD FROM MARCH 28, 1995 (DATE OF INCEPTION)
TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK
-------------------- -------------------------------------------------------------
SHARES CLASS A CLASS B SERIES A SERIES B SERIES C SERIES D TOTAL
- ---------------------------------- --------- --------- ----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock to ART
for cash......................... 1,607,273
Issuance of common stock to
Landover and affiliates for
cash............................. 94,545 3,025,455
Issuance of preferred stock to
limited partnerships affiliated
with Landover for cash:
Series A........................ 332,091 332,091
Series B........................ 82,318 82,318
Series C........................ 5,402 5,402
Issuance of Series D preferred
stock for cash................... 61,640 61,640
Shares issued to reflect
anti-dilution adjustments........ 1,126,958 2,852 4,189 7,041
Redemption of common stock from
Landover......................... (293,791)
--------- --------- ----------- ----------- ----- ----------- ---------
Balance at December 31, 1995...... 2,828,776 2,731,664 334,943 86,507 5,402 61,640 488,492
--------- --------- ----------- ----------- ----- ----------- ---------
--------- --------- ----------- ----------- ----- ----------- ---------
<CAPTION>
SHARES
- ----------------------------------
<S> <C> <C> <C>
Issuance of common stock to ART
for cash.........................
Issuance of common stock to
Landover and affiliates for
cash.............................
Issuance of preferred stock to
limited partnerships affiliated
with Landover for cash:
Series A........................
Series B........................
Series C........................
Issuance of Series D preferred
stock for cash...................
Shares issued to reflect
anti-dilution adjustments........
Redemption of common stock from
Landover.........................
Balance at December 31, 1995......
</TABLE>
<TABLE>
<CAPTION>
PAR VALUE
-----------------------------------------------------------------------------------------------
COMMON STOCK PREFERRED STOCK
------------------------ ---------------------------------------------------------------------
AMOUNTS CLASS A CLASS B SERIES A SERIES B SERIES C SERIES D TOTAL
- ---------------------------------- ----------- ----------- ----------- ------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock to ART
for cash......................... $ 1,607
Issuance of common stock to
Landover and affiliates for
cash............................. 95 $ 3,026
Issuance of preferred stock to
limited partnerships affiliated
with Landover for cash:
Series A........................ $ 332 $ 332
Series B........................ $ 82 82
Series C........................ $ 5 5
Issuance of Series D preferred
stock for cash................... $ 62 62
Shares issued to reflect
anti-dilution adjustments........ 1,127 3 4 7
Serial preferred stock issuance
costs............................
Redemption of common stock from
Landover......................... (294)
Investment by ART as a result of
the release of escrow shares.....
Accrued stock option
compensation.....................
Net loss..........................
--
----------- ----------- ----- --- --- -----
Balance at December 31, 1995...... $ 2,829 $ 2,732 $ 335 $ 86 $ 5 $ 62 $ 488
--
--
----------- ----------- ----- --- --- -----
----------- ----------- ----- --- --- -----
<CAPTION>
ADDITIONAL
PAID-IN ACCUMULATED
AMOUNTS CAPITAL DEFICIT TOTAL
- ---------------------------------- ----------- ------------- -----------
<S> <C> <C> <C>
Issuance of common stock to ART
for cash......................... $ (1,267) $ 340
Issuance of common stock to
Landover and affiliates for
cash............................. (2,101) 1,020
Issuance of preferred stock to
limited partnerships affiliated
with Landover for cash:
Series A........................ 1,006,268 1,006,600
Series B........................ 880,618 880,700
Series C........................ 112,695 112,700
Issuance of Series D preferred
stock for cash................... 1,999,938 2,000,000
Shares issued to reflect
anti-dilution adjustments........ (1,134)
Serial preferred stock issuance
costs............................ (229,814) (229,814)
Redemption of common stock from
Landover......................... (1,999,706) (2,000,000)
Investment by ART as a result of
the release of escrow shares..... 802,002 802,002
Accrued stock option
compensation..................... 287,603 287,603
Net loss.......................... $(2,981,073) (2,981,073)
----------- ------------- -----------
Balance at December 31, 1995...... $ 2,855,102 $(2,981,073) $ (119,922)
----------- ------------- -----------
----------- ------------- -----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-36
<PAGE>
ADVANCED RADIO TELECOM CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM MARCH 28, 1995 (DATE OF INCEPTION)
TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
Cash flows from operating activities:
<S> <C>
Net loss..................................................................... $(2,981,073)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization.............................................. 5,306
Non-cash compensation expense.............................................. 1,089,605
Changes in operating assets and liabilities:
Deposits................................................................. (4,012)
Accounts payable and accrued liabilities................................. 567,290
Other current assets..................................................... (52,325)
-----------
Net cash used in operating activities.................................. (1,375,209)
-----------
Cash flows from investing activities:
Acquisition of EMI licenses and property and equipment....................... (3,023,971)
Additions to property and equipment.......................................... (621,364)
Advances to ART.............................................................. (738,680)
Deposits on equipment........................................................ (280,000)
-----------
Net cash used in investing activities.................................. (4,664,015)
-----------
Cash flows from financing activities:
Proceeds from issuance of common stock....................................... 1,360
Proceeds from issuance of serial preferred stock............................. 4,000,000
Stock issuance costs......................................................... (208,814)
Proceeds from issuance of note payable to ART................................ 5,000,000
Advances from Landover and affiliates........................................ 175,000
Payments on advances from Landover and affiliates............................ (175,000)
Redemption of common stock................................................... (2,000,000)
Additions to deferred financing costs........................................ (125,737)
-----------
Net cash provided by financing activities.............................. 6,666,809
-----------
Net increase in cash and cash equivalents and balance at end of
period.............................................................. $ 627,585
-----------
-----------
Supplemental cash flow information:
Non-cash financing and investing activities:
Additions to property and equipment........................................ $ 2,666,630
Issuance of promissory note payable to EMI................................. 1,500,000
Accrued stock issuance costs............................................... 21,000
Accrued deferred financing costs........................................... 195,617
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-37
<PAGE>
ADVANCED RADIO TELECOM CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
1. FORMATION OF THE COMPANY AND BASIS OF PRESENTATION:
A. -- THE COMPANY
Advanced Radio Telecom Corp. ("Telecom"), formerly named Advanced Radio
Technology Ltd., was incorporated in Delaware as a subsidiary of Advanced Radio
Technologies Corporation ("ART") on March 28, 1995, to develop, market and
deliver broadband telecommunication and information services throughout the
United States. The Company's business objective is to organize and finance local
operating facilities, establish strategic alliances with other businesses,
acquire new wireless telecommunications technologies, and market broadband
wireless services to telecommunications service providers and end users.
Telecom was organized by ART and Landover Holdings Corporation ("Landover")
with one of its initial objectives to acquire certain 38 GHz licenses in the
Northeastern United States from EMI Communications Corp. ("EMI") (see Note 4).
Under the terms of a purchase agreement between Telecom, Landover and ART dated
April 21, 1995 (the "Purchase Agreement"), Landover was obligated to purchase
$7.0 million of securities of Telecom. Pursuant to the Purchase Agreement and a
stockholders' agreement between Telecom, ART and their respective shareholders
dated May 8, 1995 (the "Stockholders' Agreement"), Telecom and ART will merge
once approval from the Federal Communications Commission (the "FCC") has been
granted. On February 2, 1996, Telecom and ART entered into a definitive merger
agreement (the "Merger Agreement") providing for a merger of Telecom and ART
(the "Merger"). (See Note 2).
B. -- INITIAL CAPITALIZATION
As its initial capitalization, Telecom issued 3,025,455 shares of Class B
common stock to Landover and 94,545 shares of Class A common stock to
consultants to Landover, for aggregate cash consideration of $1,020. Such shares
of Class B common stock and Class A common stock represented 64% and 2%,
respectively, of the total number of shares of capital stock of Telecom then
outstanding. Concurrently, Telecom issued 1,607,273 shares of Class A common
stock, representing 34% of the total number of shares of capital stock, to ART
for $340.
On February 2, 1996 and October 11, 1996, the Board of Directors authorized
a 13 for 1 stock split and a 1 for 2.75 reverse stock split, respectively. The
number of shares of Class A and Class B common stock issued at the initial
capitalization of Telecom shown above give effect to the 13 for 1 stock split
and the 1 for 2.75 reverse stock split (see Note 2B) but are prior to the
issuance of anti-dilutive shares (see Note 9). All references to number of
shares of common stock and per share amounts in the accompanying financial
statements and footnotes have been restated to reflect the 13 for 1 stock split
and the 1 for 2.75 reverse stock split unless otherwise indicated.
Under the Purchase Agreement, Landover agreed to invest or cause to be
invested $7.0 million in Telecom and its affiliates (the "Landover Funding
Commitment"). In consideration for this $7.0 million investment, Telecom agreed
to issue serial preferred stock, the number of shares of which would be
designated by Landover.
C. -- BASIS OF PRESENTATION
The financial statements have been prepared on the going concern basis of
accounting, which contemplates realization of assets and liquidation of
liabilities in the ordinary course of business. Telecom has limited financial
resources, has incurred operating losses since inception and does not expect to
generate significant operating revenues until the commencement of its commercial
services, which is anticipated to occur in fiscal 1996. Telecom estimates that
revenues in 1996 will not be sufficient
F-38
<PAGE>
ADVANCED RADIO TELECOM CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
1. FORMATION OF THE COMPANY AND BASIS OF PRESENTATION, CONTINUED:
to fund its initial operating expenses and other working capital needs,
including consulting, service and purchase commitments set forth in Notes 8 and
12. Telecom's funding of its initial operating expenses, working capital needs
and contractual commitments is dependent upon its ability to raise additional
financing. Telecom and ART have engaged various investment bankers to assist
them in raising financing through a public equity and debt offering of ART.
There can be no assurance that Telecom and ART will be successful in its effort
to raise additional financing through these offerings or, if available, that
Telecom and ART will be able to obtain it on acceptable terms. These conditions
raise substantial doubt about Telecom's ability to continue as a going concern.
The financial statements do not include any adjustments that might result from
the outcome of these uncertainties.
2. REORGANIZATION AND PENDING MERGER WITH ART:
A -- MERGER
Under the terms of the Purchase Agreement, Telecom and ART intend to operate
both companies as a single enterprise and were committed to merge if and when
permitted by the FCC. Concurrent with the Purchase Agreement, Telecom and ART
entered into an exclusive 20-year services agreement (the "Services Agreement")
for the construction, development and operation of systems in ART markets (see
Note 8).
On February 2, 1996, Telecom, ART and their respective shareholders agreed
to an amendment and restatement of the Stockholders' Agreement providing for (i)
termination effective on the closing of a public share offering; (ii) amendment
and restatement of the Certificate of Incorporation and reorganization of the
capital structure of Telecom (see Note 9); (iii) the exchange of the Advent
Notes and one share of ART Series A Redeemable Preferred Stock for Series E
preferred stock of Telecom (see Note 7); (iv) revision of provisions for
election of directors; (v) amendment and restatement of Telecom's registration
rights agreements; (vi) release of shares escrowed in connection with the
original Stockholders' Agreement (see Note 9); and (vii) approval of a
definitive agreement to merge ART and Telecom (the "Reorganization").
B -- AMENDED MERGER
The definitive merger agreement, as entered into on February 2, 1996 and
subsequently restated and amended on June 26, 1996 and October 11, 1996, (the
"Merger Agreement") provides for the merger of a newly-formed wholly owned
subsidiary of ART ("Merger Sub") into Telecom (the "Merger") subject to certain
conditions, including the receipt of FCC approval. Prior to the Merger, each
outstanding share of each series of Telecom's serial preferred stock will be
converted into a share of a similar series of ART's Preferred Stock. Upon an
initial public offering, all series of ART's Preferred Stock shall automatically
convert into shares of ART's Common Stock. Such shares of preferred stock
outstanding at October 11, 1996 (920,951) shall convert into 4,353,587 shares of
ART Common Stock. In the Merger, each outstanding share of common stock of
Telecom will be exchanged for the right to receive an equal number of shares of
Common Stock of ART. As a result, Telecom will become a wholly owned subsidiary
of ART. The Merger Agreement provides that if the Merger is not consummated by
May 13, 1997, the shares of Telecom's common stock owned by the Company will be
surrendered to Telecom, and the Services Agreements is to be revised to, among
other revisions, extend the term to 40 years and provide for a proportionate
participation by the Company's stockholders in dividends paid by Telecom or the
proceeds from any sale of Telecom. The Merger Agreement also provides for the
assignment of Telecom's interests in all of its agreements, including the
various services agreements, employment agreements, equipment purchase
agreements and purchase option agreements, to ART. Further, upon
F-39
<PAGE>
ADVANCED RADIO TELECOM CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
2. REORGANIZATION AND PENDING MERGER WITH ART: CONTINUED:
the Merger, the holders of warrants to purchase an aggregate of 1,040,776 shares
of Telecom common stock will be entitled to purchase an equivalent number of
shares of ART Common Stock on the same terms. Employee stock options to purchase
813,342 shares of Telecom's common stock will be replaced by stock options to
purchase an equivalent number of shares of ART Common Stock. The terms of the
warrants and stock options and the number of shares subject thereto, are similar
except that the exercise price of the warrants and stock options have been
adjusted on a proportional basis to reflect the 1 for 2.75 reverse stock split.
3. SIGNIFICANT ACCOUNTING POLICIES:
DEVELOPMENT STAGE ENTERPRISE
Telecom is a development stage enterprise as defined in Statement of
Financial Accounting Standards No. 7, "Accounting and Reporting by Development
Stage Enterprises." The financial statements have been prepared on the going
concern basis of accounting.
CASH AND CASH EQUIVALENTS
Telecom considers all highly liquid investments purchased with remaining
maturities of three months or less to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation and amortization are
computed using the straight-line method over the estimated useful lives of the
related assets as follows: wireless transmission equipment - 5 years; office
furniture and equipment - 3 years.
FCC LICENSES
Telecom has obtained radio spectrum rights under FCC issued licenses
throughout the United States through the purchase of such rights held by others
and by petitioning the FCC directly. Such licenses are issued for an initial
term of six years and are renewable subject to review by the FCC. The costs
associated with the acquisition of such licenses are capitalized and amortized
on a straight-line basis over a 40-year period beginning upon commencement of
operations in the related market. The 40-year period is based upon management's
license renewal expectations.
RECOVERABILITY OF LONG-LIVED ASSETS
The recoverability of property and equipment and capitalized FCC
authorizations and licenses is dependent upon the successful development of
systems in each of the respective markets, or through sale of such assets.
Management estimates that it will recover the carrying amounts of those assets
from cash flow generated by the systems once they have been developed. However,
it is reasonably possible that such estimate will change as a result of the
failure to develop the FCC authorizations on a timely basis, technological,
regulatory or other changes.
Telecom's policy is to assess annually any impairment in value based upon a
comparison of projected operating cash flows from each market over its expected
period of operation, on an undiscounted basis, to the carrying amount of the
property and equipment, FCC licenses and other capitalized costs related to the
market.
F-40
<PAGE>
ADVANCED RADIO TELECOM CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
3. SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
FINANCING COSTS
Direct costs associated with obtaining equity financing are deferred and
charged to additional paid-in capital as the related funds are raised. Direct
costs associated with obtaining debt financing are deferred and amortized using
the effective interest rate method commencing when the related funds are raised.
Deferred costs associated with unsuccessful financings are charged to expense.
REVENUE RECOGNITION
Revenue from telecommunications services are recognized ratably over the
period such services are provided.
INCOME TAXES
Telecom accounts for income taxes under the liability method of accounting.
Under the liability method, deferred taxes are determined based on the
differences between the financial statement and tax bases of assets and
liabilities at enacted tax rates in effect in the year in which the differences
are expected to reverse. Valuation allowances are established, when necessary,
to reduce deferred tax assets to the amounts expected to be realized.
NET LOSS PER SHARE
Net loss per share of $0.51 is computed based on the loss for the period
from March 28, 1995 (date of inception) to December 31, 1995 divided by the
weighted average number of shares of common stock outstanding of 5,788,944.
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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CONCENTRATION OF CREDIT RISKS
Telecom places its temporary cash investments with major financial
institutions. At December 31, 1995, the Company's temporary cash investments are
principally placed in one entity. Other financial instruments which expose
Telecom to potential credit risk include the amount due from ART (Note 12) and
deposits on equipment (Note 8).
4. ACQUISITION OF ASSETS OF EMI:
On April 4, 1995, ART entered into a purchase option agreement with EMI to
acquire EMI's interest in certain 38 GHz radio spectrum licenses and related
assets in the Northeastern United States (the "EMI Assets") in exchange for $3.0
million in cash and a three year non-negotiable promissory note in the amount of
$1.5 million. Pursuant to the terms of the Purchase Agreement, in November 1995,
ART assigned its rights and obligations under the EMI purchase option agreement
to Telecom. The
F-41
<PAGE>
ADVANCED RADIO TELECOM CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
4. ACQUISITION OF ASSETS OF EMI, CONTINUED:
FCC subsequently approved the transfer of the EMI licenses and Telecom directly
purchased the EMI Assets in November 1995. The total purchase price, including
expenses, was allocated to the acquired assets as follows:
<TABLE>
<S> <C>
Property and equipment......................................... $ 297,150
FCC licenses................................................... 4,226,821
----------
$4,523,971
----------
----------
</TABLE>
The promissory note issued by Telecom, with a guarantee by ART, is payable
in quarterly installments of principal of $187,500 beginning January 1, 1997.
Interest is payable quarterly at a major commercial bank's prime rate plus 2.0%,
or 10.5% as of December 31, 1995.
On November 8, 1995 Landover advanced $175,000 to Telecom to fund a portion
of the initial payment to EMI. Telecom repaid such advance later in the same
month.
5. PROPERTY AND EQUIPMENT:
PROPERTY AND EQUIPMENT COMPRISE:
<TABLE>
<S> <C>
Wireless transmission equipment................................ $3,496,905
Office furniture and equipment................................. 88,239
----------
3,585,144
Accumulated depreciation....................................... (5,306)
----------
$3,579,838
----------
----------
</TABLE>
As of December 31, 1995, excluding the property and equipment acquired from
EMI (Note 4), the wireless transmission equipment acquired to date has not been
placed into service.
6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES COMPRISE:
<TABLE>
<S> <C>
Accrued interest payable....................................... $ 20,712
Salaries and other employee related costs...................... 267,091
Trade accounts payable......................................... 496,104
Wireless transmission equipment payable........................ 2,666,630
----------
$3,450,537
----------
----------
</TABLE>
7. NOTE PAYABLE TO ART:
ART, Telecom and several entities referred to as the Advent Group
("Advent"), entered into a securities purchase agreement (the "Advent Purchase
Agreement") dated November 13, 1995 under which Advent agreed to acquire a 10%
interest in the combined entities of ART, Telecom and certain specified
affiliates. Pending the merger of these entities (see Note 2), ART issued
promissory notes (the "Advent Notes") with an aggregate principal amount of
$4,950,000 and one share of ART's Series A Redeemable Preferred Stock in
exchange for $5.0 million in cash.
The Advent Notes carried interest at a rate of 10% per annum and were
payable on demand at any time on or after May 13, 1997. The Advent Notes were
collateralized by certain assets of ART and Telecom. The Advent Notes were
convertible into that number of shares of preferred stock which
F-42
<PAGE>
ADVANCED RADIO TELECOM CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
7. NOTE PAYABLE TO ART: CONTINUED:
represented in the aggregate at least 10% of the fully diluted capital stock of
the combined entities described above, as defined in the Advent Purchase
Agreement. The Advent Notes were convertible either (i) immediately prior to an
initial public offering with aggregate gross proceeds of at least $10.0 million
or (ii) at Advent's election.
On November 13, 1995, the gross proceeds of $5.0 million received by ART
from Advent were transferred to Telecom in exchange for a note with terms
equivalent to the terms of the Advent Notes. In connection with the
Reorganization on February 2, 1996, ART, Telecom and Advent entered into an
exchange agreement under which the Advent Notes, including accrued interest, and
the one share of ART's Series A Redeemable Preferred Stock held by Advent were
exchanged for 232,826 shares of Series E preferred stock of Telecom, the note
was canceled, and Telecom became the owner of the one share of ART Series A
Redeemable Preferred Stock.
8. COMMITMENTS:
EQUIPMENT PURCHASE AGREEMENT
On August 11, 1995, Telecom entered into an agreement to purchase wireless
transmission equipment from a vendor. Under the terms of the agreement, Telecom
is obligated to purchase a specified number of wireless transmission units
between August 11, 1995 and December 31, 1998, subject to termination upon 90
days advance notice by either party. Telecom's initial non-cancelable purchase
order amounts to $13,260,000. Through December 31, 1995, Telecom has purchased
and paid for $522,812 of equipment under this contract. In addition, Telecom has
made a $280,000 deposit under this agreement which is to be applied against
future purchases after Telecom has purchased a specified amount of equipment,
which is expected to occur in 1996.
Telecom currently purchases the majority of its wireless transmission
equipment from this vendor. Any reduction or interruption in supply from this
vendor could have a material adverse effect on Telecom until alternative supply
sources are established. Telecom does not manufacture, nor does it have the
capability to manufacture, any of the wireless transmission equipment necessary
to provide its services. Although there are a limited number of other
manufacturers who have, or are developing, equipment that would meet Telecom's
requirements, there can be no assurance that such equipment would be available
to Telecom on comparable terms or on terms more favorable to those included in
its current arrangements. Moreover, a change in vendors could cause a delay in
Telecom's ability to provide its services, which would affect future operating
results adversely.
SERVICES AGREEMENTS
Under the Services Agreement, Telecom has agreed to construct, operate and
manage the FCC licenses and related telecommunications systems that are owned by
ART or for which ART has existing services agreements. Under the Services
Agreement, Telecom will incur all costs and expenses related to construction,
operation and management of the systems. As compensation, Telecom will receive
all revenues generated by the systems after deducting certain related direct
expenses, less 25% which is to be paid to ART.
Telecom, through its Services Agreement with ART, has two other exclusive
services agreements, one with ART West, a joint venture in which ART has a 50%
ownership interest, and one with DCT Communications, Inc. ("DCT"). The terms of
these two services agreements are substantially identical to the terms in the
Services Agreement between ART and Telecom, except that the services agreements
are for five years and compensation to the Company is based on all revenues
generated by the systems
F-43
<PAGE>
ADVANCED RADIO TELECOM CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
8. COMMITMENTS, CONTINUED:
after deducting certain related direct expenses, less 45% which is paid to ART
West and DCT. There have been no services provided under these agreements
through December 31, 1995. One of the officers of Telecom is the President and a
shareholder of ART's joint venture partner in ART West.
On April 24, 1996, Telecom entered into a services agreement with TeleCom
One on terms substantially identical to the terms of the Services Agreement
between ART and Telecom, except that compensation to Telecom is equal to all
revenues generated by the systems, after deducting certain expenses, less 10%
which is paid to TeleCom One.
Under the services agreements described above, title to the system assets
purchased by Telecom and used to provide services in the respective markets
remains with Telecom upon termination of the services agreements.
EMPLOYMENT AND CONSULTING AGREEMENTS
On May 8, 1995, Telecom and ART jointly entered into consulting agreements
with two executive officers of Telecom, effective as of January 1, 1995 and
continuing for a term of three years, with minimum payments aggregating
approximately $170,000 annually. The aggregate expense incurred by Telecom under
these consulting agreements through December 31, 1995 amounted to $166,750.
On December 16, 1995, one of the executive officers of Telecom, previously a
party to one of the consulting agreements described above, entered into a
full-time employment agreement. The employment agreement is for a three-year
term with an annual salary of $250,000 in the first year, $275,000 in the second
year and $300,000 in the third year. In addition, the agreement provides for a
cash bonus of up to $100,000 for each year based upon achievement of specific
performance objectives.
On July 11, 1995, Telecom entered into an employment agreement, as amended
February 2, 1996, with an officer of Telecom. The term of the agreement is for
three years at an annual salary of $160,000 in the first year, $200,000 in the
second year and $240,000 in the third year. Options to purchase shares of common
stock were awarded to this officer equivalent to 2.5% of the outstanding capital
stock of Telecom (see Note 10). The agreement also provides for an engagement
bonus of $17,000 upon execution of the agreement and a cash bonus of up to
$100,000 for each year based upon achievement of specific performance
objectives.
Telecom has entered into employment agreements with other executives that
provide for annual base salaries and cash bonuses based on achievement of
specific performance goals. These contracts may be terminated at any time by
management.
FINANCING AGREEMENT
During 1994, ART entered into an agreement with Southeast Research Partners
("SERP"), a subsidiary of Joesephthal, Lyons & Ross, a Florida broker dealer, to
procure additional financing for ART in exchange for cash and options to
purchase capital stock of ART. Pursuant to a letter agreement dated July 12,
1995, ART and Telecom paid SERP $245,000 and the shareholders of ART granted
SERP options to purchase 114,041 shares of ART Common Stock directly from the
shareholders of ART for an aggregate consideration of approximately $210,000.
As of December 31, 1995, ART and Telecom have accounted for the fee of
$245,000 as part of the financing provided by Landover and, accordingly, $70,000
has been recognized as an offset against the proceeds from the issuance of the
Serial preferred stock of Telecom (see Note 9) and the balance as part of the
deferred financing costs recorded by ART in connection with the issuance of the
Advent Notes (See Note 7).
F-44
<PAGE>
ADVANCED RADIO TELECOM CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
8. COMMITMENTS, CONTINUED:
LEASES
Telecom and ART have entered into operating leases for office space and
antenna sites which expire between 1997 and 2001. Lease expense amounted to
$16,044 for 1995. The costs associated with these leases have been recorded by
Telecom and no amounts have been charged to ART. Future annual minimum lease
payments as of December 31, 1995 are as follows:
<TABLE>
<S> <C>
1996........................................................... $ 363,079
1997........................................................... 352,480
1998........................................................... 302,727
1999........................................................... 297,417
2000 and thereafter............................................ 25,825
----------
$1,341,528
----------
----------
</TABLE>
9. STOCKHOLDERS' DEFICIT:
At December 31, 1995, the Certificate of Incorporation authorized the
issuance of 20,000,000 shares of stock of all classes, divided into (i)
10,000,000 shares of common stock, $0.001 par value per share, of which
7,000,000 shares are designated as Class A common stock and 3,000,000 shares are
designated as Class B common stock and (ii) 10,000,000 shares of preferred
stock, $0.001 par value per share of which 451,513 shares are designated as
Series A preferred stock, 113,663 shares are designated as Series B preferred
stock, 7,297 shares are designated as Series C preferred stock and 61,640 shares
are designated as Series D preferred stock, before giving effect to the 13 for 1
stock split discussed below. Pursuant to the Reorganization (see Note 2), the
Certificate of Incorporation was amended and restated on February 2, 1996 to (i)
convert each share of Class A common stock and Class B common stock into one
share of common stock, par value $0.001 per share, (ii) change the authorized
capital stock of the Corporation to 70,000,000 shares of stock of all classes,
(iii) change the authorized common stock to 60,000,000 shares, (iv) amend the
terms of the preferred stock and each series thereof, (v) provide for two new
series of preferred stock designated as "Series E preferred stock" and "Series F
preferred stock", and (vi) effect a 13 for 1 stock split of each share of common
stock issued and outstanding.
The holders of Class A common stock had anti-dilution protection, but in all
other respects such shares were identical to the Class B common stock. Under the
anti-dilution provisions, additional shares of Class A common stock were issued,
for no consideration, to the holders of the Class A common stock upon the
issuance of serial preferred stock, so that the holders of Class A common stock
maintained their 36% ownership interest through the $7.0 million Landover
Funding Commitment as set forth in the Purchase Agreement.
Under the Purchase Agreement, the individual shareholders of ART were
required to place 1,874,101 shares of Common Stock in ART in escrow (the "Escrow
Shares") to be released upon the completion of the pending EMI Asset acquisition
(see Note 4), Telecom's attainment of specific operating income levels for the
years 1997 through 1999 and the acquisition of interests in a specified number
of FCC license authorizations by April 30, 2000. As a result of the consummation
of the EMI Asset acquisition, in November 1995, 681,102 shares of the Escrow
Shares of ART were released. The related compensation of $802,002, based on the
then current fair value of the Escrow Shares, has been recognized as
compensation expense in 1995, the offset of which has been accounted for as an
investment by ART. Pursuant to the February 2, 1996 Reorganization, the Escrow
Shares arrangement was terminated and all of the remaining Escrow Shares were
released to the stockholders of ART. The related compensation expense of
approximately $6.8 million, based upon the fair value of the remaining Escrow
Shares will be recognized in 1996.
F-45
<PAGE>
ADVANCED RADIO TELECOM CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
9. STOCKHOLDERS' DEFICIT, CONTINUED:
Each issuance of serial preferred stock pursuant to the Landover Funding
Commitment is a separate class and, as a class, has a liquidation preference
equal to the aggregate price paid for such class and an ownership interest
designated by Landover at issuance. The ownership interest of each outstanding
class of serial preferred stock was not to be diluted by subsequent issuances of
shares of other classes of serial preferred stock through the satisfaction of
the Landover Funding Commitment. As a result, additional shares of serial
preferred stock were issued to the existing holders upon the issuance of such
other shares so that each outstanding class maintained its designated aggregate
liquidation preference and aggregate ownership interest.
Each share of serial preferred stock outstanding at December 31, 1995 is
convertible into 4.7273 shares of common stock, subject to certain anti-dilution
adjustments. The holders of serial preferred stock have a vote, and receive
dividends or distributions, equivalent to the votes and amounts which would be
obtainable by them upon conversion of their shares into common stock.
In partial satisfaction of the Landover Funding Commitment, during 1995,
Telecom issued 332,091 shares of Series A preferred stock, 82,318 shares of
Series B preferred stock and 5,402 shares of Series C preferred stock to three
separate limited partnerships of which an affiliate of Landover is the general
partner, for aggregate cash consideration of $2.0 million.
On November 9, 1995, Telecom issued 61,640 shares of Series D preferred
stock for cash of $2.0 million. The Series D preferred stock purchase agreement
provided that in the event that Telecom and ART on a combined basis, did not
achieve an equity valuation of $225.0 million, as defined, on or before November
1, 1997, the holders of the Series D preferred stock had the option to purchase
additional shares of serial preferred stock for $0.001 per share up to a maximum
of 1.33% of the then outstanding capital stock of Telecom. The Series D
preferred stock purchase agreement was amended February 2, 1996 whereby the
option to purchase additional serial preferred stock was replaced with an option
to purchase 145,685 shares of Telecom common stock directly from Landover for
$0.001 per share in the event Telecom does not attain certain equity valuation
objectives.
On November 13, 1995, the Advent Group executed a securities purchase
agreement with ART and Telecom. As a result of the exchange agreement dated
February 2, 1996, Advent received 232,826 shares of Series E preferred stock of
Telecom (see Note 7).
The serial preferred stock transactions described above satisfied the
Landover Funding Commitment. As a result, the anti-dilution protection for the
Class A common stock and serial preferred stock terminated. As the actual cash
proceeds received were in excess of Landover's $7.0 million commitment, on
November 13, 1995, Telecom used the proceeds from the sale of Series D preferred
stock to redeem 293,791 shares of Class B common stock held by Landover.
The Series E and F preferred stock (see Note 14) are senior in liquidation
preference to the Series A, B, C and D preferred stock. The Series D preferred
stock is senior in liquidation preference to the Series A, B and C preferred
stock. At any time on or after November 13, 2000, the Series E and F preferred
stock may be redeemed at the option of the holders of such stock at a price
equal to the liquidation amount plus all accrued and unpaid dividends.
10. STOCK OPTION PLANS:
On July 22, 1995, Telecom adopted the 1995 Stock Option Plan (the "Plan")
that provides for option grants to employees, directors and independent
consultants of Telecom. Telecom has reserved 909,091 shares of common stock for
issuance under the Plan. Options granted to employees may be
F-46
<PAGE>
ADVANCED RADIO TELECOM CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
10. STOCK OPTION PLANS, CONTINUED:
designated as incentive stock options ("ISO's") or non-qualified stock options
("NQSO's"), as defined by the Internal Revenue Service. Options granted to
independent consultants and other non-employees may only be designated NQSO's.
The exercise price of options granted under the Plan may not be less than
100% of the fair market value of the common stock on the grant date. Generally,
options will be exercisable for a term that will not exceed ten years from the
date of grant.
Under the Plan, options to purchase an aggregate of 297,175 and 85,455
shares of common stock were granted to employees of Telecom on July 22, 1995 and
December 29, 1995, respectively, at an option price of $1.6244 and $4.5430 per
share, respectively. The difference between the exercise price of the options
issued at $1.6244 and the deemed fair value of common stock of $3.30 per share
as determined on the measurement date, is recognized as compensation expense
over the respective vesting period. The options vest at various dates during a
5-year period. At December 31, 1995, 131,558 options were vested and Telecom has
recognized compensation expense of $287,603 during 1995. At December 31, 1995,
unearned stock option compensation expense amounted to $210,339. There were no
options exercised or canceled during 1995.
On February 15, 1996, options to purchase an aggregate of 52,727 shares of
common stock were granted to employees of Telecom under the Plan at an option
price of $10.8350 per share.
On April 24, 1996, Telecom adopted the 1996 Non-Employee Directors Automatic
Stock Option Plan (the "Directors Plan"), subject to shareholder approval, which
provides for the automatic grant of stock options to non-employee directors to
purchase up to an aggregate of 72,727 shares. Under the Directors Plan, options
to acquire approximately 2,200 shares of common stock are automatically granted
to each non-employee director who is a director on January 1 of each year. In
addition, each non-employee director serving on the Board of Directors effective
on the date of an initial public offering, and in the future each newly elected
non-employee director on the date of his or her first appointment or election to
the Board of Directors will receive an automatic grant of options to acquire
approximately 2,600 shares of common stock.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation". This Statement encourages, but does not require, accounting for
stock compensation awards granted to employees based on their fair value at the
date the awards are granted. Companies may elect to continue to apply current
accounting requirements for employee stock compensation awards, which generally
will result in no compensation cost for most fixed stock option plans, such as
Telecom's Plan. The expense measurement provisions of the Statement apply to all
equity instruments issued for goods and services provided by persons other than
employees. All companies are required to comply with the disclosure requirements
of the Statement. Telecom expects to continue accounting for employee stock
compensation awards using current accounting requirements.
11. INCOME TAXES:
As of December 31, 1995, Telecom has net operating loss carryforwards of
approximately $1.9 million to offset future taxable income for Federal income
tax purposes which will expire in 2010. Deferred tax assets of approximately
$741,000, principally comprised of such net operating tax loss carry-forwards
and temporary differences arising from compensation expense related to the stock
option plans have been offset in full by a valuation allowance.
F-47
<PAGE>
ADVANCED RADIO TELECOM CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
12. RELATED PARTY TRANSACTIONS:
On May 8, 1995, Telecom and ART entered into a consulting agreement with
Landover as a strategic and financial consultant. Telecom paid Landover $70,000
for services under this agreement during 1995. The consulting agreement was
terminated on November 13, 1995.
On November 13, 1995, Telecom and ART entered into a management consulting
agreement with Landover to provide strategic planning, corporate development and
general management. Under the agreement, Telecom will pay Landover $35,000 per
month for an initial one year term, renewable by Telecom and ART for two
additional one year terms. The aggregate expense under this agreement during
1995 amounted to $70,000, which amount is payable as of December 31, 1995. The
agreement also provides that in the event Landover arranges financing,
acquisitions or certain other transactions for Telecom, it will be paid a fee by
Telecom in accordance with industry standards.
Pursuant to the Purchase Agreement, Telecom and ART paid Landover $391,750
for expenses in connection with the Landover Funding Commitment, of which
$141,750 has been charged to paid-in capital by Telecom and $250,000 has been
capitalized as deferred financing costs by ART.
An executive and shareholder of ART is a principal in a law firm that
regularly provides legal services to Telecom. During the period from March 28,
1995 through December 31, 1995, Telecom incurred $237,538 for such services.
Telecom has funded certain expenses and investments of ART, including ART's
investment in ART West and payments of financing and other operating costs. The
amounts funded by Telecom to date totalling $805,803, offset by accrued interest
of $67,123 related to the note payable to ART (see Note 7) have been included in
the amount due from ART.
13. FAIR VALUES OF FINANCIAL INSTRUMENTS:
The carrying amount and fair values of Telecom's financial instruments at
December 31, 1995 were as follows:
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
------------- -------------
<S> <C> <C>
Cash and cash equivalents................................................. $ 627,585 $ 627,585
Long-term notes payable................................................... 6,500,000 6,500,000
</TABLE>
Cash and cash equivalents: The carrying amount reported in the balance sheet
approximates fair value.
Long-term notes payable: The carrying amount approximates fair value based
upon interest rates that are currently available to Telecom for issuance of debt
with similar terms and maturity.
14. SUBSEQUENT EVENTS:
AMERITECH FINANCING
On February 2, 1996, Telecom sold 48,893 shares of Series F preferred stock
for an aggregate purchase price of $2.5 million to Ameritech Development
Corporation ("Ameritech"). In addition, Telecom entered into a strategic
distribution agreement with Ameritech Corp., the parent of Ameritech, and, as
partial consideration, granted warrants to Ameritech to purchase up to 318,959
shares of common stock from Telecom at a nominal price per share, exercisable on
February 2, 1996 through February 2, 2006. The Series F preferred stock and
warrants are collectively referred to as the Ameritech Securities. The strategic
distribution agreement provides for Ameritech to be the principal distributor of
Telecom's services within five midwestern states. Telecom incurred fees of
$150,000 in connection with this transaction.
F-48
<PAGE>
ADVANCED RADIO TELECOM CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
14. SUBSEQUENT EVENTS, CONTINUED:
Under the terms of the securities purchase agreement with Ameritech,
Ameritech is entitled to a put option to require Telecom to repurchase the
Ameritech Securities if the Department of Justice finds that this investment is
in violation of restrictions under the Modification of Final Judgement in the
United States vs. AT&T Civil Action 82-0192 ("MFJ"). Telecom would be required
to repurchase the Ameritech Securities at a purchase price equal to the fair
market value on the date it is determined that the investment is in violation of
the MFJ.
BRIDGE FINANCING
On March 8, 1996, Telecom issued in a private placement of $5.0 million of
two year, 10% notes (the "Bridge Notes") and five year warrants to purchase up
to an aggregate of 400,000 shares of common stock at a price of $17.1875 per
share (the "Bridge Warrants") to certain holders of serial preferred stock. The
Bridge Warrants are exercisable on March 8, 1996 through March 8, 2001. In the
event of non-payment of interest or default, Telecom is required to issue
additional warrants to purchase shares of common stock.
EQUIPMENT FINANCING
On April 24, 1996, the Board of Directors approved the adoption of
resolutions necessary to complete a $2,445,000 equipment financing for the
purchase of wireless transmission equipment.
RESEARCH AND DEVELOPMENT ARRANGEMENTS
On January 26, 1996, Telecom entered into a preliminary agreement to invest
from $700,000 to $1.0 million in an entity in which an executive of Telecom is a
director and a shareholder. The preliminary agreement provides for the entity to
perform research and development of wireless transmission equipment in which
Telecom will receive a right of first refusal on production capacity and a
license fee in exchange for its investment.
On March 13, 1996, Telecom issued a letter of intent to a third party to
provide Telecom with specific technology consulting in connection with the
development of wireless transmission equipment. The aggregate amount to be paid
pursuant to the letter of intent totals $90,000. The letter of intent was
executed in connection with an agreement currently under negotiations for the
development and manufacture of wireless transmission equipment.
SOFTWARE LICENSE AGREEMENT
On March 29, 1996, Telecom entered into a software license agreement (the
"Software License Agreement"). The terms of the Software License Agreement
provide for licensed software and hardware for Telecom's network management and
maintenance support services. The Software License Agreement provides for an
initial software license fee of approximately $2,000,000 and an annual
maintenance support fee of approximately $300,000 per year. An initial payment
of $250,000 for the software license fee was payable upon execution of the
agreement with the balance payable in monthly installments of principal and
interest commencing January 1, 1997.
DCT PRELIMINARY AGREEMENT
On April 25, 1996, Telecom and ART entered into a preliminary agreement with
DCT (the "DCT Preliminary Agreement") to acquire DCT's interest in certain FCC
authorizations and licenses in exchange for $3.6 million in cash. The DCT
Preliminary Agreement is subject to the completion of a definitive purchase
agreement and services agreement (see Note 8). The definitive purchase agreement
will supersede and replace all other existing agreements between Telecom, ART,
ART's shareholders and DCT. The definitive purchase agreement must be signed by
June 28, 1996 and the closing of the transaction is subject to FCC approval.
F-49
<PAGE>
ADVANCED RADIO TELECOM CORP. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED INTERIM CONDENSED BALANCE SHEETS
AS OF JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C>
1996 1995
------------ ------------
Current assets:
Cash and cash equivalents..................................... $ 824,059 $ 100
Due from ART.................................................. 498,100 315,000
Other current assets.......................................... 131,940
------------ ------------
Total current assets........................................ 1,454,099 315,100
Restricted Cash................................................. 1,000,000
Property and equipment, net..................................... 7,411,547 2,178
FCC licenses.................................................... 4,173,821
Equipment and other deposits.................................... 334,393 175,000
Investment in ART............................................... 44,930
Deferred financing costs........................................ 1,540,678
------------ ------------
Total assets.............................................. $ 15,959,468 $ 492,278
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities...................... $ 6,415,002 $ 76,057
March Bridge Notes............................................ 4,112,534
CommcoCCC Notes............................................... 975,000
------------ ------------
Total current liabilities................................. 11,502,536 76,057
Note payable to EMI............................................. 1,500,000
Equipment Note.................................................. 1,718,207
------------ ------------
Total liabilities......................................... 14,720,743 76,057
------------ ------------
Commitments and contingencies
Stockholders' equity:
Serial preferred stock, $.001 par value, 920,951 and 66,639
shares issued and outstanding, respectively.................. 921 66
Common stock, $.001 par value, 6,586,958 and 4,727,273 shares
issued and outstanding, respectively......................... 6,587 4,727
Additional paid-in capital.................................... 19,852,492 571,247
Deficit accumulated during the development stage.............. (18,621,275) (159,819)
------------ ------------
Total stockholders' equity................................ 1,238,725 416,221
------------ ------------
Total liabilities and stockholders' equity.............. $ 15,959,468 $ 492,278
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-50
<PAGE>
ADVANCED RADIO TELECOM CORP. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED INTERIM CONDENSED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND FOR THE PERIOD
FROM MARCH 28, 1995 (DATE OF INCEPTION) TO JUNE 30, 1995
<TABLE>
<CAPTION>
1996 1995
--------------- ------------
<S> <C> <C>
Operating revenue.................................................................. $ 61,520 $
--------------- ------------
Expenses:
General and administrative....................................................... 13,276,859 146,951
Market development............................................................... 1,053,000 12,868
Research and development......................................................... 521,406
Depreciation and amortization.................................................... 272,323
Interest expense, net............................................................ 578,134
--------------- ------------
Total expenses................................................................. 15,701,722 159,819
--------------- ------------
Net loss..................................................................... $ (15,640,202) $ (159,819)
--------------- ------------
--------------- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-51
<PAGE>
ADVANCED RADIO TELECOM CORP. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED INTERIM CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
PREFERRED STOCK
COMMON ---------------------------------------------------------------------------------------
SHARES STOCK SERIES A SERIES B SERIES C SERIES D SERIES E SERIES F TOTAL
- ------------------------- ---------- ----------- ----------- ----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995.................... 5,560,440 334,943 86,507 5,402 61,640 488,492
Issuance of Series E
preferred stock......... 232,826 232,826
Shares issued to reflect
anti-dilution
adjustments............. 1,026,518 120,607 28,172 1,961 150,740
Issuance of Series F
preferred stock......... 48,893 48,893
---------- ----------- ----------- ----- ----------- ----------- ----------- ---------
Balance of June 30,
1996.................... 6,586,958 455,550 114,679 7,363 61,640 232,826 48,893 920,951
---------- ----------- ----------- ----- ----------- ----------- ----------- ---------
---------- ----------- ----------- ----- ----------- ----------- ----------- ---------
<CAPTION>
PAR VALUE
---------------------------------------------------------------------------------------------------
PREFERRED STOCK
COMMON ---------------------------------------------------------------------------------------
AMOUNTS STOCK SERIES A SERIES B SERIES C SERIES D SERIES E SERIES F TOTAL
- ------------------------- ---------- ----------- ----------- ----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995.................... $ 5,561 $ 335 $ 86 $ 5 $ 62 $ 488
Issuance of Series E
preferred stock......... $ 233 233
Shares issued to reflect
anti-dilution
adjustments............. 1,026 121 28 2 151
Issuance of Series F
preferred stock and
warrants in exchange for
cash and the Strategic
Distribution Agreement
net of expenses of
$150,000................ $ 49 49
Value ascribed to the
Bridge Warrants.........
Investment by ART as a
result of the release of
escrow shares...........
Value ascribed to the
equipment financing
warrants................
Value ascribed to the
CommcoCCC warrants......
Accrued stock option
compensation............
Net loss.................
---------- ----------- ----------- ----- ----------- ----------- ----------- ---------
Balance at June 30,
1996.................... $ 6,587 $ 456 $ 114 $ 7 $ 62 $ 233 $ 49 $ 921
---------- ----------- ----------- ----- ----------- ----------- ----------- ---------
---------- ----------- ----------- ----- ----------- ----------- ----------- ---------
<CAPTION>
SHARES
- -------------------------
<S> <C> <C> <C>
Balance at December 31,
1995....................
Issuance of Series E
preferred stock.........
Shares issued to reflect
anti-dilution
adjustments.............
Issuance of Series F
preferred stock.........
Balance of June 30,
1996....................
ADDITIONAL
PAID-IN ACCUMULATED
AMOUNTS CAPITAL DEFICIT TOTAL
- ------------------------- ----------- ------------- -----------
<S> <C> <C> <C>
Balance at December 31,
1995.................... $ 2,855,102 $(2,981,073) $ (119,922)
Issuance of Series E
preferred stock......... 4,672,953 4,673,186
Shares issued to reflect
anti-dilution
adjustments............. (1,177)
Issuance of Series F
preferred stock and
warrants in exchange for
cash and the Strategic
Distribution Agreement
net of expenses of
$150,000................ 3,402,951 3,403,000
Value ascribed to the
Bridge Warrants......... 1,050,000 1,050,000
Investment by ART as a
result of the release of
escrow shares........... 6,795,514 6,795,514
Value ascribed to the
equipment financing
warrants................ 484,937 484,937
Value ascribed to the
CommcoCCC warrants...... 25,000 25,000
Accrued stock option
compensation............ 567,212 567,212
Net loss................. (15,640,202) (15,640,202)
----------- ------------- -----------
Balance at June 30,
1996.................... $19,852,492 $(18,621,275) $ 1,238,725
----------- ------------- -----------
----------- ------------- -----------
</TABLE>
The accompanying notes are an integral part of the financial statements
F-52
<PAGE>
ADVANCED RADIO TELECOM CORP. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED INTERIM CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND FOR THE PERIOD FROM MARCH 28, 1995
(DATE OF INCEPTION) TO JUNE 30, 1995
<TABLE>
<CAPTION>
1996 1995
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net loss..................................................................... $ (15,640,202) $ (159,819)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization.............................................. 272,323
Non-cash interest expense.................................................. 543,485
Non-cash compensation expenses............................................. 7,362,726
Non-cash market development expense........................................ 1,053,000
Write off of deferred finance cost......................................... 1,248,000
Changes in operating assets and liabilities:
Deposits................................................................. (50,381)
Accounts payable and accrued liabilities................................. (1,053,359) 76,057
Other current assets..................................................... (79,615)
--------------- ---------------
Net cash used in operating activities.................................. (6,344,023) (83,762)
--------------- ---------------
Cash flows from investing activities:
Additions to property and equipment.......................................... (2,700,586) (2,178)
Due from ART................................................................. (315,000)
Additions to license......................................................... (175,000)
Additions to restricted cash................................................. (1,000,000)
--------------- ---------------
Net cash used in investing activities.................................. (3,700,586) (492,178)
--------------- ---------------
Cash flows from financing activities:
Proceeds from issuance of serial preferred stock............................. 2,500,000 603,750
Preferred stock issuance costs............................................... (150,000) (28,750)
Proceeds from issuance of March Bridge Notes................................. 5,000,000
Proceeds from issuance of CommcoCCC Notes.................................... 1,000,000
Proceeds from Equipment Notes................................................ 2,445,000
Principal payments on Equipment Notes........................................ (272,814)
Payments of ART deferred finance costs....................................... (281,103)
Proceeds from issuance of common stock....................................... 1,040
--------------- ---------------
Net cash provided by financing activities.............................. 10,241,083 576,040
--------------- ---------------
Net increase in cash and cash equivalents............................ $ 196,474 100
Cash and cash equivalents, beginning of period....................... 627,585
--------------- ---------------
Cash and cash equivalents, end of period............................. $ 824,059 $ 100
--------------- ---------------
--------------- ---------------
Supplemental cash flow information:
Non-cash financing and investing activities:
Additions to property and equipment........................................ $ 4,040,806
Value ascribed to the Ameritech Strategic Distribution Agreement reflected
as paid-in capital........................................................ 1,053,000
Accrued deferred financing costs........................................... 967,491
Value ascribed to issuance of warrants..................................... 509,937
Exchange of Advent Notes and ART Notes for Series E preferred stock, net of
deferred financing costs.................................................. 4,673,186
Interest paid.............................................................. 74,538
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-53
<PAGE>
ADVANCED RADIO TELECOM CORP. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS
1. THE COMPANY AND BASIS OF PRESENTATION:
THE COMPANY
Advanced Radio Telecom Corp. ("Telecom"), formerly named Advanced Radio
Technology Ltd., was incorporated in Delaware as a subsidiary of Advanced Radio
Technologies Corporation ("ART") on March 28, 1995, to develop, market and
deliver broadband telecommunication and information services throughout the
United States.
BASIS OF PRESENTATION
The condensed financial statements included herein have been prepared by
Telecom. The foregoing statements contain all adjustments (consisting only of
normal recurring adjustments) which are, in the opinion of management, necessary
to present fairly the financial position of Telecom as of June 30, 1996 and 1995
and the results of its operations and its cash flows for the six months ended
June 30, 1996 and for the period from March 28, 1995 (date of inception) to June
30, 1995.
Certain information and footnote disclosures normally included in financial
statements have been condensed or omitted pursuant to the rules and regulations
of the Securities and Exchange Commission. These condensed financial statements
should be read in conjunction with Telecom's audited financial statements and
notes thereto included elsewhere herein.
The financial statements have been prepared on the going concern basis of
accounting, which contemplates realization of assets and liquidation of
liabilities in the ordinary course of business. Telecom has limited financial
resources, has incurred operating losses since inception and does not expect to
generate material operating revenues until the commencement of its commercial
services, which is anticipated to occur in fiscal 1996. Telecom estimates that
revenues in 1996 will not be sufficient to fund its initial operating expenses
and other working capital needs, including consulting, service and purchase
commitments. Telecom's funding of its initial operating expenses, working
capital needs and contractual commitments is dependent upon its ability to raise
additional financing. Telecom and ART have engaged various investment bankers to
assist it in raising financing through a public equity and debt offering. There
can be no assurance that Telecom will be successful in its effort to raise
additional financing or, if available, that Telecom will be able to obtain it on
acceptable terms. These conditions raise substantial doubt about Telecom's
ability to continue as a going concern. The financial statements do not include
any adjustments that might result from the outcome of these uncertainties.
2. REORGANIZATION AND PENDING MERGER WITH ART:
On February 2, 1996, Telecom, ART and their respective shareholders agreed
to an amendment and restatement of the Stockholders' Agreement providing for (i)
termination effective on the closing of a public share offering; (ii) amendment
and restatement of the Certificate of Incorporation and reorganization of the
capital structure of Telecom; (iii) the exchange of the Advent Notes and one
share of ART Series A Redeemable Preferred Stock for Series E preferred stock of
Telecom; (iv) revision of provisions for election of directors; (v) amendment
and restatement of Telecom's registration rights agreements; (vi) release of
shares escrowed in connection with the original Stockholders' Agreement; and
(vii) approval of a definitive agreement to merge ART and Telecom (the
"Reorganization").
The definitive merger agreement, as entered into on February 2, 1996 and
subsequently restated and amended on June 26, 1996 and October 11, 1996, (the
"Merger Agreement") provides for the merger of a newly-formed wholly owned
subsidiary of ART ("Merger Sub") into Telecom (the "Merger") subject to certain
conditions, including the receipt of FCC approval. Upon the Merger, each
outstanding share of each series of Telecom's serial preferred stock will be
converted into a share of a similar series of ART's Preferred Stock. Upon an
initial public offering, all shares of all series of ART's Preferred Stock
F-54
<PAGE>
ADVANCED RADIO TELECOM CORP. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS, CONTINUED
2. REORGANIZATION AND PENDING MERGER WITH ART: CONTINUED:
shall automatically convert into shares of ART's Common Stock. Such shares of
preferred stock of Telecom outstanding at October 11, 1996 (920,951) shall
convert into 4,353,587 shares of ART's Common Stock. In the Merger each
outstanding share of common stock of Telecom will be exchanged for the right to
receive an equivalent number of shares of Common Stock of ART. As a result,
Telecom will become a wholly owned subsidiary of ART. The Merger Agreement
provides that if the Merger is not consummated by May 13, 1997, the shares of
Telecom's common stock owned by ART will be surrendered to Telecom for nominal
consideration, and the Services Agreement is to be revised to, among other
revisions, extend the term to 40 years and provide for a proportionate
participation by ART's stockholders in any dividends paid by Telecom or the
proceeds from any sale of Telecom. The Merger Agreement also provides for the
assignment of Telecom's interests in all of its agreements, including the
various services agreements, employment agreements, equipment purchase
agreements and purchase option agreements, to ART. Further, upon the Merger, the
holders of warrants to purchase an aggregate of 1,040,776 shares of Telecom
common stock will be entitled to purchase an equivalent number of shares of ART
Common Stock. Employee stock options to purchase 813,342 shares of Telecom's
common stock will be replaced by similar stock options to purchase an equal
number of shares of ART. The terms of the warrants and stock options are similar
except that the exercise price of the warrants and stock options and the number
of shares subject thereto, have been adjusted on a proportional basis to reflect
the 1 for 2.75 reverse stock split.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CONSOLIDATION
The consolidated financial statements include all majority owned
subsidiaries in which Telecom exerts control. During 1996, Telecom incorporated
two wholly owned subsidiaries, Advanced Radio Telecom AB and Advanced Radio
Telecom Ltd. for its European operations. There have been no operations by these
two subsidiaries to date. All intercompany transactions have been eliminated in
consolidation.
FINANCING COSTS
Direct costs associated with obtaining debt and equity financings are
deferred and charged to interest expense and charged to additional paid-in
capital, respectively. Deferred costs associated with unsuccessful financings
are charged to expense. Telecom charged approximately $1,248,000 to expense
during 1996 that was associated with its unsuccessful public debt offering.
4. NET LOSS PER SHARE:
Net loss per share of $2.37 and $.03 is computed based on the loss for the
six months ended June 30, 1996 and for the period from March 28, 1995 (date of
inception) to June 30, 1995, respectively, divided by the weighted average
number of shares of common stock outstanding of 6,586,958 and 4,727,273,
respectively.
5. AMERITECH FINANCING:
On February 2, 1996, Telecom sold 48,893 shares of Series F preferred stock
for an aggregate purchase price of $2.5 million to Ameritech Development
Corporation ("Ameritech"). In addition, Telecom entered into a strategic
distribution agreement with Ameritech Corp., the parent of Ameritech, and, as
partial consideration, granted warrants to Ameritech to purchase up to 318,959
shares of common stock from Telecom at a nominal price per share, exercisable on
February 2, 1996 through
F-55
<PAGE>
ADVANCED RADIO TELECOM CORP. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS, CONTINUED
5. AMERITECH FINANCING: CONTINUED:
February 2, 2006. Telecom has recorded the value of $1,053,000 ascribed to the
strategic distribution agreement as market development expense in the first
quarter of 1996. Telecom incurred fees of $150,000 in connection with this
transaction.
6. NOTE PAYABLE TO ART:
In connection with the Reorganization on February 2, 1996, ART, Telecom and
Advent entered into an exchange agreement under which the Advent Notes,
including accrued interest, and the one share of ART's Series A Redeemable
Preferred Stock held by Advent were exchanged for 232,826 shares of Series E
preferred stock of Telecom, the notes payable by ART to Advent and by Telecom to
ART were canceled, the related interest forgiven, and Telecom became the owner
of the one share of ART Series A Redeemable Preferred Stock.
7. COMMITMENTS:
DCT PRELIMINARY AGREEMENT
On April 26, 1996, Telecom and ART entered into a preliminary agreement with
DCT (the "DCT Preliminary Agreement") to acquire DCT's interest in certain FCC
authorizations and licenses in exchange for $3.6 million in cash. The DCT
Preliminary Agreement is subject to the completion of a definitive purchase
agreement and services agreement. The definitive purchase agreement will
supersede and replace all other existing agreements between Telecom, ART, ART's
shareholders and DCT. The closing of the transaction is subject to FCC approval.
8. FINANCINGS:
MARCH BRIDGE FINANCING
On March 8, 1996, Telecom issued in a private placement $5,000,000 of two
year, 10% notes and
five year warrants to purchase up to an aggregate of 400,000 shares of common
stock at a price of $17.1875 per share (the "Bridge Warrants") to certain
holders of serial preferred stock. The Bridge Warrants are exercisable on March
8, 1996 through March 8, 2001. In the event of Telecom's default, Telecom is
required to issue additional warrants to purchase additional shares of common
stock (the "Default Warrants"). As a result of the delay of its September
interest payments Telecom obtained waivers from holders of $4,500,000 of the
notes to extend the interest payment terms. One holder of the notes was tendered
payment of the September interest payment but has reserved the right to claim
Default Warrants to purchase 20,000 common stock at a price of $17.1875 per
share. The Company believes that such holder will not be able to successfully
maintain its claim.
EQUIPMENT FINANCING
On April 29, 1996, Telecom completed a $2,445,000 equipment financing for
the purchase of wireless transmission equipment. Telecom issued a $2,445,000
promissary note, payable in 24 monthly installments of $92,694 with a final
payment of $642,305 due April 29, 1998. In connection with the equipment
financing, Telecom issued five year warrants to purchase up to an aggregate of
118,182 shares of common stock of Telecom. Telecom paid $225,000 in fees to
stockholders of Telecom to partially guarantee the equipment financing. In
addition, Telecom was required to invest $1,000,000 in a certificate of deposit
assigned to the lender as collateral. The $1,000,000 is reflected as restricted
cash.
F-56
<PAGE>
ADVANCED RADIO TELECOM CORP. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS, CONTINUED
8. FINANCINGS: CONTINUED:
SEPTEMBER BRIDGE FINANCING
Subsequent to June 30, 1996, ART and Telecom issued in a private placement
$4,000,000 in notes due March 1998 with interest at 14.75%, payable quarterly,
and warrants to purchase 116,364 shares of Common Stock of ART at a price of
$17.1875 per share. In the event of non-payment or default, ART would be
required to issue additional warrants to purchase shares of ART Common Stock at
a price ranging from $8.25 to $17.1875 per share.
CIBC FINANCING
During October 1996, ART and Telecom entered into a commitment letter which
provides that upon consummation of an initial public offering (the "IPO") ART
may draw down $50.0 million of 12.5% Senior Secured Notes, due in two years. The
interest rate on the Senior Secured Notes increases by 0.50% three months after
the closing of the IPO and by an additional 0.50% for each three-month period
thereafter.
The Senior Secured Notes are collateralized by a first priority security
interest in substantially all the assets of the Company, including a pledge of
the Company's stock in its subsidiaries. The Senior Secured Notes contain
covenants that restrict the ability of the Company to pay dividends and make
other restricted payments, to incur additional debt, guarantees and liens, to
sell its assets, to enter into mergers and consolidations, to conduct sale and
lease back transactions and to enter into affiliate transactions, among other
restrictions.
Subject to completion of the IPO, the Company has agreed to deliver warrants
to purchase 1.5% of the fully diluted Common Stock of the Company (after giving
effect to the IPO and the CommcoCCC Acquisition) at a nominal exercise price and
additional warrants to purchase 1.5% of the fully diluted Common Stock upon the
first draw down of the Senior Secured Notes. If the Senior Secured Notes are
outstanding six months after the IPO, the Company shall issue to the lenders
additional warrants to purchase 3% of the fully diluted Common Stock, and if the
Senior Secured Notes are outstanding after such initial six month period, the
Company will issue to the lenders additional warrants until the repayment date
of the Senior Secured Notes on the basis of 3% of the fully diluted Common Stock
for every six month period.
The total number of warrants issued under the CIBC Financing is also subject
to adjustment based on the actual price per share in the IPO. For every $2.75
that the price is below $16.50 per share, the warrants will increase by 0.5% and
every $2.75 that the price is above $16.50 per share, the warrants will decrease
by 0.5%, subject to certain limitations.
In connection with the CIBC Financing, ART will pay a placement fee and
commitment fee equal to 5% and 2%, respectively, of the principal amount of the
Senior Secured Notes.
9. ESCROW SHARES:
Pursuant to the February 2, 1996 Reorganization, the terms of the Escrow
Shares arrangement were terminated and all of the remaining Escrow Shares were
released to the stockholders of ART. The related compensation expense of
$6,795,514, based upon the then estimated fair value of the Escrow Shares was
recognized, the offset of which was accounted for as an investment in Telecom by
ART.
10. COMMCOCCC ASSET ACQUISITION
During July 1996, ART entered into an agreement with CommcoCCC, Inc.
("CommcoCCC") to acquire CommcoCCC's interests in certain 38 GHz FCC
authorizations (the "CommcoCCC Assets") in exchange for 6.0 million shares of
ART Common Stock. The acquisition of the CommcoCCC Assets is
F-57
<PAGE>
ADVANCED RADIO TELECOM CORP. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS, CONTINUED
10. COMMCOCCC ASSET ACQUISITION CONTINUED:
subject to various conditions including (i) minimum population coverage of the
authorizations of ART and CommcoCCC, (ii) receipt of final FCC and other
approvals, (iii) receipt by CommcoCCC of an opinion as to the tax-free nature of
the transaction (iv) the accuracy of representations and warranties except for
breaches that do not have in the aggregate a material adverse effect, (v)
pending or threatened material litigation, (vi) consummation of public equity
and debt offerings on terms reasonably satisfactory to CommcoCCC and (vii) other
customary closing conditions. Pending the completion of the acquisition, ART has
agreed to construct, manage and operate the CommcoCCC Assets.
ART has given a stockholder ("Commco LLC") of CommcoCCC an option (the
"Option") to purchase FCC authorizations in specified market areas in which ART
will have more than one authorization. The Option is exercisable only in the
event that the CommcoCCC Acquisition is consummated and Commco LLC receives
authorizations pursuant to pending applications covering a minimum specified
population and expires nine months after the consummation of the Common Stock
Offering. The price of authorizations to be purchased under the Option is based
upon a formula that considers the market price of ART Common Stock on the date
of exercise.
In connection with the agreement to acquire the CommcoCCC Assets, certain
stockholders of CommcoCCC loaned ART and Telecom $3,000,000 in cash in exchange
for notes due September 30, 1996 (the "CommcoCCC Notes") with interest at the
prime rate and received three year warrants to purchase 18,182 shares of ART
Common Stock at a price of $17.1875 per share, as adjusted. The CommcoCCC Notes
are collateralized by all of the assets of ART and, if not paid in full when
due, the unpaid balance is convertible into ART Common Stock, at the option of
each holder, at stipulated per share prices based upon the timing of exercise.
As a result of a delay in the September 30, 1996 interest payment ART and
Telecom have obtained waivers from the lenders to extend the due date on the
CommcoCCC Notes to the effective date of an initial public offering of ART's
Common Stock or December 31, 1996. In exchange, ART and Telecom agreed to
increase the interest rate to 14.75% and issue warrants to purchase an
additional 69,090 shares of ART Common Stock at a price of $17.1875 per share.
F-58
<PAGE>
[INSIDE BACK COVER]
[MAP OF U.S. DISPLAYING ADVANCED RADIO
TELECOM CORP.'S 38 GHz SERVICE AREAS.]
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE SHARES OF COMMON STOCK IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR THE AFFAIRS OF
THE COMPANY SINCE THE DATE HEREOF.
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 11
The Company.................................... 25
Use of Proceeds................................ 26
Dividend Policy................................ 26
Capitalization................................. 27
Dilution....................................... 29
Selected Historical and Pro Forma Financial
Data.......................................... 31
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 34
Business....................................... 41
Management..................................... 69
Principal Stockholders......................... 81
Certain Transactions........................... 84
Description of Capital Stock................... 90
Shares Eligible for Future Sale................ 92
Description of Certain Indebtedness............ 94
Underwriting................................... 96
Legal Matters.................................. 97
Experts........................................ 98
Available Information.......................... 98
Special Note................................... 99
Glossary....................................... 100
Index to Financial Statements.................. F-1
</TABLE>
-------------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
2,750,000 SHARES
[LOGO]
ADVANCED RADIO
TELECOM CORP.
COMMON STOCK
---------------------
P R O S P E C T U S
---------------------
MERRILL LYNCH & CO.
DEUTSCHE MORGAN GRENFELL
, 1996
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, not including the
Representative's non-accountable expense allowance. Except for the SEC
registration fee, the NASD filing fee and the Nasdaq listing fee, all of the
amounts in the table below are estimated.
<TABLE>
<CAPTION>
Securities and Exchange Commission registration fee................ $ 19,628
<S> <C> <C>
NASD filing fee.................................................... 5,718
Nasdaq listing fee................................................. 50,000
Accounting fees and expenses....................................... 568,600
Printing........................................................... 650,000
Blue Sky fees and expenses (including counsel fees)................ 20,000
Legal fees and expenses............................................ 620,000
Transfer Agent and Registrar fees and expenses..................... 2,500
Miscellaneous expenses............................................. 37,603
----------
TOTAL (estimated).................................................. $1,974,049
----------
----------
</TABLE>
II-1
<PAGE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of Delaware provides that a
corporation has the power to indemnify a director, officer, employee or agent of
the corporation and certain other persons serving at the request of the
corporation in related capacities against amounts paid and expenses incurred in
connection with an action or proceeding to which he is or is threatened to be
made a party be reason of such position. If such person shall have acted in good
faith and in a manner he reasonable believed to be in or not opposed to the best
interests of the corporation, and, in any criminal proceeding, if such person
had no reasonable cause to believe his conduct was unlawful; provided that, in
the case of actions brought by or in the right of the corporation, no
indemnification shall be made with respect to any matter as to which such person
shall have been adjudged to be liable to the corporation unless and only to the
extent that the adjudicating court determines that such indemnification is
proper under the circumstances.
Reference is made to Article Ninth of the Certificate of Incorporation of
the Registrant, Section 6.4 of the By-laws and each of the Indemnification
Agreements filed as Exhibits 10-5, 10-6, 10-7 and 10-8, respectively, to this
Registration Statement for information regarding indemnification of directors
and officers under certain circumstances.
The Registrant has agreed to indemnify the Underwriters and their
controlling persons, and the Underwriters have agreed to indemnify the
Registrant and its controlling persons, against certain liabilities, including
liabilities under the Securities Act of 1933, as amended (the "Act"). Reference
is made to the Underwriting Agreement filed as part of Exhibit 1-1 hereto.
For information regarding the Registrant's undertaking to submit to
adjudication the issue of indemnification for violation of the Act, see Item 17
hereof.
The Registrant's Certificate of Incorporation provides that every director,
officer or agent of the Company shall be entitled to be indemnified out of the
assets of the Company against all losses or liabilities which he or she may
sustain or incur in or about the execution of the duties of his or her office or
otherwise in relation thereto, including any liability incurred by him or her in
defending any proceedings, whether civil or criminal, in which judgment is given
in his or her favor or in which he or she is acquitted, and no director or other
officer shall be liable for any loss, damage or misfortune which may happen to
or be incurred by the Company in the execution of the duties of his or her
office or in relation thereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
TELECOM CLASS A AND B COMMON STOCK PRIVATE PLACEMENT
In April 1995, the Company and Landover Holdings Corporation ("LHC")
subscribed 340,000 shares of Telecom Class A common stock and 640,000 shares of
Telecom Class B common stock, respectively, for $0.001 per share, which, after
giving effect to anti-dilution adjustments and the February 1996 Reorganization,
currently are equivalent upon conversion prior to the Offering to 3,641,111
shares and 2,650,414 shares, respectively, of Common Stock. In addition,
Hedgerow Corporation of Maine ("Hedgerow") and Toro Financial Corp. ("Toro")
subscribed 15,000 shares and 5,000 shares, respectively, of Telecom Class A
common stock at the price of $0.001 per share, which, after giving effect to
anti-dilution adjustments and the February 1996 Reorganization currently are
equivalent upon conversion prior to the Offering to 160,637 shares and 53,546
shares of the Common Stock, respectively. The securities issued in the above
transactions were offered and sold in reliance upon the exemption from
registration under Section 4(2) of the Act. The recipients made certain
representations as to the nature of their investments and had adequacy of access
to information about the Registrant.
PREFERRED STOCK PRIVATE PLACEMENTS
Between May 8, 1995 and November 13, 1995, the LHC Stock was diluted by
purchases of series of Telecom preferred stock by E2-2, E2, E1 Holdings L.P.
("E1") and E2-3 Holdings, L.P. ("E2-3" and collectively with E1, E2 and E2-2,
the "Landover Partnerships"), each a limited partnership whose general partner
is controlled by LHC, in separate private placements. E2-2, which committed to
II-2
<PAGE>
purchase up to $3,500,000 of Telecom preferred stock matching other investors
under the LHC Purchase Agreement, purchased 405,880 shares of Telecom Series A
preferred stock (which converts into 1,918,705 shares of Common Stock upon
completion of this offering) for an aggregate of $946,600, and LHC purchased
35,873 shares of such Telecom Series A preferred stock from E2-2 for $1,050,000
pursuant to an option. E2 purchased an aggregate of 105,823 shares of Telecom
Series B preferred stock (which converts into 500,254 shares of Common Stock
upon completion of this offering) for an aggregate of $842,400. E1 purchased
13,797 shares of Telecom Series A preferred stock (which converts into 65,222
shares of Common Stock upon completion of this offering) for an aggregate of
$60,000 and 8,856 shares of Telecom Series B preferred stock (which converts
into 41,865 shares of Common Stock upon completion of this offering) for an
aggregate of $38,300. E2-3 purchased an aggregate of 7,363 shares of Telecom
Series C preferred stock (which converts into 34,807 shares of Common Stock upon
completion of this offering) for an aggregate of $112,700. All of the Landover
Partnerships will liquidate upon completion of this offering. The securities
issued in each of the foregoing transactions were offered and sold in reliance
on an exemption from registration under Regulation D promulgated under the Act.
On November 9, 1995, Telecom sold 61,640 shares of Telecom Series D
preferred stock (which convert into 291,390 shares of Common Stock upon
completion of this offering) for $2,000,000 in a private placement. Telecom
simultaneously redeemed 293,791 shares of Telecom common stock from LHC for
$2,000,000. In connection with the February 1996 Reorganization described below,
LHC granted to the holders of Telecom Series D preferred stock a contingent
option to purchase 145,685 shares of Telecom common stock at a nominal price
(the "Series D/LHC Option"), which option expires upon completion of this
offering.
On November 13, 1995, Global Private Equity II, L.P., Advent Partners
Limited Partnership and Advent International Investors II L.P. each a limited
partnership controlled by Advent International Corporation, (collectively,
"Advent") purchased for an aggregate of $5,000,000, (i) one share of ART's
Series A Redeemable Preferred Stock for a purchase price of $50,000 and (ii) the
Company's 10% Secured Convertible Demand Promissory Notes in the aggregate
principal amount of $4,950,000. In connection with the February 1996
Reorganization, Advent exchanged such Preferred Stock and Note for 232,826
shares of Telecom Series E preferred stock (which converts into 1,100,632 shares
of Common Stock upon completion of this Offering), $0.001 par value per share.
The securities issued in each of the foregoing transactions were offered and
sold in reliance on an exemption from registration under Regulation D
promulgated under the Act. Advent made certain representations as to the nature
of its investment and had adequate access to information about the Registrant.
On February 2, 1996, Ameritech Development Corp. ("Ameritech") purchased for
an aggregate of $2,500,000 48,893 shares of Telecom Series F preferred stock,
par value $0.001 per share, (the "Ameritech Financing") convertible into 231,131
shares of Common Stock upon completion of this offering. In addition, Telecom
entered into the Ameritech Strategic Distribution Agreement and in connection
therewith granted to Ameritech a ten-year warrant to purchase 318,959 shares of
Telecom common stock exercisable at a nominal price per share (the "Ameritech
Warrant"). The securities issued in each of the foregoing transactions were
offered and sold in reliance on an exemption from registration under Regulation
D promulgated under the Act. Ameritech made certain representations as to the
nature of its investment and had adequate access to information about the
Registrant.
MARCH BRIDGE NOTES
On March 8, 1996, Telecom issued in a private placement $5,000,000 principal
amount of two year, 10% unsecured notes (the "March Bridge Notes") and five-year
warrants to purchase up to an aggregate of 400,000 shares of Telecom common
stock at a price of $17.1875 per share (the "March Bridge Warrants") to
investors including: (i) affiliates of J.C. Demetree, Jr. and Mark Demetree,
directors of the Company; (ii) the Advent Partnerships; and (iii) Ameritech, who
invested $700,000, $725,000 and $750,000 in the March Bridge Notes and March
Bridge Warrants, respectively.
II-3
<PAGE>
EQUIPMENT FINANCING
On April 1, 1996, CRA, Inc. ("CRA") entered into a secured equipment
financing with Telecom (the "Equipment Financing") for the purchase from P-Com
of 38 GHz radio equipment. To evidence its obligations and the Equipment
Financing, Telecom issued in favor of CRA a $2,445,000 promissory note, payable
in 24 monthly installments of $92,694 with a final payment equal to $642,305 due
April 1, 1998. The securities issued in the foregoing transaction were offered
and sold in reliance on an exemption from registration under Regulation D
promulgated under the Act.
COMMCOCCC ACQUISITION
On July 3, 1996, the Company entered into the CommcoCCC Agreement to acquire
129 38 GHz wireless broadband authorizations from CommcoCCC, Inc. in exchange
for 6,000,000 shares of Common Stock. The stockholders of CommcoCCC
simultaneously loaned $3.0 million on a secured, subordinated basis bearing
interest at the prime rate and payable on September 30, 1996 and issued three-
year warrants to acquire 18,182 shares of Common Stock at $24.75 per share. In
connection with an October 1996 amendment to the CommcoCCC Agreement, the
Company modified the terms of such warrants, reduced the exercise price of such
warrants to $17.1875 per share and increased the number of shares issuable upon
exercise to 87,272 shares. The securities to be issued in the foregoing
transaction will be offered and sold in reliance on an exemption from
registration under Regulation D promulgated under the Act.
SEPTEMBER BRIDGE FINANCING
In August 1996, the Company received commitments for $3.0 million of 14.75%
unsecured notes due March 1998 (the "September Bridge Notes"). The September
Bridge Notes were funded from August 30, 1996 to October 1996. In October 1996,
the Company received an additional $1.0 millon of proceeds therefrom. The
Company also issued five-year warrants to purchase up to an aggregate of 116,364
shares of Common Stock at a price of $17.1875 per share (the "September Bridge
Warrants") to private investors including the Advent Partnerships, Ameritech,
LHC and affiliates of J.C. Demetree, Jr. and Mark C. Demetree. The securities
issued in the foregoing transaction were offered and sold in reliance on an
exemption from registration under Regulation D promulgated under the Act.
CIBC FINANCING
The Company has entered into commitment letters (subject to definitive
documentation) with certain investors (the "Noteholders") which provide for the
issuance of $50,000,000 of the Company's $12.5% Senior Secured Notes due 1998
(the "Senior Secured Notes") at any time, at the Company's option, during the
period commencing upon consummation of the Offering until 90 days thereafter
(the "CIBC Financing"). The interest rate on the Senior Secured Notes will
increase by 0.5% for each three-month period after the consummation of the
Offering until such time as the Senior Secured Notes have been repaid. The
Company will issue ten-year warrants at a nominal exercise price to the
Noteholders upon each of the following events: (i) the consummation of the
Offering, (ii) the issuance of the Senior Secured Notes and (iii) if the Senior
Secured Notes continue to be outstanding six months after the date of the
consummation of the Offering and, at various times thereafter. The Senior
Secured Notes must be repaid with the proceeds of any future debt and equity
financings. The securities issued in the foregoing transaction were offered and
sold in reliance on an exemption from registration under Regulation D
promulgated under the Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
The following exhibits were delivered with this Registration Statement, or
will be delivered by amendment, for filing:
<TABLE>
<C> <S> <C>
1-1 Purchase Agreement.
2-1 (a) Amended and Restated Certificate of Incorporation and Bylaws of
Registrant.**
(b) Amendment to Amended and Restated Certificate of Incorporation.**
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S> <C>
(c) Second Amended and Restated Certificate of Incorporation (to be effective
prior to the consummation of the Offering) and Restated and Amended Bylaws
(effective on the date of the Prospectus) of Registrant.*
4-1 Specimen of Common Stock Certificate.(3)
4-2 Omitted
4-3 Form of Lock-Up Agreement.**
4-4 Omitted
5-1 Opinion and Consent of Hahn & Hessen LLP, counsel for the Registrant, with
respect to the Registrant's Common Stock.**
9-1 (a) Voting Trust Agreement.**
(b) Form of Trustee Indemnification Agreement.**
(c) Voting Agreement.**
(d) Confidentiality Agreement.**
10-1 Employment and Consulting Agreements.
(a) Vernon L. Fotheringham, dated December 16, 1995.**
(b) Steven D. Comrie, dated February 2, 1996.**
(c) W. Theodore Pierson, Jr., dated May 8, 1995 and effective January 1, 1995.**
(d) I. Don Brown, dated February 16, 1996.**
(e) Charles Menatti, dated March 8, 1996.**
(f) James D. Miller, dated February 1, 1996.**
(g) Thomas A. Grina, dated April 26, 1996.(1)
10-2 (a) Second Amended and Restated Certificate of Incorporation and By-laws of
Telecom (filed as Exhibit 2-1 to the Registration Statement on Form S-1 of the
Company dated May 2, 1996).**
(b) Certificate of Incorporation of ART Merger Corporation (to become the
Certificate of Incorporation of Telecom upon the completion of the Merger).**
10-3 Form of Director Indemnification Agreement.**
10-4 (a) Registrant's Equity Incentive Plan, as amended.**
(b) Form of Stock Option Agreement.**
10-5 (a) Registrant's 1996 Non-Employee Directors Automatic Stock Option Plan.**
(b) Form of Non-Employee Directors Stock Option Agreement.**
10-6 Stock Option Agreements.
(a) Comrie Non-Qualified Stock Option Agreement.**
(b) Comrie Incentive Stock Option Agreement.**
10-7 Management Consulting Agreement with Landover Holdings Corporation, dated
November 13, 1995.**
10-8 (a) ART West Joint Venture Agreement dated April 4, 1995, with Extended
Communications, Inc.**
(b) Put/Call Agreement dated October 1, 1994, with Extended Communications,
Inc.**
(c) Services Agreement dated October 1, 1994, with Extended Communications,
Inc.**
(d) Amendment dated April 4, 1995 to the Put/Call Agreement dated October 1,
1994, with Extended Communications, Inc.**
(e) Asset Purchase Agreement dated June 24, 1996 with Extended Communications,
Inc.**
(f) Management Agreement dated June 1, 1996 with ART West Partnership.**
10-9 (a) Put/Call Agreement dated September 1, 1994 with DCT Communications, Inc.**
(b) Services Agreement dated September 1, 1994 with DCT Communications, Inc.**
(c) Term Sheet dated April 26, 1996 with DCT.**
(d) Purchase Agreement with DCT dated July 1, 1996.**
(e) Amendment to Services Agreement dated June 1996 with DCT.**
</TABLE>
II-5
<PAGE>
<TABLE>
<C> <S> <C>
10-10 (a) Asset Purchase Agreement dated April 4, 1995 with EMI Communications
Corporation.**
(b) $1,500,000 Nonnegotiable and Nontransferable Promissory Note.**
(c) Maintenance Agreement dated November 14, 1995 with EMI Communications
Corporation.**
(d) Agreement dated November 14, 1995 with EMI Communications Corporations.**
10-11 38 GHz Radio Links Purchase Agreement dated August 11, 1995 with P-Com, Inc.+**
10-12 (a) Agreement dated May 25, 1995 with Telecom One.++
(b) Services Agreement dated April 24, 1996 with Telecom One.**
(c) Asset Purchase Agreement and Management Agreement with Telecom One dated
June 27, 1996.**
10-13 Agreement dated April 25, 1996 with GTE.**
10-14 Software License Agreement dated March 29, 1996 with GTE.**
10-15 Agreement dated July 12, 1995 with Southeast Research Partners, Inc.**
10-16 Agreement dated March 1, 1995 with High Sky Limited Partnership, High Sky II
Limited Partnership, Vernon L. Fotheringham, W. Theodore Pierson, Jr., and F.
Thomas Tuttle.**
10-17 Stock Purchase Agreement dated May 8, 1995 with Vernon L. Fotheringham, W.
Theodore Pierson, Jr., High Sky Limited Partnership, High Sky II Limited
Partnership, and Extended Communications, Inc.**
10-18 (a) Purchase Agreement dated April 21, 1995 with Landover Holdings
Corporation.**
(b) Letter Agreement dated May 8, 1995 with the Demetrees, Telecom and Landover
Holdings Corporation.**
(c) Letter Agreement dated November 13, 1995 with Telecom, E2-2 Holdings, L.P.
and the Demetrees.**
10-19 Restated and Amended Stockholders' Agreement dated February 2, 1996 with Telecom
and the stockholders of each of Telecom and the Company.**
10-20 Second Restated and Amended Registration Rights Agreement dated July 3, 1996
with Telecom and the stockholders of each of Telecom and the Company.**
10-21 Services Agreement dated May 8, 1995 with Telecom.**
10-22 Option Agreement dated February 2, 1996 with Telecom.**
10-23 (a) Securities Purchase Agreement dated November 13, 1995 with Telecom, Vernon
Fotheringham, W. Theodore Pierson, Jr., the stockholders of Telecom named
therein and the Advent Partnerships.**
(b) Exchange Agreement dated February 2, 1996 with Telecom and the Advent
Partnerships.**
10-24 (a) Securities Purchase Agreement dated February 2, 1996 with Telecom and
Ameritech Development Corporation ("Ameritech"), including letter of
intent.**
(b) Warrant issued on February 2, 1996 to Ameritech.**
(c) Put/Call Agreement dated February 2, 1996 with Ameritech.**
10-25 Strategic Distribution Agreement dated April 29, 1996 with Ameritech.**
10-26 Second Restated and Amended Merger Agreement and Plan of Reorganization dated
October 11, 1996 between the Company, Merger Sub and Telecom.**
10-27 (a) $2,445,000 Promissory Note in favor of CRA, Inc. ("CRA").**
(b) Security Agreement with CRA (including UCC-1 Financing Statement).**
(c) Indemnity Agreement.**
(d) Form of Indemnity Warrant.**
10-28 Omitted.
10-29 (a) Purchase Agreement dated April 26, 1996 with Harris Corporation Farinon
Division ("Harris").(1)+
(b) PCS Marketing Agreement dated April 26, 1996 with Harris.(1)+
</TABLE>
II-6
<PAGE>
<TABLE>
<C> <S> <C>
10-30 Form of Subscription Agreement dated March 8, 1996, including Forms of Bridge
Note and Bridge Warrant.**
10-31 (a) Asset Acquisition Agreement and Plan of Reorganization dated July 3, 1996
with CommcoCCC, Inc.**
(b) Form of Note issued to Commco, L.L.C.**
(c) Form of Note issued to Columbia Capital Corporation.**
(d) Form of Warrant issued to Commco, L.L.C.**
(e) Form of Warrant issued to Columbia Capital Corporation.**
(f) Option Agreement dated July 3, 1996 with Commco, L.L.C.**
(g) Security Agreement dated June 27, 1996 with Columbia Capital Corporation.**
(h) Form of Noncompetition Agreement with CommcoCCC.**
(i) CommcoCCC Management Agreement dated July 3, 1996.**
(j) Right of First Offer Agreement dated July 3, 1996.**
(k) Engagement Letter with Montgomery Securities dated May 23, 1996.**
(l) Agreement to Lease between COMMCO, L.L.C. and Advanced Radio Technologies
Corporation.**
(m) Extension Agreement.**
(n) Amendment No. 1 to Asset Acquisition Agreement and Plan of Reorganization.**
10-32 Letter of Intent dated April 29, 1996 with Helioss Communications Inc.**
10-33 Letter of Intent dated March 26, 1996 with Advantage Telecom, Inc.**
10-34 (a) Consulting Agreement dated March 1, 1996 with Trond Johannesen.**
(b) Shareholders Agreement.**
(c) License and Support Agreement, dated September 30, 1996 (United Kingdom).**
(d) License and Support Agreement, dated September 30, 1996 (Sweden).**
10-35 Form of Subscription Agreement dated September 1996, including Forms of
September Bridge Note and September Bridge Warrant.**
10-36 Memorandum of Terms with Advantage Telecom, Inc.**
10-37 Installation Services Agreement dated October 2, 1996 with Teleport
Communications Group, Inc.**
10-38 (a) Commitment Letter.**
(b) Form of Senior Secured Credit Agreement with CIBC.*
(c) Form of Senior Secured Notes.*
(d) Form of CIBC Warrants.*
(e) Form of Security Agreement.*
10-39 Master Service Agreements.
(a) Microwave Partners, d/b/a Astrolink Communications Inc., dated October 3,
1996.**
(b) American PCS, L.P., dated July 29, 1996.**
(c) Message Center Management, Inc., dated September 19, 1996.**
(d) NEXTLINK Communications, LLC, dated October 13, 1996.**
(e) GST Telecom, Inc., dated October 11, 1996.**
(f) CAIS, Inc., dated October 1996.**
(g) DIGEX, Inc., dated October 1996.**
(h) Brooks Fiber Properties, Inc. dated October 1996.
10-40 MFS Communications Company, Inc. Agreements.**
10-41 Services Agreement dated as of October 29, 1996 with ICG Telecom Group, Inc. and
Pacific & Eastern Digital Transmission Services, Inc.
</TABLE>
II-7
<PAGE>
<TABLE>
<C> <S> <C>
11 Computation of Pro Forma Net Loss Per Share of Common Stock.**
12 Computation of Ratio of Earnings to Fixed Charges.(1)
21 Subsidiaries of the Registrant.
23(a) Consent of the Registrant's Independent Accountants.
23(b) Consent of the Registrant's Counsel (Included in Exhibit 5-1).**
25 Omitted
</TABLE>
- ------------------------
* To be filed by amendment.
** Previously filed.
+ Confidential treatment requested for the deleted portions of this document.
++ Withdrawn pursuant to Rule 477 of the Securities Act of 1933, as amended.
(1) Filed with the Registration Statement on Form S-1 of the Company dated May
15, 1996 (SEC Reg. No. 333-03735) ("Unit Registration Statement").
(2) Filed with Amendment No. 1 to Unit Registration Statement dated July 3,
1996.
(3) Filed with Amendment No. 2 to Unit Registration Statement.
(4) Filed with Amendment No. 4 to Unit Registration Statement.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities under the Act may be permitted to
directors, officers and controlling person of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been advised that in the
opinion of the 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.
The undersigned Registrant hereby undertakes to provide the Underwriters at
the closing specified in the Underwriting Agreement certificates in such
denomination and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, 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 Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the Act, 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.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the Registration Statement;
II-8
<PAGE>
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement;
(2) That, for the purpose of determining any liability under the Act,
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.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized in the City of New
York, State of New York, on October 30, 1996.
Advanced Radio Technologies
Corporation
By: /s/ THOMAS GRINA
-----------------------------------
Thomas A. Grina
EXECUTIVE VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER
<TABLE>
<C> <S> <C>
SIGNATURES TITLE DATE
- ------------------------------------------------------ ----------------------------------- --------------------
/s/ VERNON L. FOTHERINGHAM
------------------------------------------- Chairman, Chief Executive Officer October 30, 1996
Vernon L. Fotheringham and Director
*
------------------------------------------- President, Chief Operating Officer October 30, 1996
Steven D. Comrie and Director
/s/ THOMAS A. GRINA
------------------------------------------- Executive Vice President and Chief October 30, 1996
Thomas A. Grina Financial Officer
*
------------------------------------------- Director October 30, 1996
J.C. Demetree
*
------------------------------------------- Director October 30, 1996
Mark C. Demetree
*
------------------------------------------- Director October 30, 1996
Matthew C. Gove
*
------------------------------------------- Director October 30, 1996
Andrew I. Fillat
*
------------------------------------------- Director October 30, 1996
Laurence S. Zimmerman
</TABLE>
*By: /s/ THOMAS A. GRINA
------------------------------------------
Thomas A. Grina
ATTORNEY-IN-FACT
II-10
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby severally constitutes and appoints Vernon L. Fotheringham and
Thomas A. Grina, and each of them, his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement and all
documents relating thereto, including one or more registration statements that
may be filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act, and to file the same, with all exhibits hereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, full power and
authority to do and perform each and every act and thing necessary or advisable
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or his substitute or substitutes, may lawfully do
or cause to be done in virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<C> <S> <C>
SIGNATURES TITLE DATE
- ------------------------------------------------------ --------------------------------------- ----------------
/s/ VERNON L. FOTHERINGHAM
------------------------------------------- Chairman, Chief Executive Officer and July 26, 1996
Vernon L. Fotheringham Director
/s/ STEVEN D. COMRIE
------------------------------------------- President, Chief Operating Officer and July 26, 1996
Steven D. Comrie Director
/s/ LAURENCE S. ZIMMERMAN
------------------------------------------- Director July 26, 1996
Laurence S. Zimmerman
/s/ J. C. DEMETREE, JR.
------------------------------------------- Director July 26, 1996
J. C. Demetree, Jr.
/s/ MARK C. DEMETREE
------------------------------------------- Director July 26, 1996
Mark C. Demetree
/s/ MATTHEW C. GOVE
------------------------------------------- Director July 26, 1996
Matthew C. Gove
/s/ ANDREW I. FILLAT
------------------------------------------- Director July 26, 1996
Andrew I. Fillat
</TABLE>
II-11
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION PAGE
- ---------- ---------------------------------------------------------------------------------------- ---------
<C> <S> <C>
1-1 Purchase Agreement.
2-1 (a) Amended and Restated Certificate of Incorporation and Bylaws of Registrant.**
(b) Amendment to Amended and Restated Certificate of Incorporation.**
(c) Second Amended and Restated Certificate of Incorporation (to be effective prior to
the consummation of the Offering) and Restated and Amended Bylaws (effective on the
date of the Prospectus) of Registrant.*
4-1 Specimen of Common Stock Certificate.(3)
4-2 Omitted
4-3 Form of Lock-Up Agreement.**
4-4 Omitted.
5-1 Opinion and Consent of Hahn & Hessen LLP, counsel for the Registrant, with respect to
the Registrant's Common Stock.**
9-1 (a) Voting Trust Agreement.**
(b) Form of Trustee Indemnification Agreement.**
(c) Voting Agreement.**
(d) Confidentiality Agreement.**
10-1 Employment and Consulting Agreements.
(a) Vernon L. Fotheringham, dated December 16, 1995.**
(b) Steven D. Comrie, dated February 2, 1996.**
(c) W. Theodore Pierson, Jr., dated May 8, 1995 and effective January 1, 1995.**
(d) I. Don Brown, dated February 16, 1996.**
(e) Charles Menatti, dated March 8, 1996.**
(f) James D. Miller, dated February 1, 1996.**
(g) Thomas A. Grina, dated April 26, 1996.(1)
10-2 (a) Second Amended and Restated Certificate of Incorporation and By-laws of Telecom
(filed as Exhibit 2-1 to the Registration Statement on Form S-1 of the Company dated
May 2, 1996).**
(b) Certificate of Incorporation of ART Merger Corporation (to become the Certificate of
Incorporation of Telecom upon the completion of the Merger).**
10-3 Form of Director Indemnification Agreement.**
10-4 (a) Registrant's Equity Incentive Plan, as amended.**
(b) Form of Stock Option Agreement.**
10-5 (a) Registrant's 1996 Non-Employee Directors Automatic Stock Option Plan.**
(b) Form of Non-Employee Directors Stock Option Agreement.**
10-6 Stock Option Agreements.
(a) Comrie Non-Qualified Stock Option Agreement.**
(b) Comrie Incentive Stock Option Agreement.**
10-7 Management Consulting Agreement with Landover Holdings Corporation, dated November 13,
1995.**
10-8 (a) ART West Joint Venture Agreement dated April 4, 1995, with Extended Communications,
Inc.**
(b) Put/Call Agreement dated October 1, 1994, with Extended Communications, Inc.**
(c) Services Agreement dated October 1, 1994, with Extended Communications, Inc.**
(d) Amendment dated April 4, 1995 to the Put/Call Agreement dated October 1, 1994, with
Extended Communications, Inc.**
(e) Asset Purchase Agreement dated June 24, 1996 with Extended Communications, Inc.**
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION PAGE
- ---------- ---------------------------------------------------------------------------------------- ---------
(f) Management Agreement dated June 1, 1996 with ART West Partnership.**
<C> <S> <C>
10-9 (a) Put/Call Agreement dated September 1, 1994 with DCT Communications, Inc.**
(b) Services Agreement dated September 1, 1994 with DCT Communications, Inc.**
(c) Term Sheet dated April 26, 1996 with DCT.**
(d) Purchase Agreement with DCT dated July 1, 1996.**
(e) Amendment to Services Agreement dated June 1996 with DCT.**
10-10 (a) Asset Purchase Agreement dated April 4, 1995 with EMI Communications Corporation.**
(b) $1,500,000 Nonnegotiable and Nontransferable Promissory Note.**
(c) Maintenance Agreement dated November 14, 1995 with EMI Communications Corporation.**
(d) Agreement dated November 14, 1995 with EMI Communications Corporations.**
10-11 38 GHz Radio Links Purchase Agreement dated August 11, 1995 with P-Com, Inc.+
10-12 (a) Agreement dated May 25, 1995 with Telecom One.++
(b) Services Agreement dated April 24, 1996 with Telecom One.**
(c) Asset Purchase Agreement and Management Agreement with Telecom One dated June 27,
1996.**
10-13 Agreement dated April 25, 1996 with GTE.**
10-14 Software License Agreement dated March 29, 1996 with GTE.**
10-15 Agreement dated July 12, 1995 with Southeast Research Partners, Inc.**
10-16 Agreement dated March 1, 1995 with High Sky Limited Partnership, High Sky II Limited
Partnership, Vernon L. Fotheringham, W. Theodore Pierson, Jr., and F. Thomas Tuttle.**
10-17 Stock Purchase Agreement dated May 8, 1995 with Vernon L. Fotheringham, W. Theodore
Pierson, Jr., High Sky Limited Partnership, High Sky II Limited Partnership, and
Extended Communications, Inc.**
10-18 (a) Purchase Agreement dated April 21, 1995 with Landover Holdings Corporation.**
(b) Letter Agreement dated May 8, 1995 with the Demetrees, Telecom and Landover Holdings
Corporation.**
(c) Letter Agreement dated November 13, 1995 with Telecom, E2-2 Holdings, L.P. and the
Demetrees.**
10-19 Restated and Amended Stockholders' Agreement dated February 2, 1996 with Telecom and the
stockholders of each of Telecom and the Company.**
10-20 Second Restated and Amended Registration Rights Agreement dated July 3, 1996 with
Telecom and the stockholders of each of Telecom and the Company.**
10-21 Services Agreement dated May 8, 1995 with Telecom.**
10-22 Option Agreement dated February 2, 1996 with Telecom.**
10-23 (a) Securities Purchase Agreement dated November 13, 1995 with Telecom, Vernon
Fotheringham, W. Theodore Pierson, Jr., the stockholders of Telecom named therein
and the Advent Partnerships.**
(b) Exchange Agreement dated February 2, 1996 with Telecom and the Advent
Partnerships.**
10-24 (a) Securities Purchase Agreement dated February 2, 1996 with Telecom and Ameritech
Development Corporation ("Ameritech"), including letter of intent.**
(b) Warrant issued on February 2, 1996 to Ameritech.**
(c) Put/Call Agreement dated February 2, 1996 with Ameritech.**
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION PAGE
- ---------- ---------------------------------------------------------------------------------------- ---------
10-25 Strategic Distribution Agreement dated April 29, 1996 with Ameritech.**
<C> <S> <C>
10-26 Second Restated and Amended Merger Agreement and Plan of Reorganization dated October
11, 1996 between the Company, Merger Sub and Telecom.**
10-27 (a) $2,445,000 Promissory Note in favor of CRA, Inc. ("CRA").**
(b) Security Agreement with CRA (including UCC-1 Financing Statement).**
(c) Indemnity Agreement.**
(d) Form of Indemnity Warrant.**
10-28 Memorandum of Terms of Development and Procurement Agreement with American Wireless with
Extension Agreement dated April 25, 1996.**
10-29 (a) Purchase Agreement dated April 26, 1996 with Harris Corporation Farinon Division
("Harris") (confidential treatment requested for certain terms).(1)
(b) PCS Marketing Agreement dated April 26, 1996 with Harris (confidential treatment
requested for certain terms).(1)
10-30 Form of Subscription Agreement dated March 8, 1996, including Forms of Bridge Note and
Bridge Warrant.**
10-31 (a) Asset Acquisition Agreement and Plan of Reorganization dated July 3, 1996 with
CommcoCCC, Inc.**
(b) Form of Note issued to Commco, L.L.C.**
(c) Form of Note issued to Columbia Capital Corporation.**
(d) Form of Warrant issued to Commco, L.L.C.**
(e) Form of Warrant issued to Columbia Capital Corporation.**
(f) Option Agreement dated July 3, 1996 with Commco, L.L.C.**
(g) Security Agreement dated June 27, 1996 with Columbia Capital Corporation.**
(h) Form of Noncompetition Agreement with CommcoCCC.**
(i) CommcoCCC Management Agreement dated July 3, 1996.**
(j) Right of First Offer Agreement dated July 3, 1996.**
(k) Engagement Letter with Montgomery Securities dated May 23, 1996.**
(l) Agreement to Lease Between COMMCO, L.L.C. and Advanced Radio Technologies
Corporation.**
(m) Extension Agreement.**
(n) Amendment No. 1 to Asset Acquisition Agreement and Plan of Reorganization.**
10-32 Letter of Intent dated April 29, 1996 with Helioss Communications Inc.**
10-33 Letter of Intent dated March 26, 1996 with Advantage Telecom, Inc.**
10-34 (a) Consulting Agreement dated March 1, 1996 with Trond Johannesen.**
(b) Shareholders Agreement.**
(c) License and Support Agreement, dated September 30, 1996 (United Kingdom).**
(d) License and Support Agreement, dated September 30, 1996 (Sweden).**
10-35 Form of Subscription Agreement dated September 1996, including Forms of Bridge Note and
Bridge Warrant.**
10-36 Memorandum of Terms with Advantage Telecom, Inc.**
10-37 Installation Services Agreement dated October 2, 1996 with Teleport Communications
Group, Inc.**
10-38 (a) Commitment Letter.**
(b) Senior Secured Credit Agreement with CIBC.*
(c) Form of Senior Secured Notes.*
(d) Form of CIBC Warrants.*
(e) Security Agreement.*
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION PAGE
- ---------- ---------------------------------------------------------------------------------------- ---------
10-39 Master Service Agreements
<C> <S> <C>
(a) Microwave Partners, d/b/a Astrolink Communications Inc., dated October 3, 1996.**
(b) American PCS, L.P., dated July 29, 1996.**
(c) Message Center Management, Inc., dated September 19, 1996.**
(d) NEXTLINK Communications, LLC, dated October 13, 1996.**
(e) GST Telecom, Inc., dated October 11, 1996.**
(f) CAIS, Inc., dated October 1996.**
(g) DIGEX, Inc., dated October 1996.**
(h) Brooks Fiber Properties, Inc. dated October 1996.
10-40 MFS Communications Company, Inc. Agreements.**
10-41 Services Agreement dated as of October 29, 1996 with ICG Telecom Group, Inc. and Pacific
& Eastern Digital Transmission Services, Inc.
11 Computation of Pro Forma Net Loss Per Share of Common Stock.**
12 Computation of Ratio of Earnings to Fixed Charges.(1)
21 Subsidiaries of the Registrant.
23(a) Consent of the Registrant's Independent Accountants.
23(b) Consent of the Registrant's Counsel (Included in Exhibit 5-1).**
25 Omitted
</TABLE>
- ------------------------
* To be filed by amendment.
** Previously filed.
+ Confidential treatment requested for the deleted portions of this document.
++ Withdrawn pursuant Rule 477 of the Securities Act of 1933, as amended.
(1) Filed with the Registration Statement on Form S-1 of the Company dated May
15, 1996 (SEC Reg. No. 333-03735) ("Unit Registration Statement").
(2) Filed with Amendment No. 1 to Unit Registration Statement.
(3) Filed with Amendment No. 2 to Unit Registration Statement.
(4) Filed with Amendment No. 4 to Unit Registration Statement.
<PAGE>
EX-1.1
Purchase Agreement
==============================================================================
ADVANCED RADIO TELECOM CORP.
(a Delaware corporation)
2,750,000 Shares of Common Stock
PURCHASE AGREEMENT
Dated: October ___, 1996
==============================================================================
<PAGE>
Draft of October 28, 1996
ADVANCED RADIO TELECOM CORP.
(a Delaware corporation)
2,750,000 Shares of Common Stock
(Par Value $.001 Per Share)
PURCHASE AGREEMENT
October ___, 1996
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
DEUTSCHE MORGAN GRENFELL, INC.
as Representatives of the several Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Ladies and Gentlemen:
Advanced Radio Telecom Corp. (f/k/a Advanced Radio Technologies
Corporation), a Delaware corporation (the "Company"), confirms its agreement
with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch") and each of the other Underwriters named in Schedule A hereto
(collectively, the "Underwriters," which term shall also include any underwriter
substituted as hereinafter provided in Section 10 hereof), for whom Merrill
Lynch and Deutsche Morgan Grenfell, Inc. are acting as representatives (in such
capacity, the "Representatives"), with respect to the issuance and sale by the
Company and the purchase by the Underwriters, acting severally and not jointly,
of the respective numbers of shares of common stock, par value $.001 per share,
of the Company ("Common Stock") set forth in said Schedule A, and with respect
to the grant by the Company to the Underwriters, acting severally and not
jointly, of the option described in Section 2(b) hereof to purchase all or any
part of 412,500 additional shares of Common Stock to cover over-allotments, if
any. The aforesaid 2,750,000 shares of Common Stock (the "Initial Securities")
to be purchased by the Underwriters and all or any part of the 412,500 shares of
Common Stock subject to the option described in Section 2(b) hereof (the "Option
Securities") are hereinafter called, collectively, the "Securities."
The Company understands that the Underwriters propose to make a public offering
of the Securities (the "Offering") as soon as the Representatives deem advisable
after this Agreement has been executed
<PAGE>
and delivered. Prior to consummation of the Offering, (i) ART Merger
Corporation, a subsidiary of the Company, will merge with and into Advanced
Radio Telecom Corp. ("Telecom"), with the result that Telecom will become a
wholly owned subsidiary of the Company, (ii) the Company will amend its
certificate of incorporation to change its name to "Advanced Radio Telecom
Corp." and (iii) Telecom will amend its certificate of incorporation to change
its name to ART Licensing Corp. ("ART Licensing") (collectively, the "Merger").
Concurrent with the Offering, the Company will enter into a certain Senior
Secured Credit Agreement and certain ancillary documents attached thereto as
exhibits (collectively, the "CIBC Agreements"), pursuant to which certain
investors identified by CIBC Wood Gundy Securities Corp. will agree to purchase
up to $50.0 million of the Company's senior secured notes in the event that the
Company elects to issue such notes at any time during the 90-day period
following the consummation of the Offering (the CIBC Financing," and, together
with the Offering and the Merger, the "Transactions"). Unless the context
otherwise requires, the "Company" shall refer to the Company after giving effect
to the Merger. References to "subsidiaries" of the Company shall be deemed to
include ART Licensing. This Agreement and the CIBC Agreements are hereinafter
collectively referred to as the "OperativeDocuments."
The Company and the Underwriters agree that up to 275,000 shares of the
Securities to be purchased by the Underwriters (the "Reserved Securities") shall
be reserved for sale by the Underwriters to certain eligible employees and
persons having business relationships with the Company, as part of the
distribution of the Securities by the Underwriters, subject to the terms of this
Agreement, the applicable rules, regulations and interpretations of the National
Association of Securities Dealers, Inc. (the "NASD") and all other applicable
laws, rules and regulations. To the extent that such Reserved Securities are not
orally confirmed for purchase by such eligible employees and persons having
business relationships with the Company by the end of the first business day
after the date of this Agreement, such Reserved Securities may be offered to the
public as part of the public offering contemplated hereby.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (No. 333-04388) covering the
registration of the Securities under the Securities Act of 1933, as amended (the
"1933 Act"), including the related preliminary prospectus or prospectuses.
Promptly after execution and delivery of this Agreement, the Company will either
(i) prepare and file a prospectus in accordance with the provisions of Rule 430A
("Rule 430A") of the rules and regulations of the Commission under the 1933 Act
(the "1933 Act Regulations") and paragraph (b) of Rule 424 ("Rule 424(b)") of
the 1933 Act Regulations or (ii) if the Company has elected to rely upon Rule
434 ("Rule 434") of the 1933 Act Regulations, prepare and file a term sheet (a
"Term Sheet") in accordance with the provisions of Rule 434 and Rule 424(b). The
information included in such prospectus or in such Term Sheet, as the case may
be, that was omitted from such registration statement at the time it became
effective but that is deemed to be part of such registration statement at the
time it became effective (a) pursuant to paragraph (b) of Rule 430A is referred
to as "Rule 430A Information" or (b) pursuant to paragraph (d) of Rule 434 is
referred to as "Rule 434 Information." Each prospectus used before such
registration statement became effective, and any prospectus that omitted, as
applicable, the Rule 430A Information or the Rule 434 Information, that was used
after such effectiveness and prior to the execution and delivery of this
Agreement, is herein called a "preliminary prospectus." Such registration
statement, including the exhibits thereto and schedules thereto at the time it
became effective and including the Rule 430A Information and the Rule 434
Information, as applicable, is herein called the "Registration Statement." Any
registration statement filed pursuant to Rule 462(b) of the 1933 Act Regulations
is herein referred to as the "Rule 462(b) Registration Statement," and after
such filing the term "Registration Statement" shall include the Rule 462(b)
<PAGE>
Registration Statement. The final prospectus in the form first furnished to the
Underwriters for use in connection with the offering of the Securities is herein
called the "Prospectus." If Rule 434 is relied on, the term "Prospectus" shall
refer to the preliminary prospectus dated October 16, 1996 together with the
Term Sheet, and all references in this Agreement to the date of the Prospectus
shall mean the date of the Term Sheet. For purposes of this Agreement, all
references to the Registration Statement, any preliminary prospectus, the
Prospectus or any Term Sheet or any amendment or supplement to any of the
foregoing shall be deemed to include the copy filed with the Commission pursuant
to its Electronic Data Gathering, Analysis and Retrieval system ("EDGAR").
1. Representations and Warranties.
(a) Representations and Warranties by the Company. The Company represents
and warrants to each Underwriter as of the date hereof, as of the Closing Time
referred to in Section 2(c) hereof, and as of each Date of Delivery (if any)
referred to in Section 2(b) hereof, and agrees with each Underwriter, as
follows:
(i) Each of the Registration Statement and any Rule 462(b)
Registration Statement has become effective under the 1933 Act and no stop
order suspending the effectiveness of the Registration Statement or any
Rule 462(b) Registration Statement has been issued under the 1933 Act and
no proceedings for that purpose have been instituted or are pending or, to
the knowledge of the Company, are contemplated by the Commission, and any
request on the part of the Commission for additional information has been
complied with. At the respective times the Registration Statement, any
Rule 462(b) Registration Statement and any post-effective amendments
thereto became effective and at the Closing Time (and, if any Option
Securities are purchased, at the Date of Delivery), the Registration
Statement, the Rule 462(b) Registration Statement and any amendments and
supplements thereto complied and will comply in all material respects with
the requirements of the 1933 Act and the 1933 Act Regulations and did not
and will not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading, and the Prospectus, any preliminary
prospectus and any supplement thereto or prospectus wrapper prepared in
connection therewith, at their respective times of issuance and at the
Closing Time, complied and will comply in all material respects with any
applicable laws or regulations of foreign jurisdictions in which the
Prospectus and such preliminary prospectus, as amended or supplemented, if
applicable, are distributed in connection with the offer and sale of
Reserved Securities. Neither the Prospectus nor any amendments or
supplements thereto (including any prospectus wrapper), at the time the
Prospectus or any such amendment or supplement was issued and at the
Closing Time (and, if any Option Securities are purchased, at the Date of
Delivery), included or will include an untrue statement of a material fact
or omitted or will omit to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under which
they were made, not misleading. If Rule 434 is used, the Company will
comply with the requirements of Rule 434 and the Prospectus shall not be
"materially different", as such term is used in Rule 434, from the
prospectus included in the Registration Statement at the time it became
effective. The representations and warranties in this subsection shall not
apply to statements in or omissions from the Registration Statement or
Prospectus made in reliance upon and in conformity with information
furnished to the Company in writing
<PAGE>
by any Underwriter through Merrill Lynch expressly for use in the
Registration Statement or Prospectus.
(ii) Each preliminary prospectus and the prospectus filed as part of
the Registration Statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 under the 1933 Act, complied when
so filed in all material respects with the 1933 Act Regulations, and each
preliminary prospectus and the Prospectus delivered to the Underwriters
for use in connection with the Offering were identical to the
electronically transmitted copies thereof filed with the Commission
pursuant to EDGAR, except to the extent permitted by Regulation S-T.
(iii) No action has been taken and no local, state or Federal law,
statute, ordinance, rules, regulation, requirement, judgment or court
decree has been enacted, adopted or issued by any governmental agency that
prevents the issuance of the Securities or prevents or suspends the use of
the Prospectus; no judgment, restraining order or order of any nature by a
Federal or state court of competent jurisdiction has been issued that
prevents the issuance of the Securities or prevents or suspends the sale
of the Securities in any jurisdiction referred to in Section 3(f) hereof;
and every request of any securities authority or agency of any
jurisdiction for additional information has been complied with in all
material respects.
(iv) There are no contracts or other documents required to be
described in the Registration Statement or to be filed as exhibits to the
Registration Statement by the 1933 Act or by the 1933 Act Regulations
which have not been described or filed as required. The contracts so
described in the Prospectus are accurate and complete in all material
respects, and all such contracts described as being in full force and
effect on the date hereof are in full force and effect on the date hereof.
Neither the Company nor any of its subsidiaries or, to the best of the
Company's knowledge, any other party is in breach of or default under any
such contract.
(v) Each of the Company and ART Licensing has been duly formed as a
corporation and is validly existing in good standing under the laws of its
jurisdiction of incorporation and has all requisite corporate power and
authority to own, lease and operate its properties and to conduct its
business as described in the Prospectus. Each of the Company and ART
Licensing is duly qualified to do business and is in good standing as a
foreign corporation in each jurisdiction in which the nature of its
business or its ownership or leasing of property requires such
qualification, except where the failure to be so qualified would not have,
either individually or in the aggregate, a material adverse effect on the
assets, properties, business, management, earnings, net worth, results of
operations, condition (financial or otherwise) or business prospects of
the Company and its subsidiaries, taken as a whole. No proceeding has been
instituted in any such jurisdiction, revoking, limiting or curtailing, or
seeking to revoke, limit or curtail, such power and authority or
qualification.
(vi) ART Licensing is the only subsidiary of the Company. The
Company owns all of the outstanding capital stock of ART Licensing; all
such capital stock has been duly authorized and validly issued and is
fully paid and nonassessable, free and clear of any security interest,
claim, lien, encumbrance or adverse interest of any nature, other than the
pledge of all outstanding shares of capital stock of ART Licensing in
connection with the CommcoCCC Financing (as such term is defined in the
Prospectus); and none of such capital stock was
<PAGE>
issued in violation of any preemptive or similar rights. Except as
disclosed in the Prospectus, there are no outstanding subscriptions,
rights, warrants, calls, commitments of sale or options to acquire, or
instruments convertible into or exchangeable for, any such shares of
capital stock or other equity interest of ART Licensing.
(vii) The Company and its subsidiaries do not have any ownership
interest in any joint venture, other than the Company's 50% ownership
interest in the ART West Joint Venture, a Delaware partnership owned by
the Company and Extended Communications, Inc. ("ART West").
(viii) Prior to consummation of the Transactions, the Company and
Telecom have authorized and outstanding capital stock as set forth in
Exhibit A hereto. All such issued and outstanding shares of capital stock
of the Company and Telecom have been duly authorized and validly issued,
are fully paid and non-assessable and were not issued in violation of any
preemptive or similar rights. The shares of capital stock of Telecom owned
by the Company prior to completion of the Merger are free and clear of any
security interest, claim, lien, encumbrance or adverse interest of any
nature. Upon consummation of the Transactions, the Company will have
authorized and outstanding capital stock as set forth in Exhibit B hereto.
All such issued and outstanding shares of capital stock of the Company
will have been duly authorized and validly issued, will be fully paid and
non-assessable and will not have been issued in violation of any
preemptive or similar rights. Except as disclosed in the Prospectus, there
are, and there will be, no outstanding subscriptions, rights, warrants,
calls, commitments of sale or options to acquire, or instruments
convertible into or exchangeable for, any capital stock of the Company or
Telecom. The description of the Company's stock option, stock bonus and
other stock plans or arrangements, and the options or other rights granted
and exercised thereunder, set forth in the Prospectus accurately and
fairly presents in all material respects the information required to be
shown with respect to such plans, arrangements, options and rights.
(ix) The Company has all requisite corporate power and authority to
enter into this Agreement and to perform the transactions contemplated
hereby. This Agreement has been duly authorized, executed and delivered by
the Company and constitutes a legally valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms.
(x) No approval, authorization, order, consent, registration,
filing, qualification, license or permit of or with any court, regulatory,
administrative or other governmental body is required for the execution
and delivery of this Agreement by the Company or the consummation of the
transactions contemplated by this Agreement, except such as have been
obtained and are in full force and effect under the 1933 Act and such as
may be required under applicable Blue Sky laws in connection with the
purchase and distribution of the Securities by the Underwriters and the
clearance of the Offering with the NASD.
(xi) The Securities to be sold by the Company have been duly
authorized and, when issued, delivered and paid for in the manner set
forth in this Agreement, will be duly authorized, validly issued, fully
paid and nonassessable, and will conform to the description thereof
contained in the Prospectus. No preemptive rights or other rights to
subscribe for or purchase exist with respect to the issuance and sale of
the Securities by the Company pursuant
<PAGE>
to this Agreement. No stockholder of the Company has any right which has
not been waived to require the Company to register the sale of any shares
owned by such stockholder under the 1933 Act in the Offering contemplated
by this Agreement. No further approval or authority of the stockholders or
the board of directors of the Company (the "Board of Directors") will be
required for the issuance and sale of the Securities to be sold by the
Company as contemplated herein.
(xii) Each of (A) the Cooperation Agreement between Landover
Holdings Corp. ("LHC"), Lawrence S. Zimmerman and the Company, (B) the
Voting Trust Agreement among Vernon L. Fotheringham, Andrew I. Fillat and
Mark C. Demetree, as trustees, LHC, Kimberly Zimmerman, the Zachary Tyler
Zimmerman Trust and the Company and (C) the Confidentiality Agreement
among Laurence S. Zimmerman, the Company and Telecom (collectively, the
"Voting Trust Agreements") has been duly authorized and validly executed
by each of the parties thereto and is the legally valid and binding
agreement of each such party, enforceable against each such party in
accordance with its terms.
(xiii) The CommcoCCC Agreement (as such term is defined in the
Prospectus) has been duly authorized and validly executed by each of the
parties thereto and is the legally valid and binding agreement of each
such party, enforceable against each such party in accordance with its
terms.
(xiv) Each of the CIBC Agreements has been duly authorized, executed
and delivered by each of the parties thereto and is the legally valid and
binding agreement of each such party, enforceable against each such party
in accordance with its terms.
(xv) None of the execution, delivery and performance of this
Agreement by the Company, the compliance by the Company with all of the
provisions hereof, the issuance and sale of the Securities, the
consummation by the Company and its subsidiaries of the Transactions and
the transactions contemplated hereby and thereby (A) require any consent,
approval, authorization or other order of or filing, registration,
qualification, license or permit of or with, any court, regulatory body,
administrative agency or other governmental body (including, without
limitation, the Federal Communications Commission (the "FCC")), other than
those that have been obtained and are in full force and effect, or (B)
violate, conflict with, or constitute a breach of any of the terms or
provisions of, or a default under (or an event that with notice or the
lapse of time, or both, would constitute a default), or require consent
under, or result in the imposition of a lien or encumbrance on any
properties of the Company or any of its subsidiaries pursuant to (1) the
charter or bylaws of the Company or any of its subsidiaries, (2) any bond,
debenture, note, mortgage, deed of trust or other agreement, indenture or
other instrument to which or by which any of them is a party or by which
any of them or any of their respective property is bound, (3) any local,
state or Federal law, statute, ordinance, rule, regulation or requirement
(including, without limitation, the Communications Act of 1934, as amended
by the Telecommunications Act of 1996 (as so amended, the "Communications
Act"), the rules and regulations of the FCC and the environmental laws,
statutes, ordinances, rules or regulations) applicable to the Company, any
of its subsidiaries or any of their respective assets or properties or (4)
any judgment, order or decree of any court or governmental agency or
authority having jurisdiction over the Company, any of its subsidiaries or
any of their assets or properties, that, in the case of clauses (2), (3)
or (4), (x) would
<PAGE>
reasonably be expected, either individually or in the aggregate, to result
in a material adverse effect on the assets, properties, business,
management, earnings, net worth, results of operations, condition
(financial or otherwise) or business prospects of the Company and its
subsidiaries, taken as a whole, (y) would materially interfere with or
materially adversely affect the issuance of the Securities or the
consummation of the Transactions or (z) would in any manner draw into
question the validity of any of the Operative Documents (any of the events
set forth in clauses (x), (y) or (z), a "Material Adverse Effect").
(xvi) Neither the Company nor any of its subsidiaries is or,
immediately after giving effect to the Transactions, will be (A) in
violation of its charter or bylaws, (B) in default in the performance of
any material obligation, agreement or condition contained in any bond,
debenture, note or any other evidence of indebtedness or in any other
agreement, indenture or instrument material to the conduct of the business
of the Company and its subsidiaries, taken as a whole, to which any of
them is a party, or by which any of their respective properties is bound
or (C) in violation of any local, state or Federal law, statute,
ordinance, rule, regulation, requirement, judgment or court decree
(including, without limitation, the Communications Act and the rules and
regulations of the FCC and environmental laws, statutes, ordinances,
rules, regulations, judgments or court decrees) applicable to any of them
or any of their respective assets or properties (whether owned or leased),
other than, in the case of clauses (B) and (C), any default or violation
that would not reasonably be expected to have a Material Adverse Effect.
There exists no condition that, with notice, the passage of time or
otherwise, would constitute a default under any such document or
instrument that would reasonably be expected to have a Material Adverse
Effect.
(xvii) Other than routine FCC proceedings relating to applications
for and assignments of 38 GHz wireless broadband authorizations and other
than rulemaking procedures of general applicability to the 38 GHz wireless
broadband telecommunications industry, there is (A) no action, suit or
proceeding before or by any court, arbitrator or governmental agency, body
or official, domestic or foreign, now pending or threatened or, to the
Company's knowledge, contemplated to which the Company or any of its
subsidiaries is or may be a party or to which the business or property of
any of them is subject, or (B) no injunction, restraining order or order
of any nature by a Federal or state court or foreign court of competent
jurisdiction to which the Company, any of its subsidiaries or their
business, assets, or property are, or would reasonably be expected to be,
subject.
(xviii) Each of the Company and ART Licensing has good and
marketable title, free and clear of all liens, claims, encumbrances and
restrictions, except for liens described in the Prospectus, liens for
taxes not yet due and payable and other liens not material to the
business, prospects, financial condition or results of operations of the
Company and its subsidiaries, taken as a whole, to all property and assets
described in the Prospectus as currently being owned by each of the
Company and its subsidiaries. The Company or its subsidiaries hold 73
authorizations (the "Company FCC Licenses") to provide 38 GHz wireless
broadband services ("Service"). In particular, the Company or its
subsidiaries hold the authorizations set forth in the table in the
Prospectus under the heading "Business--38 GHz Wireless Broadband Licenses
and Authorizations" (the "License Table") to provide Service in the
markets identified therein as "Owned" and for the amount of bandwidth set
forth in the column entitled "Owned" opposite each such market. The
Company has entered into contracts with third parties that
<PAGE>
hold, on a combined basis, 35 authorizations (the "Managed FCC Licenses")
to provide Service. In particular, these third parties hold the
authorizations set forth in the License Table to provide Service in the
markets identified therein as "Managed" and for the amount of bandwidth
set forth in the column entitled "Managed" opposite each such market. The
shareholders of CommcoCCC, Inc. ("CommcoCCC") hold 129 authorizations (the
"CommcoCCC FCC Licenses") to provide Service.. In particular, the
shareholders of CommcoCCC hold the authorizations set forth in the License
Table to provide Service in the markets identified therein as "Under
Definitive Agreement to Acquire" and for the bandwidth set forth in the
column entitled "Under Definitive Agreement to Acquire" opposite each such
market. All of the Company FCC Licenses, the Managed FCC Licenses and the
CommcoCCC FCC Licenses (collectively, the "Licenses") are in full force
and effect. Each of the Company and its subsidiaries is in compliance with
the terms and conditions of all such Licenses and with the rules and
regulations of the regulatory authorities having jurisdictions with
respect thereto. All leases to which the Company or any of its
subsidiaries is a party are valid and binding, and no default has occurred
or is continuing thereunder which would reasonably be expected to result
in a Material Adverse Effect. Each of the Company and its subsidiaries
enjoys peaceful and undisturbed possession under all such Leases to which
it is a party as lessee or as assignee of lessee with such exceptions as
do not materially interfere with the use made by the Company or its
subsidiaries.
(xix) Each of the Company and ART Licensing has such permits,
licenses, franchises, trademarks and authorizations of governmental or
regulatory authorities other than the FCC ("Permits") as are necessary to
own, lease and operate their respective properties and to conduct their
respective business in the manner described in the Prospectus. Each of the
Company and ART Licensing has fulfilled and performed all of its material
obligations with respect to such Permits, and no event has occurred which
allows, or after notice or lapse of time would allow, revocation or
termination thereof or result in any other material impairment of the
rights of the holder of any such Permit, except for any such impairments
which would not, individually or in the aggregate, have a Material Adverse
Effect. Except as described in the Prospectus, such Permits contain no
restrictions that are materially burdensome to the Company and its
subsidiaries, taken as a whole.
(xx) The development, implementation and operation of the 38 GHz
wireless broadband telecommunications services network as described, and
in the markets described, in the Prospectus will not (A) result in any
violation of the provisions of the charter or bylaws of the Company or any
of its subsidiaries, (B) result in any violation of any applicable law,
administrative regulation or administrative or court decree (including,
without limitation, the Communications Act, the rules and regulations of
the FCC and environmental laws) or (C) conflict with or constitute a
breach or violation of, or constitute a default under, or result in the
creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company or its subsidiaries pursuant to, any
contract, indenture, mortgage, loan agreement, note, lease or other
instrument to which the Company or any of its subsidiaries is a party or
by which any of them may be bound, or to which any of their property is
subject, except, in the case of clauses (B) and (C) above, any such
violations, conflicts or breaches that would not individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.
<PAGE>
(xxi) Except as described in the Prospectus, the business and
operations conducted and proposed to be conducted by the Company and its
subsidiaries as described in the Prospectus are not regulated by any
public service or public utility commissions in the States in which the
Company and its subsidiaries conduct or propose to conduct such business
and operations as described in the Prospectus; and neither the Company nor
any of its subsidiaries is or will be required to obtain any Permit from
any public service or public utility commission in any such State to
conduct its business as described in the Prospectus.
(xxii) Each of the Company, ART Licensing and ART West has filed all
reports required to be filed with the FCC.
(xxiii) Neither the Company nor ART Licensing has violated any
foreign, Federal, state or local law or regulation relating to the
protection of human health and safety, the environment or hazardous or
toxic substances or wastes, pollutants or contaminants, except where any
such violations would not, individually or in the aggregate, have a
Material Adverse Effect.
(xxiv) All tax returns required to be filed by the Company or any of
its subsidiaries in any jurisdiction have been so filed. All material
taxes, including withholding taxes, penalties and interest, assessments,
fees and other charges due or claimed to be due from such entities or that
are due and payable have been paid, other than those being contested in
good faith and for which adequate reserves have been provided for those
currently payable without penalty or interest. There are no proposed
additional taxes assessments against the Company or any of its
subsidiaries, and neither the Company nor any of its subsidiaries has any
knowledge of any tax deficiency which has been or might be asserted or
threatened against the Company or any of its subsidiaries which would
reasonably be expected to have a Material Adverse Effect.
(xxv) Each of the Company and its subsidiaries maintains reasonably
adequate insurance.
(xxvi) Coopers & Lybrand, L.L.P., who have expressed their opinion
with respect to the financial statements and schedules filed with the
Commission as part of the Registration Statement and included in the
Prospectus and in the Registration Statement, are independent public
accountants as required by the 1933 Act and the 1933 Act Regulations.
(xxvii) The financial statements, together with related schedules
and notes forming part of the Registration Statement and the Prospectus
(and any amendment or supplement thereto), present fairly the individual
and consolidated financial positions, results of operations and changes in
financial position of the Company, its subsidiaries and Telecom on the
basis stated in the Registration Statement and the Prospectus (and any
amendment or supplement thereto) at the respective dates or for the
respective periods to which they apply. Such statements and related
schedules and notes have been prepared in accordance with generally
accepted accounting principles consistently applied through the periods
involved, except as disclosed therein. The other financial and statistical
information and data set forth in the Registration Statement and the
Prospectus (and any amendment or supplement thereto) is, in all material
respects, accurately presented and prepared on a basis consistent with
such financial statements and the books and records of the Company, its
subsidiaries and Telecom, as
<PAGE>
applicable. The pro forma financial information and other financial
information included in the Prospectus present fairly the information
shown therein, have been prepared in accordance with the Commission's
rules and regulations with respect to pro forma financial information,
have been properly compiled on the pro forma basis described therein, and,
in the opinion of the Company, the assumptions used in the preparation
thereof are reasonable and the adjustments used therein are appropriate to
give effect to the transactions or circumstances referred to therein. No
other financial statements or schedules are required to be included in the
Registration Statement. The selected financial data set forth in the
Prospectus under the captions "Summary Historical and Pro Forma Financial
Data," "Capitalization" and "Selected Historical and Pro Forma Financial
Data" fairly present the information set forth therein on the basis stated
in the Registration Statement.
(xxviii) Each of the Company and its subsidiaries maintains a system
of internal accounting controls sufficient to provide reasonable assurance
that (A) transactions are executed in accordance with management's general
or specific authorizations, (B) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for assets,
(C) access to assets is permitted only in accordance with management's
general or specific authorizations and (D) the recorded accountability for
assets is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect thereto.
(xxix) Subsequent to the respective dates as of which information is
given in the Prospectus and except as set forth in the Prospectus, (A)
neither the Company nor any of its subsidiaries has incurred any
liabilities or obligations, direct or contingent, which are material,
individually or in the aggregate, to the Company and its subsidiaries,
taken as a whole, nor entered into any transaction not in the ordinary
course of business, (B) neither the Company nor any of its subsidiaries
has sustained any material loss or interference with its businesses or
properties from fire, flood, windstorm, accident or other calamity,
whether or not covered by insurance, (C) there has not been, individually
or in the aggregate, any change or development which would reasonably be
expected to result in a Material Adverse Effect and (D) there has been no
dividend or distribution of any kind declared, paid or made by the Company
or any of its subsidiaries on any class of capital stock.
(xxx) The Company does not intend to, nor does it believe that it
will, incur debts beyond its ability to pay such debts as they mature. The
present fair saleable value of the assets of the Company on a consolidated
basis exceeds the amount that will be required to be paid on or in respect
of the existing debts and other liabilities (including contingent
liabilities) of the Company on a consolidated basis as they become
absolute and matured. The assets of the Company on a consolidated basis do
not constitute unreasonably small capital to carry out the business of the
Company and its subsidiaries, taken as a whole, as conducted or as
proposed to be conducted.
(xxxi) Neither the Company nor any of its subsidiaries is (A) an
"investment company" or a company "controlled" by an "investment company"
within the meaning of the Investment Company Act of 1940, as amended, or
(B) a "holding company" or a "subsidiary company" or an "affiliate" of a
holding company within the meaning of the Public Utility Holding Company
Act of 1935, as amended.
<PAGE>
(xxxii) The Company has not distributed, and will not distribute
prior to the First Closing Date, any offering material in connection with
the offering and sale of the Securities other than any preliminary
prospectus, the Prospectus, the Registration Statement and the other
materials permitted by the 1933 Act. (xxxiii) Neither the Company nor any
of its subsidiaries has (A) taken, directly or indirectly, any action
designed to, or that might reasonably be expected to, cause or result in
stabilization or manipulation of the price of any security of the Company
to facilitate the sale or resale of the Securities or (B) since the date
of the Prospectus (1) sold, bid for, purchased or paid any person any
compensation for soliciting purchases of, the Securities or (2) paid or
agreed to pay to any person any compensation for soliciting another to
purchase any other securities of the Company.
(xxxiv) Except pursuant to this Agreement, there are no contracts,
agreements or understandings between the Company or any of its
subsidiaries and any other person that would give rise to a valid claim
against the Company, any of its subsidiaries or any of the Underwriters
for a brokerage commission, finder's fee or like payment in connection
with the issuance, purchase and sale of the Securities.
(xxxv) Each of the Company and its subsidiaries has complied with
all provisions of Section 517.075, Florida Statutes.
(xxxvi) Except as disclosed in the Prospectus, there are no business
relationships or related party transactions required to be disclosed
therein pursuant to Item 404 of Regulation S-K of the Commission.
(xxxvii) The Merger has been completed substantially in accordance
with the description thereof contained in the Prospectus.
The Company acknowledges that each of the Underwriters and, for purposes of the
opinions to be delivered to the Underwriters pursuant to Section 5 hereof,
counsel to the Company and counsel to the Underwriters, will rely upon the
accuracy and truth of the foregoing representations and hereby consents to such
reliance.
(b) Officer's Certificates. Any certificate signed by any officer of the
Company or any of its subsidiaries delivered to the Representatives or to
counsel for the Underwriters shall be deemed a representation and warranty by
the Company to each Underwriter as to the matters covered thereby.
<PAGE>
2. Sale and Delivery to Underwriters; Closing.
(a) Initial Securities. On the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth, the
Company agrees to sell to each Underwriter, severally and not jointly, and each
Underwriter, severally and not jointly, agrees to purchase from the Company, at
the price per share set forth in Schedule B hereto, the number of Initial
Securities set forth in Schedule A hereto opposite the name of such Underwriter,
plus any additional number of Initial Securities which such Underwriter may
become obligated to purchase pursuant to the provisions of Section 10 hereof.
(b) Option Securities. In addition, on the basis of the representations
and warranties herein contained and subject to the terms and conditions herein
set forth, the Company hereby grants an option to the Underwriters, severally
and not jointly, to purchase up to an additional 412,500 shares of Common Stock
at the price per share set forth in Schedule B hereto, less an amount per share
equal to any dividends or distributions declared by the Company and payable on
the Initial Securities but not payable on the Option Securities. The option
hereby granted will expire 30 days after the date hereof and may be exercised in
whole or in part from time to time only for the purpose of covering
over-allotments which may be made in connection with the offering and
distribution of the Initial Securities upon notice by the Representatives to the
Company setting forth the number of Option Securities as to which the several
Underwriters are then exercising the option and the time and date of payment and
delivery for such Option Securities. Any such time and date of delivery (a "Date
of Delivery") shall be determined by the Representatives, but shall not be later
than seven full business days after the exercise of said option, nor in any
event prior to the Closing Time (as hereinafter defined). If the option is
exercised as to all or any portion of the Option Securities, each of the
Underwriters, acting severally and not jointly, will purchase that proportion of
the total number of Option Securities then being purchased which the number of
Initial Securities set forth in Schedule A hereto opposite the name of such
Underwriter bears to the total number of Initial Securities, subject in each
case to such adjustments as the Representatives in their discretion shall make
to eliminate any sales or purchases of fractional shares.
(c) Payment. Payment of the purchase price for, and delivery of
certificates for, the Initial Securities shall be made at the offices of Latham
& Watkins, New York, New York or at such other place as shall be agreed upon by
the Representatives and the Company, at 9:00 A.M. (Eastern time) on the third
(fourth, if the pricing occurs after 4:30 P.M. (Eastern time) on any given day)
business day after the date hereof (unless postponed in accordance with the
provisions of Section 10 hereof), or such other time not later than ten business
days after such date as shall be agreed upon by the Representatives and the
Company (such time and date of payment and delivery being herein called the
"Closing Time").
In addition, in the event that any or all of the Option Securities are
purchased by the Underwriters, payment of the purchase price for, and delivery
of certificates for, such Option Securities shall be made at the above-mentioned
offices, or at such other place as shall be agreed upon by the Representatives
and the Company, on each Date of Delivery as specified in the notice from the
Representatives to the Company
Payment shall be made to the Company by wire transfer of immediately
available funds to a bank account or other accounts designated by the Company,
against delivery to the Representatives for the respective accounts of the
Underwriters of certificates for the Securities to be purchased by them. It is
<PAGE>
understood that each Underwriter has authorized the Representatives, for its
account, to accept delivery of, receipt for, and make payment of the purchase
price for, the Initial Securities and the Option Securities, if any, which it
has agreed to purchase. Merrill Lynch, individually and not as a Representative
of the Underwriters, may (but shall not be obligated to) make payment of the
purchase price for the Initial Securities or the Option Securities, if any, to
be purchased by any Underwriter whose funds have not been received by the
Closing Time or the relevant Date of Delivery, as the case may be, but such
payment shall not relieve such Underwriter from its obligations hereunder.
(d) Denominations; Registration. Certificates for the Initial Securities
and the Option Securities, if any, shall be in such denominations and registered
in such names as the Representatives may request in writing at least one full
business day before the Closing Time or the relevant Date of Delivery, as the
case may be. The certificates for the Initial Securities and the Option
Securities, if any, will be made available for examination and packaging by the
Representatives in The City of New York not later than 10:00 A.M. (Eastern Time)
on the business day prior to the Closing Time or the relevant Date of Delivery,
as the case may be.
3. Covenants of the Company. The Company covenants with each Underwriter
as follows:
(a) Compliance with Securities Regulations and Commission Requests.
The Company, subject to Section 3(b) hereof, will comply with the
requirements of Rule 430A or Rule 434, as applicable, and will notify the
Representatives immediately, and confirm the notice in writing, (i) when
any post-effective amendment to the Registration Statement shall become
effective, or any supplement to the Prospectus or any amended Prospectus
shall have been filed, (ii) of the receipt of any comments from the
Commission, (iii) of any request by the Commission for any amendment to
the Registration Statement or any amendment or supplement to the
Prospectus or for additional information, and (iv) of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement or of any order preventing or suspending the use of
any preliminary prospectus, or of the suspension of the qualification of
the Securities for offering or sale in any jurisdiction, or of the
initiation or threatening of any proceedings for any of such purposes. The
Company will promptly effect the filings necessary pursuant to Rule 424(b)
and will take such steps as it deems necessary to ascertain promptly
whether the form of prospectus transmitted for filing under Rule 424(b)
was received for filing by the Commission and, in the event that it was
not, it will promptly file such prospectus. The Company will make every
reasonable effort to prevent the issuance of any stop order and, if any
stop order is issued, to obtain the lifting thereof at the earliest
possible moment.
(b) Filing of Amendments. The Company will give the Representatives
notice of its intention to file or prepare any amendment to the
Registration Statement (including any filing under Rule 462(b)), any Term
Sheet or any amendment, supplement or revision to either the prospectus
included in the Registration Statement at the time it became effective or
to the Prospectus will furnish the Representatives with copies of any such
documents a reasonable amount of time prior to such proposed filing or
use, as the case may be, and will not file or use any such document to
which the Representatives or counsel for the Underwriters shall object.
(c) Delivery of Registration Statements. The Company has furnished
or will deliver to the Representatives and counsel for the Underwriters,
without charge, signed copies of the
<PAGE>
Registration Statement as originally filed and of each amendment thereto
(including exhibits filed therewith or incorporated by reference therein)
and signed copies of all consents and certificates of experts, and will
also deliver to the Representatives, without charge, a conformed copy of
the Registration Statement as originally filed and of each amendment
thereto (without exhibits) for each of the Underwriters. The copies of the
Registration Statement and each amendment thereto furnished to the
Underwriters will be identical to the electronically transmitted copies
thereof filed with the Commission pursuant to EDGAR, except to the extent
permitted by Regulation S-T.
(d) Delivery of Prospectuses. The Company has delivered to each
Underwriter, without charge, as many copies of each preliminary prospectus
as such Underwriter reasonably requested, and the Company hereby consents
to the use of such copies for purposes permitted by the 1933 Act. The
Company will furnish to each Underwriter, without charge, during the
period when the Prospectus is required to be delivered under the 1933 Act
or the Securities Exchange Act of 1934 (the "1934 Act"), such number of
copies of the Prospectus (as amended or supplemented) as such Underwriter
may reasonably request. The Prospectus and any amendments or supplements
thereto furnished to the Underwriters will be identical to the
electronically transmitted copies thereof filed with the Commission
pursuant to EDGAR, except to the extent permitted by Regulation S-T.
(e) Continued Compliance with Securities Laws. The Company will
comply with the 1933 Act and the 1933 Act Regulations so as to permit the
completion of the distribution of the Securities as contemplated in this
Agreement and in the Prospectus. If at any time when a prospectus is
required by the 1933 Act to be delivered in connection with sales of the
Securities, any event shall occur or condition shall exist as a result of
which it is necessary, in the opinion of counsel for the Underwriters or
for the Company, to amend the Registration Statement or amend or
supplement the Prospectus in order that the Prospectus will not include
any untrue statements of a material fact or omit to state a material fact
necessary in order to make the statements therein not misleading in the
light of the circumstances existing at the time it is delivered to a
purchaser, or if it shall be necessary, in the opinion of such counsel, at
any such time to amend the Registration Statement or amend or supplement
the Prospectus in order to comply with the requirements of the 1933 Act or
the 1933 Act Regulations, the Company will promptly prepare and file with
the Commission, subject to Section 3(b) hereof, such amendment or
supplement as may be necessary to correct such statement or omission or to
make the Registration Statement or the Prospectus comply with such
requirements, and the Company will furnish to the Underwriters such number
of copies of such amendment or supplement as the Underwriters may
reasonably request.
(f) Blue Sky Qualifications. The Company will use its best efforts,
in cooperation with the Underwriters, to qualify the Securities for
offering and sale under the applicable securities laws of such states and
other jurisdictions (domestic or foreign) as the Representatives may
designate and to maintain such qualifications in effect for a period of
not less than one year from the later of the effective date of the
Registration Statement and any Rule 462(b) Registration Statement;
provided, however, that the Company shall not be obligated to file any
general consent to service of process or to qualify as a foreign
corporation or as a dealer in securities in any jurisdiction in which it
is not so qualified or to subject itself to taxation in respect of doing
business in any jurisdiction in which it is not otherwise so subject. In
each jurisdiction in which the Securities have been so qualified, the
Company will file such statements and reports as may be required by the
laws of such
<PAGE>
jurisdiction to continue such qualification in effect for a period of not
less than one year from the effective date of the Registration Statement
and any Rule 462(b) Registration Statement.
(g) Rule 158. The Company will timely file such reports pursuant to
the 1934 Act as are necessary in order to make generally available to its
securityholders as soon as practicable an earnings statement for the
purposes of, and to provide the benefits contemplated by, the last
paragraph of Section 11(a) of the 1933 Act.
(h) Use of Proceeds. The Company will use the net proceeds received
by it from the sale of the Securities in the manner specified in the
Prospectus under "Use of Proceeds."
(i) Listing. The Company will use its best efforts to effect and
maintain the quotation of the Securities on the Nasdaq Stock Market and
will file with the Nasdaq Stock Market all documents and notices required
by the Nasdaq Stock Market of companies that have securities that are
traded in the over-the-counter market and quotations for which are
reported by the Nasdaq Stock Market.
(j) Restriction on Sale of Securities. During a period of 180 days
from the date of the Prospectus, the Company will not, without the prior
written consent of Merrill Lynch, (i) directly or indirectly, offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or
warrant to purchase or otherwise transfer or dispose of any share of
Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock or file any registration statement under the
1933 Act with respect to any of the foregoing or (ii) enter into any swap
or any other agreement or any transaction that transfers, in whole or in
part, directly or indirectly, the economic consequence of ownership of the
Common Stock, whether any such swap or transaction described in clause (i)
or (ii) above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise. The foregoing sentence shall not apply
to (A) the Securities to be sold hereunder, (B) any shares of Common Stock
issued by the Company upon the exercise of an option or warrant or the
conversion of a security outstanding on the date hereof and referred to in
the Prospectus provided that the recipient of any such shares of Common
Stock shall enter into a lockup agreement substantially in the form of
Exhibit E-1 hereto, (C) any shares of Common Stock issued or options to
purchase Common Stock granted pursuant to existing employee benefit plans
of the Company referred to in the Prospectus provided that the recipient
of any such shares of Common Stock shall enter into a lockup agreement
substantially in the form of Exhibit E-1 hereto or (D) 6,000,000 shares of
Common Stock issued pursuant to the CommcoCCC Agreement.
(k) Reporting Requirements. The Company, during the period when the
Prospectus is required to be delivered under the 1933 Act or the 1934 Act,
will file all documents required to be filed with the Commission pursuant
to the 1934 Act within the time periods required by the 1934 Act and the
rules and regulations of the Commission thereunder.
<PAGE>
(l) Compliance with NASD Rules. The Company hereby agrees that it
will ensure that the Reserved Securities will be restricted as required by
the NASD or the NASD rules from sale, transfer, assignment, pledge or
hypothecation for a period of three months following the date of this
Agreement. The Underwriters will notify the Company as to which persons
will need to be so restricted. At the request of the Underwriters, the
Company will direct the transfer agent to place a stop transfer
restriction upon such securities for such period of time. Should the
Company release, or seek to release, from such restrictions any of the
Reserved Securities, the Company agrees to reimburse the Underwriters for
any reasonable expenses (including, without limitation, legal expenses)
they incur in connection with such release.
(m) Compliance with Rule 463. The Company will file with the
Commission such reports on Form SR as may be required pursuant to Rule 463
of the 1933 Act Regulations.
4. Payment of Expenses. (a) Expenses. The Company will pay all expenses
incident to the performance of its obligations under this Agreement, including
(i) the preparation, printing and filing of the Registration Statement
(including financial statements and exhibits) as originally filed and of each
amendment thereto, (ii) the preparation, printing and delivery to the
Underwriters of this Agreement, any Agreement among Underwriters and such other
documents as may be required in connection with the offering, purchase, sale,
issuance or delivery of the Securities, (iii) the preparation, issuance and
delivery of the certificates for the Securities to the Underwriters, including
any stock or other transfer taxes and any stamp or other duties payable upon the
sale, issuance or delivery of the Securities to the Underwriters, (iv) the fees
and disbursements of the Company's counsel, accountants and other advisors, (v)
the qualification of the Securities under securities laws in accordance with the
provisions of Section 3(f) hereof, including filing fees and the reasonable fees
and disbursements of counsel for the Underwriters in connection therewith and in
connection with the preparation of any Blue Sky memoranda and any supplement
thereto, (vi) the printing and delivery to the Underwriters of copies of each
preliminary prospectus, any Term Sheets and of the Prospectus and any amendments
or supplements thereto, (vii) the preparation, printing and delivery to the
Underwriters of copies of any Blue Sky memoranda and any supplement thereto,
(viii) the fees and expenses of any transfer agent or registrar for the
Securities, the filing fees incident to, and the reasonable fees and
disbursements of counsel to the Underwriters in connection with, the review by
the NASD of the terms of the sale of the Securities, (x) the fees and expenses
incurred in connection with the inclusion of the Securities in the Nasdaq Stock
Market, and (xi) all costs and expenses of the Underwriters, including the fees
and disbursements of counsel for the Underwriters, in connection with matters
related to the Reserved Securities which are designated by the Company for sale
to employees and others having a business relationship with the Company.
(b) Termination of Agreement. If this Agreement is terminated by the
Representatives in accordance with the provisions of Section 5 or Section
9(a)(i) hereof, the Company shall reimburse the Underwriters for all of their
out-of-pocket expenses, including the reasonable fees and disbursements of
counsel for the Underwriters.
5. Conditions of Underwriters' Obligations. The obligations of the several
Underwriters hereunder are subject to the accuracy of the representations and
warranties of the Company contained in Section 1 hereof or in certificates of
any officer of the Company or any subsidiary of the Company delivered pursuant
to the provisions hereof, to the performance by the Company of its covenants and
other obligations hereunder, and to the following further conditions:
(a) Effectiveness of Registration Statement. The Registration
Statement, including any Rule 462(b) Registration Statement, has become
effective and at the Closing Time no
<PAGE>
stop order suspending the effectiveness of the Registration Statement
shall have been issued under the 1933 Act or proceedings therefor
initiated or threatened by the Commission, and any request on the part of
the Commission for additional information shall have been complied with to
the reasonable satisfaction of counsel to the Underwriters. A prospectus
containing the Rule 430A Information shall have been filed with the
Commission in accordance with Rule 424(b) (or a post-effective amendment
providing such information shall have been filed and declared effective in
accordance with the requirements of Rule 430A) or, if the Company has
elected to rely upon Rule 434, a Term Sheet shall have been filed with the
Commission in accordance with Rule 424(b).
(b) Opinion of Counsel for Company. At the Closing Time, the
Representatives shall have received the favorable opinion, dated as of the
Closing Time, of Hahn & Hessen LLP, counsel for the Company, in form and
substance satisfactory to counsel for the Underwriters, together with
signed or reproduced copies of such letter for each of the other
Underwriters, to the effect set forth in Exhibit C hereto and to such
further effect as counsel to the Underwriters may reasonably request.
(c) Opinion of Special Regulatory Counsel. At the Closing Time, the
Representatives shall have received the favorable opinion, dated as of the
Closing Time, of Latham & Watkins, special regulatory counsel, in form and
substance satisfactory to the Underwriters, together with signed or
reproduced copies of such letter for each of the other Underwriters to the
effect set forth in Exhibit D hereto and to such further effect as the
Underwriters may reasonably request.
(d) Opinion of Counsel for Underwriters. At the Closing Time, the
Representatives shall have received the favorable opinion, dated as of the
Closing Time, of Latham & Watkins, counsel for the Underwriters, together
with signed or reproduced copies of such letter for each of the other
Underwriters with respect to such matters as the Representatives may
request. In giving such opinion such counsel may rely, as to all matters
governed by the laws of jurisdictions other than the law of the State of
New York, the federal law of the United States and the General Corporation
Law of the State of Delaware, upon the opinions of counsel satisfactory to
the Representatives. Such counsel may also state that, insofar as such
opinion involves factual matters, they have relied, to the extent they
deem proper, upon certificates of officers of the Company and its
subsidiaries and certificates of public officials.
(e) Officers' Certificate. At the Closing Time, there shall not have
been, since the date hereof or since the respective dates as of which
information is given in the Prospectus, any material adverse change in the
condition, financial or otherwise, or in the earnings, business affairs or
business prospects of the Company and its subsidiaries considered as one
enterprise, whether or not arising in the ordinary course of business, and
the Representatives shall have received a certificate of the President or
a Vice President of the Company and of the chief financial or chief
accounting officer of the Company, dated as of the Closing Time, to the
effect that (i) there has been no such material adverse change, (ii) the
representations and warranties in Section 1(a) hereof are true and correct
with the same force and effect as though expressly made at and as of the
Closing Time, (iii) the Company has complied with all agreements and
satisfied all conditions on its part to
<PAGE>
be performed or satisfied at or prior to the Closing Time, and (iv) no
stop order suspending the effectiveness of the Registration Statement has
been issued and no proceedings for that purpose have been instituted or
are pending or are contemplated by the Commission.
(f) Accountant's Comfort Letter. At the time of the execution of
this Agreement, the Representatives shall have received from Coopers &
Lybrand L.L.P. a letter dated such date, in form and substance
satisfactory to the Representatives, together with signed or reproduced
copies of such letter for each of the other Underwriters containing
statements and information of the type ordinarily included in accountants'
"comfort letters" to underwriters with respect to the financial statements
and certain financial information contained in the Registration Statement
and the Prospectus.
(g) Bring-down Comfort Letter At the Closing Time, the
Representatives shall have received from Coopers & Lybrand L.L.P. a
letter, dated as of the Closing Time, to the effect that they reaffirm the
statements made in the letter furnished pursuant to subsection (f) of this
Section, except that the specified date referred to shall be a date not
more than three business days prior to the Closing Time.
(h) Approval of Listing. At the Closing Time, the Securities shall
have been approved for inclusion in the Nasdaq Stock Market, subject only
to official notice of issuance.
(i) No Objection. The NASD has confirmed that it has not raised any
objection with respect to the fairness and reasonableness of the
underwriting terms and arrangements.
(j) Lock-up Agreements. At the date of this Agreement, the
Representatives shall have received agreements substantially in the forms
of Exhibits E-1 through E-4 hereto signed by the persons listed on
Schedule C hereto, as applicable.
(k) Reliance Letter. Prior to the Closing Time, the Representatives
shall have received from Ropes & Gray, counsel to the Company, a letter
dated as of the Closing Time with respect to certain matters relating to
the CIBC Financing in form and substance satisfactory to counsel for the
Underwriters.
(l) Merger. Prior to the date hereof, the Merger shall have been
completed in the manner contemplated by the Prospectus.
(m) Voting Trust Agreements. Prior to the date hereof, each of the
Voting Trust Agreements shall have been entered into by the parties
thereto.
<PAGE>
(n) CIBC Financing. Prior to the Closing Time, the Company shall
have entered into the CIBC Financing on terms substantially identical to
those described in the Prospectus, and the Representatives shall have
received a certificate from CIBC to the effect that all conditions
precedent to the Company's ability to immediately draw on the CIBC
Financing have been satisfied or waived.
(o) Conditions to Purchase of Option Securities. In the event that
the Underwriters exercise their option provided in Section 2(b) hereof to
purchase all or any portion of the Option Securities, the representations
and warranties of the Company contained herein and the statements in any
certificates furnished by the Company or any subsidiary of the Company
hereunder shall be true and correct as of each Date of Delivery and, at
the relevant Date of Delivery, the Representatives shall have received:
(i) Officers' Certificate. A certificate, dated such Date of
Delivery, of the President or a Vice President of the Company and of the
chief financial or chief accounting officer of the Company confirming that
the certificate delivered at the Closing Time pursuant to Section 5(e)
hereof remains true and correct as of such Date of Delivery.
(ii) Opinion of Counsel for Company. The favorable opinion of Hahn &
Hessen LLP, counsel for the Company, together with the favorable opinion
of Latham & Watkins, special regulatory counsel, each in form and
substance satisfactory to counsel for the Underwriters or to the
Underwriters, as the case may be, dated such Date of Delivery, relating to
the Option Securities to be purchased on such Date of Delivery and
otherwise to the same effect as the opinions required by Sections 5(b) and
5(c) hereof.
(iii) Opinion of Counsel for Underwriters. The favorable opinion of
Latham & Watkins, counsel for the Underwriters, dated such Date of
Delivery, relating to the Option Securities to be purchased on such Date
of Delivery and otherwise to the same effect as the opinion required by
Section 5(e) hereof.
(iv) Bring-down Comfort Letter. A letter from Coopers & Lybrand
L.L.P., in form and substance satisfactory to the Representatives and
dated such Date of Delivery, substantially in the same form and substance
as the letter furnished to the Representatives pursuant to Section 5(g)
hereof, except that the "specified date" in the letter furnished pursuant
to this paragraph shall be a date not more than five days prior to such
Date of Delivery.
(p) Additional Documents. At the Closing Time and at each Date of
Delivery, counsel for the Underwriters shall have been furnished with such
documents and opinions as they may require for the purpose of enabling
them to pass upon the issuance and sale of the Securities as herein
contemplated, or in order to evidence the accuracy of any of the
representations or warranties, or the fulfillment of any of the
conditions, herein contained; and all proceedings taken by the Company in
connection with the issuance and sale of the Securities as herein
contemplated shall be satisfactory in form and substance to the
Representatives and counsel for the Underwriters.
<PAGE>
(q) Termination of Agreement. If any condition specified in this
Section shall not have been fulfilled when and as required to be
fulfilled, this Agreement, or, in the case of any condition to the
purchase of Option Securities, on a Date of Delivery which is after the
Closing Time, the obligations of the several Underwriters to purchase the
relevant Option Securities, may be terminated by the Representatives by
notice to the Company at any time at or prior to the Closing Time or such
Date of Delivery, as the case may be, and such termination shall be
without liability of any party to any other party except as provided in
Section 4 hereof and except that Sections 1, 6, 7 and 8 hereof shall
survive any such termination and remain in full force and effect.
6. Indemnification.
(a) Indemnification of Underwriters. The Company agrees to indemnify and
hold harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in the Registration
Statement (or any amendment thereto), including the Rule 430A Information
and the Rule 434 Information, if applicable, or the omission or alleged
omission therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading or arising out of
any untrue statement or alleged untrue statement of a material fact
included in any preliminary prospectus or the Prospectus (or any amendment
or supplement thereto), or the omission or alleged omission therefrom of a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of (A) the violation of any
applicable laws or regulations of any jurisdictions where Reserved
Securities have been offered and (B) any untrue statement or alleged
untrue statement of a material fact included in the supplement or
prospectus wrapper material distributed in connection with the reservation
and sale of the Reserved Securities to eligible employees and other
persons having business relationships with the Company or the omission or
alleged omission therefrom of a material fact necessary to make the
statements therein, when considered in conjunction with the Prospectus or
preliminary prospectus, not misleading;
(iii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission or in connection with any violation
of the nature referred to in Section 6(a)(ii)(A) hereof; provided that
(subject to Section 6(d) hereof) any such settlement is effected with the
written consent of the Company; and
(iv) against any and all expense whatsoever, as incurred (including
the fees and disbursements of counsel chosen by Merrill Lynch), reasonably
incurred in investigating, preparing or defending against any litigation,
or any investigation or proceeding by any
<PAGE>
governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission or in connection with any violation
of the nature referred to in Section 6(a)(ii)(A) hereof, to the extent
that any such expense is not paid under (i), (ii) or (iii) above;
provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by any
Underwriter through Merrill Lynch expressly for use in the Registration
Statement (or any amendment thereto), including the Rule 430A Information and
the Rule 434 Information, if applicable, or any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto).
(b) Indemnification of Company, Directors and Officers. Each Underwriter
severally agrees to indemnify and hold harmless the Company, its directors, each
of its officers who signed the Registration Statement, and each person, if any,
who controls the Company within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act against any and all loss, liability, claim, damage
and expense described in the indemnity contained in subsection (a) of this
Section, as incurred, but only with respect to untrue statements or omissions,
or alleged untrue statements or omissions, made in the Registration Statement
(or any amendment thereto), including the Rule 430A Information and the Rule 434
Information, if applicable, or any preliminary prospectus or the Prospectus (or
any amendment or supplement thereto) in reliance upon and in conformity with
written information furnished to the Company by such Underwriter through Merrill
Lynch expressly for use in the Registration Statement (or any amendment thereto)
or such preliminary prospectus or the Prospectus (or any amendment or supplement
thereto).
(c) Actions against Parties; Notification. Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party of
any action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve such
indemnifying party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall not relieve it
from any liability which it may have otherwise than on account of this indemnity
agreement. In the case of parties indemnified pursuant to Section 6(a) hereof,
counsel to the indemnified parties shall be selected by Merrill Lynch, and, in
the case of parties indemnified pursuant to Section 6(b) hereof, counsel to the
indemnified parties shall be selected by the Company. An indemnifying party may
participate at its own expense in the defense of any such action; provided,
however, that counsel to the indemnifying party shall not (except with the
consent of the indemnified party) also be counsel to the indemnified party. In
no event shall the indemnifying parties be liable for fees and expenses of more
than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances. No indemnifying party shall,
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 6 or Section
7 hereof (whether or not the indemnified parties are actual or potential parties
thereto), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party from all liability arising out
of such litigation, investigation, proceeding or claim and (ii) does not include
a statement as to or an admission of fault, culpability or a failure to act by
or on behalf of any indemnified party.
<PAGE>
(d) Settlement without Consent if Failure to Reimburse. If at any time an
indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement of the nature contemplated by
Section 6(a) and Section 6(a)(iii) hereof effected without its written consent
if (i) such settlement is entered into more than 45 days after receipt by such
indemnifying party of the aforesaid request, (ii) such indemnifying party shall
have received notice of the terms of such settlement at least 30 days prior to
such settlement being entered into and (iii) such indemnifying party shall not
have reimbursed such indemnified party in accordance with such request prior to
the date of such settlement.
(e) Indemnification for Reserved Securities. In connection with the offer
and sale of the Reserved Securities, the Company agrees, promptly upon a request
in writing, to indemnify and hold harmless the Underwriters from and against any
and all losses, liabilities, claims, damages and expenses incurred by them as a
result of the failure of eligible employees of the Company and other persons
having business relationships with Company to pay for and accept delivery of
Reserved Securities which, by the end of the first business day following the
date of this Agreement, were subject to a properly confirmed agreement to
purchase.
7. Contribution. If the indemnification provided for in Section 6 hereof
is for any reason unavailable to or insufficient to hold harmless an indemnified
party in respect of any losses, liabilities, claims, damages or expenses
referred to therein, then each indemnifying party shall contribute to the
aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred, (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and the Underwriters on the other hand from the offering of the Securities
pursuant to this Agreement or (ii) if the allocation provided by clause (i) is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) above but also the
relative fault of the Company on the one hand and of the Underwriters on the
other hand in connection with the statements or omissions, or in connection with
any violation of the nature referred to in Section 6(a)(ii)(A) hereof, which
resulted in such losses, liabilities, claims, damages or expenses, as well as
any other relevant equitable considerations.
The relative benefits received by the Company on the one hand and the
Underwriters on the other hand in connection with the offering of the Securities
pursuant to this Agreement shall be deemed to be in the same respective
proportions as the total net proceeds from the offering of the Securities
pursuant to this Agreement (before deducting expenses) received by the Company
and the total underwriting discount received by the Underwriters, in each case
as set forth on the cover of the Prospectus, or, if Rule 434 is used, the
corresponding location on the Term Sheet, bear to the aggregate initial public
offering price of the Securities as set forth on such cover.
The relative fault of the Company on the one hand and the Underwriters on
the other hand shall be determined by reference to, among other things, whether
any such untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by the
Company or by the Underwriters and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission or any violation of the nature referred to in Section 6(a)(ii)(A)
hereof.
<PAGE>
The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 7 were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 7. The aggregate
amount of losses, liabilities, claims, damages and expenses incurred by an
indemnified party and referred to above in this Section 7 shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission.
Notwithstanding the provisions of this Section 7, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Securities underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of any such untrue or
alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, each person, if any, who controls an
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act shall have the same rights to contribution as such Underwriter, and
each director of the Company, each officer of the Company who signed the
Registration Statement, and each person, if any, who controls the Company within
the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall
have the same rights to contribution as the Company. The Underwriters'
respective obligations to contribute pursuant to this Section 7 are several in
proportion to the number of Initial Securities set forth opposite their
respective names in Schedule A hereto and not joint.
8. Representations, Warranties and Agreements to Survive Delivery. All
representations, warranties and agreements contained in this Agreement or in
certificates of officers of the Company or any of its subsidiaries submitted
pursuant hereto, shall remain operative and in full force and effect, regardless
of any investigation made by or on behalf of any Underwriter or controlling
person, or by or on behalf of the Company, and shall survive delivery of the
Securities to the Underwriters.
<PAGE>
9. Termination of Agreement.
(a) Termination; General. The Representatives may terminate this
Agreement, by notice to the Company, at any time at or prior to the Closing Time
(i) if there has been, since the time of execution of this Agreement or since
the respective dates as of which information is given in the Prospectus, any
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise, whether or not arising in the
ordinary course of business, or (ii) if there has occurred any material adverse
change in the financial markets in the United States, any outbreak of
hostilities or escalation thereof or other calamity or crisis or any change or
development involving a prospective change in national or international
political, financial or economic conditions, in each case the effect of which is
such as to make it, in the judgment of the Representatives, impracticable to
market the Securities or to enforce contracts for the sale of the Securities, or
(iii) if trading in any securities of the Company has been suspended or
materially limited by the
<PAGE>
Commission or the Nasdaq Stock Market, or if trading generally on the American
Stock Exchange or the New York Stock Exchange or in the Nasdaq Stock Market has
been suspended or materially limited, or minimum or maximum prices for trading
have been fixed, or maximum ranges for prices have been required, by any of said
exchanges or by such system or by order of the Commission, the NASD or any other
governmental authority, or (iv) if a banking moratorium has been declared by
either Federal or New York authorities.
(b) Liabilities. If this Agreement is terminated pursuant to this Section,
such termination shall be without liability of any party to any other party
except as provided in Section 4 hereof, and provided further that Sections 1, 6,
7 and 8 hereof shall survive such termination and remain in full force and
effect.
10. Default by One or More of the Underwriters. If one or more of the
Underwriters shall fail at the Closing Time or a Date of Delivery to purchase
the Securities which it or they are obligated to purchase under this Agreement
(the "Defaulted Securities"), the Representatives shall have the right, within
24 hours thereafter, to make arrangements for one or more of the non-defaulting
Underwriters, or any other underwriters, to purchase all, but not less than all,
of the Defaulted Securities in such amounts as may be agreed upon and upon the
terms herein set forth; if, however, the Representatives shall not have
completed such arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed 10% of the
number of Securities to be purchased on such date, each of the
non-defaulting Underwriters shall be obligated, severally and not jointly,
to purchase the full amount thereof in the proportions that their
respective underwriting obligations hereunder bear to the underwriting
obligations of all non-defaulting Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the number
of Securities to be purchased on such date, this Agreement or, with
respect to any Date of Delivery which occurs after the Closing Time, the
obligation of the Underwriters to purchase and of the Company to sell the
Option Securities to be purchased and sold on such Date of Delivery shall
terminate without liability on the part of any non-defaulting Underwriter.
No action taken pursuant to this Section shall relieve any defaulting
Underwriter from liability in respect of its default.
In the event of any such default which does not result in a termination of
this Agreement or, in the case of a Date of Delivery which is after the Closing
Time, which does not result in a termination of the obligation of the
Underwriters to purchase and the Company to sell the relevant Option Securities,
as the case may be, either the Representatives or the Company shall have the
right to postpone the Closing Time or the relevant Date of Delivery, as the case
may be, for a period not exceeding seven days in order to effect any required
changes in the Registration Statement or Prospectus or in any other documents or
arrangements. As used herein, the term "Underwriter" includes any person
substituted for an Underwriter under this Section 10.
<PAGE>
11. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given if mailed or transmitted by
any standard form of telecommunication. Notices to the Underwriters shall be
directed to the Representatives at North Tower, World Financial Center, New
York, New York 10281-1201, attention of Steven C. Jones; and notices to the
Company shall be directed to it at 500 108th Avenue, N.E., Suite 2600, Bellevue,
Washington 98004, attention of Chief Financial Officer.
12. Parties. This Agreement shall each inure to the benefit of and be
binding upon the Underwriters and the Company and their respective successors.
Nothing expressed or mentioned in this Agreement is intended or shall be
construed to give any person, firm or corporation, other than the Underwriters
and the Company and their respective successors and the controlling persons and
officers and directors referred to in Sections 6 and 7 hereof and their heirs
and legal representatives, any legal or equitable right, remedy or claim under
or in respect of this Agreement or any provision herein contained. This
Agreement and all conditions and provisions hereof are intended to be for the
sole and exclusive benefit of the Underwriters and the Company and their
respective successors, and said controlling persons and officers and directors
and their heirs and legal representatives, and for the benefit of no other
person, firm or corporation. No purchaser of Securities from any Underwriter
shall be deemed to be a successor by reason merely of such purchase.
13. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO THE CONFLICT OF LAWS PROVISIONS THEREOF. SPECIFIED TIMES OF DAY REFER TO NEW
YORK CITY TIME.
14. Effect of Headings. The Article and Section headings herein and the
Table of Contents are for convenience only and shall not affect the construction
hereof.
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to the Company a counterpart hereof, whereupon this
instrument, along with all counterparts, will become a binding agreement between
the Underwriters and the Company in accordance with its terms.
Very truly yours,
ADVANCED RADIO TELECOM CORP.
By ________________________
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
DEUTSCHE MORGAN GRENFELL, INC.
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By ______________________________________
Authorized Signatory
For themselves and as Representatives of the other Underwriters named in
Schedule A hereto.
<PAGE>
SCHEDULE A
List of Underwriters
Number of
Initial
Name of Underwriter Securities
- ------------------- ----------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Deutsche Morgan Grenfell, Inc.
Total 2,750,000
<PAGE>
SCHEDULE B
Pricing Information
ADVANCED RADIO TELECOM CORP.
2,750,000 Shares of Common Stock
(Par Value $.001 Per Share)
1. The initial public offering price per share for the Securities,
determined as provided in said Section 2, shall be $__.
2. The purchase price per share for the Securities to be paid by the
several Underwriters shall be $__, being an amount equal to the initial public
offering price set forth above less $__ per share; provided that the purchase
price per share for any Option Securities purchased upon the exercise of the
over-allotment option described in Section 2(b) shall be reduced by an amount
per share equal to any dividends or distributions declared by the Company and
payable on the Initial Securities but not payable on the Option Securities.
<PAGE>
SCHEDULE C
List of Persons and Entities subject to Lock-up
1. Existing Security Holders, Directors and Officers (Exhibit E-1):
2. High Sky Entities (Exhibit E-2):
3. March Bridge Note Holders (Exhibit E-3):
4. Commco Entities (Exhibit E-4):
EX-10.39(h)
Master Service Agreement
MASTER SERVICE AGREEMENT
THIS MASTER SERVICE AGREEMENT (this "Agreement") is entered into as of the
______ day of October, 1996 (the "Effective Date") between ADVANCED RADIO
TELECOM CORP., a Delaware corporation with its principal place of business at
500-108th Avenue N.E., Suite 2600, Bellevue, Washington 98004 ("ART"), and
BROOKS FIBER PROPERTIES, INC., a Delaware corporation, by and on behalf of
itself and its operating subsidiaries doing business as Brooks Fiber
Communications (collectively, "Purchaser"), with its principal place of business
at 425 Woods Mill Road South, Suite 300, Town and Country, Missouri 63017.
RECITALS:
WHEREAS, ART provides broadband wireless local telecommunications services
in certain geographic areas throughout the United States, and its primary
service offering uses 38 GHz millimetric facilities;
WHEREAS, Purchaser desires to use the services provided by ART; and
WHEREAS, ART and Purchaser desire to enter into an agreement providing for
the furnishing of broadband wireless services by ART.
NOW, THEREFORE, in consideration of the promises and the mutual
representations, warranties, covenants and agreements hereinafter set forth, ART
and Purchaser, intending to be legally bound, agree as follows:
1. Definitions
Definitions are contained in Attachment A.
2. Term of Agreement
The term of this Agreement shall begin on the Effective Date and shall continue
in effect for three (3) year(s) thereafter. The Agreement shall renew for
successive periods of one (1) year unless one of the parties gives written
notice not to renew no later than sixty (60) days prior to the scheduled date of
expiration of the initial period or any subsequent renewal period.
3. Scope of Agreement
ART shall provide to Purchaser domestic interstate and intrastate Services
pursuant to this Agreement and, where applicable, to ART's tariffs ("Tariffs")
governing certain of the Services on file with the Federal Communications
Commission ("FCC") and various state regulatory
1
<PAGE>
commissions. This Agreement incorporates the relevant Tariff provisions as they
may be amended from time to time in accordance with law. The Tariffs shall
control the furnishing of service under this Agreement in the event of any
conflict between this Agreement and the Tariffs but only to the extent that the
Tariffs are required to control by operation of law; provided that ART agrees
not to seek to amend its Tariffs if the effect is to invalidate provisions of
this Agreement except where this Agreement expressly permits such amendment or
with the consent of Purchaser. Capitalized terms not otherwise defined in this
Agreement shall have the meanings assigned to them in the Tariffs.
4. Services Provided By Art
4.1 38 GHz Transmission Services
Subject to Section 10.3, ART shall provide transmission services over authorized
38 GHz facilities in authorized areas, which services (the "Services") shall
consist of the equipment, as defined below, and all aspects of path engineering,
spectrum usage, spectrum assignment, spectrum management, frequency
coordination. and network monitoring (collectively, "Spectrum Services").
Purchaser shall select either ART's Standard Service Option under which ART
shall own the Equipment or ART's Facilities Ownership Option under which
Purchaser shall own the Equipment. Additional services may be added, from time
to time, by amendment to this Agreement in the form of the Service Order, the
current version of which is attached hereto as Attachment B. Payment by
Purchaser for the Services shall be in accordance with Section 11.
4.2 Equipment
4.2.1 Equipment Supplied. In connection with the provision of Services
under this Agreement, it will be necessary for ART to install certain equipment
on the premises of Purchaser and/or other locations controlled by third parties
and related to the provision of the Services (collectively "Sites") Equipment to
be installed on each Link includes Outdoor Units ("ODU's"), Indoor Units
("IDU's"), monitoring equipment, power supplies, associated hardware and
cabling, and other materials necessary to complete the installation process (the
"Equipment"). The Equipment for ART's Standard Service Option and ART's
Facilities Ownership Option are specified on Attachment C-l and C-2,
respectively.
4.2.2 Title and Interest.
(A) Standard Service Option. Under ART's Standard Service Option,
Purchaser acknowledges and agrees that the Equipment is, and at all times shall
remain, the property of ART, and that Purchaser shall have no right, title or
interest in or to the Equipment. The Equipment is, and at all names shall
remain, personal property notwithstanding that it may now be or hereafter become
in any manner embedded in, affixed or attached to real property or any building
thereon. Purchaser covenants and agrees to maintain the Equipment free and clear
of all liens, charges, security interests and encumbrances except any placed
thereon by or with the consent of ART).
2
<PAGE>
(B) Facilities Ownership Option. Under ART's Facilities Ownership
Option, ART shall transfer title to the Equipment specified in Attachment C-2 to
Purchaser concurrently with the delivery of a Completion Notice pursuant to a
bill of sale and such other documents as are reasonably necessary to accomplish
such transfer. In connection with the transfer of title to such Equipment, ART
shall assign to Purchaser, to the extent reasonably possible, any rights of ART
to manufacturer's warranties relating to the Equipment.
4.2.3 Risk of Loss.
(A) Standard Service Option. Under ART's Standard Service Option,
Purchaser shall take all appropriate measures to secure the Equipment on
premises Purchaser owns or controls from loss, destruction or damage, including,
without limitation, barriers, limited and locked access, posted warnings and
training of those with access, electronic security including without limit
periodic audits of its telecommunications systems and passwords; environmental
controls; and suitable power supplies.
(B) Facilities Ownership Option. Under ART's Facilities Ownership
Option, Purchaser, from and after the date of ART's delivery of a Completion
Notice, shall bear the entire risk of loss, theft, destruction or damage of the
Equipment or any portion of it from any cause whatsoever for the Equipment
covered by such Notice. The total or partial destruction of any Equipment or the
total or partial loss of use or possession by Purchaser shall not release or
relieve Purchaser from the duty to pay the charges provided herein.
4.2.4 Equipment Alterations. Under ART's Standard Service Option,
Purchaser acknowledges that notwithstanding the Equipment listed on Attachment
C- 1 ART shall have complete discretion to furnish the Services using any
equipment it chooses, so long as the Services are designed to satisfy the
Performance Expectations. ART shall use reasonable efforts to notify Purchaser
of any changes in Equipment that appear likely to materially affect Purchaser's
equipment or services prior to making any such changes.
5. Service Ordering Procedures
5.1 Service Order Processing
In order to initiate the processing of an order for the Services, Purchaser
shall submit to ART a Request for Service ("RFS"). ART shall examine the RFS for
completeness and may return the RFS to Purchaser for additional information.
Purchaser shall exercise reasonable efforts to complete and return the RES to
ART within three (3) business days of receipt. ART may elect to conduct a
detailed site survey. ART shall exercise reasonable efforts to complete the
detailed site survey within ten (10) business days of receipt of the completed
RFS. Purchaser and ART shall execute a Service Order, which shall become an
integral part of this Agreement. The Service Order shall contain, among other
things, pricing for the Circuit, including all installation charges. Following
execution of the Service Order, ART shall deliver to Purchaser a Firm Order
Confirmation which shall contain, among other things, a mutually agreeable
target installation schedule ("Installation Date"). The Installation Date may be
amended from time to time by amendments to the Firm Order Confirmation.
3
<PAGE>
5.2 Service Order Modification or Cancellation
5.2.1 Standard Service Option. Under ART's Standard Service Option,
Purchaser may modify or cancel its Service Order at any time prior to the
Service Commencement Date, as hereinafter defined, provided that Purchaser shall
be responsible for all internal costs incurred by ART arid for all direct
charges incurred to the date of cancellation that are payable to third parties.
The charges set forth in this Section 5.2 are subject to Section 5.3.
Cancellations and modifications by Purchaser will not be accepted unless
confirmed in writing by Purchaser and signed by an authorized representative of
Purchaser.
5.2.2 Facilities Ownership Option. Under ART's Facilities Ownership
Option, Purchaser may only modify its Service Order with respect to the location
of the Equipment and at any time prior to the Service Commencement Date, as
hereinafter defined, provided that Purchaser shall be responsible for all
internal costs incurred by ART and for direct costs incurred to the date of
cancellation that ate payable to third parties. The charges set forth in this
Section 5.2 are subject to Section 5.3. Such modifications by Purchaser will not
be accepted unless confirmed in writing by Purchaser and signed by an authorized
representative of Purchaser.
5.3 Timing
ART shall exercise reasonable efforts to instal1 the Equipment and commence
delivering the Spectrum Services by the Installation Date but only in situations
where arrangements to obtain access to and use of the Site have been completed
prior to execution of the Service Order. ART's Field Services Department or
subcontractors, at ART's sole option, shall perform all installations in
connection with this Agreement. The parties hereby acknowledge that for Sites
where Purchaser has obtained access to and use of the Site prior to execution of
the Service Order, time is of the essence with regard to this Section 5;
provided however, that notwithstanding the provisions of Section 5.2, Purchaser,
as its sole remedy for ART's failure to commence Spectrum Services by the
Installation Date, may cancel a Service Order without incurring any charges,
following Notice to ART and ten (10) additional days to complete installation.
5.4 Commencement of Service
The Spectrum Services shall commence and Purchaser shall be responsible for
Spectrum Services charges upon acceptance by Purchaser (the "Service
Commencement Date"). The Service Commencement Date shall be the earlier of (i)
Notice from Purchaser that it accepts Service, or (ii) provided that ART has not
received Notice from Purchaser of a Service problem, eight (8) days from the
date that ART installs the Equipment, performs any testing ART deems necessary,
and Notifies Purchaser by a Completion Notice that ART is ready to commence the
Spectrum Services.
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5.5 Minimum Period of Service
The minimum period for the Services to be provided to Purchaser shall be one
year from the Service Commencement Date for each Link ordered by Purchaser and
installed by ART. Purchaser shall have the option to request ART to redeploy the
Link to any geographic area chosen by Purchaser for which ART holds a license as
a 38 GHz provider, provided: (i) Purchaser pays all costs to ART, including,
without limitation, direct costs to reinstall the new link at another suitable
location and all charges to third parties associated with deinstallation and
reinstallation of the Equipment at the new Link location ("Redeployment"); (ii)
the location chosen is completely suitable, in ART's sole discretion, for the
provision of the Services under the terms of this Agreement, and (iii)
Redeployment at the location chosen does not interfere, as determined by ART,
with existing or planned services by ART.
6. Related Support Services Provided by ART
ART shall supply certain services set forth in this Section 6 in support of the
Services (the "Related Support Services").
6.1 Site Surveys
Detailed Site Surveys (the "Detailed Site Surveys") shall be conducted by ART's
Field Services Department, ART's subcontractors, or, if mutually agreed,
Purchaser. The primary purpose of the Detailed Site Survey is to obtain
engineering information to validate the feasibility of using 38 GHz millimetric
wave circuits and the suitability of the Site and to identify in advance the
optimal installation methods to be used and the obstruction obstacles to be
overcome.
6.2 Frequency Coordination
It is necessary to "coordinate" the frequencies to be used on the paths to be
activated with other potentially interfering frequencies used either by ART or
by third parties, and engineer the path layouts, in order to optimize path
performance. ART's Engineering Department shall be responsible for all Spectrum
Services. In addition, ART shall maintain, or cause to be maintained, databases
and systems to support coordination with other 38 GHz service providers.
Frequency coordination information and engineering databases shall remain the
property of ART and shall be considered Confidential Information by Purchaser
and subject to the provisions of Section 16.
6.3 Maintenance and Restoral
6.3.1 Outage Restoral. Except as agreed otherwise, ART shall set goals
of, and exercise reasonable efforts to achieve: dispatch of field service
personnel within thirty (30) minutes and Service restoral within four (4) hours
or less; provided that Purchaser expressly acknowledges that it is not possible
for the Services to be restored within four (4) hours in all instances and that
it shall not be a breach of this Agreement for Outages to exceed four (4) hours
by any amount, except that, as its sole remedy, Purchaser shall be entitled to a
credit of one (1)
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month's Service for all Outages within a given month for a given Circuit if the
total Outages exceed four (4) hours. The Outage credit under this Section 6.3.1.
is in lieu of and not cumulative with the Outage credits pursuant to Section
12.2.
6.3.2 Scheduled Maintenance. Under ART's Standard Service Option, ART
or its subcontractors, at ART's sole option, shall perform routine maintenance
and adds, moves, and changes at reasonable times to be chosen by ART. In the
event any routine maintenance, adds, moves, and/or changes will affect end user
Service, such work shall be at a time agreeable to Purchaser and ART.
6.4 Network Operations Management
The ART Network Operations Center ("NOC") will provide the following services
(i) Link alarm monitoring; (ii) Link performance monitoring; (iii) Link
performance reporting; (iv) Link performance data; (v) remote Link diagnosis;
(vi) Link restoral; and (vii) coordination and testing to the extent feasible
with operations centers operated by third parties. The NOC operates on a seven
(7) day per week, twenty-four (24) hour basis to monitor all ART Circuits. The
NOC provides continuous supervisory control and data acquisition ("SCADA"). The
NOC services to be provided under this Agreement are subject to change from time
to time to enhance the NOC capabilities and can be changed without Notice to
Purchaser. Any failure to provide the NOC services set forth in this Section 6.4
shall be deemed a breach of this Agreement.
6.5 Customer Service Department
ART's Customer Service Department shall be available to assist Purchaser with
Service complaints and other problems without charge, provided that the requests
for assistance are reasonable. ART shall maintain a "help" desk twenty-four (24)
hours per day, seven (7) days per week. ART shall exercise reasonable efforts to
resolve all Purchaser service issues within twenty-four (24) hours. ART shall
establish a system of its own choosing for either reporting all inquiries to
Purchaser or enabling Purchaser to access an ART database, such as an electronic
bulletin board, to retrieve information concerning such inquiries and their
resolution. Any failure to provide the Customer Service Department services set
forth in this Section 6.5 shall not be deemed a breach of this Agreement.
6.6 ART Point of Contact
ART shall assign a person as a primary point of contact for inquiries and
customer support for Purchaser, which person shall be reachable during the
business day, 8am until 6pm PT, and shall provide an escalation procedure for
resolving differences. The initial contact person shall be
________________________________.
7. Post Termination Support Service
In the event of a termination of this Agreement by either party, ART shall, if
requested by Purchaser, continue to provide on-going service, support,
maintenance and restoral in accordance with the terms of this Agreement for all
Circuits in service pursuant to this
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Agreement and prior to its termination, provided that Purchaser continues to pay
the applicable charges, which charges may be changed by ART following thirty
(30) days Notice to Purchaser.
8. Use of Subcontractors
Purchaser expressly agrees that ART may use any subcontractor that it chooses
without prior approval for installation, maintenance, restoral and other field
service functions, and for any other ART obligations under this Agreement;
provided that the use of subcontractors shall not relieve ART of any of its
obligations hereunder.
9. Performance
9.1 Performance
Based upon its standard engineering evaluations, Link analysis, expected weather
patterns for the Link to be installed, manufacturer's Equipment specifications,
anticipated site environment and ART's experience, ART shall provide the
Services, with a Bit Error Rate of better than 10^(-13) over each Circuit in
unfaded conditions, and Service over each Circuit that has an Availability of
better than 99.995% in the aggregate during each month. Purchaser expressly
acknowledges that Purchaser is entitled only to Outage credits as specified in
Section l2 for any failure by ART to meet the Performance standards of this
Section 9.1.
9.2 Purchaser or Third Party Actions
ART shall not be liable for ART's failure to meet the Performance standards in
Section 9.1 in the event that such failure is due to: (a) Purchaser's failure to
follow procedures for use of the Services and Equipment as provided by ART or
the manufacturer from time to time; (b) repair, modification, maintenance or
relocation of the Equipment by personnel other than ART personnel or
ART-designated representatives, without the express written consent of ART; (c)
abuse, misuse, or negligence by Purchaser or third parties affecting the
Services and/or equipment so as to impede ART's ability to provide the Services;
or (d) the inability of ART to access the premises of Purchaser or a third party
in order to perform installation, maintenance and repair due to limitations or
restrictions imposed by Purchaser. In the event a failure to meet the
Performance standards are not due to acts or omissions of Purchaser, its
representatives, or agents. Purchaser shall, as its sole remedy, be entitled to
Credit as set forth in Section 12.2.
10. Purchaser's Responsibilities
10.1 Payment
10.1.1 Facilities Ownership Option. Under the Facilities Ownership
Option, ART shall invoice Purchaser upon installation and acceptance by
Purchaser of the Equipment and Purchaser shall pay for such Equipment within
thirty (30) days of the receipt of the invoice.
10.1.2 Standard Service Option and Other Facilities Ownership Option
Payments. Except as set forth in Section 10.1.1, ART shall invoice Purchaser for
the applicable
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charges and taxes each month. All payments shall be due within thirty (30) days
of the date stated on the face of the invoice. Payments shall be forwarded to
the address stated on the face of the invoice. ART shall have the option,
without notice, to impose a late payment charge of one and one-half percent
(1.5%) per month or the maximum amount allowable by law on any past due charges,
whichever is higher. Purchaser agrees to pay all costs, including reasonable
attorney's fees, expended in collecting past due charges. All invoices shall be
conclusively presumed to be accurate unless Purchaser notifies ART to the
contrary within twenty (30) days of the receipt of the invoice, except where the
incorrectness could not have been discovered with due diligence within that
period.
10.2 Conduct
Purchaser shall not represent that it is an agent or otherwise a representative
of ART, without ART's prior written permission Purchaser and ART each pledge to
each other that they will conduct their business affairs at all times with the
highest standard of honesty, fair dealing and ethics.
10.3 Sites
10.3.1 Site Acquisition and Access. Except as provided in Section
l0.3.2 below, ART shall be responsible for access to Sites in connection with
the provision of the Services.
10.3.2 Site Use Charges. ART shall be responsible for all recurring
and nonrecurring Site Use Charges to third parties for obtaining a Site;
provided, however, that ART may, in its sole discretion, decline to provide
Service for any requested Circuit if ART determines the Site Use Charge(s) is
not reasonable and customary for the service area and/or type of service
requested.
10.4 Access to Purchaser's Premises and Service-Related Equipment
During the term of this Agreement. Purchaser shall arrange for ART or its
representatives to have access to the Sites Purchaser owns or controls for the
purpose of installation, testing, preventive maintenance and Service restoral.
Where the nature of the visit permits advance notice, ART shall give reasonable
advance notice and shall schedule the visits during business hours. Where the
nature of the visit does not permit an advance scheduling, including but not
limited to, emergency or restoral situations. Purchaser shall arrange for ART or
its representatives to have immediate access to the Sites Purchaser owns or
controls and all Equipment located therein, and fully assist and cooperate with
ART in remedying the emergency or Outage. In addition, Purchase: shall (i)
exercise reasonable efforts to protect the Site Purchaser owns or controls and
equipment from damage or loss; and to prevent any obstructions that would
interfere with line of sight along the Link and (ii) promptly report any
developments including but not limited to activities or planned activities,
including without limitation new antenna masts or buildings or other structures,
that obstruct or might obstruct line of sight along the Link.
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10.5 Purchaser Point of Contact
Purchaser shall appoint a person, who shall be the primary point of contact for
ART, which person shall be reachable during the business day, from 8am until
6pm, using the time standard in effect at Purchaser address first listed above
and an emergency point of contact, if different. The initial contact person for
the business day by name and tide shall be _________________________________.
The initial contact person for other than business hours by name and title shall
be _______________.
11. Pricing
11.1 Standard Service Option
11.1.1 Pricing. Under ART's Standard Service Option, ART's pricing
will be determined in accordance with Attachment D, based upon the capacity arid
type of Circuits to be installed and prevailing local market conditions. The
subsections immediately following set forth some guidelines far the pricing
structure. The pricing set forth below does not include taxes, where applicable.
(A) Installation Charges. Installation is charged on a per DS-l
or DS-3 Circuit basis, with differing charges depending on the capacity and type
of the Equipment installed and the environment of the Site. The rate may be
decreased, at ART's sole option, for additional DS-1s between the same two
points. The charge for installation may vary by state and by city. Purchaser
shall pay a non-recurring charge for a Standard Installation, which charge
represents a portion of the actual cost of installation. Such Standard
Installation charge assumes reasonable access to the Equipment locations and
that the locations meet ART's Minimal Acceptable Site Criteria. The equipment
that is part of a Standard Installation is listed in Attachment C. If the
installation takes longer than one continuous eight hour period or the
construction required is non-standard, as determined by ART, due to
circumstances beyond the reasonable control of ART, Purchaser shall be
responsible for all additional costs at ART's then current standard hourly rates
and the cost of the additional materials, including ART's overhead.
(B) Service Charges
(1) Basic Charges
(i) Circuits which will range in capacity from DS-1s to
DS-3s shall be charged on a monthly basis. In some cases the monthly rate may
not be mileage sensitive and a single recurring rate element may apply. For
rates that are mileage sensitive the recurring charge shall include two rate
elements, the "first mile" and "additional miles". The rates may be decreased
for additional Circuits between the same two points of a Link for the same
Purchaser. The charge for Circuits may vary by state and by city.
(ii) If the rate is mileage sensitive, a "first mile"
rate element will be charged lot each Circuit. Mileage is based on air miles
between the two ODUs.
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The "additional miles" rate element, if applicable, will be charged per Circuit
for each mile of the link or part of a mile after the first mile.
(C) Volume Discounts. Purchaser will be eligible for volume
purchase discounts based on projected quotas. The projected sales quotas and
applicable discounts are set forth in Attachment D. The discounts set forth
therein will apply to the first and each succeeding Circuit in the year in which
they are installed; provided, however, if the actual number of sales for any
year does not equal or exceed 75% of the projected sales quota for the
applicable discount level, then for the entire following year (i) the quota
discount level shall remain unchanged and (ii) the percentage discount shall be
reduced by five percent (5%). Notwithstanding anything to the contrary in the
immediately preceding sentence, in the event during a year period Purchaser
meets a projected sales quota level, Purchaser shall be entitled to the
applicable quota level discount, without reduction, and such quota level
discount shall apply to all Circuits after the date Purchaser meets the sales
quota level for which a Service Order has been executed by both parties. Any
change in pricing shall not affect Circuits for which a Service Order has been
executed by both parties. Volume purchase discounts shall only apply to monthly
recurring Circuit charges. Non-recurring charges shall not be subject to
discount. Volume discounts are calculated based upon the anniversary of the date
of this Agreement, not (unless coinciding) a calendar year. The volume purchase
discount level for the first year of this Agreement shall be as set forth in
Section 8.23.
11.2 Facilities Ownership Option
11.2.1 Equipment and Installation Charges. Upon the terms set forth in
Section 10.1.1, Purchaser shall pay to ART the amount invoiced for the Equipment
in accordance with the pricing listed on Attachment C-2 (the "Facilities
Ownership Payment") based upon whether Purchaser selects a 4-DS1, 8-DS1 or DS-3
Installation Package. Except as otherwise set forth herein, the Facilities
Ownership Payment shall include installation of the Equipment. The pricing Set
forth on the Attachments does not include taxes, where applicable.
11.2.2 Spectrum Services Charges. ART shall invoice Purchaser each
month for the applicable Spectrum Services charges, which charges, as currently
established, are set forth on Attachment C-2.
12. Outages
12.1 ART's Liability for Outages
All liability of ART for interruptions, errors, omissions, Outages or defects
occurring in the course of furnishing the Services shall be strictly limited to
Outage credits against sums paid or to be paid in an amount determined in
accordance with Section 12.2 ("Credit"). Credit for Outages shall be allowed
only when Outages are caused by or occur in the facilities or the Services
provided by, operated or serviced by ART No Credit shall be allowed for Outages
due to the failure of facilities, services or equipment not provided, operated
or serviced by ART or the acts or omissions of Purchaser or third parties. No
Credit shall be given for any Outages
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caused by testing or routine maintenance provided that ART has given Purchaser
advance notice of such maintenance and Purchaser has agreed in advance of such
testing or routine maintenance.
12.2 Determination of Outage Credits
Outages will be deemed to start upon the earlier of either the time upon which
ART receives Notice from Purchaser that an Outage has commenced or the time that
ART becomes aware of the Outage; provided that, if ART is informed or becomes
aware of the Outage within two hours of its commencement, the Outage will be
deemed to have commenced at the first of the Severely Errored Seconds. The
Outage will be deemed to cease when a Circuit performance demonstrates ten (10)
consecutive seconds of service with no Severely Errored Seconds Outage Credits
will be given for each day ("Credit Day") during which there is greater than
thirty (30) Severely Errored Seconds. Credits will be given against the monthly
recurring charges on the basis of a thirty day assumed month at the rate of each
Credit Day being 1/30th of the recurring charge. In any month in which there are
three successive Credit Days or five total Credit Days, Purchaser shall be given
credit for the entire month for that Circuit. Credits will only be given on a
Circuit by Circuit basis. Except for Credit Days as a result of Section 9.2, in
the event Purchaser experiences four (4) or more Credit Days within a ninety
(90) day period, the Circuit may, at Purchaser's option, be terminated by Notice
to ART. Upon any such termination, Purchaser shall not be liable for any Circuit
Service charges from and after the date ART receives Notice of termination.
13. Licensing & Regulatory Matters
13.1 License Authorization
ART shall be responsible for obtaining or for maintaining in good standing
appropriate authorizations from the Federal Communications Commission ("FCC")
(i) as a licensee in the millimetric wave frequencies at 38 GHz, and (ii) to
construct and Operate (or permit others to construct and operate) radio
equipment necessary to provide service to Purchaser under this Agreement;
provided that nothing in this Agreement shall be construed to require ART to
continue to prosecute any pending authorization applications, file for any
additional authorizations alter the Effective Date, or seek modifications in the
technical or other parameters of its Authorizations.
13.2 Common Carrier Authorizations
Subject to Section 13.1, ART and Purchaser each shall be responsible for
obtaining common carrier or other appropriate authorizations from the FCC and
state utility commissions and, to the extent required, to file tariffs wherever
necessary to provide the services contemplated by each under this Agreement;
provided that each party shall have complete discretion as to the terms and
conditions of its Authorizations and tariffs except to the extent compelled to
do otherwise by this Agreement.
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14. Intellectual Property Rights
14.1 Trademarks, Tradenames and Branding
The execution of this Agreement does not waive either party's common law or
statutory rights in its respective trademarks and tradenames. Each party shall
request prior approval for use of the other party's trademarks, tradenames,
logos, logotype, fictitious name and corporate name in any promotional,
marketing, reporting, materials, including but not limited to hard copy, video,
and electronic media, with a likelihood of public distribution. All Services
sold by Purchaser hereunder shall carry Purchaser's tradename, unless otherwise
directed in writing by Purchaser and agreed to in writing by ART.
14.2 Inventions, Patent Rights, Copyrights, Trade Secrets and Know-How
Each party shall retain all rights in patents, inventions, copyrights, trade
secrets, and technical know-how existing prior to the Effective Date or
independently developed after the Effective Date. Use, implementation, transfer
or other disclosure of either party's intellectual property in support of or in
connection with this Agreement, which indirect or direct, shall not affect the
intellectual property rights of the originating party. Rights to mutually
developed intellectual property will be negotiated in good faith independent of
the terms and conditions of this Agreement.
14.3 Software and Firmware
Any software or firmware provided to Purchaser under this Agreement shall be
licensed to Purchaser to install and use on Equipment provided by ART under this
Agreement. Purchaser covenants and agrees to use such software or firmware
provided to it only for the purposes contemplated by this Agreement, and except
as otherwise expressly provided herein with respect to certain hardware under
the Facilities Ownership Option, Purchaser retains no right, implied or
otherwise, to use, transfer such software or firmware to any other equipment and
covenants and agrees not to permit such software or firmware to be copied or
disclosed to third parties without the express, prior written consent of ART.
Upon the termination of this Agreement, Purchaser agrees to return all copies of
such software and firmware to ART within thirty (30) days of such termination.
15. Limitation of Liabilities
EXCEPT AS SET FORTH ABOVE OR OTHERWISE HEREIN, ART MAKES NO WARRANTIES OF ANY
KIND WITH RESPECT TO ANY OF THE EQUIPMENT, SERVICES AND RELATED SUPPORT
SERVICES, WHETHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO IMPLIED
WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR CONFORMITY TO
ANY REPRESENTATION OR DESCRIPTION. NEITHER PARTY SHALL BE LIABLE TO THE OTHER
PARTY OR ANY CUSTOMER OR SUCH OTHER PARTY OR ANY OTHER PERSON (INCLUDING, FOR
EXAMPLE, A PERSON BUYING COMMUNICATIONS
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SERVICE FROM A CUSTOMER OF SUCH OTHER PARTY) FOR INDIRECT, SPECIAL, PUNITIVE,
INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING BUT NOT LIMITED TO LOST REVENUES,
ANY CLAIM OF ANY CLIENT, CUSTOMER OR PATRON FOR LOSS OR SERVICES, LOST PROFITS
OR REVENUES, OR COST OF SUBSTITUTE PERFORMANCE EQUIPMENT OR SERVICES) ARISING
UNDER THIS AGREEMENT OR FROM ANY BREACH OR PARTIAL BREACH OF THE PROVISIONS OF
THIS AGREEMENT OR ARISING OUT OF ANY ACT OR OMISSION BY EITHER PARTY, ITS
EMPLOYEES, SERVANTS, AGENTS OR AFFILIATES, WHETHER BASED ON A BREACH OF
CONTRACT, BREACH OF WARRANTY, NEGLIGENCE OR ANY OTHER THEORY OF LIABILITY.
16. Confidentiality
In connection with this Agreement each party may disclose or otherwise make
available certain data or information to the other party, which data or
information the disclosing party considers to be confidential and proprietary.
As used herein, "Confidential Information" means any non-public information,
including Vendor lists, business plans and proposals, financial information
marketing information problem solving methods, implementation steps, know-how,
technology, trade secrets and drawings and renderings related to each party's
ongoing and proposed businesses, products and services which is being provided
or which has been provided to the receiving party by the disclosing party, or
which is obtained by the receiving party from its meetings and contacts with the
disclosing party, or any information derived by receiving party from information
so provided or obtained. Confidential Information includes all written or
electronically recorded materials identified arid marked as confidential or
proprietary or which on their face appear to be confidential or proprietary, and
oral disclosures of Confidential Information by the disclosing party which are
identified as confidential or proprietary at the time of such oral disclosure.
Confidential Information does not include any of the following: (a) information
that is in or becomes part of the public domain without violation of this
Agreement by the receiving Party; (b) information that was known to or in the
possession of the receiving party on a non-confidential basis prior to the
disclosure to the receiving party by the disclosing party; (c) information that
was developed independently by the receiving party's employees, which employees
have had no access to the Confidential Information; (d) information that is
disclosed to the receiving party by a third party under no obligation of
confidentiality to the disclosing party and without violation of this Agreement
by the receiving party; or (e) is authorized by the disclosing party in writing
for disclosure or release by the receiving party.
The parties agree: (a) to treat and keep as confidential and proprietary all
Confidential Information disclosed by the other party; (b) to advise each
employee to whom any Confidential Information is to be made available of the
confidential nature of such Confidential Information and of the terms of this
Agreement; to promptly return to the disclosing party (or its designees), upon
the disclosing party's request all Confidential Information and all copies
thereof and to delete from electronic memory such Confidential Information.
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The parties agree to keep confidential the terms of this Agreement, including
but nor limited to information relating to the prices charged and services
provided by ART. The parties further agree that any disclosures concerning this
Agreement or the terms and conditions shall require the mutual written consent
of ART and Purchaser, except as to such disclosures that may be required to
comply with securities laws, court order or similar order of an administrative
or regulatory agency, and in connection with relevant government agency
communications. Notwithstanding the foregoing, either party shall be entitled to
disclose this Agreement and the terms and conditions to its potential and actual
financing sources and to its auditors, attorneys and other agents to the extent
necessary to enforce such party's right or perform its obligations pursuant to
this Agreement; provided that such financing sources, auditors, attorneys and
other agents keep such information confidential.
17. Termination
17.1 Termination for Default
Either party may terminate this Agreement immediately on the occurrence of any
of the following events: (i) failure to perform a material obligation under this
Agreement, or a material breach of this Agreement, and failure to cure such
breach within thirty (30) days following delivery of Notice to such defaulting
party of the breach; provided that (a) if the cause of such breach is a Force
Majeure condition as defined in Section 18.10, the period for remedying such
breach shall be extended by the time measured by any delay from the Force
Majeure condition, except that, notwithstanding the foregoing. either party may
terminate if the Force Majeure condition extends beyond ninety (90) days
following Notice and (b) if the breach by its nature cannot be cured within
thirty (30) days, the period for remedying such breach shall be extended for
ninety (90) days from Notice provided that the breaching party has exercised its
best efforts to cure the breach within thirty (30) days of the Notice; or (ii)
if the other party becomes insolvent or makes an assignment for the benefit of
its creditors, or if a committee of creditors or other representative is
appointed to represent its business, or if a voluntary or involuntary petition
under any section of a bankruptcy or similar act shall be filed by or against
such other party and that party fails within ninety (90) days following the
appointment of such committee or representative or the filing of any such
involuntary petition to cause the discharge of such committee or representative
or the dismissal of such involuntary petition.
17.2 Effect of Termination
17.2.1 Accrued Rights. No termination of this Agreement shall affect
any accrued rights or obligations of any party, including, without limitation,
those specified under Section 5.5, as of the effective date of such termination
nor shall it affect any rights or obligations of any party which are intended by
the parties to survive any such termination.
17.2.2 Not Exclusive Remedy. The right of any party to terminate this
Agreement is not an exclusive remedy, and any party shall be entitled,
alternatively or cumulatively, to other remedies permitted under the terms of
this Agreement or by law.
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17.2.3 Return of Materials. Upon termination or expiration of this
Agreement, each party promptly shall: (a) remove and return to the other party,
or obliterate, at the providing party's option, any material supplied by that
party and provide the other party with access during business hours, or other
mutually agreeable times, to collect and retrieve any and all equipment, except
equipment purchased under the Facilities Ownership Option, installed pursuant to
this Agreement; (b) notify and arrange for all publishers and others who may
identify, list or publish the other party's name as a marketer, promoter or
supporter of Services including, but not limited to, publishers of telephone
directories, yellow pages, and other business directories, to discontinue these
listings within six months of the termination date of this Agreement or before
the publication of a subsequent version of the directory, whichever may Occur
earliest; (c) describe in detail all work in process under this Agreement; and
(d) certify to the other party that the first party acted in accordance with
(a), (b) and (c) of this subsection.
17.2.4 Payments Due. Purchaser shall pay in full to ART any and all
amounts then due and owing within thirty (30) days of termination of this
Agreement, except that the payments due under Sections 11.1.1 and 11.2.2 shall
be due according to the terms of that Section.
18. General Provisions
18.1 Assignment and Security Interest
18.1.1 Assignment by Purchaser. Purchaser may assign or transfer its
rights or obligations hereunder without the prior written consent of ART to any
party controlling, controlled by or under common control with Purchaser or to a
party that purchases substantially all of the assets of Purchaser, provided that
Purchaser shall give ART Notice of any such assignment or transfer. Purchaser
shall not make any other assignment or transfer of party of its rights or
obligations hereunder without the prior written consent of ART, which consent
shall not be withheld if the assignee or transferee (i) expressly assumes in
writing the terms and conditions of this Agreement and (ii) satisfies ART's
requirements concerning the assignee's/transferee's human resources to satisfy
its obligations under this Agreement, financial condition, creditworthiness and
general business reputation. Any attempted assignment in violation of the terms
of this Section 18.l will be void.
18.1.2 Assignment by ART. ART may assign this Agreement (i) without
notice or consent, to any Affiliate that agrees in writing to be bound by the
terms hereof or (ii) to any other entity that expressly assumes in writing the
terms and conditions of this Agreement upon prior consent from Purchaser, which
consent shall not be unreasonably withheld. ART may, without notice or consent,
transfer or assign its interest hereunder, or grant a security interest in all
or any part of this Agreement, the Equipment and/or sums payable hereunder as
collateral security for any loans or advances made or to be made to ART by a
financing or other institution ("Secured Party"). In such event, Purchaser upon
receipt of notice of any such transfer, assignment or grant and instructions
from ART, shall pay its obligations hereunder or amounts equal thereto to such
assignee or the Secured Party in the manner specified in said instructions. In
the event that ART notifies Purchaser of its intention to transfer, assign, or
grant a security interest in all or any part of this Agreement, the Equipment
and/or sums payable hereunder, as
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aforesaid, Purchaser agrees to execute such documents as may be reasonably
necessary to secure and/or complete such transfer, assignment or grant and to
perfect the assignee's or Secured Parties interest therein.
18.2 Benefit/Binding Nature
This Agreement shall inure to the benefit of and shall be binding upon the
parties and their successors and assigns.
18.3 No Third Party Beneficiaries
This Agreement is made solely for the benefit of the parties hereto and their
respective successors and assigns.
18.4 Authority and Acknowledgment
Each party represents and warrants that it has fill power and authority to enter
into and perform under this Agreement and that the person signing this Agreement
has been properly authorized to do so. Each party further acknowledges that it
has had an adequate opportunity to consult counsel, that it has carefully read
each provision of this Agreement and understands this Agreement and that it
agrees to be bound by all of its terms, conditions and provisions.
18.5 Controlling Law
All questions concerning the validity and operation of this Agreement and the
performance of the obligations imposed on the parties under this Agreement shall
be interpreted and construed in accordance with the domestic laws of the State
of Washington even if its choice of law provisions or statutes are in conflict
with this requirement.
18.6 Regulatory Approval
This Agreement is subject to any regulatory approvals which may be required and
may be terminated by either party if any governmental or regulatory agency
imposes rules or regulations materially affecting the relationship between the
parties, provided that the imposition of such rules or regulations shall not be
construed to relieve the party affected by such rules or regulations from any
duty under Sections 10.1, 10.2, 14 and 16 and from being considered in breach
for failure to carry out that obligation.
18.7 Dispute Resolution and Consent to Jurisdiction and Forum Selection
The parties agree that all disputes, claims or controversies between them
arising out of or relating to this Agreement shall be settled by arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association ("AAA"). The Site of such arbitration shall be in St. Louis County,
Missouri for any disputes involving Circuit or Service east of Interstate
Highway 35 and in King County, Washington for any disputes involving a Circuit
or Service west of interstate Highway 35. If a dispute (i) involves Circuits or
Service which are both east
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and west of Interstate Highway 35 or (ii) involves matters which otherwise do
not arise from Circuits or Services which could reasonably be classified as
either east or West of Interstate Highway 35, the site of such arbitration shall
be in King County, Washington. For matters arbitrated hereunder in St. Louis
County, Missouri, decisions of the arbitration panel shall be based upon
Missouri law. For matters arbitrated hereunder in King County, Washington,
decisions of the arbitration panel shall be based upon Washington State law.
This choice of venue is intended by the parties to be mandatory and permissive
in nature and each party waives any right it has to assert the doctrine of forum
non-convenience or similar doctrine or otherwise object to venue as stated
herein. The arbitration panel shall consist of three arbitrators, one arbitrator
to be selected by each party and the third arbitrator to be selected by the
other two arbitrators. Any decision rendered by the arbitration panel pursuant
to this provision shall be concurred in by a majority of the members of the
panel. Judgment may be entered by any court of competent jurisdiction.
Arbitration pursuant to this section shall be the exclusive means of resolving
any dispute, claim or disagreement arising hereunder. The prevailing party in
the arbitration shall be entitled to reimbursement from the other party for all
costs of the arbitration including but not limited to fees and expenses paid to
the AAA and its own reasonable attorneys' fees and costs.
18.8 Relationship of the Parties; No Agency or Partnership
The relationship between the parties under this Agreement is solely that of
independent Purchaser and service provider. It is agreed and understood that
neither party is an agent, employee or legal representative of the other, and
has no authority to bind the other in any way. Nothing in this Agreement shall
be deemed to constitute ART and Purchaser as partners, joint venture partners,
or otherwise associated in or with the business of the other, and neither party
shall be liable for the debts, accounts, obligations or other liabilities of the
other party, its agents or employees. Neither party is authorized to incur debts
or Other obligations of any kind on the part of or as agent for the other.
18.9 Publicity
Neither party shall make any press release or other public announcement of or
otherwise publicly disclose this Agreement, its contents, or the transactions
herein contemplated without the prior written approval of the other party unless
required by law, regulation, court order or rule of any securities exchange, in
which case the disclosing party shall promptly inform the other party of such
disclosure and shall permit t to intervene to object if such is permitted. The
foregoing shall not prohibit either party from disclosing this Agreement or its
contents to its attorneys, accountants or other advisors provided they are
informed of and bound by this Section 18.9 and Section 16.
Nothing contained in this Agreement shall preclude disclosures necessary to
comply with accounting and Securities and Exchange Commission ("SEC") disclosure
obligations and other disclosure obligations imposed by law, and in that regard
ART may file with the SEC reports, including, without limitation, SEC
registration statements or amendments thereto under the Securities Act of 1933,
as amended, which include a prospectus containing any information required to be
included therein and thereafter distribute said prospectus. Purchaser will
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cooperate with ART arid provide such information and documents as may be
required in connection with any such filings.
18.10 Force Majeure
NEITHER PARTY SHALL BE LIABLE FOR DELAYS IN PERFORMANCE, OR FAILURE TO PERFORM
THIS AGREEMENT OF ANY OBLIGATIONS HEREUNDER, WHICH ARE ATTRIBUTABLE TO CAUSES
BEYOND ITS REASONABLE CONTROL, INCLUDING BUT NOT LIMITED TO, OBSTRUCTION OF LINE
OF SIGHT BETWEEN SITES, FIRE, FLOOD, EPIDEMIC, EARTHQUAKE, ACT OF GOD,
LIGHTNING, PUBLIC POWER FAILURE OR SURGE, EXPLOSION, STRIKE OR OTHER LABOR
DISPUTE, RIOT OR CIVIL DISTURBANCE, WAR OR ARMED CONFLICT, OR ANY OTHER SIMILAR
OCCURRENCE NOT WITHIN ITS CONTROL (AN "EVENT OF FORCE MAJEURE"), PROVIDED
HOWEVER, THAT UPON THE OCCURRENCE OF AN EVENT OF FORCE MAJEURE, THE DELAYED
PARTY SHALL SO NOTIFY THE OTHER PARTY PROMPTLY.
18.11 Insurance
Upon request, either party shall provide proof of insurance or self-insurance
during the term of the Agreement for Worker's Compensation insurance and
comprehensive general liability. The liability insurance policies shall insure
against loss or damage on account of claims for bodily injuries, death or
property damage suffered by a person or persons in connection with each party's
performance of this Agreement and shall be in the combined limit amount of Two
Million Dollars ($2,000,000) for each occurrence. Each party shall cause to have
the other party named as an additional insured on all required and necessary
insurance policies Certificates of Insurance shall be issued to each party by
the other party within sixty (60) days following the Execution Date.
18.12 Indemnification
18.12.1 Indemnification of ART by Purchaser. Purchaser shall indemnify
ART against, and hold ART harmless from all liabilities, demands, claims,
damages, losses, demands, costs, judgments and expenses (including reasonable
attorneys' fees) arising out of or in connection with this Agreement for
personal injury or damage to tangible property caused by the acts or omissions
of Purchaser or Purchaser's employees, agents or invitees. In no event shall
ART's employees, agents or invitees be deemed to be employees, agents or
invitees of Purchaser.
18.12.2 Indemnification of Purchaser by ART. ART shall indemnify
Purchaser against, and hold Purchaser harmless from all liabilities, demands,
claims, damages, losses, demands, costs, judgments and expenses (including
reasonable attorneys' fees) arising out of or in connection with this Agreement
for personal injury or damage to tangible property caused by the acts or
omissions of ART or ART's employees, agents or invitees. In no event shall
Purchaser's employees, agents or invitees be deemed to be employees, agents or
invitees of ART.
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18.12.3 Duty to Notify and Assist. If it appears that the other party
may be obligated to provide indemnification as a result of such claim, the other
party, in its discretion, may settle or compromise the claim or retain counsel
of its own choosing and control and prosecute the defense against such claim. In
no event shall the party against whom the claim is asserted have the right to
pay, settle or compromise such claim without the prior written consent of the
party who may be obligated to indemnify, under this Section 18.12.3, and the
parties hereto agree that they will not unreasonably withhold consent to such
payment, settlement or compromise The party against whom the claim is asserted
shall provide the other party such assistance as may be reasonable in the
defense and disposition of such claim. If any claim arises to which the
provisions of this Section 18.12.3 may be applicable, the party against whom
such claim is made shall notify the other party immediately upon learning of the
claim.
18.13 Notices
All notices, requests, demands and other communications under this Agreement
must be in writing and will be deemed duly given, unless otherwise expressly
indicated to the contrary in this Agreement, (i) when personally delivered, (ii)
upon receipt of a telephonic facsimile transmission with a confirmed telephonic
transmission answer back; provided that such notice request, demand or other
communication is also sent by a nationally recognized overnight courier, (iii)
three (3) days after having been deposited in the United States mail, certified
or registered, return receipt requested, postage prepaid, or (iv) one (l)
business day alter having been dispatched by a nationally recognized overnight
courier service, addressed to the parties or their permitted assigns at the
following addresses (or at such other address or number as is given in writing
by either party to the other) as follows:
If to ART: If to Purchaser:
Steven D. Comrie Brooks Fiber Properties. Inc.
President 425 Woods Mill Road South, Suite 300
500-108th Ave NE, Ste. 2600 Town and Country, MO 63017
Bellevue, WA 98004 Attn.: President
Tel: 206-688-8700 Tel: 314-878-1616
Fax: 206-688-0703 Fax: 314-275-4975
with copy to: with copy to:
General Counsel's Office Brooks Fiber Properties. Inc.
500-108th Ave. NE, Ste. 2600 425 Woods Mill Road South. Suite 300
Bellevue WA 98004 Town and Country, MO 63017
Attn.: Thomas M. Walker, Esq. Attn.: Gregory J. Christoffel, Esq.
Tel: 206-688-8700 Tel: 314-878-1616
Fax: 206-688-0703 Fax: 314-275-4975
18.14 Period of Limitation
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Any claim arising from or in connection with this Agreement must be brought to
the attention of the other party in writing within ninety (90) days of the event
alleged as giving rise to an action. and any action arising from or in
connection with this Agreement must be brought within one (1) year after the
cause of action arises under this Agreement.
18.15 Section Headings
All Section Headings used in this Agreement are for convenience or reference
only and are not intended to define or limit the scope of any provisions of this
Agreement.
18.16 Survival
Sections 7, 14, 15, 16, l8.7 and 18.12 of this Agreement that by their nature
and context are intended to survive the execution, delivery, performance and
Termination of this Agreement, shall so survive and shall continue in force and
effect until the applicable limitations period has expired.
18.17 Waiver
No waiver of any right or remedy in respect to any occurrence or event on one
occasion shall be deemed a waiver of such right or remedy in respect of such an
occurrence or event on any other occasion.
18.18 Severability
If any portion of this Agreement is held to be invalid by a court of competent
jurisdiction, that provision shall become ineffective and unenforceable. The
parties agree that such invalidity shall not affect the validity of the
remaining portions of this Agreement and they further agree to substitute for
the invalid provision a valid provision that most closely approximates the
effect and intent of the invalid provision.
18.19 Interpretation
The words and phrases used herein shall have the meaning generally understood in
the telecommunications industry and the microwave radio industry. This Agreement
shall be construed in accordance with its fair meaning and not for or against
either party because of the identity of the party drafting or proposing a
provision.
18.20 Offsets
The payments required under this Agreement shall be due on time and any offset
made by a party shall be only for the specific amount in controversy and shall
be payable immediately upon resolution of such controversy.
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18.21 Counterparts
This Agreement may be executed in any number of counterparts each of which
shall, when executed, be deemed to be an original, but all of which together
shall constitute one and the same instrument This Agreement may be executed and
deemed effective and binding if executed and exchanged by facsimile, provided
that promptly thereafter original signatures are exchanged.
18.22 Integration
This Agreement and all Attachments hereto constitute the entire agreement
between the parties hereto and supersedes all prior representations, agreements,
understandings and arrangements, oral or written, between the parties with
respect to the subject matter. This Agreement allocates the risks of loss among
the parties according to their express agreement, which allocation is reflected
in the charges and terms and conditions set forth herein. Except as otherwise
provided for herein, this Agreement may not be released, discharged, amended, or
modified in any way except by a writing that expressly refers to this Agreement
and is executed by all parties hereto.
18.23 First Year Discount Level
THE PARTIES HERETO AGREE THAT THE QUOTA DISCOUNT LEVEL FOR THE YEAR COMMENCING
AS OF THE EFFECTIVE DATE AND TERMINATING ONE YEAR THEREAFTER SHALL BE LEVEL 4.
18.24 Arbitration
THIS AGREEMENT CONTAINS AN ARBITRATION AGREEMENT WHICH MAY BE ENFORCEABLE IN A
COURT OF LAW.
IN WITNESS WHEREOF, and intending to be legally bound, the undersigned parties
have duly executed this Agreement effective as of the date first above written.
ADVANCED RADIO TELFCOM, BROOKS FIBER PROPERTIES, INC.
CORP., a Delaware corporation a Delaware corporation
By:____________________________ By:____________________________
Name:__________________________ Name:__________________________
Title:_________________________ Title:_________________________
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ATTACHMENTS
A. Definitions
B. Current Form of Service Order
C-1. Standard Service Option - Standard Equipment and Materials
C-2. Facilities Ownership Option - Equipment List and Pricing
D. Standard Services Pricing
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ATTACHMENT A
As used in this Agreement, the following terms shall have the
following meanings:
"Affiliates" shall mean any corporation or other entity which, directly or
indirectly, owns or controls, either de facto or de jure, the first entity, or
is directly or indirectly owned or controlled, either de facto or de jure, by
the first entity.
"Agreement" shall mean each initialed page of this agreement, each of its
Attachments and each amendments if executed by each party.
"Availability of 99.995%" shall mean a Circuit that, for a defined period of
time, the number of Severely Errored Seconds is less than .005% of the total
seconds in the period.
"Bit Error Rate" shall mean the number of bits unintentionally changed in the
course of transmission relative to a specific quantity of bits transmitted;
usually expressed as a number referenced to a power of 10.
"CAP" shall mean a Competitive Access Provider and is synonymous with the term
CLEC.
"Circuit" shall mean any individual DS-0, DS-l, DS-3 or other data transmission
service provided in total or in part by ART.
"CLEC" shall mean a company that is not the traditional LEC and furnishes local
exchange service pursuant to state authorization using primarily fiber optic
cable.
"Demarcation Point" shall mean the interface between the portion of a circuit
provided by ART and any portion of the circuit not provided by ART.
"DS-0" shall mean a Digital Signal Zero, which is a circuit with a bandwidth of
64 kilobits per second, which is the capacity necessary to carry a single voice
conversation.
"DS-1" shall mean Digital Signal One, which is a circuit with a bandwidth of
1.544 megabits per second, roughly 24 times that of DS-0. A DS-l is also known
as a T-1.
"DS-3" shall mean Digital Signal Three, which is a circuit with a bandwidth of
45 megabits per second. A D-3 is also known as a T-3.
"Force Majeure" shall mean the factors set forth in Section 18.10 that are
considered to excuse performance.
"IDU" shall mean the Indoor Unit consisting of electronics that are part of the
ART-supplied 38 GHz radio transceiver, which is located typically within a
building on the Purchaser's Premises
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and is connected to the ODU by coaxial cable, usually RG 8.
"Link" shall mean radio path between two transceivers. A radio path may consist
of one or more Links.
"Minimal Acceptable Site Criteria" shall mean 110 volts commercial power is
available, the Site is reasonably accessible, baseband cable runs can be
installed using no more than half a man-day in labor, and easy rooftop
installation for pipe-mounts or tripods.
"Notice" shall mean the notice provisions set forth in Section 18.13.
"ODU" shall mean the Outdoor Unit, consisting of an antenna, antenna mount or
mast and electronics that are part of the ART-supplied 38 GHz radio transceiver
and which is located typically on the roof of a building or tower, but which may
be mounted inside of a window and which is connected to the IDU by coaxial
cable, usually RG 8.
"Outage" shall mean service interruptions in excess of ten (10) consecutive
Severely Errored Seconds.
"POTS" shall mean Plain Old Telephone Service, which is an acronym for basic
voice telephone service, including dial tone.
"Preliminary Site Surveys" shall mean the initial survey of the Site.
"PT" shall mean either standard clock Pacific Time or daylight Pacific clock
Time whichever is applicable.
"Service Area" shall mean the area within which it ART provides Service.
"Service Order" shall mean the order for Service executed by Purchaser in the
form of Attachment B.
"Severely Errored Seconds" shall mean those seconds in which the Bit Error Rate
is greater than 10^(-3).
"Site" shall mean location of the IDU, ODU, the connecting cabling and ancillary
equipment to be used for furnishing Service to the Purchaser. Each Link shall
consist of two or more Sites.
"Site Use Charge" shall mean any non-recurring or recurring finder's, access,
rental, permit, approval or other fee, cost or charge associated with a Site.
"Site Surveys" shall mean the surveys of potential Sites for acceptability for
the location of Equipment and furnishing of Service.
"Standard Installation" shall mean an installation where both radios are root
mounted, no core boring penetrations are necessary, access is unrestricted
during normal business hours, and the
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installation can be accomplished in one concurrent eight (8) hour period.
"Tariff" shall mean the rates and related terms and conditions of service filed
by ART with federal and state regulatory commissions and in effect at the time
of Service.
"Writing" shall mean any recordation whether on paper or its equivalent or in a
decipherable electronic medium, except that where a writing must be signed under
the terms of this Agreement it shall be on paper.
"38 GHz" shall mean the millimetric wave frequencies between 37.0 GHz and 40.0
GHz allocated to point-to-point and other services by the FCC. 25
EX-10.41
Services Agreement
SERVICES AGREEMENT
THIS SERVICES AGREEMENT (this "Agreement"), entered into as of the 29th day of
October, 1996, by and between PACIFIC & EASTERN DIGITAL TRANSMISSION SERVICES,
INC., a Colorado corporation ("PEDTS"), with principal offices at 9605 East
Maroon Circle, Englewood, Colorado 80112, ICG TELECOM GROUP, INC., a Colorado
corporation, with principal offices at 9605 East Maroon Circle, Englewood,
Colorado, 80112 and ADVANCED RADIO TECHNOLOGIES CORPORATION, a Delaware
corporation ("ART"), with principal offices at Suite 2600, 500 108th Avenue
N.E., Bellevue, Washington 98004.
WHEREAS, PEDTS has been granted authorizations for certain 38GHZ microwave
systems ("Authorizations") by the Federal Communications Commission ("FCC");
WHEREAS, PEDTS has an existing relationship with ICG Holdings, Inc. the parent
company of ICG Telecom Group, Inc. in the form of an option (the "Option")
allowing the transfer of the authorizations to ICG Telecom Group, Inc.
(collectively ICG Holdings, Inc. and its parent, Affiliates and subsidiaries,
"ICG");
WHEREAS, ART desires to obtain access to and use of the Authorizations for its
38GHZ business; and
WHEREAS, PEDTS and/or ICG desire to grant ART, in accordance with the FCC's
rules and policies, use of the Authorizations immediately and a right of first
refusal to purchase the Authorizations.
NOW THEREFORE, the parties, intending to be legally bound, in consideration of
the promises and respective covenants, representations and warranties contained
herein, hereby agree as follows:
ARTICLE I
DEFINITIONS
"Affiliate" shall mean as to any Person (as hereinafter defined) any other
Person whom the first Person controls, is controlled by or is under direct
common control with the other Person.
"Audit Rights" shall mean the reasonable right of Licensee (as hereinafter
defined) to audit the books and records of ART, including all databases relating
to the use of the Authorizations, for a specific purpose. The audit must be
conducted during Business Hours and subject to the confidentiality provisions
provided herein. ART shall be given at least two weeks notice of the audit. The
Licensee shall bear the entire cost of the audit, including, without limitation,
the cost of outside auditors, duplication of books and records and overtime by
ART employees, if any. Licensee covenants and agrees that it will not disclose
any information obtained by it in connection with such audits or reports and
will not use such information for any other purpose.
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"Authorizations" shall mean the authorizations for 38GHZ Systems granted to
PEDTS or ICG by the FCC, listed in Exhibit 1 to this Agreement.
"Business Days" shall mean the days of the week from Monday through Friday,
excluding federal holidays and holidays for ART and/or ICG employees.
"Business Hours" shall mean the hours between 9 AM and 5 PM, Pacific Time,
during Business Days.
"Circuit" shall mean a transmission path between two Customer connection points
consisting of any individual DS-1s or DS-3s provided in total or in part by ART.
"Construction Requirements" shall mean those build-out requirements imposed from
time to time by the FCC to avoid a forfeiture of the license.
"Customer" shall mean the Person who receives Services from ART and is
responsible for payment to ART for Services.
"Datarate" shall mean the transmission rate of a Circuit, phrased in mbps or the
surrogate for certain datarates, such as DS-1s or DS-3s.
"DS-1" shall mean a Circuit having a Datarate of 1.544 mbps.
"DS-3" shall mean a Circuit having a Datarate of 45 mbps.
"Equipment" shall mean the ODU, antenna, mounting apparatus, the IDU, connecting
cables and all ancillary equipment such as modems and multiplexing equipment
that is part of the Service and is on ART's side of the interface with the
Customer.
"Final Order" shall mean an order of a government agency or court that is no
longer subject to reconsideration or to review or appeal by a higher authority.
"IDU" shall mean the indoor unit, usually located on the Customer's premises and
consisting of the electronics that are not housed within the ODU, capable of
receiving from or transmitting to the ODU over connecting cable.
"Licensed Operation" shall mean that ART has installed and placed into Operation
sufficient facilities in an authorized service area to satisfy the then-existing
construction requirements.
"Licensee" shall mean PEDTS and/or ICG Communications, Inc., depending upon
which entity holds the licenses at any given time.
"Licenses" shall mean those Authorizations granted to PEDTS and/or ICG in the
38 GHz band that are listed in Exhibit 1.
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"Notice" shall mean notice as set forth in Section 14.11 hereof.
"ODU" shall mean the outdoor unit, usually located on a roof or tower, but
sometimes on the inside of a window, and consisting typically of an antenna,
mounting devices, such as a pole or tripod, and associated electronics, capable
of receiving from or transmitting to the IDU over connecting cable.
"Operation" shall mean, in the case of a Circuit, that the Circuit is
transporting data from one point of connection to a Customer to another point of
connection to a Customer.
"Parties" shall mean ART and ICG in the event that ICG has closed on the
Options; otherwise, the term shall include ART, ICG and PEDTS.
"Person" shall mean an individual or business entity, including without
limitation a corporation, partnership, limited liability company, association or
joint venture.
"Service" shall mean each of the services permitted by FCC rules and policies to
be provided from time to time using the Authorizations identified in Exhibit 1.
"Service Area" shall mean the geographic area covered by the Authorizations that
are listed in Exhibit 1.
"Site" shall mean the location of the radio transceiver, antenna and associated
equipment that is one end of a Circuit.
"Term" shall have the meaning ascribed to it in Article IX.
"Use" shall mean the right to fully exploit the Authorizations in accordance
with the rules and policies of the FCC and the terms and conditions stated
therein, including without limitation the right to provide Services throughout
the Service Areas to Affiliates or third parties to the maximum extent permitted
by the FCC and to engage in all activities ancillary, complementary or
supportive of the authorized Services, including without limitation sales and
marketing.
"38 GHZ" shall mean the millimetric wave frequencies between 37.0 GHZ and 40.0
GHZ allocated to point-to-point and other services by the FCC.
ARTICLE II
LIMITED EXCLUSIVE RIGHT OF USE
2.1 PEDTS or, in the event that ICG has exercised the Option and closed on the
purchase of the Authorizations, ICG (collectively, "Licensee") hereby grants ART
the exclusive right as against Third parties to Use the Authorizations for
broadband millimetric wave services during the Term of this Agreement; provided
that Licensee shall at all times retain its right to use the Authorizations.
2.2 ART's right of Use shall at all times be subordinate to the control of
Licensee to the maximum extent required by the FCC. The Licensee shall have the
right to order ART to cease
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transmission over any Circuit if: (i) there has been a material breach of this
Agreement by ART, ART has received Notice of the breach from Licensee and ART
has failed to cure the breach within the time frames set forth for cure in
Section l0.1 hereof ("Cure Time"); (ii) a Final Order has been issued by the FCC
or another governmental agency or court with jurisdiction that requires ART to
cease transmission; (iii) if PEDTS or ICG receives a Final Order, for any
reasons whatsoever, to cease operation of a Circuit or Circuits sold by ART or
its agents; or (iv) as deemed reasonably necessary by Licensee to retain control
over the Authorizations as required by FCC rules and policies. ART shall be
required to cease transmission on the date that the Cure Time elapses, that the
Final Order becomes effective, or immediately under subsection (iv) of this
Section 2.2.
2.3 ART shall maintain a database of all Circuits operated by it ("Use
Database"). The Use Database shall contain: (i) the name, address and contact
numbers (voice, facsimile and e-mail) of the Customer; (ii) latitude and
longitude and location address of each Site, including such information for the
IDU and the ODU if they are not co-located; (iii) the Datarate of the Circuit;
(iv) the date that the Circuit became Operational; (v) the date that the Circuit
was taken out of operation, if applicable; and (vi) technical information
concerning the transmission facilities sufficient to enable Licensee to file
such reports that are required to be filed by the FCC and by any other
governmental agency, including without limitation the brand, model number and
ART identification number of the radio transceiver at each Site. Licensee shall
have the right to obtain additional information from ART concerning the
operation of the Circuits to the extent that such additional information is
readily available and the request is otherwise reasonable including without
limitation considerations of scope, expense and time for responding. Licensee
shall have an absolute right to obtain any additional information from ART
necessary to comply with the FCC's rules and policies, or a direct request for
information from the FCC. Licensee shall have: (i) access to and a right of
inspection and duplication, at its cost, of the Use Database during Business
Hours, upon five (5) Business Days advance Notice and (ii) Audit Rights.
Licensee will not disclose to any of Licensee's sales personnel any Customer
information obtained from ART in reports or audits to Licensee.
2.4 ART shall deliver to Licensee in a mutually-agreeable format within thirty
(30) days of the end of each month a certified report listing: (i) the Circuits
installed in that month; (ii) the Circuits that were operational in all or part
of the month; (iii) the amount of payment due to Licensee for each such Circuit
for that month ("Monthly Use Report").
2.5 Except for the Equipment used to provide the Limited Construction Services
set forth in Article III below, ART shall provide, but own and retain title to,
the Equipment used to provide Services. In the event the FCC requires Licensee
to own or control the Equipment, the parties shall negotiate in good faith a
lease or other arrangement which satisfies such FCC requirement and recognizes
ART's investment in such Equipment. The lease or other arrangement shall
terminate immediately upon the termination of this Agreement, and Licensee shall
cooperate in good faith so that ART may take possession of the Equipment
immediately. Licensee shall return such Equipment to ART in good condition,
except for normal wear and tear.
2.6 For any ART owned Equipment, Licensee shall keep and maintain such Equipment
free and clear of all liens, charges, security interests and encumbrances
(except any placed thereon by or with the written consent of ART). Licensee
shall take all appropriate measures to secure the
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Equipment on premises it owns or controls from loss, destruction or damage,
including but not limited to: physical security, including without limit
barriers, limited and locked access, posted warnings and training of those with
access; electronic security including without limit periodic audits of its
telecommunications systems and passwords; environmental controls; and suitable
power supplies.
2.7 Each Party (the "Sending Party") will notify the other in writing at least
four (4) business days in advance of any pending Circuit activation to ensure
interference free communications between the customers of the Parties. When ART
is the Sending Party, the notification will include location of the Circuit
link, frequency channel plan, the type of radio equipment to be installed, that
no frequency interference exists as determined in good faith by ART. If Licensee
is the Sending Party, the notification will include location of the Circuit
link, frequency channel plan, the type of radio equipment to be installed and
such other information or forms as the Parties may mutually agree upon. The
other Party will supply the Sending Party with written notification of
acceptance within three (3) business days of receiving the notice. If the other
Party does not provide written notification of acceptance within three (3)
business days, the Sending Party will deem its notice as accepted.
2.8 The Parties agree that they will take all appropriate steps to ensure that
each Party and their customers are protected from unacceptable interference in
accordance with the FCC's interference standards and that the first Party to
install a Circuit along a path shall be protected against interference from all
subsequent Circuits. The Parties also agree that they will take all appropriate
steps to ensure that third party users of radio spectrum are protected from
unacceptable interference in accordance with the FCC's interference standards.
In the event any third party notifies Licensee or ART of interference caused by
operation of a Circuit, the Party (Licensee or ART) responsible for ordering and
installing the interfering Circuit, shall take all appropriate measures to
resolve such claim of interference, including, but not limited to, defending
such claim before the FCC.
ARTICLE III
LIMITED CONSTRUCTION SERVICES
3.1 ART shall exercise best efforts, subject to Licensee's oversight and
control, to place Circuits and/or 38 GHZ facilities ("Facilities") into Licensed
Operation in each of the Service Areas in a timely manner in accordance with (i)
the FCC's construction requirements at the time of such installation and (ii)
criteria to be mutually-agreed upon from time to time by the parties based upon
good faith negotiations. ART acknowledges that the intent of this Section 3.1 is
to ensure that there is substantially no risk that any of Licensee's
Authorizations will be forfeited due to failure to satisfy the FCC's
Construction requirements.
3.2 In the event that the FCC Construction requirements change to require
additional Facilities be constructed after the initial Facilities are installed
in accordance with Section 3.1, ART, at its sole option, may elect to satisfy
such new Construction requirements. ART shall give Licensee Notice of its
decision of whether it will satisfy the new Construction requirements. In the
event ART elects not to satisfy the new Construction requirements, and so
Notifies Licensee, Licensee may, at its option, terminate this Agreement. In the
event (i) of such termination and (ii) Licensee, its agents,
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representatives or contractors satisfy the new Construction requirements, ART
shall have the rights with respect to Customers as set forth in Section 10.5.
3.3 Licensee shall own the Equipment used to provide the Limited Construction
Services pursuant to this Article III. ART shall procure and purchase the
Equipment in order to take advantage of ART's volume discounts with its
preferred vendors. ART shall sell the Equipment used to provide the Limited
Construction Services to Licensee at its direct costs, amortized equally over
the Initial Term of the Agreement, simultaneously with the Equipment being
placed into Licensed Operation. Simultaneously with the sale of the Equipment
from ART to Licensee, Licensee shall enter into an Equipment lease agreement
("Lease") with ART. The terms of the Lease shall be satisfactory to Licensee.
The Lease shall, among other usual and customary terms permit ART to provide
services to its customers using seventy-five percent (75%) of the full capacity
of the Equipment, subject to any prior arrangement by Licensee to use all or
part of the capacity for its Service. Licensee shall retain the use of
twenty-five percent (25%) of the capacity for servicing Licensee's customers.
The monthly Lease payments from ART shall equal the monthly installment sale
payments set forth above from Licensee, except to the extent that Licensee uses
a part of the Equipment for Service, in which case the Lease payments shall be
reduced proportionately. In addition to Licensee controlling the portion of the
facilities used by ART pursuant to this Service Agreement to provide service to
ART's customers, the parties also shall enter into a Management Agreement, which
shall be consistent with FCC requirements and which shall provide for ART to
manage the Equipment and the services that it provides to Licensee's customers
pursuant to the Limited Construction Services of this Article III, under the
supervision and direction of Licensee. The terms of the Management Agreement
shall be mutually satisfactory. It is the parties' intention to execute the
Lease and the Management Agreement within ten (10) days of the date hereof.
Execution of the Lease and Management Agreement is a condition precedent to the
effectiveness of this Agreement.
3.4 Each Party (the "Sending Party") will notify the other in writing at least
four (4) business days in advance of any pending Circuit activation to ensure
interference free communications between the customers of the Parties. When ART
is the Sending Party, the notification will include location of the Circuit
link, frequency channel plan, the type of radio equipment to be installed, that
no frequency interference exists as determined in good faith by ART. If Licensee
is the Sending Party, the notification will include location of the Circuit
link, frequency channel plan, the type of radio equipment to be installed and
such other information or forms as the Parties may mutually agree upon. The
other Party will supply the Sending Party with written notification of
acceptance within three (3) business days of receiving the notice. If the other
Party does not provide written notification of acceptance within three (3)
business days, the Sending Party will deem its notice as accepted.
3.5 Licensee and ART shall ensure that the Equipment remains personal property
and that it does not become in any manner embedded in, affixed or attached to
real property or any building thereon. Licensee shall keep and maintain the
Equipment free and clear of all liens, charges, security interests and
encumbrances (except any placed thereon by or with the consent of ART) Licensee
shall take all appropriate measures to secure the Equipment on premises it owns
or controls from loss, destruction or damage, including but not limited to:
physical security, including without limitation barriers,
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limited and locked access, posted warnings and training of those with access,
electronic security including without limit periodic audits of its
telecommunications systems and passwords; environmental controls; and suitable
power supplies.
ARTICLE IV
PAYMENT
4.1 ART shall pay to Licensee as full consideration for each Circuit that it
places into Operation pursuant to Article II a monthly fee of: (i) $25 for
transmitting the equivalent of a DS-1 on a Circuit, provided that in no event
shall such fee exceed $200; and (ii) $200 for each Circuit using a DS-3 radio.
The fees under subsection (i) of this Section 4.1 are not dependent upon the
capacity of the Equipment (for example, if only the equivalent of two DS-1's are
transmitted using a 4DS-l radio, the monthly fee would be $50). Repeaters used
to extend a Circuit beyond the normal transmission range and traversing more
than one link will be treated as a single Circuit.
4.2 Payment shall be due within thirty (30) days after the end of each month
("Payment Due Date").
ARTICLE V
RIGHT OF FIRST REFUSAL
5.1 Subject to FCC approval, in the event that Licensee, at any time during the
term of this Agreement, shall receive from any third party (i) a bona fide offer
to purchase the Authorizations at a price and upon terms acceptable to Licensee,
or (ii) an acceptance of any offer made by Licensee to sell the Authorizations
(which offer must be subject to the rights of ART contained in this Article V)
Licensee shall give written notice thereof to ART. Such notice shall set forth
the material terms upon which the sale or purchase is to be made and the
consideration to be paid by the proposed buyer. ART shall have the right and
option (but not any obligation) to purchase the Authorizations, at its election,
upon the equivalent price and material terms and conditions as set forth in the
offer, by giving Licensee written notice of its election to purchase within
thirty (30) days following receipt of such notice. If ART elects to acquire the
Authorizations, Licensee shall sell, and ART shall buy, subject to FCC approval,
the Authorizations for an equivalent price and material terms and conditions
contained in the notice, except that the consummation time period set forth
below in this Section 5.1 shall apply. ART shall have one hundred eighty (180)
days from receipt by Licensee of ART's notice of its election to purchase the
Authorizations to consummate the purchase transaction, unless a longer period is
provided in the terms and conditions of the offer received by Licensee or due to
FCC regulations, policy or approval. The parties shall execute such documents as
may be reasonably necessary to effectuate the sale or transfer. In the event
that ART gives Licensee written notice of its election to purchase and the
purchase transaction is not consummated within the applicable 180 day, or
longer, period provided for in this Section 5.1, then ART shall pay to ICG
within ten (10) business days of the expiration of the applicable consummation
period the sum of One Hundred Thousand Dollars ($100,000).
5.2 If ART elects not to exercise its rights under this Article V, either in
writing or by its failure to make the election within the thirty (30) day
period. Licensee shall have the right to sell or
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otherwise transfer the Authorizations to the proposed buyer that made the bona
fide offer to Licensee for the consideration and material terms and conditions
as disclosed to ART. If any of the material terms or conditions of the offer are
changed prior to the sale or transfer to the proposed buyer, Licensee shall
repeat this right of first refusal procedure, setting forth all the modified
terms.
5.3 The transfer of Authorizations between the Affiliates or subsidiaries of
PEDTS, between the Affiliates or subsidiaries of ICG or between PEDTS or its
Affiliates and subsidiaries and ICG or its Affiliates or subsidiaries shall not
trigger ART's rights of first refusal under this Article V.
ARTICLE VI
ART's REPRESENTATIONS AND WARRANTIES
In addition to any express agreements of ART contained herein, the following
constitute representations and warranties of ART to Licensee:
6.1 ART has all requisite corporate power and authority, and as of the date
hereof will have taken all requisite corporate action, to execute, deliver and
perform this Agreement.
6.2 All requisite action (corporate, trust, partnership or otherwise) has been
taken by ART in connection with the entering into this Agreement, the
instruments referenced herein, and the consummation of the transactions
contemplated hereby. No consent of any partner, shareholder, creditor, investor,
judicial or administrative body, governmental authority or other party is,
required.
6.3 ART has sufficient staff and sufficient industry experience to perform its
obligations hereunder, including without limitation prior frequency coordination
and radio frequency engineering to ensure operations that are free of
unacceptable interference, in accordance with FCC rules and industry standards,
on a timely basis.
6.4 Neither the execution and delivery of this Agreement, nor the incurrence of
the obligations set forth herein, nor the consummation of the transactions
herein contemplated, nor compliance with the terms of this Agreement conflict
with or result in the material breach of any terms, conditions or provisions of,
or constitute a default under, any agreements or instruments to which ART is a
party.
6.5 No representation, warranty or statement of ART in this Agreement or in any
document, certificate or exhibit furnished to Licensee pursuant hereto contains
any untrue statement of a material fact or omits to state a material fact
necessary to make the statements or facts contained therein not misleading.
6.6 ART shall promptly notify Licensee of any changes in any condition or status
with respect to the Authorizations or of any event or circumstance which makes
any representations or warranty of Licensee under this Agreement untrue or
misleading, or any covenant of Licensee under this Agreement incapable or less
likely of being performed, it being understood that ART's obligation to provide
notice to Licensee shall in no way relieve ART of any liability for a breach by
ART of any of its representations, warranties or covenants under this Agreement.
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ARTICLE VII
LICENSEE's REPRESENTATIONS AND WARRANTIES
In addition to any express agreements of Licensee contained herein, the
following constitute representations and warranties of Licensee to ART:
7.1 Licensee has all requisite corporate power and authority, and as of the date
hereof has taken all requisite corporate action, to execute, deliver and perform
this Agreement.
7.2 All requisite action (corporate, trust, partnership or otherwise) has been
taken by Licensee in connection with the entering into this Agreement, the
instruments referenced herein, and the consummation of the transactions
contemplated hereby. No consent of any partner, shareholder, creditor, investor,
judicial or administrative body, governmental authority or other party is,
required.
7.3 Exhibit is true and correct to the best knowledge of Licensee. Licensee has
full right and authority to be the licensee and is fully qualified under FCC
rules and policies to be a licensee. ART expressly acknowledges that four (4) of
these Authorizations (covering Santa Monica, Ventura, Palm Springs, and San
Diego) have discrepancies between the applied for, coordinated and licensed
service areas. These discrepancies currently are being evaluated by a
subcontracted engineering firm with the intent to correct them at the FCC. ART
understands that Licensee has no control over the subsequent action of the FCC
regarding these particular Authorizations.
7.4 With the exception of the four Authorizations specifically identified in
Section 7.3, the Authorizations (i) were duly issued by the FCC to Licensee, or
if to a predecessor of Licensee authority for transfer to Licensee has been duly
given, (ii) are in full force and effect, and (iii) contain all of the
conditions placed upon them, except as found in the FCC rules.
7.5 Licensee has secured all governmental approvals, including without
limitation approvals from the FCC, necessary for Licensee to be the holder of
the Authorizations. Licensee is fully qualified to be a licensee of the FCC.
Licensee has filed, on a timely basis, all reports required by the FCC and other
governmental agencies. There are no pending or threatened actions, orders or
claims that would invalidate, void, cancel or rescind the Authorizations or that
would materially interfere with or restrict ART's Use of the Authorizations.
7.6 Licensee has no knowledge of any reason or of any action or inaction or any
threat of action that would interfere with ART's exercise of each of its rights
under this Agreement to Use of the Authorizations.
7.7 There are no pending and, to the best of Licensee's knowledge, threatened or
contemplated actions, suits, arbitrations, claims or proceedings, at law or in
equity, affecting the Authorizations or in which Licensee is, or to the best of
Licensee's knowledge will he, a party by reason of Licensee's holding the
Authorizations.
7.8 Licensee has not granted any other rights or entered into any other
agreements that would interfere with or restrict ART's use of the
Authorizations, including, without limitation, any other
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contracts for the right to use or sale of the Authorizations, rights of first
refusal or options to purchase the Authorizations.
7.9 Neither the execution and delivery of this Agreement, nor the incurrence of
the obligations set forth herein, nor the consummation of the transactions
herein contemplated, nor compliance with the terms of this Agreement conflict
with or result in the material breach of any terms, conditions or provisions of,
or constitute a default under, any agreements or instruments to which Licensee
is a party.
7.10 To the best of Licensee's knowledge, there are no violations of
governmental regulations relating to the Authorizations. To the best of
Licensee's knowledge, ART's use of the Authorizations, subject to Licensee's
full oversight and control as required by the FCC rules and policies, will not
violate any Governmental Regulations.
7.11 Licensee shall promptly notify ART of any changes in any condition or
status with respect to the Authorizations or of any event or circumstance which
makes any representations or warranty of Licensee under this Agreement untrue or
misleading, or any covenant or ART under this Agreement incapable or less likely
of being performed, it being understood that Licensee's obligation to provide
notice to ART shall in no way relieve Licensee of any liability for a breach by
Licensee of any of its representations, warranties or covenants under this
Agreement.
7.12 No representation, warranty or statement of Licensee in this Agreement or
in any document, certificate or exhibit furnished to ART pursuant hereto
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the statements or facts contained therein not misleading.
ARTICLE VIII
GOVERNMENTAL FILINGS
8.1 Licensee shall bear ultimate responsibility for, and shall bear all costs
for, all filings with: (i) the FCC, including without limitation Form 494As;
(ii) state utility commissions; and (iii) any other governmental body that
requires Licensee to be the filer (collectively "Official Filings"). ART shall
fully cooperate with Licensee's Official Filings by supplying all information
that is in the possession of ART or that can be readily obtained by ART and that
is not in the possession of Licensee.
8.2 ART shall be responsible for, arid shall bear all costs for all firings that
are caused by the provision of Services to itself or its Customers through ART's
right to Use under Article II, including without limitation local permits that
are necessary to install or operate The 38 GHZ facilities.
8.3 Licensee shall exercise reasonable efforts to seek renewal of each of its
Licenses in accordance with FCC rules and to protect the validity of its
Authorizations provided that Licensee shall not be obligated to seek
reinstatement of its Authorizations should they expire or to seek reinstatement
of its Authorizations should they be revoked or rescinded by a Final Order.
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8.4 In the event that any action is brought or threatened against ART or
Licensee by a third party or any governmental or judicial body with jurisdiction
alleging ART's misuse of the Authorizations, ART shall exercise reasonable
efforts to defend Licensee and the validity of the Authorizations from such
action, including responsibility for all reasonable costs and expenses,
including attorney's fees. "Misuse" as used in this Section 8.4 shall not
include any actions against ART or Licensee or challenging the validity of the
Authorizations based upon this Agreement or the other agreements referenced
herein or related hereto. Notwithstanding anything to the contrary contained in
this Section 8.4, ART shall have no obligation to seek to change or modify any
FCC or state utility commission rules or to otherwise participate in any FCC or
state utility commission proceedings of general applicability that might effect
the Authorizations or ART's obligations under this Agreement.
ARTICLE IX
TERM
The initial term of this Agreement shall be five (5) years from the date of
execution ("Initial Term"). This Agreement shall automatically renew for a three
(3) year term at the end of the Initial term ("First Successor Term") unless
either Party gives Notice of termination no less tan one hundred twenty (120)
days in advance of the end of the Initial Term. This Agreement shall
automatically renew for a two (2) year term at the end of the First Successor
Term unless either Patty gives Notice of termination no less than one hundred
twenty (120) days in advance of the end of the First Successor Term.
ARTICLE X
TERMINATION
10.1 Either Party shall have a right to terminate this Agreement in the event
that the other Party commits a material breach of this Agreement and the breach
remains uncured for a period of thirty (30) days following Notice from the
non-breaching Party of the breach ("Initial Cure Period") in sufficient detail
to alert the breaching Party of the nature of the breach, provided that a longer
cure period shall be negotiated by the Parties if the nature of the alleged
breach does not permit cure within the Initial Cure Period.
10.2 Licensee shall have the right to terminate ("Licensee's Termination Right")
this Agreement in the event that ART is found to have violated any rule, policy
or Final Order of the FCC, any state utility commission, any local or municipal
agency or other governmental or judicial body with jurisdiction. The Licensee's
Termination Right shall arise by virtue either of a court of competent
jurisdiction or arbitrator finding of such violation or ART receiving actual
notice from the agency responsible for the Final Order, in which case ART shall
have thirty (30) days to cure such violation, provided that, if the Final Order
provides for a shorter period of time by which ART must abide by the terms of
the Final Order, the cure period shall be coextensive with the period provided
for in the Final Order. Licensee shall have the right to terminate this
Agreement immediately if the FCC's rules and policies concerning Licensee
control so require.
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10.3 In the event that this Agreement is terminated pursuant to Sections 10.1,
ART shall be granted the option to continue to provide Service to those
Customers that were being served on the date of the Notice or the date of the
issuance of the Final Order, under the provisions of this Agreement, for a
period of up to one-hundred twenty (120) days following the effective date of
the termination; provided that ART shall discontinue any Service that is
required to be terminated at such earlier date by the Final Order or if Licensee
is so ordered by the FCC.
10.4 In the event that this Agreement is found by a Final Order of the FCC or by
a court of competent jurisdiction to be invalid or illegal, Licensee has the
right to terminate this Agreement and require ART Immediately ICG cease
operations.
10.5 In the event that this Agreement is terminated by Notice not to renew in
accordance with Article IX, ART shall be granted the option to continue to
provide Service to those Customers that were being served on the date of the
expiration of this Agreement and to add Circuits to those Customers if the
Circuits are co-terminus with Circuits for such Customers in effect as of the
termination date, under the provisions of this Agreement, for a period of up to
two (2) years following the effective date of the termination.
10.6 The remedy provided in this section for a breach is not exclusive and the
Party asserting the breach may avail itself of all other remedies available at
law or equity.
10.7 In the event Licensee sells, transfers, assigns or otherwise disposes
(which sale, transfer, assignment or disposition is not in breach of Article V)
of the Authorizations to a Person other than ART, this Agreement shall remain in
full force and effect and shall be binding upon such other Person. In connection
with such sale, transfer, assignment or disposition, Licensee shall disclose
this Agreement to such other Person and require such other Person to execute an
assignment and assumption agreement. Nothing in this agreement shall be
construed as preventing Licensee's or ART's, successors, or assigns from using
the Authorizations provided that usage is in accordance with Section 2.7 of this
Agreement.
ARTICLE XI
CONFIDENTIAL INFORMATION
11.1 In connection with this Agreement, each party may disclose or otherwise
make available certain data or information to the other party, which data or
information the disclosing party considers to be confidential and proprietary.
As used herein, "Confidential Information," means any non-public information,
including Vendor lists, business plans and proposals, financial information,
marketing information, problem solving methods, implementation steps, know-how,
technology, trade secrets and drawings and renderings related to each party's
ongoing and proposed businesses, products and services which is being provided
or which has been provided to the receiving party by the disclosing party, or
which is obtained by the receiving party from its meetings and contacts with the
disclosing party, or any information derived by receiving party from information
so provided or obtained. Confidential Information includes all written or
electronically recorded materials identified and marked as confidential or
proprietary or which on their face appear to be confidential
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or proprietary, and oral disclosures of Confidential Information by the
disclosing party which are identified as confidential or proprietary at the time
of such oral disclosure.
11.2 Confidential Information does not include any of the following; (a)
information that is or becomes part of the public domain without violation of
this Agreement by the receiving party; (b) information that was known to or in
the possession of the receiving party on a non-confidential basis prior to the
disclosure to the receiving party by the disclosing party; information that was
developed independently by the receiving party's employees, which employees have
had no access to the Confidential Information; (d) information that is disclosed
to the receiving party by a third party under no obligation of confidentiality
to the disclosing party and without violation of this Agreement by the receiving
party; or (e) is authorized by the disclosing party in writing for disclosure or
release by the receiving party.
11.3 The parties agree: (a) to treat and keep as confidential and proprietary
all Confidential Information disclosed by the other party; (b) to advise each
employee to whom any Confidential Information is to be made available of the
confidential nature of such Confidential Information and of the terms of this
Agreement; to promptly return to the disclosing party (or its designees), upon
the disclosing party's request, all Confidential Information and all copies
thereof and to delete from electronic memory such Confidential Information.
11.4 The parties agree to keep confidential the terms of this Agreement,
including but not limited to information relating to the prices charged and
services provided by ART. The parties further agree that any disclosures
concerning this Agreement or the terms and conditions shall require the mutual
written consent of ART and Licensee, except as to such disclosures that may be
required to comply with securities laws, court order or similar order of an
administrative or regulatory agency, and in connection with relevant
governmental agency communications. Notwithstanding the foregoing, either party
shall be entitled to disclose this Agreement and the terms and conditions to its
financing sources, and to its auditors, attorneys and other agents to the extent
necessary to enforce such party's right or perform its obligations pursuant to
this Agreement; provided that such financing sources, auditors, attorneys and
other agents keep such information confidential.
11.5 The obligations of the Parties under this Article XI is intended to survive
the execution, delivery, performance and termination of this Agreement, and
shall so survive and shall continue in force and effect until the applicable
limitations period has expired.
ARTICLE XII
INDEMNIFICATION
12.1 Licensee hereby agrees to indemnity ART against, and to hold ART harmless
from, all losses, damages, costs and expenses, including without limitation
reasonable legal fees and disbursements, incurred by ART arising from acts,
occurrences or matters the existence or occurrence of which constitute a
violation of one or more representations, warranties or covenants of Licensee
hereunder, and do not relate to obligations or liabilities expressly assumed by
ART hereunder; provided, however, nothing contained herein shall obligate
Licensee with respect to, or negate or modify any liability of ART for breach of
ART's representations, warranties and covenants
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in this Agreement. Licensee shall further indemnify, defend and hold harmless
ART from and against claims of third parties for property damage or personal
injury arising out of the negligent or willful acts or omissions of Licensee,
its agents, employees, contractors or representatives.
12.2 ART hereby agrees to indemnity Licensee against, and to hold Licensee
harmless from, all losses, damages, costs and expenses, including without
limitation legal fees and disbursements, incurred by Licensee arising from acts,
occurrences or matters the existence or occurrence of which constitute a
violation of one or more representations, warranties or covenants of ART
hereunder, and do not relate to obligations or liabilities expressly assumed by
Licensee hereunder; provided, however, nothing contained herein shall obligate
ART with respect to, or negate or modify any liability of Licensee for breach of
Licensee's representations, warranties and covenants in this Agreement. ART
shall flintier indemnity, defend and hold harmless Licensee from and against
claims of third parties for property damage or personal injury arising out of
the negligent or willful acts or omissions of ART, its agents, employees,
contractors or representatives.
ARTICLE XIII
LIMITATION ON ART's LIABILITIES
EXCEPT AS EXPRESSLY SET FORTH HEREIN, ART MAKES NO WARRANTIES OF ANY KIND WITH
RESPECT TO ANY OF THE EQUIPMENT, SERVICES AND RELATED SUPPORT SERVICES, WHETHER
EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO IMPLIED WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR CONFORMITY TO ANY
REPRESENTATION OR DESCRIPTION.
ARTICLE XIV
MISCELLANEOUS
14.1 ART expressly acknowledges that Licensee is required by FCC rules to
maintain ultimate control over the facilities used to provide Service. Licensee
shall at all times maintain such ultimate control as required from lime to time
by FCC rules and policies. Nothing in this Agreement shall be construed to limit
such control by Licensee or for Licensee to have ceded such control in any way
to ART. ART shall have no rights of use or control over the Authorizations
except as set forth in this Agreement.
14.2 If any agency, including without limitation the FCC or a state public
utility commission, or a judicial body, with jurisdiction, issues a Final Order
invalidating or voiding any patty of this Agreement, or if, in the written
opinion of counsel to Licensee that is an expert in FCC rules and policies there
is a substantial likelihood that the FCC will so act and the action is likely to
become a Final Order, then the parties shall negotiate in good faith to amend
the Agreement to substitute a valid provision or provisions that most closely
approximate the invalidated provision(s).
14.3 All questions concerning the validity and operation of this Agreement and
the performance of the obligations imposed on the parties under this Agreement
shall be interpreted and construed in accordance with the domestic laws of the
State of Washington even if its choice of law provisions or statutes are in
conflict with this requirement.
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14.4 Licensee expressly agrees that ART may use any subcontractor that it
chooses without prior approval for installation, maintenance, restoral and other
field service functions, and for any other ART obligations under this Agreement;
provided that the use of subcontractors shall not relieve ART of any of its
obligations hereunder.
14.5 Either Party may assign this Agreement (i) without notice or consent, to
any Affiliate that agrees in writing to be bound by the terms hereof or (ii) to
any other entity that expressly assumes in writing the terms and conditions of
this Agreement upon prior written consent from the other Party, which consent
shall not be unreasonably withheld.
14.6 This Agreement is made solely for the benefit of, and shall be binding
upon, the parties hereto and their respective successors and assigns.
14.7 The parties agree that all disputes, claims or controversies between them
arising out of or relating to this Agreement shall be settled as set forth in
this section 14.7. For the period of 15 days after Notice from either party, the
parties shall attempt in good faith to resolve the dispute by direct negotiation
of non-lawyer representatives of the parties. If the parties do not resolve the
dispute within such 15 day period, either party may submit the matter to a
professional mediation service selected by the parties. If the parties do not
resolve the dispute through mediation within an additional 30 day period, either
party may file a claim in a court of competent jurisdiction or otherwise pursue
all applicable legal remedies. The cost of mediation, including the fees and
expenses of the mediator, shall be paid equally by the parties.
14.8 It is agreed and understood that neither party is an agent, employee or
legal representative of the other, and has no authority to bind the other in any
way. Nothing in this Agreement shall be deemed to constitute ART and Licensee as
partners, joint venture partners, or otherwise associated in or with the
business of the other, and neither party shall be liable for the debts,
accounts, obligations or other liabilities of the other party, its agents or
employees. Neither party is authorized to incur debts or other obligations of
any kind on the part of or as agent for the other.
14.9 Neither party shall make any press release or other public announcement of
or otherwise disclose this Agreement, its contents, or the transactions herein
contemplated without the prior written approval of the other party unless
required by law, regulation, court order or rule of any securities exchange, in
which case the disclosing party shall promptly inform the other party of such
disclosure and shall permit it to intervene to object if such is permitted. The
foregoing shall not prohibit either party from disclosing this Agreement or its
contents to its attorneys, accountants or other advisors provided they are
informed of and bound by this Section 14.9 and Article XI.
Nothing contained in this Agreement shall preclude disclosures necessary to
comply with accounting and Securities and Exchange Commission ("SEC") disclosure
obligations and other disclosure obligations imposed by law, and in that regard
ART may file with the SEC reports, including, without limitation, SEC
registration statements or amendments thereto under the Securities Act of 1933,
as amended, which include a prospectus containing any information required to be
included therein and thereafter distribute said prospectus Licensee will
cooperate
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with ART and provide such information and documents as may be required in
connection with any such filings.
14.10 NEITHER PARTY SHALL BE LIABLE FOR DELAYS IN PERFORMANCE, OR FAILURE TO
PERFORM THIS AGREEMENT OR ANY OBLIGATIONS HEREUNDER, WHICH ARE ATTRIBUTABLE TO
CAUSES BEYOND ITS REASONAI3LE CONTROL, INCLUDING BUT NOT LIMITED TO, OBSTRUCTION
OF LINE OF SIGHT BETWEEN SITES, FIRE, FLOOD, EPIDEMIC, EARTHQUAKE, ACT OF GOD,
LIGHTENING, PUBLIC POWER FAILURE OR SURGE, EXPLOSION, STRIKE OR OTHER LABOR
DISPUTE, RIOT OR CIVIL DISTURBANCE, WAR OR ARMED CONFLICT, OR ANY OTHER SIMILAR
OCCURRENCE NOT WITHIN ITS REASONABLE CONTROL.
14.11 All notices, demands or other communications which are required or may be
given under this Agreement shall be given or made in writing, and shall be
delivered personally or by overnight air courier or first class certified or
registered mail, return receipt requested and postage prepaid to the persons and
addresses listed below, or to such other persons and/or address as the party to
whom notice is to be given has furnished to the other party. Each such notice,
demand or other communication shall, simultaneously with its being delivered to
the courier or messenger for delivery or placed in the mail, be sent by
facsimile or comparable electronic means. All notices and other communications
hereunder shall be deemed to have been given: (a) on the date of delivery if
personally delivered on a business day or, if not delivered on a business day,
the first business day thereafter; (b) on the first business day after the date
sent if sent by overnight air courier; or (c) on the fifth business day after
the date Sent if sent by mail.
If to ART: If to Licensee;
Steven D. Comrie PEDTS
President ___________________________________
500 108th Ave, NE, Suite 2600 ___________________________________
Bellevue, WA 98004 ___________________________________
Tel: 206-688-8700 Tel:_______________________________
Fax: 206-688-0703 Fax:_______________________________
with copy to:
General Counsel's Office ICG
500 l08th Ave, NE, Suite 2600 ___________________________________
Bel1evue, WA 98004 ___________________________________
Attn: Thomas M. Walker, Esq. ___________________________________
Tel: 206-688-8700 Tel:_______________________________
Fax: 206-688-0703 Fax:_______________________________
14.12 All Section Headings used in this Agreement are for convenience or
reference only and are not intended to define or limit the scope of any
provisions of this Agreement.
16
<PAGE>
14.13 No waiver of any right or remedy in respect to any occurrence or event on
one occasion shall be deemed a waiver of such right or remedy in respect of such
an occurrence or event on any other occasion.
14.14 Except as provided in Section 14.2, if any portion of this Agreement is
held to be invalid by a court of competent jurisdiction, that provision shall
become ineffective and unenforceable. The parties agree that such invalidity
shall not affect the validity of the remaining portions of this Agreement and
they further agree to substitute for the invalid provision a valid provision
that most closely approximates the effect and intent of the invalid provision.
14.15 The words and phrases used herein shall have the meaning generally
understood in the telecommunications industry and the microwave radio industry.
This Agreement shall be construed in accordance with its fair meaning and nor
for or against either party because of the identity of the party drafting or
proposing a provision.
14.16 This Agreement may be executed in any number of counterparts, each of
which shall, when executed, be deemed to be an original, but all of which
together shall constitute one and the same instrument. This Agreement may be
executed and deemed effective and binding if executed and exchanged by
facsimile, provided that promptly thereafter original signatures are exchanged.
14.17 This Agreement and all Attachments hereto constitute the entire agreement
between the parties hereto and supersedes all prior representations, agreements,
understandings and arrangements, oral or written, between the parties with
respect to the subject matter. This Agreement allocates the risks of loss among
the parties according to their express agreement, which allocation is reflected
in the charges and terms and conditions set forth herein. Except as otherwise
provided for
17
<PAGE>
herein, this Agreement may not be released, discharged, amended or modified in
any way except by a writing that expressly refers to this Agreement and is
executed by all parties hereto.
IN WITNESS WHEREOF, and intending to be legally bound, the undersigned parties
have duly executed this Agreement effective as of the date first above written.
ART: LICENSEE:
ADVANCED RADIO TECHNOLOGIES PACIFIC & EASTERN DIGITAL
CORPORATION, a Delaware TELECOM SERVICES, INC.
Corporation a ________________ Corporation
By:____________________________ By:____________________________
Name:__________________________ Name:__________________________
Title:_________________________ Title:_________________________
ICC TELECOM GROUP, INC.
a Colorado Corporation
By:____________________________
Name:__________________________
Title:_________________________
18
<PAGE>
EXHIBIT 1
<TABLE>
<CAPTION>
Location FCC File # Call Sign Latitude/Longitude Block
-------- ---------- --------- ------------------------
<S> <C> <C> <C> <C>
Beverly Hills, CA 565-CF-P/L-92 WMW449 34-22-30N/118-30-00W 33-40-00N/118-22-30W
Los Angeles, CA 566-CF-P/L-92 WMW450 34-22-30N/118-22-30W 33-37-30N/118-07-30W
* Palm Springs, CA 567-CF-P/L-92 WMW451 34-52-30N/116-30-30W 33-45-00N/116-22-30W
Riverside, CA 568-CF-P/L-92 WMW452 34-00-00N/117-30-00W 33-52-00N/117-15-00W
Santa Barbara, CA 569-CF-P/L-92 WMW453 34-30-00N/120-00-00W 34-22-30N/119-22-30W
San Bernardino, CA 570-CF-P/L-92 WMW454 34-15-00N/117-30-00W 34-00-00N/117-07-30W
* Santa Monica, CA 571-CF-P/L-92 WMW455 34-30-00N/119-00-00W 34-07-30N/118-30-00W
* San Diego, CA 572-CF-P/L-92 WMW456 32-52-30N/117-15-00W 33-32-43N/116-52-30W
Santa Anna, CA 573-CF-P/L-92 WMW457 34-15-00N/118-07-30W 33-37-30N/117-45-00W
* Ventura, CA 574-CF-P/L-92 WMW458 34-30-00N/119-22-30W 34-07-30N/119-00-00W
</TABLE>
* The Parties acknowledge that these licenses have discrepancies as set forth in
Section 7.3.
19
<PAGE>
Exhibit 21
Subsidiaries of the Registrant
1. ART Licensing Corp., a Delaware Corporation and 100% owned subsidiary.
2. Advanced Radio Telecom Sweden AB, a corporation organized under the
laws of Sweden and 100% owned subsidiary.
3. Advanced Radio Telecom Limited, a corporation organized under the laws
of the United Kingdom and 100% owned subsidiary.
4. ART West, a Delaware partnership and 50% owned joint venture.
<PAGE>
EXHIBIT 23(A)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of
our report dated April 26, 1996, except for Note 5B as to which the date is June
26, 1996 and except for the first paragraph of Note 2A, Note 2C and the second
paragraph of Note 9 as to which the date is October 11, 1996, on our audit of
the financial statements of Advanced Radio Technologies Corporation as of
December 31, 1995 and 1994, for the years then ended, and for the period from
August 23, 1993 (date of inception) to December 31, 1993 and of our report dated
April 26, 1996, except for the second paragraph of Note 1B and Note 2B, as to
which the date is October 11, 1996, on our audit of the financial statements of
Advanced Radio Telecom Corp. as of December 31, 1995 and for the period from
March 28, 1995 (date of inception) to December 31, 1995. We also consent to the
reference to our firm under the caption "Experts."
COOPERS & LYBRAND L.L.P.
New York, New York
October 30, 1996
