<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 19, 1996
REGISTRATION NO. 333-03735
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 2
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,
Principal Executive Offices) of Agent for Service)
</TABLE>
--------------------------
COPIES TO:
<TABLE>
<S> <C> <C>
JAMES KARDON, ESQ. JOHN D. WATSON, 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. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER UNIT (1) PRICE (1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Units (2).............................. Units $ $175,000,000 $60,345
Senior Discount Notes due 2006......... (2) N/A N/A (3)
Warrants to Purchase Common Stock...... (2) N/A N/A (3)
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457 under the Securities Act.
(2) The Units will consist of an aggregate principal amount at maturity of
Senior Discount Notes due 2006 and Warrants to purchase shares of Common
Stock to raise an aggregate of $175,000,000 gross proceeds.
(3) As such securities are to be provided without additional cost to purchasers,
no registration fee is required with respect thereto.
--------------------------
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............................................. Not Applicable
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 Units; Description of Notes;
Description of Warrants; Description of Capital
Stock; Certain Federal Income Tax Considerations
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 Units; Description of Notes;
Description of Warrants; 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 JULY , 1996
[LOGO]
PROSPECTUS
$175,000,000 GROSS PROCEEDS
ADVANCED RADIO TELECOM CORP.
UNITS CONSISTING OF
SENIOR DISCOUNT NOTES DUE 2006
AND WARRANTS TO PURCHASE SHARES OF COMMON STOCK
------------------
Advanced Radio Telecom Corp., a Delaware corporation ("ART" or the
"Company"), is hereby offering units (the "Units"), each consisting of
$1,000 principal amount at maturity of Senior Discount Notes due 2006 (the
"Notes") and warrants (the "Warrants") to purchase shares of common stock,
par value $.001 per share (the "Common Stock"), of the Company. The Notes and
the Warrants will not be separable until the earlier of (i) , 1997
and (ii) such date as the Underwriters (as defined) may, in their discretion,
deem appropriate. Concurrently with the offering of the Units (the "Unit
Offering"), the Company is offering, pursuant to a separate prospectus,
7,500,000 shares of its Common Stock (the "Common Stock Offering" and, together
with the Unit Offering, the "Offerings"). The Unit Offering is conditioned upon
the consummation of the Common Stock Offering.
The issue price of the Units will be $ per Unit. The Notes will mature on
, 2006. The issue price of the Notes represents a yield to maturity
of % (computed on a semi-annual bond equivalent basis) calculated from
, 1996. The Notes will accrete at a rate of %, compounded
semiannually, to an aggregate principal amount of $ million by ,
2001. Cash interest will not accrue on the Notes prior to , 2001.
Commencing , 2002, cash interest on the Notes will be payable, at a
rate of % per annum, semiannually in arrears on each and
. See "Description of Notes" and "Certain Federal Income Tax
Considerations."
The Notes will be redeemable at the option of the Company, in whole or in
part, at any time on or after , 2001 at the redemption prices set
forth herein, plus accrued and unpaid interest, if any, to the date of
redemption. In addition, in the event that the Company receives net proceeds
from the sale of its Common Stock in either an Equity Offering (as defined) or
an investment by one or more Strategic Equity Investors (as defined) on or prior
to , 1999, the Company may, at its option, use all or a portion of
any such net proceeds to redeem up to a maximum of 33 1/3% of the initially
outstanding aggregate principal amount at maturity of the Notes at a redemption
price equal to % of the Accreted Value (as defined) of the Notes; PROVIDED
that not less than 66 2/3% of the initially outstanding aggregate principal
amount at maturity of the Notes remain outstanding following such redemption.
See "Description of Notes -- Redemption -- Optional Redemption." Upon the
occurrence of a Change in Control (as defined), the Company is obligated to make
an offer to purchase all outstanding Notes at a price of (i) 101% of the
Accreted Value thereof, if such purchase is prior to , 2001, or (ii)
101% of the principal amount at maturity thereof, plus accrued interest thereon,
if any, to the date of purchase, if such purchase is on or after ,
2001. See "Description of Notes -- Certain Covenants -- Change in Control."
There can be no assurance that the Company will have sufficient funds available
at the time of any Change in Control to purchase all Notes tendered. See "Risk
Factors."
The Notes will represent unsecured, senior obligations of the Company, will
rank PARI PASSU in right of payment with all existing and future unsecured,
senior indebtedness of the Company and will rank senior in right of payment to
all existing and future subordinated indebtedness of the Company. At March 31,
1996, on a pro forma basis after giving effect to indebtedness incurred after
March 31, 1996, the Offerings and the application of the net proceeds therefrom,
the aggregate principal amount of indebtedness of the Company (excluding trade
payables, other accrued liabilities, deferred taxes and the Notes) was
approximately $3.4 million, which consisted of the EMI Note (as defined) and the
Equipment Note (as defined) and all of which ranked PARI PASSU with the Notes.
$1.9 million of such indebtedness constituted secured indebtedness which would
effectively rank senior to the Notes with respect to the assets securing such
indebtedness. Although the Indenture (as defined) will limit the ability of the
Company and its subsidiaries to incur additional indebtedness, including senior
indebtedness, the Indenture will permit the Company to incur a substantial
amount of secured indebtedness under the Credit Facility (as defined), which, if
incurred, will effectively rank senior to the Notes with respect to the assets
securing such indebtedness. See "Risk Factors -- Possible Incurrence of
Substantial Secured Indebtedness," "Description of Notes" and "Description of
Certain Indebtedness."
Each Warrant will entitle the holder thereof, subject to certain conditions,
to purchase shares of Common Stock at an exercise price of $ per share,
subject to adjustment under certain circumstances. Upon exercise, the holders of
Warrants would be entitled, in the aggregate, to purchase Common Stock
representing % of the Common Stock on a fully-diluted basis on the date
hereof, after giving effect to the Offerings. The Warrants will be exercisable
at any time on or after , 1997. Unless earlier exercised, the
Warrants will expire on , 2006. See "Description of Warrants."
There is no existing trading market for the Units, the Notes or the
Warrants, and the Company does not intend to list the Units, the Notes or the
Warrants on any securities exchange. The Common Stock has been approved for
quotation on the Nasdaq National Market under the symbol "ARTT." See "Risk
Factors -- Absence of Public Market; Possible Volatility of Stock Price."
AN INVESTMENT IN THE UNITS OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR A DISCUSSION OF CERTAIN FACTORS
WHICH SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN EVALUATING AN INVESTMENT
IN THE UNITS.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT PRICE TO UNDERWRITERS' PROCEEDS TO
AT MATURITY OF THE NOTES PUBLIC(1) DISCOUNT(2) COMPANY(1)(3)
<S> <C> <C> <C> <C>
Per Unit..................... % % % %
Total........................ $ $ $ $
</TABLE>
(1) Plus accrued original issue discount, if any, on the Notes from ,
1996.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(3) Before deducting expenses payable by the Company estimated at $ .
------------------------------
The Units are being offered by the Underwriters, subject to prior sale,
when, as and if delivered to and accepted by the Underwriters, 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 Units will be made in New York, New York on or about ,
1996.
------------------------------
MERRILL LYNCH & CO.
MONTGOMERY SECURITIES
SMITH BARNEY INC.
------------------------------
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 SECURITIES
OFFERED HEREBY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. 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 PROPOSED MERGER
(THE "MERGER"), AS A CONDITION OF THE OFFERINGS, 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 TELECOM INTO SHARES OF COMMON STOCK OF
TELECOM PRIOR TO THE MERGER, (III) THE AMENDMENT OF ART'S CERTIFICATE OF
INCORPORATION TO CHANGE ITS NAME TO "ADVANCED RADIO TELECOM CORP.," (IV) THE
29,450.16 FOR ONE SPLIT OF THE COMMON STOCK EFFECTED IN JUNE 1996 AND (V) NO
EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION IN THE COMMON STOCK
OFFERING. FOLLOWING 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 37.0 to 40.0 gigahertz portion of the radio spectrum ("38
GHz"). 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 granted by the Federal Communications Commission
("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 authorizations (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," "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
proliferation of local area networks ("LANs"), rapid growth of Internet
services, rising demand for video teleconferencing and other demand factors are
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, are creating an opportunity to offer cost effective,
high capacity last mile access using both wireline and wireless solutions. See
"Business -- Telecommunications Industry Overview."
38 GHZ TECHNOLOGY
The Company is positioned to solve the need for broadband last mile access,
linking end users to competitive access providers ("CAPs"), inter-exchange
carriers ("IXCs"), cellular and mobile radio service providers and Internet
service providers ("ISPs") using 38 GHz technology. 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 optic
based networks. See "Business -- The ART Solution." In addition, the Company
believes that ART's last mile solution is competitively priced with most
broadband wireline solutions. See "Business -- 38 GHz Technology" and "-- The
ART Solution." The 38 GHz band provides for the following additional advantages
as compared to other spectrum bands and wireline alternatives:
3
<PAGE>
- 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 many 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 the immediately addressable market in
its market areas.
- 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 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 following frequency coordination, which in
total can take from three to five months.
- EASE OF INSTALLATION. The equipment used for point-to-point applications
in 38 GHz (I.E., antennae, transceivers and digital interface units) is
smaller, less obtrusive and less expensive than that used for microwave
equipment applications at lower frequencies, making it less susceptible to
zoning restrictions. In addition, 38 GHz equipment can be easily redeployed
to meet changing customer requirements.
- 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. Finally, 38 GHz has characteristics which provide better
signal quality and performance in inclement weather than those offered in
other portions of the radio spectrum.
BUSINESS STRATEGY
ART began providing 38 GHz wireless broadband services in the fourth quarter
of 1995 and has generated only nominal revenues from such services to date. 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
of telecommunications services. See "Business -- Business Strategy." The Company
plans to implement the following strategic initiatives to achieve this
objective:
- EXPLOIT SPECTRUM POSITION IN KEY MARKETS. Upon completion of its pending
acquisition of the CommcoCCC Assets, 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 authorizations (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
4
<PAGE>
remaining 35 of which are managed by the Company through the Company's
interests in or arrangements with other companies. The Company has agreed
to acquire all of the authorizations which it currently manages but does
not own. These spectrum assets provide the Company with the foundation on
which to create a large scale commercial system of 38 GHz wireless
broadband operations. As of June 28, 1996, the Company was operating
revenue-generating, wireless broadband links in 15 cities. 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. The Company may seek to acquire additional spectrum
rights in new and existing markets in order to expand its geographic
footprint or enhance its services. See "Business -- Agreements Relating to
Licenses and Authorizations."
- MARKET INITIALLY AS A CARRIER'S CARRIER. The Company's initial target
customers include CAPs, IXCs, cellular and mobile radio service providers
and ISPs. The Company's wireless broadband services enable CAPs to extend
their broadband services to locations where it is either not cost-efficient
or too difficult to extend their fiber optic network due to physical
limitations, franchise fees or other restrictions. The Company's services
may also be attractive to certain LECs, which generally do not currently
have broadband networks capable of reaching the majority of their
customers. All telecommunications service providers can use the Company's
services as alternate or redundant routes to increase network reliability.
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. The Company currently provides
services to Ameritech, Bell Atlantic NYNEX Mobile, UUNet, Electric
Lightwave, NEXTLINK, American Personal Communications, American Show
Management, Capital Area Internet Service, Brooks Fiber Communications and
Western Wireless, among others. See "Business -- Customers and
Applications." As regulatory and competitive conditions permit and as the
Company's customer base and market presence develop, the Company expects
that its market focus will expand from a wholesale "carrier's carrier" to
include provision of services directly to commercial end users.
- PURSUE OPPORTUNITIES TO PROVIDE VALUE-ADDED SERVICES. The Company has
identified and plans to pursue additional market niches with immediate
needs for reliable, high bandwidth last mile access services. For example,
the market for Internet services urgently requires broadband "pipes" to
facilitate high speed access for corporate users, and the Company is
pursuing agreements to package its 38 GHz solutions with the services of
leading ISPs. Other potential value-added uses include desktop
videoconferencing, high resolution imaging for healthcare and law
enforcement applications and video on demand. The Company may also decide
to offer switched-based services to end users who desire a single source
telecommunications solution.
- MAINTAIN TECHNOLOGY LEADERSHIP IN SPECTRUM MANAGEMENT. The Company is
currently developing proprietary site selection and network design software
which it believes will provide for faster site development at a lower cost.
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 is seeking to achieve a competitive
advantage through proprietary methods designed to increase the capacity and
quality of its networks.
- ESTABLISH AND EXPAND KEY STRATEGIC ALLIANCES. The Company has established
and will seek to continue to establish key strategic alliances with major
service providers, equipment manufacturers, systems integrators and
enhanced service providers. Ameritech owns a 5.5% beneficial equity
interest in the Company as of June 28, 1996 (4.3% after giving effect to
the Common Stock Offering) and entered into the Ameritech Strategic
Distribution Agreement in April 1996. 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 ("GTE") for
installation, field servicing and network monitoring. In addition, the
Company is seeking to develop relationships with a number of equipment
manufacturers focusing on 38 GHz technology development, wireless broadband
standards and joint sales efforts. 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. See "Business -- Strategic Alliances."
5
<PAGE>
THE OFFERING
THE UNITS
<TABLE>
<S> <C>
Gross Proceeds.................... $175,000,000.
Units Offered..................... Units, each consisting of $1,000 principal amount at
maturity of the Company's Senior Discount Notes due 2006
and Warrants to purchase shares of Common Stock
of the Company. The Notes and the Warrants will not be
separable until the earlier of (i) , 1997 and
(ii) such date as the Underwriters may, in their
discretion, deem appropriate (the "Separation Date").
Issue Price....................... $ per Unit.
Use of Proceeds................... To fund capital expenditures, including the purchase of
equipment and the acquisition of certain spectrum
rights, to repay outstanding indebtedness and for
general corporate purposes, including the funding of
operating cash flow shortfalls, technology development
and acquisitions of additional spectrum rights and,
potentially, related businesses.
THE NOTES
Maturity Date..................... , 2006.
Yield and Interest................ % (computed on a semi-annual bond equivalent basis) cal-
culated from , 1996. The Notes will accrete
at a rate of %, compounded semiannually, to an
aggregate principal amount of $ million by
, 2001. Cash interest will not accrue on the
Notes prior to , 2001. Commencing ,
2002, cash interest on the Notes will be payable, at a
rate of % per annum, semiannually in arrears on each
and . For United States federal
income tax purposes, purchasers of the Notes will be
required to include amounts in gross income in advance
of the receipt of the cash payments to which the income
is attributable. See "Certain Federal Income Tax
Considerations."
Mandatory Redemption.............. None.
Optional Redemption............... The Notes will be redeemable at the option of the
Company, in whole or in part, at any time on or after
, 2001 at the redemption prices set forth
herein, plus accrued and unpaid interest, if any, to the
date of redemption. In addition, in the event that the
Company receives net proceeds from the sale of its
Common Stock in either an Equity Offering or an
investment by one or more Strategic Equity Investors on
or prior to , 1999, the Company may, at its
option, use all or a portion of any such net proceeds to
redeem up to a maximum of 33 1/3% of the initially
outstanding aggregate principal amount at maturity of
the Notes at a redemption price equal to % of the
Accreted Value of the Notes; PROVIDED that not less than
66 2/3% of the initially outstanding aggregate prin-
cipal amount at maturity of the Notes remain outstanding
following such redemption. See "Description of Notes --
Redemption -- Optional Redemption."
Change in Control................. Upon the occurrence of a Change in Control, the Company
is obligated to make an offer to purchase all
outstanding Notes at
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
a price of (i) 101% of the Accreted Value thereof, if
such purchase is prior to , 2001, or (ii)
101% of the principal amount at maturity thereof, plus
accrued interest thereon, if any, to the date of
purchase, if such purchase is on or after ,
2001. See "Description of Notes -- Certain Covenants --
Change in Control." There can be no assurance that the
Company will have sufficient funds available at the time
of any Change in Control to purchase all Notes tendered.
See "Risk Factors -- Risk of Inability to Satisfy Change
in Control Offer."
Ranking........................... The Notes will represent unsecured, senior obligations
of the Company, will rank PARI PASSU in right of payment
with all existing and future unsecured, senior
indebtedness of the Company and will rank senior in
right of payment to all existing and future subordinated
indebtedness of the Company. At March 31, 1996, on a pro
forma basis after giving effect to indebtedness incurred
after March 31, 1996, the Offerings and the application
of the net proceeds therefrom, the aggregate principal
amount of indebtedness of the Company (excluding trade
payables, other accrued liabilities, deferred taxes and
the Notes) was approximately $3.4 million, which
consisted of EMI Note and the Equipment Note and all of
which ranked PARI PASSU with the Notes. $1.9 million of
such indebtedness constituted secured indebtedness which
would effectively rank senior to the Notes with respect
to the assets securing such indebtedness. Although the
Indenture will limit the ability of the Company and its
subsidiaries to incur additional indebtedness, the
Indenture will permit the Company to incur a substantial
amount of secured indebtedness under the Credit
Facility, which, if incurred, will effectively rank
senior to the Notes with respect to the assets securing
such indebtedness. See "Risk Factors -- Possible
Incurrence of Substantial Secured Indebtedness,"
"Description of Notes" and "Description of Certain
Indebtedness."
Original Issue Discount........... The Notes are being offered at an original issue
discount for United States federal income tax purposes.
Thus, although cash interest will not be payable on the
Notes prior to , 2001, original issue
discount (I.E., the difference between the principal and
interest payable on the Notes and their issue price)
will accrue from the issue date of the Notes and will be
included as interest income periodically (including for
periods ending prior to , 2001) in a Note-
holder's gross income for United States federal income
tax purposes in advance of receipt of the cash payments
to which the income is attributable. See "Certain
Federal Income Tax Considerations."
Certain Covenants................. The Indenture will contain certain covenants which,
among other things, will restrict the ability of the
Company and its Restricted Subsidiaries (as defined) to
(i) incur indebtedness, (ii) pay dividends or make
distributions in respect of the Company's capital stock
or make certain other restricted payments, (iii) create
certain liens, (iv) enter into certain transactions with
affiliates or related persons, (v) conduct certain
businesses or (vi) sell certain assets. In addition, the
Indenture will limit the
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
ability of the Company to consolidate, merge or sell all
or substantially all of its assets. These covenants are
subject to important exceptions and qualifications. See
"Description of Notes -- Certain Covenants."
THE WARRANTS
Warrants.......................... Warrants which, when exercised, would entitle the
holders thereof to purchase an aggregate of shares
of Common Stock of the Company (the "Warrant Shares"),
representing % of the Common Stock of the Company on
a fully diluted basis after giving effect to the
Offerings.
Registration Rights............... The Company has agreed, subject to certain limitations,
that, from the earlier of the Separation Date and 45
days after the occurrence of a Change in Control until
the expiration of all Warrants, it will maintain the
effectiveness of a registration statement with respect
to the issuance of the Warrant Shares upon exercise of
the Warrants.
Separation Date................... The Notes and the Warrants will not be separable until
the earlier of (i) , 1997 and (ii) such date as
the Underwriters may, in their discretion, deem
appropriate.
Exercise.......................... Each Warrant will entitle the holder thereof, subject to
certain conditions, to purchase shares of Common
Stock at an exercise price of $ per share, subject
to adjustment under certain circumstances. The Warrants
will be exercisable at any time on or after
, 1997 and prior to the expiration of the
Warrants, as set forth below. The exercise price and
number of shares of Common Stock issuable upon exercise
of the Warrants will be subject to adjustment from time
to time upon the occurrence of certain changes with re-
spect to the Common Stock, including certain
distributions of shares of Common Stock, issuances of
options or convertible securities, dividends and
distributions and certain changes in options and
convertible securities of the Company. A Warrant does
not entitle the holder thereof to receive any dividends
paid on shares of Common Stock.
Expiration........................ , 2006.
</TABLE>
For additional information concerning the Units, the Notes, the Warrants and
the Common Stock, and the definitions of certain capitalized terms used above,
see "Description of Units," "Description of Notes," "Description of Warrants"
and "Description of Capital Stock."
CONCURRENT OFFERING
Concurrently with the Unit Offering, the Company is offering, pursuant to a
separate prospectus, 7,500,000 shares of Common Stock of the Company (the
"Common Stock Offering" and, together with the Unit Offering, the "Offerings").
The Unit Offering is conditioned upon the consummation of the Common Stock
Offering.
RISK FACTORS
An investment in the Units offered hereby involves a high degree of risk.
See "Risk Factors" beginning on page 11 for a discussion of certain factors
which should be considered by prospective investors in evaluating an investment
in the Units.
8
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA (1)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995 THREE MONTHS ENDED MARCH 31, 1996
--------------------------------------------- ---------------------------------------------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
COMBINED (2) PRO FORMA (3) AS ADJUSTED (4) COMBINED (2) PRO FORMA (3) AS ADJUSTED (4)
------------- ------------- --------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Operating revenue.......... $ 5,793 $ 5,793 $ 5,793 $ 9,620 $ 9,620 $ 9,620
Non-cash compensation
expense................... 1,089,605 1,089,605 1,089,605 7,221,000 7,221,000 7,221,000
Depreciation and
amortization.............. 15,684 15,684 5,418,452 89,279 89,279 1,439,971
Interest, net.............. 121,986 1,974,275 23,931,008 131,145 528,739 5,989,300
Net loss................... 3,234,843 5,087,132 30,609,692 10,694,588 11,092,182 17,444,199
Pro forma net loss per
share of Common Stock
(5)....................... -- $ 0.16 $ 0.55 -- $ 0.35 $ 0.31
Pro forma weighted average
number of shares of Common
Stock outstanding (5)..... -- 31,651,605 55,651,605 -- 31,651,605 55,651,605
OTHER FINANCIAL DATA:
EBITDA (6)................. $(1,936,141) $(1,936,141) $ (1,936,141) $(2,156,893) $(2,156,893) $ (2,156,893)
Capital expenditures....... 3,585,144 3,585,144 3,585,144 2,861,241 2,861,241 2,861,241
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF MARCH 31, 1996
DECEMBER 31, 1995 ---------------------------------------------
HISTORICAL HISTORICAL PRO FORMA
COMBINED (2) COMBINED (2) PRO FORMA (3) AS ADJUSTED (4)
------------------ ------------- ------------- ---------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital surplus (deficit)............ $ (3,008,510) $(1,128,130) $ 1,116,870 $ 214,516,870
Property and equipment, net.................. 3,581,561 6,380,895 6,380,895 6,380,895
FCC licenses................................. 4,235,734 4,235,734 4,235,734 216,110,734
Total assets................................. 9,876,559 15,036,337 20,432,236 448,589,961
Short-term debt.............................. -- -- 2,975,000 --
Long-term debt, including
current portion............................. 6,450,000 5,483,082 7,394,521 163,211,439
Total stockholders' equity (deficit)......... (312,860) 5,339,738 5,849,198 230,675,005
</TABLE>
- ------------------------------
(1) The unaudited summary historical and pro forma financial data 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 three months ended March 31, 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.
(2) 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.
(3) 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 Other
Financial Data and as of the balance sheet date for the Balance Sheet Data:
(i) the March 8, 1996 issuance of the Bridge Notes (as defined) in
connection with the Bridge Financing (as defined); (ii) the receipt of $2.2
million in cash proceeds from the issuance of the Equipment Note and
Indemnity Warrants (as defined) in connection with the Equipment Financing
(as defined), after deducting related fees and expenses of $225,000; (iii)
the receipt of $3.0 million in cash proceeds from the CommcoCCC Notes (as
defined) and CommcoCCC Warrants (as defined) in connection with the
CommcoCCC Financing (as defined); (iv) the Conversion; and (v) the Merger,
including the issuance of Common Stock to Telecom stockholders and the
cancellation of all outstanding Telecom common stock. See "Certain
Transactions."
(4) The unaudited summary financial data under the caption "Pro Forma As
Adjusted" are presented as if the transactions referred to in (3) above and
the following transactions had occurred as of the beginning of the
respective periods for the Statement of Operations Data and Other Financial
Data and as of the balance sheet date for the Balance Sheet Data: (i) the
9
<PAGE>
sale by the Company of 7,500,000 shares of Common Stock offered in the
Common Stock Offering based on an assumed initial public offering price of
$9.00 per share and the Units offered in the Unit Offering assuming $175.0
million of gross proceeds, and, in each case, after deducting the estimated
underwriting discount and offering expenses, (ii) the receipt and
application of the net proceeds therefrom to repay the Bridge Notes and the
CommcoCCC 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 and (iii) the issuance of
16,500,000 shares of Common Stock based upon an assumed value of $9.00 per
share in connection with the CommcoCCC Acquisition. See "Use of Proceeds."
(5) 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 Conversion, the Merger 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 $9.00 per share. Pro forma as adjusted net loss per share include the
items noted above plus the issuance of 7,500,000 shares of Common Stock in
the Common Stock Offering and the issuance of 16,500,000 shares of Common
Stock in connection with the CommcoCCC Acquisition. In measuring the
dilutive effect, the treasury stock method was used.
(6) EBITDA means loss before interest expense, income tax expense, depreciation
and amortization expense, non-cash compensation expense and non-cash market
development expense. Information with respect to EBITDA is included herein
because a similar measure will be used in the Indenture (as defined) with
respect to the computation of certain covenants. EBITDA is not intended to
represent cash flows from operating activities, as determined in accordance
with generally accepted accounting principles, nor has it been presented as
an alternative to operating income as an indicator of operating performance
and should not be considered as a substitute for measures of performance
prepared in accordance with generally accepted accounting principles.
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 UNITS 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. As of June 28, 1996, the
Company was operating revenue-generating, wireless broadband links in 15 cities
using 38 GHz technology. 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 three-month period ended March 31, 1996,
the Company reported net losses of $3.2 million and $10.7 million, respectively.
On a combined historical basis, from inception through March 31, 1996, the
Company reported net losses of $14.1 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 1997, the Company currently expects to incur capital
expenditures of approximately $100.0 million 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. 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
11
<PAGE>
wireline and wireless operators in the same market area, changes in the federal
and state regulatory 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
On July 3, 1996, the Company entered into an agreement (the "CommcoCCC
Agreement") to acquire the CommcoCCC Assets from CommcoCCC (the "CommcoCCC
Acquisition") in exchange for 16,500,000 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 Hart-Scott-Rodino approval, if required),
receipt by CommcoCCC of an opinion as to the tax-free nature of the transaction,
consummation of the Offerings 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
particular, 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 would be considerably smaller than planned and the Company's growth
could be limited.
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, 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"), 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
12
<PAGE>
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
(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."
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, 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.
OTHER COMPETITORS. The Company may compete with CAPs for the provision of
last mile access and additional services in most of its market areas. However,
the Company believes that many CAPs 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. However, there can
be no assurance that CAPs will utilize the Company's 38 GHz services or that
CAPs will not seek to acquire their own 38 GHz licenses or use the 38 GHz
licenses of other licensees. Furthermore, the ability of CAPs to compete in the
local exchange market is limited by regulations relating to number portability,
dialing parity and reasonable interconnection. The Telecommunications Act
requires the FCC and the states to implement regulations that place CAPs on a
more equal competitive footing with LECs. To the extent these changes are
implemented, CAPs may be able to compete more effectively with LECs. However,
there can be no assurance that CAPs 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
13
<PAGE>
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 and from wireless cable
providers and other service providers operating in frequencies other than 38
GHz.
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 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
14
<PAGE>
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 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. Elimination of the conflicts generally would require dismissal of
a majority of the applications as part of a settlement. 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 services.
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, including a
possible auction of the lower fourteen 100 MHz channels (which are similar to
those used by the Company) and the lower four 50 MHz channels in the 38 GHz band
that have not been previously available for commercial use, (ii) the
continuation of the 100 MHz-based channeling plan and licensing rules for
point-to-point microwave operations in the lower 14 channels, (iii) licensing
frequencies using predefined geographic service areas ("Basic Trading Areas"),
(iv) 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 (v) 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 other yet-to-be licensed portions of the 38 GHz band
with other telecommunications service providers. The implementation of such a
measure could materially affect the Company's ability to provide services to its
customers by imposing power and other limitations upon existing operations.
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.
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.
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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 authorizations that will allow it to provide 38 GHz wireless
broadband services in 169 U.S. markets. The Company currently owns or manages
108 authorizations (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 remaning 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 an authorization for 38 GHz microwave facilities is
required to complete construction of such facilities within 18 months of the
date of grant of the authorization (authorizations for facilities that are not
constructed are referred to in this Prospectus as "construction permits" and
authorizations for facilities that are constructed are referred to in this
Prospectus as "licenses"). Upon completion of construction, the licensee is
required to certify that the station is operational and ready to provide service
to the public. Although under current FCC regulations the term "operational" is
not defined, the industry custom is to establish at least one link between two
transceivers in each market area for which a construction permit is held. In the
event that the recipient fails to comply with the construction deadline, the
construction permit is subject to forfeiture, absent an extension of the
deadline. Of the 108 authorizations that the Company owns or manages (exclusive
of the CommoCCC Assets), 77 are licenses. Under the terms of its remaining 31
construction permits, the Company must complete construction of facilities for
the majority of such construction permits between mid-August and mid-September
1996. Under the terms of the CommcoCCC authorizations and the Company's
management agreement with CommcoCCC, the Company must complete construction of
facilities for eight construction permits by mid-September 1996, 39 construction
permits by December 1996 and the remaining 82 construction permits 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 complete the construction of all of its own and
CommcoCCC's facilities using the proceeds of the Offerings within respective
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 construction permits could be subject to forfeiture, which
could have a material adverse effect on the Company's development and results of
operations. See "Business -- Government Regulation" and "-- 38 GHz Wireless
Broadband Licenses and Authorizations."
The FCC's current policy is to align the expiration dates of all 38 GHz
licenses held by a particular licensee such that all such licenses mature
concurrently and then to require renewal of all such licenses for a matching
ten-year period. 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 authorizations to develop wireless broadband
systems in all of its market areas. In addition, a limited secondary market
exists for 38 GHz authorizations, and the Company may from time to time purchase
such authorizations. The value of authorizations 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
authorizations 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
authorizations. Assignments of authorizations and changes of control involving
entities holding authorizations 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 authorizations may adversely affect the value of the Company's
authorizations.
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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. In order to obtain the necessary access, the Company generally must
secure roof rights from the owners of each building or other structure on which
its equipment is installed. 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
limitations in urban or 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, 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. 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.
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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 recently
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."
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 granting additional licenses, subject to
resolution of the NPRM. The Company does not believe that the FCC's suspension
on acceptance of new applications 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."
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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 affect 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; UNCERTAINTY OF 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 Offerings, after the use of approximately $8.0 million to repay existing
indebtedness and $9.6 million to complete pending acquisitions of certain
spectrum rights will be sufficient to fund the operations and capital
requirements of the Company for at least the next two years. See "Use of
Proceeds." Management also believes that the Company's future capital needs will
continue to be significant and that it will be necessary for the Company to seek
additional sources of financing. The Company expects to incur capital
expenditures of approximately $100.0 million through 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 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 March 31, 1996, the Company reported a net loss of $14.1
million. 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 for at least the next two years or (iii) the Company completes any
material acquisitions not now under contract, the Company may be required to
seek additional financing sooner than currently anticipated. 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 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 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, the Notes and the Warrants and may limit the Company's ability to
make principal and interest payments on its indebtedness.
POSSIBLE INCURRENCE OF SUBSTANTIAL SECURED INDEBTEDNESS
The Notes will represent unsecured, senior obligations of the Company, will
rank PARI PASSU in right of payment with all existing and future unsecured,
senior indebtedness of the Company and will rank senior in right of payment to
all existing and future subordinated indebtedness of the Company. At March 31,
1996, on a pro forma basis after giving effect to indebtedness incurred after
March 31, 1996, the Offerings and the application of the net proceeds therefrom,
the aggregate principal amount of indebtedness of the Company (excluding trade
payables, other accrued liabilities, deferred taxes and the Notes) was
approximately $3.4 million, which consisted of the EMI Note and the Equipment
Note and all of which ranked PARI PASSU with the Notes. $1.9 million of such
indebtedness constituted secured indebtedness which would effectively rank
senior to the Notes with respect to the assets securing such indebtedness.
Although the Indenture will limit the ability of the Company and its
subsidiaries to incur additional indebtedness, including senior indebtedness,
the Indenture will permit the Company to incur a substantial amount of secured
indebtedness under the Credit Facility (as defined), which, if incurred, will
effectively rank senior to the Notes with respect to the assets securing such
indebtedness.
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In addition, the Indenture will permit the subsidiaries of the Company
(including any subsidiary holding all or any part of the Company's FCC licenses
and authorizations) to guarantee the indebtedness of the Company under the
Credit Facility on a secured basis, which guarantees and security interests
would effectively rank senior in right of payment to the Notes. In such a case,
if the Company or any such subsidiary were to become insolvent or be liquidated
or if any of such secured indebtedness were to be accelerated, the holders of
such secured indebtedness would be entitled to payment in full out of the assets
securing such indebtedness prior to payment to holders of the Notes. If the
lenders party to, or the holders of, any such secured indebtedness were to
foreclose on the collateral securing the Company's obligations to them, there
can be no assurance that there would be sufficient assets remaining after
payment of all such secured indebtedness to satisfy the claims of holders of the
Notes in full. See "Description of Notes -- Certain Covenants" and "Description
of Certain Indebtedness."
HIGH LEVERAGE; ABILITY TO SERVICE INDEBTEDNESS
Following the Offerings, the Company will be highly leveraged and will have
certain restrictions on its operations. As of March 31, 1996, on a pro forma
basis after giving effect to the Equipment Financing, the CommcoCCC Financing,
the Conversion, the Merger, the Offerings 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 $163.2 million of total
indebtedness and stockholders' equity of approximately $230.7 million. In
addition, the accretion of the principal amount of the Notes over time (based on
an assumed rate of accretion of 13.5%) will result in an increase in the total
indebtedness represented by the Notes of approximately $161.3 million by
, 2001. After giving effect to such transactions as if they had
occurred at the beginning of the respective periods, the Company's pro forma
earnings for the three months ended March 31, 1996 and the year ended December
31, 1995 would have been insufficient to cover fixed charges by approximately
$17.9 million and $32.4 million, respectively.
The indebtedness expected to be incurred as a result of the Unit Offering
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 ultimately be required
to be dedicated to the payment of interest with respect to the Notes; (ii) the
Company's flexibility may be limited in responding to changes in the industry
and economic conditions generally; (iii) the Indenture relating to the Notes
(the "Indenture") will 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 affecting
the business and operations of the Company; (v) the Company's ability to obtain
any necessary financing in the future may be limited; (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 high 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 Indenture will limit the ability of the Company and its
subsidiaries to incur additional indebtedness, the Indenture will permit the
Company to incur substantial additional indebtedness, which may or may not be
secured, during the next few years to finance the construction of networks, the
purchase of equipment and the introduction of new services. Additional
indebtedness of the Company may rank PARI PASSU in right of payment with the
Notes in certain circumstances. See "Description of Notes -- Certain Covenants"
and "Description of Certain Indebtedness -- Credit Facility." Any such
indebtedness 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 the Notes and could
exacerbate any of the foregoing consequences.
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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 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. Furthermore, the Indenture contains numerous financial and operating
covenants, including, among others, covenants restricting the ability of the
Company and its subsidiaries to incur indebtedness or to create or suffer to
exist certain liens. In the event the Company fails to comply with these various
covenants, it could be in default under the Indenture. 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 Notes -- Certain Covenants."
ORIGINAL ISSUE DISCOUNT
The Notes will be issued at a substantial original issue discount from their
principal amount at maturity. Consequently, purchasers of Notes will be required
to include amounts in gross income for federal income tax purposes in advance of
receipt of the cash payments to which the income is attributable. In addition, a
portion of the purchase price for each Unit will be allocable to the Warrants
for federal income tax purposes. See "Certain Federal Income Tax Considerations"
for a more detailed discussion of the federal income tax consequences to the
purchasers of the Units resulting from the purchase, ownership or disposition
thereof.
If a bankruptcy case is commenced by or against the Company under Title 11
of the United States Code, as amended (the "Bankruptcy Code") after the issuance
of the Units, the claim of a holder of the Notes with respect to the principal
amount thereof may be limited to an amount equal to the sum of (i) the initial
public offering price of the Notes and (ii) that portion of the original issue
discount that is not deemed to constitute "unmatured interest" for purposes of
the Bankruptcy Code. Any original issue discount that was not accrued as of such
bankruptcy filing would constitute "unmatured interest." A holder of a Note will
not have any claim with respect to that portion of the issue price of a Unit
allocated to the Warrants issued as part of such Unit.
RISK OF INABILITY TO SATISFY CHANGE IN CONTROL OFFER
Upon the occurrence of a Change in Control, the Company will be required to
make an offer to purchase all of the outstanding Notes at a purchase price in
cash equal to (i) 101% of the Accreted Value thereof, in the case of any such
purchase prior to , 2001, or (ii) 101% of the principal amount at maturity
thereof, together with accrued and unpaid interest, if any, to the date of
purchase, in the case of any such purchase on or after , 2001. There can
be no assurance that the Company will have the funds necessary to effect such a
purchase if such an event were to occur. In the event a Change in Control occurs
at a time when the Company is unable to purchase the Notes, the Company could
seek to refinance the Notes. If the Company is unsuccessful in refinancing the
Notes, the Company's failure to purchase tendered Notes would constitute an
Event of Default under the Indenture. See "Description of Notes -- Certain
Covenants -- Change in Control."
LEGAL AND TRADING RISKS
ABSENCE OF PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
There is currently no public market for the Units, the Notes or the
Warrants. The Company does not intend to apply for listing of the Units, the
Notes or the Warrants on any securities exchange or for quotation of the Units,
the Notes or the Warrants on the Nasdaq National Market. The Company has been
advised by the Underwriters that they presently intend to make a market in the
Units, the Notes and the Warrants, as permitted by applicable laws and
regulations, after the consummation of the sale of the Units; however, the
Underwriters are not obligated to do so and any such market-making activity
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may be discontinued at any time without notice at the sole discretion of each
Underwriter. Accordingly, there can be no assurance as to whether an active
public market for the Units, the Notes or the Warrants will develop or, if a
public market does develop, as to the liquidity of the trading market for the
Units, the Notes or the Warrants. If an active public market does not develop,
the market price and liquidity for the Units, the Notes or the Warrants may be
adversely affected. See "Underwriting."
Prior to the Offerings, there has been no public market for the Company's
Common Stock. While the Common Stock (including the Warrant Shares) has been
approved for quotation on the Nasdaq National Market, there can be no assurance
that an active public trading market will develop or be sustained after the
Offerings 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
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 Company's Common Stock to
fluctuate, perhaps substantially.
CONTROL BY MANAGEMENT AND PRINCIPAL STOCKHOLDERS
Upon consummation of the Offerings, the Company's executive officers,
directors and their affiliates, as a group, will beneficially own approximately
28.3% of the Company's outstanding Common Stock (27.4% if the underwriters'
over-allotment option is exercised in full and 19.3% upon consummation of the
CommcoCCC Acquisition). In addition, 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 approximately 16.3% and 14.2%, respectively, of
the Company's outstanding Common Stock (15.9% and 13.9%, respectively, if the
underwriters' over-allotment option in the Common Stock Offering 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 Indenture will restrict the ability of the Company to
pay dividends on the Common Stock. See "Description of Notes -- Certain
Covenants."
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, the Units, the Notes and the Warrants,
may discourage third party bidders from making a bid for the Company or may
reduce any premiums paid to stockholders for their
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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."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock in the public market
following the Offerings could adversely affect the market price of the Common
Stock. Upon consummation of the Offerings, the Company will have outstanding
37,586,498 shares of Common Stock, assuming no exercise of outstanding options,
warrants, rights or other convertible securities, 30,086,498 of which will be
subject to resale restrictions. Beginning 90 days after the date of this
Prospectus, approximately 10,013,055 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 Montgomery Securities which expire 180 days after the date of
this Prospectus or such earlier time as Montgomery Securities may, in its sole
discretion, determine. See "Underwriting." The balance of the outstanding
restricted shares of Common Stock (20,073,443 shares) will become available for
sale in the public market under Rule 144 approximately two years after the date
of this Prospectus. Upon the closing of the CommcoCCC Acquisition, 16,500,000
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 one year after the date of this Prospectus (or one year
after the date of the closing of the CommcoCCC Acquisition in the case of the
16,500,000 shares issued for the CommcoCCC Assets). Holders of 30,086,498 shares
(46,586,498 shares upon consummation of the CommcoCCC Acquisition) of Common
Stock and warrants to purchase 1,475,000 shares of Common Stock have contractual
rights to have those shares registered with the Commission for resale to the
public.
23
<PAGE>
THE COMPANY
Advanced Radio Telecom Corp. provides wireless broadband telecommunications
services using point-to-point microwave transmissions in the 37.0 to 40.0
gigahertz portion of the radio spectrum ("38 GHz"). 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," "Business -- Agreements Relating to Licenses and Authorizations --
ART West Joint Venture," "-- EMI Acquisition" and "-- CommcoCCC Acquisition."
To date, the business of the Company has been operated and managed
(including all FCC licenses and construction permits held by ART and Telecom)
pursuant to a services agreement. On June 26, 1996, ART and Telecom entered into
the Merger Agreement (as defined), pursuant to which a subsidiary of ART will
merge with and into Telecom. The FCC has indicated that it will approve the
Merger. Upon completion of the Merger, Telecom will become a wholly owned
subsidiary of ART and change its name to "ART Licensing Corp.," and ART will
change its name to "Advanced Radio Telecom Corp." See "Business -- Proposed
Merger" and "Certain Transactions -- Merger." Prior to completion of the Merger,
Telecom will manage 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.
24
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the Offerings are estimated to be
approximately $231.0 million in the aggregate, giving effect to the sale by the
Company of 7,500,000 shares of Common Stock offered in the Common Stock
Offering, based on an assumed initial public offering price of $9.00 per share,
and the Units offered in the Unit Offering, assuming $175,000,000 of gross
proceeds, and, in each case, after deducting the estimated underwriting discount
and offering expenses.
Of the net proceeds, approximately $100.0 million is expected to be used for
capital expenditures through December 31, 1997 and 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." Approximately $8.0
million will be used for the repayment of indebtedness, consisting of the Bridge
Notes, which were issued on March 8, 1996 and which bear interest at 10% per
annum, and the CommcoCCC Notes, which were issued on June 27 and July 3, 1996
and which bear interest at the prime rate. See "Certain Transactions,"
"Description of Certain Indebtedness -- Bridge Notes" and "-- CommcoCCC
Financing." The expected amount of capital expenditures includes estimated
construction costs under service agreements with CommcoCCC, ART West, DCT and
Telecom One. See "Business -- Agreements Relating to Licenses and
Authorizations." Such amount also includes the cost to complete construction of
initial transmission facilities estimated at less than $5.0 million.
The remainder of the net proceeds 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 $3.5 million for
research and development activities and other investment upon the consummation
of currently anticipated agreements with American Wireless (as defined), QuestTV
(as defined) and Helioss (as defined). 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.
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 Offerings will be sufficient to fund the
operations of the Company for the next two years. See "Risk Factors --
Significant Capital Requirements; Uncertainty of 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 Indenture will restrict the ability of the Company to
pay dividends on the Common Stock. See "Description of Notes -- Certain
Covenants."
25
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of March
31, 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 Conversion, the Merger and certain other financing transactions
occurring subsequent to March 31, 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 7,500,000 shares of Common Stock offered in the Common Stock Offering based
on an assumed initial public offering price of $9.00 per share and the Units
offered in the Unit Offering assuming $175.0 million of gross proceeds, and, in
each case, after deducting the estimated underwriting discount and offering
expenses, (B) the receipt and application of the net proceeds therefrom to repay
the Bridge Notes and the CommcoCCC Notes and to acquire certain spectrum rights
from ART West and DCT (See "Use of Proceeds") and (C) the issuance of 16,500,000
shares of Common Stock based upon an assumed value of $9.00 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 MARCH 31, 1996
-----------------------------------------------------
HISTORICAL PRO FORMA
COMBINED PRO FORMA (1) AS ADJUSTED
--------------- ------------------ ----------------
<S> <C> <C> <C>
Cash and cash equivalents................................. $ 3,024,161 $ 8,244,161 $ 218,669,161
--------------- ------------------ ----------------
--------------- ------------------ ----------------
Short-term debt:
CommcoCCC Notes......................................... $ -- $ 2,975,000 $ --
--------------- ------------------ ----------------
--------------- ------------------ ----------------
Long-term debt:
Note payable to EMI..................................... $ 1,500,000 $ 1,500,000 $ 1,500,000
Bridge Notes............................................ 3,983,082 3,983,082 --
Equipment Note.......................................... -- 1,911,439 1,911,439
Senior Discount Notes offered hereby (2)................ -- -- 159,800,000
--------------- ------------------ ----------------
Total long-term debt.................................. 5,483,082 7,394,521 163,211,439
--------------- ------------------ ----------------
Stockholders' equity:
Telecom convertible serial preferred stock (3).......... 921 -- --
Common Stock (4)........................................ 10,013 30,086 54,086
Telecom common stock (5)................................ 18,114 -- --
Additional paid-in capital.............................. 19,375,335 19,883,757 245,727,482
Deficit accumulated during the development stage........ (14,064,645) (14,064,645) (15,106,563)
--------------- ------------------ ----------------
Total stockholders' equity............................ 5,339,738 5,849,198 230,675,005
--------------- ------------------ ----------------
Total capitalization................................ $ 10,822,820 $ 13,243,719 $ 393,886,444
--------------- ------------------ ----------------
--------------- ------------------ ----------------
</TABLE>
- ------------------------
(1) Reflects pro forma adjustments for the following transactions as if they
had occurred as of March 31, 1996: (i) the receipt of $2.2 million in cash
proceeds from the issuance of the Equipment Note and Indemnity Warrants in
connection with the Equipment Financing, after deducting related expenses
of $225,000; (ii) the receipt of $3.0 million in cash proceeds from the
issuance of the CommcoCCC Notes and CommcoCCC Warrants in connection with
the CommcoCCC Financing; (iii) the Conversion and (iv) the Merger,
including the issuance of Common Stock to Telecom's stockholders and
cancellation of all outstanding Telecom common stock. See "Certain
Transactions."
(2) The Company anticipates gross proceeds from the Unit Offering of $175.0
million. The estimated value of the Warrants ($15.2 million) has been
reflected as both a debt discount and an element of additional paid-in
capital.
(3) 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.
(4) Consists of Common Stock, $.001 par value per share: 100,000,000 shares
authorized; historical combined -- 10,013,055 shares issued and
outstanding; pro forma -- 30,086,498 shares issued and outstanding; pro
forma as adjusted -- 54,086,498 issued and outstanding.
(5) Consists of Telecom common stock, $.001 par value per share: 60,000,000
shares authorized; historical combined -- 18,114,135 shares issued and
outstanding; pro forma and pro forma as adjusted -- no shares issued and
outstanding.
26
<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 three months ended March 31, 1996 and for the
year ended December 31, 1995 and the unaudited historical combined financial
data presented below as of December 31, 1995 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 three months ended March 31, 1996
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>
YEAR ENDED DECEMBER 31, 1995 THREE MONTHS ENDED MARCH 31, 1996
----------------------------------------------------- ---------------------------------
HISTORICAL PRO FORMA AS HISTORICAL
COMBINED (1) PRO FORMA (2) ADJUSTED (3) COMBINED (1) PRO FORMA (2)
-------------- ----------------- ------------------ -------------- -----------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenue............ $ 5,793 $ 5,793 $ 5,793 $ 9,620 $ 9,620
Non-cash compensation
expense..................... 1,089,605 1,089,605 1,089,605 7,221,000 7,221,000
Depreciation and
amortization................ 15,684 15,684 5,418,452 89,279 89,279
Interest, net................ 121,986 1,974,275 23,931,008 131,145 528,739
Net loss..................... 3,234,843 5,087,132 30,609,692 10,694,588 11,092,182
Pro forma net loss per share
of Common Stock (4)......... -- $ 0.16 $ 0.55 -- $ 0.35
Pro forma weighted average
number of shares of Common
Stock outstanding (4)....... -- 31,651,605 55,651,605 -- 31,651,605
OTHER FINANCIAL DATA:
EBITDA (5)................... $ (1,936,141 ) $ (1,936,141 ) $ (1,936,141 ) $ (2,156,893 ) $ (2,156,893 )
Capital expenditures......... 3,585,144 3,585,144 3,585,144 2,861,241 2,861,241
Ratio of earnings to fixed
charges (6)................. -- -- -- -- --
<CAPTION>
PRO FORMA AS
ADJUSTED (3)
------------------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenue............ $ 9,620
Non-cash compensation
expense..................... 7,221,000
Depreciation and
amortization................ 1,439,971
Interest, net................ 5,989,300
Net loss..................... 17,444,199
Pro forma net loss per share
of Common Stock (4)......... $ 0.31
Pro forma weighted average
number of shares of Common
Stock outstanding (4)....... 55,651,605
OTHER FINANCIAL DATA:
EBITDA (5)................... $ (2,156,893 )
Capital expenditures......... 2,861,241
Ratio of earnings to fixed
charges (6)................. --
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF MARCH 31, 1996
DECEMBER 31, 1995 --------------------------------------------------
HISTORICAL HISTORICAL PRO FORMA AS
COMBINED (1) COMBINED (1) PRO FORMA (2) ADJUSTED (3)
------------------ ------------- ---------------- -----------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital surplus (deficit)....... $ (3,008,510) $(1,128,130) $ 1,116,870 $ 214,516,870
Property and equipment, net............. 3,581,561 6,380,895 6,380,895 6,380,895
FCC licenses............................ 4,235,734 4,235,734 4,235,734 216,110,734
Total assets............................ 9,876,559 15,036,337 20,432,236 448,589,961
Short term debt......................... -- -- 2,975,000 --
Long-term debt, including current
portion................................ 6,450,000 5,483,082 7,394,521 163,211,439
Deficit accumulated during the
development stage...................... (3,370,057 ) (14,064,645 ) (14,064,645 ) (15,106,563 )
Total stockholders' equity (deficit).... (312,860 ) 5,339,738 5,849,198 230,675,005
</TABLE>
27
<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 March 31, 1996 and for the three months ended March 31, 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 THREE MONTHS ENDED
TO -------------------------------------- --------------------------------
DECEMBER 31, 1993 DECEMBER 31, 1994 DECEMBER 31, 1995 MARCH 31, 1995 MARCH 31, 1996
------------------- ------------------ ------------------ --------------- ---------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Operating revenue......... $ -- $ 137,489 $ -- $ -- $ --
Depreciation and
amortization............. 688 8,281 10,378 -- 2,595
Net loss.................. $ 6,594 $ 128,620 $ 1,267,655 $ 41,753 $ 3,654,775
Pro forma net loss per
share of Common Stock
(4)...................... -- -- $ 0.04 -- $ 0.12
Pro forma weighted average
number of shares of
Common Stock outstanding
(4)...................... -- -- 31,651,605 -- 31,651,605
OTHER FINANCIAL DATA:
EBITDA (5)................ $(5,906) $(115,964 ) $(1,151,699 ) $(40,878 ) $(3,582,833 )
Capital expenditures...... -- 5,175 -- -- --
Ratio of earnings to fixed
charges (6).............. -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31, MARCH 31,
----------------------------------------------------------- ---------------
1993 1994 1995 1996
------------------- ------------------ ------------------ ---------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital surplus (deficit)......... $ 13,958 $ (76,556) $ (976,563) $ (494,630)
Property and equipment, net............... -- 3,448 1,723 1,292
FCC licenses.............................. -- -- 8,913 8,913
Total assets.............................. 74,513 42,611 5,784,624 3,281,788
Long-term debt, including current
portion.................................. -- -- 4,950,000 --
Redeemable Preferred Stock................ -- -- 44,930 44,930
Deficit accumulated during the development
stage.................................... (6,594 ) (135,214 ) (1,402,869 ) (5,057,644 )
Total stockholders' equity (deficit)...... 54,542 (39,078 ) (404,481 ) 2,736,258
</TABLE>
28
<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 as of and for
the three months ended March 31, 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) THREE MONTHS
TO ENDED
DECEMBER 31, 1995 MARCH 31, 1996
------------------ ------------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenue............................................................ $ 5,793 $ 9,620
Non-cash compensation expense................................................ 1,089,605 7,221,000
Depreciation and amortization................................................ 5,306 86,684
Net loss..................................................................... $ 2,981,073 $ 10,666,383
OTHER FINANCIAL DATA:
EBITDA....................................................................... $ (1,798,327) $ (2,156,794)
Capital expenditures......................................................... 3,585,144 2,861,241
Ratio of earnings to fixed charges (6)....................................... -- --
<CAPTION>
AS OF AS OF
DECEMBER 31, MARCH 31,
1995 1996
------------------ ------------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital surplus (deficit)............................................ $(2,031,947) $ (633,500 )
Property and equipment, net.................................................. 3,579,838 6,379,603
FCC licenses................................................................. 4,226,821 4,226,821
Total assets................................................................. 9,830,615 15,254,980
Long-term debt............................................................... 6,500,000 5,483,082
Deficit accumulated during the development stage............................. (2,981,073 ) (13,647,456 )
Total stockholders' equity (deficit)......................................... (119,922 ) 5,560,881
</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 Other
Financial Data and as of the balance sheet date for the Balance Sheet Data:
(i) the March 8, 1996 issuance of the Bridge Notes in connection with the
Bridge Financing; (ii) the receipt of $2.2 million in cash proceeds from
the issuance of the Equipment Note and Indemnity Warrants in connection
with the Equipment Financing, after deducting related fees and expenses of
$225,000, (iii) the receipt of $3.0 million in cash proceeds from the
issuance of the CommcoCCC Notes and CommcoCCC Warrants in connection with
the CommcoCCC Financing, (iv) the Conversion and (v) the Merger, including
the issuance of ART Common Stock to Telecom stockholders and the
cancellation of all outstanding Telecom 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 Other Financial
Data and as of the balance sheet date for the Balance Sheet Data: (i) the
sale by the Company of 7,500,000 shares of Common Stock offered in the
Common Stock Offering based on an assumed initial public offering price of
$9.00 per share and the Units offered in the Unit Offering assuming $175.0
million of gross proceeds, and, in each case, after deducting the estimated
underwriting discount and offering expenses, (ii) the receipt and
application of the net proceeds therefrom to repay the Bridge Notes and the
CommcoCCC 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 and (iii) the issuance of 16,500,000 shares of Common Stock based upon
an assumed value of $9.00 per share in connection with the CommcoCCC
Acquisition. See "Use of Proceeds."
29
<PAGE>
(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 Conversion, the Merger 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 $9.00 per share. In measuring the dilutive effect, the
treasury stock method was used.
(5) EBITDA means loss before interest expense, income tax expense, depreciation
and amortization expense, non-cash compensation expense and non-cash market
development expense. Information with respect to EBITDA is included herein
because a similar measure will be used in the Indenture with respect to the
computation of certain covenants. EBITDA is not intended to represent cash
flows from operating activities, as determined in accordance with generally
accepted accounting principles, nor has it been presented as an alternative
to operating income as an indicator of operating performance and should not
be considered as a substitute for measures of performance prepared in
accordance with generally accepted accounting principles.
(6) For the purposes of determining earnings coverage of fixed charges, net
losses include fixed charges representing interest expense on all
indebtedness (including the amortization of deferred debt issuance costs
and original issue discount). For the purposes of the pro forma combined
information, fixed charges include interest expense from the Bridge
Financing, the Equipment Financing and the CommcoCCC Financing (including
the amortization of deferred debt issuance costs and original issue
discount) and the reversal of interest expense on the Advent Notes that
were converted into Telecom Series E preferred stock. For the purposes of
the Pro Forma As Adjusted information, fixed charges include interest on
the Notes (including the amortization of deferred debt issuance costs and
original issue discount) at an effective interest rate of 15.2%, offset by
the reversal of interest expense on the Bridge Notes and the CommcoCCC
Notes (including the amortization of deferred debt issuance costs and
original issue discount) which are assumed to be repaid out of the proceeds
therefrom. If the interest rate on the Notes were to change by 0.5%,
interest expense would change by approximately $765,000 and $191,250 for
the year ended December 31, 1995 and for the three months ended March 31,
1996, respectively. Earnings were deficient to cover fixed charges by the
following amounts for the periods indicated:
<TABLE>
<S> <C>
The Company -- Historical Combined and Pro Forma
Three months ended March 31, 1996
Historical combined.............................................................. $10,694,588
Pro forma........................................................................ 11,092,182
Pro forma as adjusted............................................................ 17,903,435
Year ended December 31, 1995
Historical combined.............................................................. 3,234,843
Pro forma........................................................................ 5,087,132
Pro forma as adjusted............................................................ 32,446,633
ART -- Historical
Three months ended March 31, 1996................................................ 3,654,775
Three months ended March 31, 1995................................................ 41,753
Year ended December 31, 1995..................................................... 1,267,655
Year ended December 31, 1994..................................................... 128,620
August 23, 1993 (date of inception) to December 31, 1993......................... 6,594
Telecom -- Historical
Three months ended March 31, 1996................................................ 10,666,383
March 28, 1995 (date of inception) to December 31, 1995.......................... 2,981,073
</TABLE>
30
<PAGE>
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 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 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 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 net
losses and negative operating cash flow will increase as the Company implements
its growth strategy and that under its current business plan,
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net losses and negative operating cash flow will continue for at least the next
several years. 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 March 31, 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
$6.5 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 March 31, 1996 of approximately $14.1 million, including
$9.4 million of non-cash compensation and marketing expenses and used cash in
operating activities of approximately $3.1 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 16,500,000 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 an aggregate of $3.5 million for research and development
activities and other investment upon the consummation of currently anticipated
agreements with American Wireless, QuestTV and Helioss. 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.
The Company is exploring the possibilities of providing its wireless
broadband services in other countries including Canada and in Europe. The
Company has entered into agreements with certain consultants and potential
partners to identify foreign opportunities and expects to file applications for
licenses or to acquire 38 GHz licenses in several European countries. There can
be no assurance that the Company can acquire such licenses or develop and
operate such systems.
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 this Prospectus, 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 March 31, 1996, the Company has incurred aggregate expenses of
approximately $14.2 million, including $9.4 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 net interest
expenses related to building the Company's business infrastructure and marketing
its wireless broadband services. 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."
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THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO MARCH 31, 1995
Revenue for the three months ended March 31, 1996 was $9,620 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 $10.6 million for the three
months ended March 31, 1996 compared to $40,878 in 1995. The increase was
primarily due to $7.2 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.
Interest expense was $174,416 for the three months ended March 31, 1996
compared to $875 in 1995. The increase in interest expense was primarily due to
interest on the EMI Note and the Bridge Notes. Interest expense in the second
quarter of 1996 will increase primarily due to a full quarter of interest
expense on the Bridge Notes and also due to the Equipment Note executed in April
1996, and the issuance of the Notes will cause interest expense to increase
substantially in future periods. The write-off of unamortized offering discount
and deferred finance costs associated with the Bridge Notes is expected to
result in a non-cash extraordinary loss of approximately $1.0 million upon
repayment at the closing of the Offerings.
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.
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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
March 31, 1996, the Company used $3.1 million of cash in its operating
activities and $7.3 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 $1.1 million and cash of
$3.0 million at March 31, 1996. Subsequent to March 31, 1996, the Company raised
$2.2 million in cash (net of expenses) from the Equipment Financing and $3.0
million in cash from the CommcoCCC 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 $15.0 million at March 31, 1996. Property
and equipment, net of accumulated depreciation, comprised $3.6 million of total
assets at December 31, 1995 and $6.4 million at March 31, 1996. FCC licenses and
the investment in the ART West Joint Venture increased to $4.5 million at
December 31, 1995 and March 31, 1996, as compared to $0.0 at December 31, 1994.
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 $1.5 million for the three
months ended March 31, 1996 compared to $49,212 for the three months ended March
31, 1995. The increase was primarily due to higher operating costs. Cash used in
investing activities was approximately $3.1 million for the three months ended
March 31, 1996 compared to $0.0 for the three months ended March 31, 1995. The
increase was due to additions to property and equipment. Cash provided by
financing activities increased to $6.9 million in the three months ended March
31, 1996 compared to $44,334 for the three months ended March 31, 1995. The
increase was primarily due to the private equity placement with Ameritech and
the Bridge Notes.
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
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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 entered into an agreement with American Wireless to fund
$700,000 to $1.0 million of research and development costs related to wireless
transmission equipment. Vernon L. Fotheringham, the Chairman of the Company, is
a director and a 6% shareholder of American Wireless. The Company will receive a
first right of refusal on production capacity and a license fee in exchange for
its funding. 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. The Company has
also entered into a letter of intent to invest $1.5 million in QuestTV (as
defined), a provider of video and data transmission and storage services. See
"Certain Transactions -- American Wireless Development Agreement" and "--
QuestTV Investment." 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
or 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 $100.0
million through December 31, 1997. The Company currently expects capital
expenditures through December 31, 1997 to consist of approximately $65.0 million
for wireless transmission equipment, approximately $20.0 million for network
design and development and related equipment and approximately $15.0 million for
computer equipment and other related capital. Included in these amounts are the
costs of initial construction of all owned and managed authorizations, estimated
to be less than $5.0 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. The Company expects that capital expenditures for
wireless transmission equipment will be largely variable with market demand,
increasing over the remainder of 1996 and the next several years as demand for
the Company's 38 GHz services increases in the targeted geographic markets and
industry segments. 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 16,500,000 shares of Common Stock. CommcoCCC has entered into a
management agreement with the Company under which the Company will construct,
manage and operate the authorization to be acquired pending consummation of the
CommcoCCC Acquisition. If the Company does not consummate the CommcoCCC
Acquisition, the Company expects that approximately 25% of its expected capital
expenditures through 1997 would be deferred until later years and incurred in
the Company's other markets. See "Business -- Agreements Relating to Licenses
and Authorization -- CommcoCCC Acquisition."
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
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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.
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 Offerings after the use of $8.0 million
to repay existing indebtedness and $9.6 million to complete pending acquisitions
and the proceeds of the Credit Facility (as defined), if consummated, will be
sufficient to fund the operations of the Company for at least the next two
years. See "Description of Certain Indebtedness." 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 seek additional sources of
financing. 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 for at least the next two years, (iii) the Company fails to consummate
the Credit Facility or (iv) the Company completes any material acquisitions,
other than those now under contract or buys spectrum at auction, the Company may
be required to seek additional financing sooner than currently anticipated.
There can be no assurance that the Company will be able 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 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, the Notes and the Warrants and may limit the Company's ability to
make principal and interest payments on its indebtedness.
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 37.0 to 40.0 gigahertz portion of the radio spectrum ("38
GHz"). 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 granted by the Federal Communications Commission
("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
proliferation of local area networks ("LANs"), rapid growth of Internet
services, rising demand for video teleconferencing and other demand factors are
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, are 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 FCC-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 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 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").
Beginning in the late 1980s, CAPs emerged to compete with LECs by providing
dedicated private line transmission and access services. CAP 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 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 CAPs
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' revenues will
grow in excess
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of 150% per year over the next two years. In addition to CAPs, 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.
38 GHZ TECHNOLOGY
The FCC has allocated fourteen 100 MHz channels between 38.6 GHz and 40.0
GHz for wireless broadband transmissions and has allocated the 37.0-38.5 GHz
band to wireless broadband transmissions (the 37.0-38.5 GHz band and the
38.6-40.0 GHz band are collectively referred to as "38 GHz"), which enable the
licensee to provide point-to-point services within a specified geographic
footprint usually of up to a 50-mile radius.
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 megabits per second
("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 the immediately addressable
market in its market areas.
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- 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 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 following frequency coordination, which
in total can take from three to five months.
- EASE OF INSTALLATION. The equipment used for point-to-point applications
in 38 GHz (I.E., antennae, transceivers and digital interface units) is
smaller, less obtrusive and less expensive than that used for microwave
equipment applications at lower frequencies, making it less susceptible to
zoning restrictions. In addition, 38 GHz equipment can be easily
redeployed to meet changing customer requirements.
- 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. Finally, 38 GHz has characteristics which
provide better signal quality and performance in inclement weather than
those offered in other portions of the radio spectrum.
THE ART SOLUTION
The Company is positioned to solve the need for broadband last mile access,
linking end users to fiber optic based facilities of CAPs and other
telecommunications service providers without the need to deploy fiber all the
way to end users' premises. The Company provides point-to-point wireless digital
circuits ranging in capacity from DS-1 (capable of carrying 24 simultaneous
voice conversations at 1.544 Mbps) to DS-3 (capable of carrying 672 simultaneous
voice conversations at 45 Mbps). 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 under conditions of no path fading equates to less than six minutes
of down-time compared to a range of four hours to 44 hours of historical
performance of similar copper-based LEC circuits. In addition, the Company
believes that ART's last mile solution is competitively priced with most
broadband wireline solutions.
The Company's initial target customers include CAPs, IXCs, cellular and
mobile radio service providers and ISPs. The Company's services may also be
attractive to certain LECs which do not currently have broadband networks that
reach the majority of their customers. The Company has entered into a strategic
distribution agreement with 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. See "-- Strategic Alliances
- -- Ameritech Strategic Distribution Agreement."
The Company believes that the following factors provide it with certain
significant competitive advantages in offering broadband last mile access,
including:
- The characteristics of 38 GHz technology (high data transfer rates,
significant channel capacity, rapid deployment, easy installation and
efficient network design) are ideal for the provision of last mile access.
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<PAGE>
- The Company minimizes its initial capital expenditures because of the
installation-to-meet-demand and redeployable nature of the Company's
wireless broadband equipment, as compared to the significant cost and
expense of installation of fiber based networks.
- As one of the first 38 GHz service providers, the Company is
well-positioned to capture a large percentage of early adopters, which are
generally among the heaviest users.
- The Company's industry relationships should enable it to forge strategic
alliances with other carriers, equipment vendors and technology
development companies, thus gaining access to important channels of
distribution and early deployment of advanced technologies.
- The scope of the Company's market area enables it to offer wireless
broadband services targeting much of the United States's addressable
business market.
As regulatory and competitive conditions permit, the Company's market focus
will evolve from a wholesale "carrier's carrier" orientation to the retail
provision of services directly to government and commercial end-user customers
of telecommunications services. The Company will focus on its initial wholesale
"carrier's carrier" strategy at least through the first half of 1997. At that
time, the Company anticipates it will have developed its customer base and
market presence to a level that will enable the Company to expand its direct
sales efforts. At the same time, the Company anticipates it will commence the
development of switched services to expand the Company's service offerings both
geographically and demographically, to business and residential customers,
offering a wider array of voice, data, Internet and multimedia services,
depending on further advances in wireless technology.
BUSINESS STRATEGY
ART began providing 38 GHz wireless broadband services in the fourth quarter
of 1995 and has generated only nominal revenues from such services to date. 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
of telecommunications services. The Company plans to implement the following
strategic initiatives to achieve this objective:
- EXPLOIT SPECTRUM POSITION IN KEY MARKETS. Upon completion of its pending
acquisition of the CommcoCCC Assets, 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 authorizations (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. The Company has agreed to acquire all of the authorizations
which it currently manages but does not own. These spectrum assets provide
the Company with the foundation on which to create a large scale commercial
system of 38 GHz wireless broadband operations. As of June 28, 1996, the
Company was operating revenue-generating wireless broadband links in 15
cities. 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." The Company may seek to acquire additional
spectrum rights in new and existing markets in order to expand its
geographic footprint or enhance its services.
- MARKET INITIALLY AS A CARRIER'S CARRIER. The Company's initial target
customers include CAPs, IXCs, cellular and mobile radio service providers
and ISPs. The Company's wireless broadband services enable CAPs to extend
their broadband services to locations where it is either not cost-efficient
or too difficult to extend their fiber optic network due to physical
limitations, franchise fees or other restrictions. The Company's services
may also be attractive to certain LECs, which generally do not currently
have broadband networks capable of reaching the majority of their
customers. All telecommunications service providers can use the Company's
services as alternate
40
<PAGE>
or redundant routes to increase network reliability. 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. The Company currently provides services to Ameritech, Bell Atlantic
NYNEX Mobile, UUNet, Electric Lightwave, NEXTLINK, American Personal
Comunications, American Show Management, Capital Area Internet Service,
Brooks Fiber Communications and Western Wireless, among others. See "--
Customers and Applications." As regulatory and competitive conditions
permit and as the Company's customer base and market presence develop, the
Company expects that its market focus will expand from a wholesale
"carrier's carrier" to include provision of services directly to commercial
end users.
- PURSUE OPPORTUNITIES TO PROVIDE VALUE-ADDED SERVICES. The Company has
identified and plans to pursue additional market niches with immediate
needs for reliable, high bandwidth last mile access services. For example,
the market for Internet services urgently requires broadband "pipes" to
facilitate high speed access for corporate users. The amount of time it
takes to download graphics and images from the Internet to personal
computers over dial-up copper circuits hinders demand for the Internet. For
example, a 38 GHz DS-1 circuit (1.544 Mbps), 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 (128 Kbps).
Alternatively, one 38 GHz DS-3 link at 45 Mbps can currently transfer data
at a rate that 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
ISDN line currently in use (128 Kbps). Each of the Company's DS-3 links can
support 28 DS-1 circuits per channel. The Company is pursuing agreements to
package its 38 GHz solutions with the services of leading ISPs. Other
potential value-added uses include desktop videoconferencing, high
resolution imaging for healthcare and law enforcement applications and
video on demand. The Company may also decide to offer switched-based
services to end users who desire a single source telecommunications
solution.
- MAINTAIN TECHNOLOGY LEADERSHIP IN SPECTRUM MANAGEMENT. The Company is
currently developing proprietary site selection and network design software
which it believes will provide for faster site development at a lower cost.
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 is seeking to achieve a competitive
advantage through proprietary methods designed to increase the capacity and
quality of its networks.
- ESTABLISH AND EXPAND KEY STRATEGIC ALLIANCES. The Company has established
and will seek to continue to establish key strategic alliances with major
service providers, equipment manufacturers, systems integrators and
enhanced service providers. Ameritech owns a 5.5% beneficial equity
interest in the Company as of June 28, 1996 (4.3% after giving effect to
the Common Stock Offering) and entered into the Ameritech Strategic
Distribution Agreement in April 1996. 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. In addition, the Company is seeking to
develop relationships with a number of equipment manufacturers focusing on
38 GHz technology development, wireless broadband standards and joint sales
efforts. 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. See
"-- Strategic Alliances."
WIRELESS BROADBAND SERVICES
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 (capable of carrying 24 simultaneous voice conversations at 1.544
Mbps) to DS-3
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<PAGE>
(capable of carrying 672 simultaneous voice conversations at 45 Mbps). 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 78 markets to be acquired
under the CommcoCCC Agreement.
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 moisture conditions), (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 (where
roof rights have been previously obtained), (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 from GTE in most
circumstances and (x) optional "hot" standby links that remain powered up and
switch "on line" if the primary link fails.
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 supplied principally by P-Com, Inc. ("P-Com") and are installed primarily on
rooftops and on other tall structures. 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 network
sites. In coordination with its marketing plans, the Company will dispatch site
acquisition specialists to such locations to obtain renewable options. The
Company intends to use a combination of its own employees and independent
contractors for site acquisition.
CUSTOMERS AND APPLICATIONS
The Company introduced its wireless broadband services in November 1995 and
began marketing its services in January 1996. The Company has generated only
nominal revenues from its operations to date. Currently, the Company is
providing or has received orders to provide carrier's carrier wireless broadband
services to CAPs, a LEC, ISPs, cellular and mobile carriers and, several IXCs,
and is in the process of becoming a qualified vendor to all the major IXCs. The
Company currently provides services to Ameritech, Bell Atlantic, NYNEX Mobile,
UUNet, Electric Lightwave, NEXTLINK, American Personal Communications, American
Show Management, Capital Area Internet Service, Brooks Fiber Communications and
Western Wireless, among others. As of June 28, 1996, the Company was operating
revenue-generating wireless broadband links in 15 cities.
The Company currently provides, or anticipates providing, wireless broadband
services to the following types of customers, among others:
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<PAGE>
COMPETITIVE ACCESS PROVIDERS AND LOCAL EXCHANGE CARRIERS. Currently, CAPs
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
generally target densely populated areas with high concentrations of large
end-users. In order to reach "off-net" customers, CAPs must either lease or
purchase facilities and services from LECs or alternative suppliers until such
time as it becomes economical to extend the CAP fiber networks to these
customers.
CAPs face certain implementation obstacles that the Company's wireless
broadband services can assist in solving. CAPs 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 can utilize the
Company's wireless broadband services as an alternative to copper, fiber-based
or other such network facilities provided to the CAPs 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.
The Company anticipates that LECs will encounter many of the same obstacles
CAPs are encountering in seeking to enhance their networks to deliver broadband
services. The Company also believes that LECs will seek to utilize 38 GHz
technology to expand the range of their service offerings to match those offered
by CAPs. 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 consumers and the lack of high capacity access through local
telephone company facilities has created a growing market for ART's wireless
broadband services. The Company offers Internet service providers 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 customer growth.
The Company provides wireless broadband links between customers and their ISP
providers 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]
44
<PAGE>
MOBILE COMMUNICATIONS SERVICE PROVIDERS. ART's wireless broadband services
can 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 can give domestic mobile carriers a
competitive edge in building or expanding their networks through reduced
construction time and installation costs.
[GRAPHIC]
45
<PAGE>
INTER-EXCHANGE CARRIERS. To minimize costly LEC access charges and to gain
more direct contact with the consumer, IXCs can 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 can also 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 can 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]
46
<PAGE>
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 transmission and real time communications services
by linking customer computers in local, metropolitan and wide area
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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<PAGE>
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]
MARKETING PLANS
In January 1996, the Company commenced implementation of its marketing
program. The Company is addressing its initial target markets as a carrier's
carrier, while building the internal capability to expand 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 CAPs, LECs, ISPs, IXCs,
interconnect providers (PBX suppliers), LAN, MAN and WAN systems integrators and
other telecommunications equipment manufacturers and service providers.
The Company's internal salesforce is currently marketing the Company's
wireless broadband services by (i) performing field demonstrations of 38 GHz
service, (ii) making presentations at industry trade shows, (iii) providing an
interactive Internet home page, (iv) running promotional advertisements in
selected trade media and (v) conducting extensive one-on-one presentations and
demonstrations through its direct sales force with major telecommunications
service providers and end users of telecommunications services.
The Company currently expects to price its services on a monthly flat-rate
non-distance sensitive basis. As a non-dominant carrier, ART does not have to
cost-justify its rates to regulatory bodies and usually has a wide latitude in
changing customer-specific rates. As a result, ART expects to enter into
customer 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
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<PAGE>
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.
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. Authorizations
for facilities that are not constructed are referred to in this Prospectus as
"construction permits"; authorizations for facilities that are constructed are
referred to in this Prospectus as "licenses". 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 authorizations (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.
The table below lists, for the top 100 U.S. markets, 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
MARKET OWNED MANAGED(1) TO 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>
49
<PAGE>
<TABLE>
<CAPTION>
BANDWIDTH COVERED BY AUTHORIZATIONS (MHZ)
--------------------------------------------------------
UNDER
DEFINITIVE
AGREEMENT
MARKET OWNED MANAGED(1) TO 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
Tuscon, 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>
50
<PAGE>
<TABLE>
<CAPTION>
BANDWIDTH COVERED BY AUTHORIZATIONS (MHZ)
--------------------------------------------------------
UNDER
DEFINITIVE
AGREEMENT
MARKET OWNED MANAGED(1) TO 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 NPRM 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 its 31 construction permits (exclusive of the CommcoCCC
Assets), the Company must complete construction of facilities for the majority
of such construction permits between mid-August and mid-September 1996. Under
the terms of the CommcoCCC authorizations and the Company's management agreement
with CommcoCCC, the Company must complete construction of facilities for eight
construction permits by mid-September 1996, 39 construction permits by December
1996 and the remaining 82 construction permits between mid-April and mid-August
1997. The Company has begun installing the number of links required to complete
construction and currently expects it will meet the FCC deadlines. However, the
FCC may impose more stringent construction requirements, as it has proposed to
do in the NPRM, which may jeopardize the status of the Company's authorizations.
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.
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<PAGE>
AGREEMENTS RELATING TO LICENSES AND AUTHORIZATIONS
COMMCOCCC ACQUISITION. On July 3, 1996, the Company entered into an
agreement (the "CommcoCCC Agreement") to acquire 129 38 GHz wireless broadband
authorizations (the "CommcoCCC Assets") from CommcoCCC, Inc. (the "CommcoCCC
Acquisition") in exchange for 16,500,000 shares of Common Stock. 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,
receipt by CommcoCCC of an opinion as to the tax-free nature of the transaction,
consummation of the Offerings 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 particular, to
obtain FCC approval, the Company will need to make certain "anti-trafficking"
showings 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 may be terminated by
CommcoCCC if the Offerings are not completed within 90 days of the date of the
CommcoCCC Agreement or by either party if the CommcoCCC Acquisition is not
consummated within one year of the date of the CommcoCCC Agreement. See "Risk
Factors -- Risk of Non-Consummation of CommcoCCC Acquisition."
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
September 30, 1996 pursuant to a subordinated bridge financing facility (the
"CommcoCCC Financing") and, in connection therewith, received three-year
warrants to purchase 50,000 shares of Common Stock at a price of $15.00 per
share (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. If the CommcoCCC Financing is not paid in full when
due, the unpaid principal and interest could be converted into Common Stock on a
formula basis at the option of the holders. The CommcoCCC Financing will be
repaid with the proceeds of the Offerings.
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 Common Stock 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 approximately 2,600,000 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
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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 equal to two times the principal amount of the note.
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 has 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.
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.
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 agreed to transfer 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"), subject to FCC approval. 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 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."
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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 Offerings 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.
DCT SYSTEM PURCHASE AGREEMENTS. On July 1, 1996 the Company entered into a
definitive agreement (the "DCT Agreement") with DCT to acquire DCT's interest in
certain 38 GHz licenses (the "DCT Systems") in exchange for $3.6 million in
cash, subject to FCC approval, consummation of the DCT Agreement by September 1,
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. 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 is currently completing the initial construction
requirements of the DCT Systems and expects such construction to be completed in
the third quarter of 1996.
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 agreed to construct, 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. 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.
TELECOM ONE PURCHASE AGREEMENT. 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 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.
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. Under the 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
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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 will purchase software and centralize its network
management functions to reduce costs and increase reliability. 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 $2.4 million and an annual maintenance support fee of
approximately $300,000. 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."
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, innovative telecommunications platforms 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
also entered into a letter of intent with American Wireless Corporation
("American Wireless") providing for the funding by the Company of $700,000 to
$1.0 million for research and development. In consideration of such funding, the
Company will have a first right to purchase American Wireless' production
capacity of the new radios for a period of 18 months from the date of the first
order and will receive a per-unit fee on radios sold by American Wireless to
third parties, and the Company will have no other rights to any technology
developed. See "Certain Transactions -- American Wireless Development
Agreement." This arrangement is subject to definitive documentation. The Company
has entered into a
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non-binding arrangement with QuestTV providing for an investment of $1.5 million
in the development of a nationwide network of franchises offering retail access
to sophisticated video data transmission and storage technology. See "Certain
Transactions -- QuestTV Investment."
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 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, and the Company will have no other
rights to any technology developed.
Through June 15, 1996, the Company has incurred approximately $600,000 of
research and development expenses under such arrangements. There can be no
assurance that the Company can complete definitive agreements with any of such
companies or that such companies 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.
FOREIGN MARKETS
The Company is exploring the possibilities of providing its wireless
broadband services in other countries including Canada and in Europe. Pursuant
to a consulting agreement, the Company has retained the services of Trond
Johannessen for a period of two years to assist the Company in the exploration
of foreign opportunities, including the acquisition of wireless broadband
licenses and identification of local operating partners. In addition to payments
of $6,500 per month to Mr. Johannessen, Mr. Johannessen will be entitled to
purchase, on the same terms as the Company, up to 20% of the equity of any
entity formed to exploit any such opportunities. The Company has entered into a
letter of intent with Advantage Telecom, Inc. ("ATI"). ATI has received an
experimental license to provide 38 GHz services in Vancouver, British Columbia
and intends to seek authority to provide 38 GHz services in other major markets
in Canada whenever Canadian regulators adopt appropriate policies. The letter of
intent anticipates that the Company would provide initial funds and services to
ATI in amounts to be determined. There can be no assurance that the Company can
acquire such licenses or develop and operate such systems.
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 may also compete
with CAPs, 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, 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
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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.
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.
OTHER COMPETITORS. The Company may compete with CAPs for the provision of
last mile access and additional services in most of its market areas. However,
the Company believes that many CAPs 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. However, there can
be no assurance that CAPs will utilize the Company's 38 GHz services or that
CAPs will not seek to acquire their own 38 GHz licenses or use the 38 GHz
licenses of other licensees. Furthermore, the ability of CAPs to compete in the
local exchange market is limited by regulations relating to number portability,
dialing parity and reasonable interconnection. The Telecommunications Act
requires the FCC and the states to implement regulations that place CAPs on a
more equal competitive footing with LECs. To the extent these changes are
implemented, CAPs may be able to compete more effectively with LECs. However,
there can be no assurance that CAPs 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
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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 and from wireless cable
providers and other service providers operating in frequencies other than 38
GHz.
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 complete
construction of such facilities within 18 months of the date of grant of the
authorization (authorizations for facilities that are not constructed are
referred to in this Prospectus as "construction permits" and authorizations for
facilities that are constructed are referred to in this Prospectus as
"licenses"). Upon completion of construction, the licensee is required to
certify that the station is operational and ready to provide services to the
public. Although, under current FCC regulations, the term "operational" is not
defined, the industry custom is to establish at least one link
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between two transceivers in each market area for which it holds a construction
permit. In the event that the recipient fails to comply with the construction
deadline, the construction permit is subject to forfeiture, absent an extension
of the deadline. Effective August 1, 1996, the Company will not be required to
file a form with the FCC certifying that its station is operational (i.e. that
construction is completed); however, the licensee will still be required to
complete construction within 18 months of the date of grant of the
authorization. In addition, effective August 1, 1996, a station will be
operational when construction is complete and the station is capable of
providing service. 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 authorizations (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. Of the
108 authorizations (exclusive of the CommcoCCC Assets) which the Company owns or
manages, 77 are licenses. Under the terms of its remaining 31 construction
permits, the Company must complete construction of facilities for the majority
of such authorizations between mid-August and mid-September 1996, but it expects
to complete construction of all such construction permits by the beginning of
August 1996. Under the terms of the CommcoCCC authorizations and the Company's
management agreement with CommcoCCC, the Company must complete construction of
facilities for eight construction permits by mid-September 1996, 39 construction
permits by December 1996 and the remaining 82 between mid-April and August 1997.
The Company believes that, in light of current FCC practice, extensions of
construction periods are highly unlikely. 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, and it may install and operate non-radio facilities
for the transmission of interstate communications without prior FCC or state
authorization.
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.
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FCC REPORTING. The Company, as an operator of millimeter wave radio
facilities, is 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 has fully complied with its
reporting obligation. Effective August 1, 1996, the FCC rules will not require
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 increased
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 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 100 MHz channels (which are
similar to those used by the Company) and the lower four 50 MHz channels in the
38 GHz band that have not been previously available for commercial use, (ii) the
continuation of the 100 MHz-based channeling plan and licensing rules for
point-to-point microwave operations in the lower 14 channels, (iii) licensing
frequencies using predefined geographic service areas ("Basic Trading Areas"),
(iv) 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 (v) 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 other yet-to-be licensed portions of the 38 GHz band
with other telecommunications service providers. The implementation of such a
measure could materially affect the Company's ability to provide services to its
customers by imposing power or other limitations upon its existing operations.
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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 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.
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.
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 filed for protection for four service marks: DigiWave (the
Company's wireless broadband trademark), OZ Box (the Company's proprietary
network management interface), ART 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.
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EMPLOYEES
As of June 15, 1996, the Company had a total of 70 employees, including 20
in engineering and field services, 25 in sales and marketing, 13 in
administration and finance, 8 in operations and 4 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 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.
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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........................ 38 Executive Vice President and Chief Financial Officer
W. Theodore Pierson, Jr................ 59 Executive Vice President, Secretary and General Counsel
James D. Miller........................ 53 Senior Vice President, Sales and Marketing
James C. Cook (6)(7)(8)................ 36 Director Designate
J.C. Demetree, Jr. (3)(4)(5)........... 37 Director
Mark C. Demetree (1)(2)................ 39 Director
Andrew I. Fillat (2)(3)(4)............. 48 Director
Matthew C. Gove (2)(4)(5).............. 31 Director
T. Allan McArtor (6)(8)(9)............. 53 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, and
James C. Cook and T. Allan McArtor will be elected to the Board of
Directors. See " -- Board Composition."
(6) These directors have been elected 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) Member of Compensation Committee effective on the date of this Prospectus.
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 OmniTRACS 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
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-
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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 has served as a director
of the Company since its inception and will resign upon completion of the
Merger. For more than five 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. As such, Mr. Pierson has advised a number
of start-up telecommunications companies, including Home Box Office, Satellite
Business Services, Omninet Corporation and DSBC. Mr. Pierson currently serves as
a director of DSBC. Mr. Pierson has also been counsel to the Competitive
Telecommunications Association (the largest association of long distance
carriers) and the Association for Local Telecommunications Services for several
years.
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 1987 as a director of Community First Bank and 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: 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 1994, Mr. Gove has been, through Hedgerow Corporation of Maine
("Hedgerow"), a consultant to LHC, specializing in
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domestic and international telecommunications transactions. From 1991 through
1993, he attended the Columbia University Graduate School of Business and worked
as an independent consultant specializing in spreadsheet modeling and financial
analysis. Prior to 1991, he was custodial manager of foreign currency derivative
funds at The Boston Company.
T. ALLAN MCARTOR will become a director of the Company upon the date of this
Prospectus. Since 1995, Mr. McArtor has been chairman and chief executive
officer of Quest Computer Television Company, LLC, an interactive publicly
programmable information network. Since 1994, Mr McArtor has also served as
chairman and chief executive officer of Contrails, LLC, an aviation consulting
firm. From 1992 to 1994, Mr. McArtor served as president of FedEx Aeronautics
Corporation, a wholly-owned subsidiary of Federal Express Corporation ("FedEx").
From 1982 to 1987, he served as senior vice president of the FedEx
Telecommunications Division and from 1989 to 1992 as senior vice president of
air operations at FedEx. From 1987 to 1989, Mr. McArtor was Administrator of the
Federal Aviation Administration. Mr. McArtor currently serves on the board of
directors of Pilkington Aerospace, Inc., a manufacturer of aviation
transparencies for fighter aircraft canopies, aircraft windshields and windows.
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 and 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"), the Landover Stockholders (as
defined in the Stockholders Agreement) have the right to designate four members
of the Board of Directors of the Company and have designated Messrs. Mark C.
Demetree, J.C. Demetree, Jr., Gove and Zimmerman as directors. In addition,
pursuant to the terms of the Stockholders Agreement, the Advent Partnerships (as
defined in the Stockholders Agreement) and Ameritech, as holders of Telecom's
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 Offerings.
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 and T. Allan
McArtor, each of whom is unaffiliated with the Company's present management,
will be elected to the Board. After consummation of the Offerings, 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 Offerings, the
Company's Board of Directors will be divided into
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<PAGE>
three classes, with each class of directors to serve three-year staggered terms
(after their initial terms). Messrs. Comrie and McArtor will be elected as Class
I directors 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 one individual designated by the CommcoCCC stockholders and
acceptable to the Company as a director of the Company.
DIRECTOR COMPENSATION
Upon consummation of the Offerings, 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 April 1996, the Company adopted the Directors Plan (as defined) which
provides for automatic grants of options to purchase an aggregate of 200,000
shares of Common Stock to non-employee directors of the Company. See "-- Stock
Option Plans." Upon consummation of the Offerings, options to purchase an
aggregate of 28,000 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 Offerings, 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 pays
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 Offerings, Messrs. Mark C. Demetree, Fillat,
Fotheringham and McArtor will serve on the Compensation Committee.
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
Offerings, 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
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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 Offerings, Messrs. Cook,
Fillat and McArtor 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) each person serving as an executive
officer of the Company whose salary and bonus exceeded $100,000 (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 $ 97,167 -- -- $ 9,600(1)
Steven D. Comrie, President and Chief Operating
Officer(2) 77,000 -- 756,691 33,200(1)(3)
W. Theodore Pierson, Jr., Executive Vice President 77,500 -- -- 219,600(1)(4)
James D. Miller, Senior Vice President, Sales and
Marketing (2) -- -- 50,000 --
</TABLE>
- ------------------------------
(1) Automobile reimbursement benefits equal to $9,600 in the case of Messrs.
Fotheringham and Pierson, $3,200 in the case of Mr. Comrie and $1,200 in
the case of Mr. Menatti.
(2) Reflects compensation for a partial year. See "-- Employment and Consulting
Agreements."
(3) Represents 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
NUMBER OF PERCENT OF AT ASSUMED ANNUAL RATES OF
SECURITIES TOTAL OPTIONS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION 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 756,691 71.9% $ 0.5907 6/17/05 $ 179,428 $ 427,102
James D. Miller 50,000 4.8% 1.652 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 option prices were determined by the Option
Committee, who 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 expert who
conducted a more thorough analysis of the value of the Company's securities
considering 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 expert.
(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 302,676 454,015 $ 184,420 $ 276,631
James D. Miller 10,000 40,000 -- --
</TABLE>
- ------------------------------
(1) Based on the estimated fair market value of the Company's Common Stock as
of December 31, 1995 of $1.20 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
approved by the stockholders on June 25, 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
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above. A total of 2,500,000 shares of common stock are reserved for issuance
under the Equity Incentive Plan. The maximum number of shares as to which
options or SARs may be granted to any participant in any one calendar year is
800,000. 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 divident
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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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 June 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 may result in an alternative
minimum tax liability to the optionee. With certain
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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. 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 general, in the case of a nonstatutory option the optionee has no taxable
income at the time of grant but realizes 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,
a corresponding deduction is available to the Company, and 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 after 1986 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.
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 756,691 shares of Common Stock at a price of $0.5907
per share. Of the NQSOs, 417,693 are currently exercisable, and 111,990 will
become exercisable on July 17, 1997 and up to an additional 227,008 shares (the
"Additional Shares") will become exercisable on June 17, 2000. The vesting of
NQSOs to purchase 56,752 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,
2003 to purchase 300,000 shares of Common Stock at a price of $6.25 per share.
The NQSOs are subject to vesting over a three-year period, of which 100,000 are
fully vested and currently exercisable. NQSOs to purchase 200,000 shares will
become exercisable on April 26, 1999; however, the vesting of 100,000 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. Mr. Grina's options will be fully
vested, notwithstanding the attainment of performance goals, on April 26, 1999.
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
50,000 shares of Common Stock at a price of $1.652 per share. The NQSOs vest at
a rate of 20% on each anniversary of the date of grant.
THE DIRECTORS PLAN.
On May 30, 1996, the Company adopted the 1996 Non-Employee Directors
Automatic Stock Option Plan (the "Directors Plan"), which provides for the
automatic grant of stock options to non-employee directors to purchase up to an
aggregate of 200,000 shares. Under the Directors Plan, options
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to acquire 6,000 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 the Common Stock 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 7,000 shares of Common Stock.
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 this Prospectus, options to
purchase an aggregate of 28,000 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
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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 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 June 19, 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, in each case, that the Merger has been completed and the
Landover Partnerships have been dissolved.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP AFTER
PRIOR TO OFFERINGS OFFERINGS
------------------------- ----------------------------------
NAME NUMBER PERCENT NUMBER PERCENT
- --------------------------------------------------------- ------------- ---------- -------------------- ------------
<S> <C> <C> <C> <C>
Vernon L. Fotheringham (1)............................... 3,545,063 11.8% 3,545,063 9.4%
W. Theodore Pierson, Jr. (2)............................. 2,455,407 8.2 2,455,407 6.5
High Sky Inc. (3)........................................ 1,748,604 5.8 1,748,604 4.7
Landover Holdings Corporation (4)........................ 8,068,582 26.8 8,068,582 21.4
Advent International Corporation (5)..................... 3,186,238 10.5 3,186,238 8.4
Ameritech Development Corp. (6).......................... 1,677,745 5.5 1,677,745 4.3
Steven D. Comrie (7)..................................... 302,676 1.0 302,676 *
James C. Cook (8)........................................ 133,830 * 140,830(14) *
J.C. Demetree, Jr. (9)................................... 1,055,288 3.5 1,055,288 2.8
Mark C. Demetree (10).................................... 1,055,288 3.5 1,062,288(14) 2.8
Andrew I. Fillat (5)..................................... 3,186,238 10.5 3,193,238(14) 8.4
Matthew C. Gove (11)..................................... 441,753 1.5 441,753 1.2
T. Allan McArtor......................................... 0 * 7,000(14) *
Laurence S. Zimmerman (4)................................ 8,068,582 26.8 8,068,582 21.4
Thomas A. Grina (12)..................................... 100,000 * 100,000 *
James D. Miller (13)..................................... 10,000 * 10,000 *
All executive officers and directors as a group 20,276,045 65.6% 10,816,502(8)(15) 28.2%
(1)(2)(4)(5)(7)(8)(9)(10)(11)(12)(13)(14)...............
</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%.
(1) Includes 104,273 shares of Common Stock subject to an option owned by SERP.
See "Certain Transactions -- SERP Agreement."
(2) Includes 2,455,407 shares of Common Stock issuable upon completion of the
Merger. Also includes 44,694 shares subject to an option owned by SERP. See
"Certain Transactions -- SERP Agreement." 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 1,398,883 and 349,721 shares of Common Stock issuable upon
completion of the Merger to High Sky and High Sky II, respectively. Also
includes 119,171 and 29,796 shares held by High Sky and High Sky II,
respectively, subject to an option owned by SERP. See "Certain Transactions
-- SERP Agreement." High Sky Inc.'s address is c/o Frank S. Phillips
Company, 6106 MacArthur Blvd., Bethesda, Maryland 20816.
(4) Includes 37,500 shares issuable upon exercise of Indemnity Warrants. Does
not include 100,000 shares and 100,000 shares respectively owned by the wife
and a family trust of Laurence S. Zimmerman, respectively, of which shares
LHC and Mr. Zimmerman disclaim beneficial ownership. Does not include
294,489 shares, 1,375,699 shares, 5,276,440 shares and 95,719 shares
issuable upon the Merger held by E1, E2, E2-2 and E2-3, respectively, each a
limited partnership whose general partner is controlled by LHC. Upon the
effectiveness of the Merger, these partnerships will dissolve. Including the
shares owned by such partnerships, LHC beneficially owns 15,310,929 shares
of Common Stock constituting 50.9% of the Company's outstanding securities
prior to the Offerings. LHC is controlled by Laurence S. Zimmerman. LHC's
address is 667 Madison Avenue, New York, New York 10021. See "-- Voting
Trust Agreement."
(5) Includes 2,882,659 shares, 3,029 shares and 141,050 shares issuable upon
the Merger and 151,908 shares, 160 shares and 7,432 shares issuable upon
exercise of Bridge Warrants, respectively owned by Global Private Equity II,
L.P., Advent International II, L.P. and Advent Partners, L.P. (collectively,
the "Advent Partnerships"), each a limited partnership whose general partner
is controlled by Advent International Corp. ("Advent"). Mr. Fillat is a
director, officer and stockholder of Advent. The address of Advent and each
of the Advent Partnerships is 101 Federal Street, Boston, Massachusetts
02110.
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(6) Includes 635,609 shares issuable upon the Merger and 877,136 shares and
165,000 shares issuable upon exercise of the Ameritech Warrant and 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) Includes 302,676 shares currently issuable upon exercise of options. Does
not include 454,015 issuable upon exercise of the non-vested portion of
options. See "Management -- Stock Option Plans."
(8) Includes 140,830 shares beneficially owned by James C. Cook including
22,000 shares issuable upon exercise of Bridge Warrants and 73,542 shares
and 38,288 shares issuable upon the Merger as a limited partner in E-2 and
E2-3, respectively. Mr. Cook will become a director of the Company upon the
date of this Prospectus.
(9) Does not include 154,000 shares issuable upon exercise of Bridge Warrants,
162,500 shares issuable upon exercise of Indemnity Warrants or 4,221,152
shares issuable upon the Merger held in each case by 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.
(10) Does not include 154,000 shares issuable upon exercise of Bridge Warrants,
48,750 shares issuable upon exercise of Indemnity Warrants, 113,750 shares
issuable upon exercise of Indemnity Warrants or 4,221,152 shares issuable
upon the Merger held in each case by members of Mr. Demetree's family (or a
trust for their benefit), of which he disclaims beneficial ownership. Mark
C. Demetree's address is 505 Lancaster Street, #8AB, Jacksonville, FL 32204.
(11) Includes 441,753 shares issuable upon the Merger owned by Hedgerow
Corporation of Maine ("Hedgerow"), which is controlled by Mr. Gove. Does not
include shares owned beneficially by LHC, of which Mr. Gove disclaims
beneficial ownership. Hedgerow from time to time acts as a consultant to
LHC. Mr. Gove's address is 215 West 84th Street, New York, New York 10024.
(12) Includes 100,000 shares currently issuable upon exercise of an option.
(13) Includes 10,000 shares currently issuable upon exercise of an option.
(14) Includes 7,000 shares issuable upon exercise of options anticipated to be
granted under the Directors Plan upon the consummation of the Offerings.
(15) Reflects the resignations of Messrs. J.C. Demetree, Jr., Gove and Zimmerman
and the elections as directors of Messrs. Cook and McArtor upon the date of
this Prospectus. Does not include 8,268,582 shares 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 7,000 shares
beneficially owned by each of Messrs. Mark C. Demetree, Fillat, Cook and
McArtor issuable upon exercise of options to be granted under the Directors
Plan upon the consummation of the Offerings.
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 8,842,154 and
7,707,846 shares, respectively, of Common Stock, including 26,715 and 23,285
shares, respectively, issuable upon exercise of the CommcoCCC Warrants,
constituting 16.3% and 14.2%, respectively, of the Company's Common Stock after
the Offerings (assuming the underwriters' overallotment option in the Common
Stock Offering is not exercised). Assuming the consummation of the Offerings and
the CommcoCCC Acquisition as of the date of this Prospectus, the Company would
have 54,086,498 shares of Common Stock outstanding.
VOTING TRUST AGREEMENT
Pursuant to a proposed Voting Trust and Irrevocable Proxy Agreement,
effective 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) the death of Laurence S. Zimmerman or (ii) 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 constitute an aggregate of 6,000,470
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 1,398,883 shares and 349,721 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 368,127 shares of Common Stock. Of these
368,127 shares, 15,678 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
10,013,055 shares and 7,512,076, 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 441,753 shares and 147,251 shares of Common Stock,
respectively. LHC is controlled by Laurence S. Zimmerman. Hedgerow is controlled
by Matthew C. Gove, a director of the Company. Hedgerow and Toro provide
managment 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 2,017,704 and 1,816,559 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 466,349
shares of Common Stock prior the Offerings). 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 will convert into 5,276,440
shares of Common Stock prior to the Offerings) for an aggregate of $946,600, and
LHC purchased 35,873 shares of such Series A preferred stock 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 converts into 1,375,699 shares of Common
Stock prior to the Offerings) for an aggregate of $842,400. E1 purchased 13,797
shares of Telecom Series A preferred stock (which converts into 179,361 shares
of Common Stock prior to the Offerings) for an aggregate of $60,000 and 8,856
shares of Telecom Series B preferred stock (which converts into 115,128 shares
of Common Stock prior to the Offerings) for an aggregate of $38,300. E2-3
purchased an aggregate of 7,363 shares of Telecom Series C preferred stock
(which converts into 95,719 shares of Common Stock prior to the Offerings) for
an aggregate of $112,700. All of the Landover Partnerships will liquidate upon
effectiveness of the Merger. 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
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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 3,026,738 shares of Common Stock
prior to the Offerings). 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. Upon the date
of this Prospectus, this 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, SERP received
options from the other parties to such agreement to purchase, for an aggregate
consideration of $210,000, 313,612 shares of Common Stock after giving effect to
the Merger 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 convert into 801,320 shares of Common Stock prior to the
Offerings) for $2.0 million in a private placement. Telecom simultaneously
redeemed 807,924 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 to purchase
400,634 shares of Telecom common stock owned by LHC at a nominal price. This
option will expire unexercised upon consummation of the Offerings.
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 Offerings, (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 Telecom common stock (upon
consummation of the Offerings) of the Telecom Series A, B, C, D, E and F
preferred stock 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").
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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") convertible into 635,609
shares of Common Stock prior to the Offerings. 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 877,136 shares of Common
Stock of the Company exercisable at a price of $.01 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."
BRIDGE FINANCING
On March 8, 1996, Telecom entered into a financing (the "Bridge Financing")
pursuant to which it issued $5.0 million of 10% unsecured notes due in 1998 (the
"Bridge Notes") and five-year warrants to purchase up to an aggregate of
1,100,000 shares of Telecom common stock at a price of $6.25 per share (the
"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 Bridge Notes and Bridge Warrants. See "Principal
Stockholders."
EQUIPMENT FINANCING
On April 1, 1996 CRA, Inc. ("CRA") provided the Company with $2,445,000 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 $2,445,000
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 325,000 shares of Common Stock
(the "Indemnity Warrants") on terms substantially similar to the Bridge Warrants
as compensation for such indemnity. LHC has assigned Indemnity Warrants to
purchase 125,000 shares of Common Stock to a consultant to LHC.
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
The Company is party to a letter of intent with American Wireless pursuant
to which the Company will fund, subject to definitive documentation, $700,000 to
$1.0 million for research and development in exchange for a first right to
purchase American Wireless' production capacity of the new radios and will
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receive a per unit fee on radios sold by American Wireless to third parties.
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.
QUESTTV INVESTMENT
The Company has a non-binding arrangement with Quest Computer Television
Company, L.L.C. ("QuestTV") pursuant to which the Company would purchase,
subject to, among other things, definitive documentation and consummation of the
Offerings, equity interests of QuestTV for $1.5 million. QuestTV is seeking to
develop a nationwide network of franchises offering retail access to
sophisticated video and data transmission and storage technology. T. Allan
McArtor, who will become a director of the Company upon the date of this
Prospectus, is the president and chief executive officer of QuestTV.
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 16,500,000 shares of
Common Stock, or 30.5% of the Company on a fully diluted basis after giving
effect to the Offerings. 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 50,000 shares of Common Stock at a price of $15.00 per share. 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.
MERGER
On June 26, 1996, Telecom, ART and a wholly owned subsidiary of ART ("Merger
Sub") entered into a revised merger agreement, superseding the Old Merger
Agreement (the "Merger Agreement"), which provides for the Merger of Merger Sub
into Telecom. Upon completion of the Merger, the stockholders of Telecom will
receive 20,073,443 shares of Common Stock, and Telecom will become a
wholly-owned subsidiary of ART and change its name to "ART Licensing Corp." The
consummation of the Merger is contingent on receipt of FCC approval therefor,
approval of the holders of Telecom capital stock and all ART stockholders and
receipt of a tax opinion. The FCC has indicated that it will approve the Merger,
and the Company expects to complete it shortly prior to the date of this
Prospectus. The Merger Agreement further provides that if the Merger is not
effective for any reason by May 13, 1997, the shares of Telecom common stock
owned by ART will be surrendered to Telecom for nominal consideration, and the
ART Services Agreement will be amended to provide that (i) the term thereof will
be extended to 40 years, (ii) ART will receive, in the event of any dividends
paid by Telecom to its stockholders, an amount equal to the percentage share
that the ART stockholders would have owned of the combined corporation after
giving effect to the Merger of such aggregate dividends, (iii) ART would have a
right of co-sale, subject to FCC approval, in accordance with such percentage
share of the aggregate consideration payable to Telecom and ART in such
transaction in the event of any merger or sale of substantial assets by Telecom
and (iv) in the event ART agrees to merge into another entity or to sell
substantially all its assets to another entity, Telecom shall, upon the request
of the Company, use its best efforts, subject to FCC approval, to merge into
such entity or sell substantially all its assets to such entity for aggregate
consideration equal to the percentage share of the aggregate consideration to be
paid for ART and Telecom in such transaction.
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DESCRIPTION OF UNITS
Each Unit offered hereby consists of $1,000 principal amount at maturity of
Notes and Warrants, each Warrant initially representing the right to
purchase shares of Common Stock. The Notes and the Warrants will not be
separable until the earliest to occur of (i) , 1997 and (ii) such
earlier date as may be determined by the Underwriters (the "Separation Date").
DESCRIPTION OF NOTES
The Notes will be issued under an Indenture (the "Indenture") between the
Company and The Bank of New York, as trustee (the "Trustee"). A copy of the form
of the Indenture has been filed as an exhibit to the Registration Statement of
which this Prospectus is a part. The following summary of certain provisions of
the Indenture does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act"), and to all of the provisions of the
Indenture, including the definitions of certain terms therein and those terms
made a part of the Indenture by reference to the Trust Indenture Act, as in
effect on the date of the Indenture. The definitions of certain terms used in
the following summary are set forth below under "-- Certain Definitions."
As of the date of the Indenture, all of the Company's Subsidiaries will be
Restricted Subsidiaries other than foreign subsidiaries that the Company may
establish prior to such date. However, under certain circumstances, the Company
will be able to designate future Subsidiaries as Unrestricted Subsidiaries.
Unrestricted Subsidiaries will not be subject to many of the restrictive
covenants set forth in the Indenture.
GENERAL
The Notes will be unsecured senior obligations of the Company, will be
limited to $ million aggregate principal amount at maturity and will mature
on , 2006. The Notes are being issued at a discount from their
principal amount to generate aggregate gross proceeds of approximately $175.0
million. The Notes will accrete at a rate of %, compounded semiannually, to
an aggregate principal amount of $ million by , 2001. Cash
interest will not accrue on the Notes prior to , 2001. Commencing
, 2002, cash interest on the Notes will be payable, at a rate of
% per annum, semi-annually in arrears on each and
(each, an "Interest Payment Date"), to the holders of record of Notes at the
close of business on the and immediately preceding such
Interest Payment Date. Cash interest on the Notes will accrue from the most
recent Interest Payment Date to which interest has been paid or duly provided
for, or, if no interest has been paid or duly provided for, , 2001.
Cash interest will be computed on the basis of a 360-day year of twelve 30-day
months. If, prior to , 2001, the Company defaults in any payment of
principal (including any accreted original issue discount), whether at maturity,
upon redemption or otherwise, if the payment of cash interest on the Notes is
then permitted by law, cash interest will accrue on the amount in default at the
rate of interest borne by the Notes on or after , 2001 and, if the
payment of such cash interest is not permitted by law, original issue discount
will continue to accrete at the rate then in effect. On or after ,
2001, interest on overdue principal and, to the extent permitted by law, on
overdue installments of interest will accrue at the rate of interest borne by
the Notes.
Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes will be exchangeable and transferable, at the office or agency of
the Company in The City of New York maintained for such purposes (which
initially will be the office of the Trustee); PROVIDED, HOWEVER, the payment of
interest may be made by check mailed to the address of the Person entitled
thereto as shown on the security register. The Notes will be issued only in
fully registered form without coupons and only in denominations of $1,000 and
any integral multiple thereof. No service charge will be made for any
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registration of transfer, exchange or redemption of Notes, but the Company may
require payment in certain circumstances of a sum sufficient to cover any tax or
other governmental charge that may be imposed in connection therewith.
REDEMPTION
OPTIONAL REDEMPTION
The Notes will be redeemable at the option of the Company, in whole or in
part, at any time on or after , 2001, upon not less than 30 nor more
than 60 days' notice, at the redemption prices (expressed as percentages of
principal amount at maturity) set forth below, plus accrued and unpaid interest,
if any, to the date of redemption, if redeemed during the 12- month period
beginning on of the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
-------------------------- ------------
<S> <C>
2001...................................................... %
2002...................................................... %
2003...................................................... %
2004 and thereafter....................................... 100.000%
</TABLE>
Notwithstanding the foregoing, in the event of a sale by the Company of its
Common Stock in one or more Equity Offerings or Investments by one or more
Strategic Equity Investors for an aggregate purchase price equal to or exceeding
$70.0 million, on or prior to , 1999, the Company may, at its
option, use all or a portion of the net proceeds thereof to redeem up to a
maximum of 33 1/3% of the initially outstanding aggregate principal amount at
maturity of the Notes at a redemption price equal to % of the Accreted Value
of the Notes (determined as of the redemption date); PROVIDED that not less than
66 2/3% of the initially outstanding aggregate principal amount at maturity of
the Notes remain outstanding following such redemption. Any such redemption must
be effected upon not less than 30 nor more than 60 days' notice given within 30
days after any such Equity Offering or sale to a Strategic Equity Investor
resulting in such gross proceeds, as the case may be.
MANDATORY REDEMPTION
The Company is not required to make any mandatory sinking fund payments in
respect of the Notes. However, (i) upon the occurrence of a Change in Control,
the Company is obligated to make an offer to purchase all outstanding Notes at a
price of (A) 101% of the Accreted Value thereof (determined at the date of
purchase), if such purchase is prior to , 2001, or (B) 101% of the
principal amount at maturity thereof, plus accrued interest thereon, if any, to
the date of purchase, if such purchase is on or after , 2001 and
(ii) the Company may be obligated to make an offer to purchase Notes with the
Net Cash Proceeds of certain Asset Sales at a price of (A) 101% of the Accreted
Value thereof (determined at the date of purchase), if such purchase is prior to
, 2001, or (B) 101% of the principal amount at maturity thereof,
plus accrued and unpaid interest, if any, to the date of purchase, if such
purchase is on or after , 2001. See "-- Certain Covenants -- Change
in Control" and "-- Disposition of Proceeds of Asset Sales."
SELECTION; EFFECT OF REDEMPTION NOTICE
In the case of a partial redemption, selection of the Notes for redemption
will be made PRO RATA, by lot or by such other method as the Trustee in its sole
discretion deems fair and appropriate or in such manner as complies with the
requirements of the principal national securities exchange, if any, on which the
Notes being redeemed are listed. Upon giving of a redemption notice, interest on
the Notes called for redemption will cease to accrue from and after the date
fixed for redemption (unless the Company defaults in providing the funds for
such redemption) and, upon redemption on such redemption date, such Notes will
cease to be outstanding.
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RANKING
The Notes will represent unsecured, senior obligations of the Company, will
rank PARI PASSU in right of payment with all existing and future unsecured,
senior Indebtedness of the Company and will rank senior in right of payment to
all existing and future subordinated indebtedness of the Company. At March 31,
1996, on a pro forma basis after giving effect to indebtedness incurred after
March 31, 1996, the Offerings and the application of the net proceeds therefrom,
the aggregate principal amount of indebtedness of the Company (excluding trade
payables, other accrued liabilities, deferred taxes and the Notes) was
approximately $3.4 million, which consisted of the EMI Note and the Equipment
Note and all of which ranked PARI PASSU with the Notes. $1.9 million of such
indebtedness constituted secured indebtedness which would effectively rank
senior to the Notes with respect to the assets securing such indebtedness.
Although the Indenture will limit the ability of the Company and its
subsidiaries to incur additional indebtedness, including senior indebtedness,
the Indenture will permit the Company to incur a substantial amount of secured
indebtedness under the Credit Facility, which, if incurred, will effectively
rank senior to the Notes with respect to the assets securing such indebtedness.
In addition, the Indenture will permit the subsidiaries of the Company
(including any subsidiary holding all or any part of the Company's FCC licenses
and authorizations) to guarantee the indebtedness of the Company under the
Credit Facility on a secured basis, which guarantees and security interests
would effectively rank senior in right of payment to the Notes. See "-- Certain
Covenants," "Risk Factors -- Possible Incurrence of Substantial Secured
Indebtedness" and "Description of Certain Indebtedness."
CERTAIN COVENANTS
LIMITATION ON INDEBTEDNESS
The Indenture will provide that the Company will not, and will not permit
any of its Subsidiaries to, Incur any Indebtedness (including Acquired Debt);
PROVIDED that the Company may Incur Indebtedness (including Acquired Debt) if,
after giving effect to the Incurrence of such Indebtedness and the receipt and
application of the proceeds therefrom, the Indebtedness to EBITDA Ratio would be
greater than zero and less than 5 to 1.
The foregoing provisions will not apply to:
(i)
Indebtedness of the Company outstanding at any time in an aggregate
principal amount not to exceed $100.0 million, less any amount of
Indebtedness permanently repaid as provided under the "Disposition of Proceeds
of Asset Sales" covenant described below;
(ii)
Indebtedness of any of the Company's Restricted Subsidiaries owing to the
Company; PROVIDED, HOWEVER, that (A) any subsequent issuance or transfer
of Capital Stock that results in any such Indebtedness being held by a Person
other than the Company and (B) any sale or other transfer of any such
Indebtedness to a Person that is not the Company shall be deemed, in each case,
to constitute an Incurrence of such Indebtedness by the Company;
(iii)
Indebtedness issued in exchange for, or the net proceeds of which are
used to refinance or refund, then outstanding Indebtedness, other than
Indebtedness Incurred under clause (i), (ii), (v), (vi) or (viii) of this
paragraph, and any refinancings thereof in an amount not to exceed the amount so
refinanced or refunded (plus premiums, accrued interest, fees and expenses);
PROVIDED that Indebtedness the proceeds of which are used to refinance or refund
the Notes or Indebtedness that is PARI PASSU with, or subordinated in right of
payment to, the Notes shall only be permitted under this clause (iii) if (A) in
case the Notes are refinanced in part or the Indebtedness to be refinanced is
PARI PASSU with the Notes, such new Indebtedness (by its terms or by the terms
of any agreement or instrument pursuant to which such new Indebtedness is
outstanding) is PARI PASSU with, or is expressly made subordinate in right of
payment to, the remaining Notes, (B) in case the Indebtedness to be refinanced
is subordinated in right of payment to the Notes, such new Indebtedness, by its
terms or by the terms of any agreement or instrument pursuant to which such new
Indebtedness is outstanding, is expressly made subordinate in
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right of payment to the Notes at least to the extent that the Indebtedness to be
refinanced is subordinated to the Notes, and (C) such new Indebtedness,
determined as of the date of Incurrence of such new Indebtedness, does not have
a Stated Maturity prior to the Stated Maturity of the Indebtedness to be
refinanced or refunded, and the Average Life of such new Indebtedness is at
least equal to the remaining Average Life of the Indebtedness to be refinanced
or refunded; and PROVIDED FURTHER that in no event may Indebtedness of the
Company be refinanced by means of any Indebtedness of any Restricted Subsidiary
of the Company pursuant to this clause (iii);
(iv)
Indebtedness (A) in respect of performance, surety or appeal bonds
provided in the ordinary course of business; and (B) arising from
agreements providing for indemnification, adjustment of purchase price or
similar obligations, or from Guarantees or letters of credit, surety bonds or
performance bonds securing any obligations of the Company or any of the
Restricted Subsidiaries pursuant to such agreements, in any case Incurred in
connection with the disposition of any business, assets or Restricted Subsidiary
of the Company (other than Guarantees of Indebtedness Incurred by any Person
acquiring all or any portion of such business, assets or Restricted Subsidiary
of the Company for the purpose of financing such acquisition), in a principal
amount not to exceed the gross proceeds actually received by the Company or any
Restricted Subsidiary in connection with such disposition;
(v)
without duplication of clause (viii) hereof, Indebtedness of the Company
not to exceed, at any one time outstanding, two TIMES an amount equal to
(A) the aggregate proceeds (less appropriate fees and expenses) (which proceeds
may consist of cash, Capital Stock of an entity that as a result of such
transaction becomes a Restricted Subsidiary of the Company, or
Telecommunications Assets which in connection with such transaction become held
by the Company or a Restricted Subsidiary of the Company, and the value of which
proceeds shall be the fair market value thereof as determined in good faith by
the Board, which in all events shall make any appropriate adjustments on account
of any Indebtedness associated with such Capital Stock or Telecommunications
Assets in making such determination) received by the Company from the issuance
and sale of its Capital Stock (other than Redeemable Stock and Preferred Stock
that provides for the payment of dividends in cash) MINUS (B) the fair market
value of any Directed Investments made with the proceeds of such issuances or
sales; PROVIDED that such Indebtedness (x) does not have a Stated Maturity prior
to the Stated Maturity of the Notes and has an Average Life longer than the
Notes and (y) is unsecured and is expressly subordinated in right of payment to
the Notes;
(vi)
Indebtedness to the extent such Indebtedness is secured by Liens
permitted under clause (xxiv) of the definition of "Permitted Liens;"
(vii)
Indebtedness of the Company, to the extent the proceeds thereof are
immediately used to purchase Notes tendered in an Offer to Purchase made
as a result of a Change in Control;
(viii)
without duplication of clause (v) hereof, Indebtedness of the Company
Incurred in connection with the acquisition of (A) 38 GHz licenses or
authorizations through auctions conducted by the FCC or (B) other licenses or
authorizations through other spectrum auctions conducted by the FCC with respect
to other frequencies approved for microwave point-to-point transmissions, in an
amount not to exceed, at any one time outstanding, the greater of (1) $10.0
million and (2) an amount equal to the aggregate proceeds (less appropriate fees
and expenses) (which proceeds may consist of cash, Capital Stock of an entity
that as a result of such transaction becomes a Restricted Subsidiary of the
Company, or Telecommunications Assets which in connection with such transaction
become held by the Company or a Restricted Subsidiary of the Company, and the
value of which proceeds shall be the fair market value thereof as determined in
good faith by the Board, which in all events shall make any appropriate
adjustments on account of any Indebtedness associated with such Capital Stock or
Telecommunications Assets in making such determination) received by the Company
from the issuance and sale of its Capital Stock (other than Redeemable Stock and
Preferred Stock that provides for the payment of dividends in cash) MINUS the
fair market value of any Directed Investments made with the proceeds of such
issuances
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of sales; PROVIDED that such Indebtedness (x) does not have a Stated Maturity
prior to the Stated Maturity of the Notes and has an Average Life longer than
the Notes and (y) is unsecured and is PARI PASSU or subordinated in right of
payment with the Notes;
(ix)
revolving credit Indebtedness of any Restricted Subsidiary Incurred
pursuant to a credit facility in an aggregate amount not to exceed, at
any one time outstanding, the greater of 62.5% and such greater percentage
permitted pursuant to such credit facility of the accounts receivable net of
reserves and allowances for doubtful accounts, determined in accordance with
GAAP, of such Restricted Subsidiary and its Restricted Subsidiaries (without
duplication); PROVIDED that such Indebtedness is not Guaranteed by the Company
or any of its other Restricted Subsidiaries;
(x)
the Incurrence by the Company or any of its Restricted Subsidiaries of
Hedging Obligations that are Incurred for the purpose of fixing or
hedging interest rate risk with respect to any floating rate Indebtedness of the
Company or any Restricted Subsidiary, as the case may be, that is permitted by
the terms of the Indenture to be outstanding;
(xi)
the Incurrence by the Company's Unrestricted Subsidiaries of Non-Recourse
Debt, PROVIDED, HOWEVER, that if any such Indebtedness ceases to be
Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be deemed to
constitute an incurrence of Indebtedness by a Restricted Subsidiary of the
Company;
(xii)
the Incurrence by Unrestricted Subsidiaries of Indebtedness to the
Company or any Restricted Subsidiary of the Company to the extent
permitted by the "Limitation on Restricted Payments" covenant;
(xiii)
Indebtedness of the Company in an aggregate amount not to exceed $100.0
million Incurred pursuant to the Credit Facility;
(xiv)
Guarantees by the Company's Restricted Subsidiaries of the Indebtedness
referred to in clause (xiii) above;
(xv)
Indebtedness of the Company existing on the Issue Date; and
(xvi)
Indebtedness of the Company represented by the Notes and the Indenture.
For purposes of determining compliance with this "Limitation on
Indebtedness" covenant, in the event that an item of Indebtedness meets the
criteria of more than one of the types of Indebtedness described in the above
clauses, the Company, in its sole discretion, shall classify such item of
Indebtedness and only be required to include the amount and type of such
Indebtedness in one of such clauses.
The Company will not, and will not permit any Restricted Subsidiary to,
Incur any Guarantee of Indebtedness of any Unrestricted Subsidiary.
The Indenture will provide that, notwithstanding the foregoing, ART
Licensing shall not Incur any Indebtedness or issue any Preferred Stock;
PROVIDED that ART Licensing may Incur Indebtedness of the type and in the amount
set forth in clause (xiv) of the second paragraph of this "Limitation on
Indebtedness" covenant.
LIMITATION ON RESTRICTED PAYMENTS
The Indenture will provide that the Company will not, and will not permit
any Restricted Subsidiary to, directly or indirectly, (i) declare or pay any
dividend or make any distribution on its or such Restricted Subsidiary's Capital
Stock (other than dividends or distributions payable solely in shares of its or
such Restricted Subsidiary's Capital Stock (other than Redeemable Stock) held by
such holders or in options, warrants or other rights to acquire such shares of
Capital Stock) other than such Capital Stock held by the Company or any of its
Restricted Subsidiaries (and other than pro rata dividends or distributions on
Common Stock of Restricted Subsidiaries), (ii) repurchase, redeem, retire or
otherwise acquire for value any shares of Capital Stock (including options,
warrants or other rights to acquire such shares of Capital Stock) of the Company
(other than any such Capital Stock held by the Company or any
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Wholly Owned Restricted Subsidiary of the Company), (iii) make any voluntary or
optional principal payment, or voluntary or optional redemption, repurchase,
defeasance, or other acquisition or retirement for value, of Indebtedness of the
Company that is subordinated in right of payment to the Notes or (iv) make any
Investment, other than a Permitted Investment, in any Person (such payments or
any other actions described in clauses (i) through (iv) being collectively
"Restricted Payments") if, at the time of, and after giving effect to, the
proposed Restricted Payment:
(A) a Default or Event of Default shall have occurred and be continuing;
(B) except with respect to any Investment (other than an Investment
consisting of the designation of a Restricted Subsidiary as an
Unrestricted Subsidiary), the Company could not Incur at least $1.00 of
Indebtedness under the first paragraph of the "Limitation on Indebtedness"
covenant; and
(C) the aggregate amount expended for all Restricted Payments (the amount
so expended, if other than in cash, to be determined in good faith by
the Board, whose determination shall be conclusive and evidenced by a
resolution of the Board) after the Issue Date shall exceed the sum of (1)
50% of the aggregate amount of the Adjusted Consolidated Net Income (or, if
the Adjusted Consolidated Net Income is a loss, MINUS 100% of such amount)
(determined by excluding income resulting from transfers of assets by the
Company or a Restricted Subsidiary to an Unrestricted Subsidiary) accrued on
a cumulative basis during the period (taken as one accounting period)
beginning on the first day of the fiscal quarter immediately following the
Issue Date and ending on the last day of the last fiscal quarter preceding
the date for which reports have been filed pursuant to the "Reports"
covenant, PLUS (2) the aggregate Net Cash Proceeds received by the Company
after the Issue Date from the issuance and sale permitted by the Indenture
of its Capital Stock (other than Redeemable Stock) to a Person who is not a
Subsidiary of the Company, or from the issuance to a Person who is not a
Subsidiary of the Company of any options, warrants or other rights to
acquire Capital Stock of the Company (in each case, exclusive of any
convertible Indebtedness, Redeemable Stock or any options, warrants or other
rights that are redeemable at the option of the holder, or are required to
be redeemed, prior to the Stated Maturity of the Notes), MINUS the actual
amount of Net Cash Proceeds used to make such Directed Investments, PLUS (3)
an amount equal to the net reduction in Investments (other than reductions
in Permitted Investments) in any Person resulting from payments of interest
on Indebtedness, dividends, repayments of loans or advances, or other
transfers of assets, in each case to the Company or any Restricted
Subsidiary (except to the extent any such payment is included in the
calculation of Adjusted Consolidated Net Income), or from the redesignation
of Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each case
as provided in the definition of "Investments"), not to exceed the amount of
Investments previously made by the Company and its Restricted Subsidiaries
in such Person.
The foregoing provision shall not be violated by reason of:
(i)
the payment of any dividend within 60 days after the date of declaration
thereof if, at said date of declaration, such payment would comply with
the foregoing paragraph;
(ii)
the redemption, repurchase, defeasance or other acquisition or retirement
for value of Indebtedness that is subordinated in right of payment to the
Notes, including premium, if any, and accrued and unpaid interest, with the
proceeds of, or in exchange for, Indebtedness Incurred under clause (iii) of the
second paragraph of the "Limitation on Indebtedness" covenant;
(iii)
the repurchase, redemption or other acquisition of Capital Stock of the
Company (or options, warrants or other rights to acquire such Capital
Stock) in exchange for, or out of the proceeds of a substantially concurrent
offering of, shares of Capital Stock or options, warrants or other rights to
acquire such Capital Stock (in each case, other than Redeemable Stock) of the
Company;
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(iv)
the making of any principal payment or repurchase, redemption,
retirement, defeasance or other acquisition for value of Indebtedness of
the Company which is subordinated in right of payment to the Notes in exchange
for, or out of the proceeds of, a substantially concurrent offering of, shares
of the Capital Stock of the Company (other than Redeemable Stock);
(v)
payments or distributions, in the nature of satisfaction of dissenters'
rights, pursuant to or in connection with a consolidation, merger or
transfer of assets that complies with the provisions of the Indenture applicable
to mergers, consolidations and transfers of all or substantially all of the
property and assets of the Company;
(vi)
any purchase or acquisition from, or withholding on issuances to, any
employee of the Company's Capital Stock in order to satisfy any
applicable federal, state or local tax payments in respect of the receipt of
shares of the Company's Capital Stock;
(vii)
any purchase or acquisition from, or withholding on issuances to, any
employee of the Company's Capital Stock in order to pay the purchase
price of such Capital Stock or similar instrument pursuant to a stock option,
equity incentive or other employee benefit plan or agreement of the Company or
any of its Restricted Subsidiaries;
(viii)
the repurchase of shares of, or options to purchase shares of, the
Company's Capital Stock from employees of the Company in connection with
the termination of their employment; PROVIDED that (A) the aggregate price paid
for all such repurchased shares of Capital Stock made in any twelve-month period
shall not exceed $250,000 PLUS the aggregate cash proceeds received by the
Company during such twelve-month period from any reissuance of such Capital
Stock by the Company to employees of the Company and its Restricted Subsidiaries
and (B) no Default shall have occurred and be continuing immediately after such
transaction;
(ix)
payments and distributions pursuant to any tax sharing agreement between
the Company and any other Person with which the Company files a
consolidated tax return or with which the Company is part of a consolidated
group, in each case, for federal income tax purposes;
(x)
cash payments in lieu of the issuance of fractional shares of Common
Stock of the Company upon conversion of any class of Preferred Stock of
the Company; and
(xi)
the issuance of shares of Common Stock upon exercise of warrants to
purchase shares of common stock of ART Licensing existing on the Issue
Date, including any contribution of such shares of Common Stock to ART
Licensing, any payment by ART Licensing to the Company in consideration thereof
and any contribution by the Company to ART Licensing in respect thereof;
PROVIDED that, except in the case of clauses (i) and (ii), no Default or Event
of Default shall have occurred and be continuing or occur as a consequence of
the actions or payments set forth herein. Any Investments made other than in
cash shall be valued, in good faith, by the Board.
Each Restricted Payment permitted pursuant to the preceding paragraph (other
than the Restricted Payment referred to in clause (ii) thereof) and the Net Cash
Proceeds from any issuance of Capital Stock referred to in clause (iii) or (iv)
shall be included in calculating whether the conditions of clause (C) of the
first paragraph of this "Limitation on Restricted Payments" covenant have been
met with respect to any subsequent Restricted Payments. In the event the
proceeds of an issuance of Capital Stock of the Company are used for the
redemption, repurchase or other acquisition of the Notes or Indebtedness that is
PARI PASSU with the Notes, then the Net Cash Proceeds of such issuance shall be
included in clause (C) of the first paragraph of this "Limitation on Restricted
Payments" covenant only to the extent such proceeds are not used for such
redemption, repurchase or other acquisition of Indebtedness.
The Board may designate any Restricted Subsidiary to be an Unrestricted
Subsidiary if such designation would not cause a Default. For purposes of making
such determination, all outstanding Investments by the Company and its
Restricted Subsidiaries (except to the extent repaid in cash) in the Subsidiary
so designated will be deemed to be Restricted Payments at the time of such
designation and
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will reduce the amount available for Restricted Payments under the first
paragraph of this covenant. All such outstanding Investments will be deemed to
constitute Investments in an amount valued in accordance with the definition of
"Investment." Such designation will only be permitted if such Restricted Payment
would be permitted at such time and if such Restricted Subsidiary otherwise
meets the definition of an Unrestricted Subsidiary.
LIMITATION ON LIENS SECURING CERTAIN INDEBTEDNESS
The Indenture will provide that the Company will not, and will not permit
any Subsidiary to, create, Incur, assume or suffer to exist any Lien, other than
Permitted Liens, on any of its assets or properties of any character, or any
shares of Capital Stock or Indebtedness of any Subsidiary, without making
effective provision for all of the Notes and all other amounts due under the
Indenture to be directly secured equally and ratably with (or, if the obligation
or liability to be secured by such Lien is subordinated in right of payment to
the Notes prior to) the obligation or liability secured by such Lien.
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES
The Indenture will provide that the Company will not, and will not permit
any Restricted Subsidiary to, create or otherwise cause or suffer to exist or
become effective any consensual encumbrance or restriction of any kind on the
ability of any Restricted Subsidiary to (i) pay dividends or make other
distributions permitted by applicable law on any Capital Stock of such
Restricted Subsidiary owned by the Company or any other Restricted Subsidiary,
(ii) pay any Indebtedness owed to the Company or any other Restricted Subsidiary
that owns, directly or indirectly, any Capital Stock of such Restricted
Subsidiary, (iii) make loans or advances to the Company or any other Restricted
Subsidiary that owns, directly or indirectly, any Capital Stock of such
Restricted Subsidiary or (iv) transfer any of its property or assets to the
Company or any other Restricted Subsidiary that owns, directly or indirectly,
any Capital Stock of such Restricted Subsidiary.
The foregoing provisions shall not prohibit any encumbrances or
restrictions:
(i)
existing on the Issue Date in the Indenture or any other agreement in
effect on the Issue Date, and any extension, refinancing, renewal or
replacement of any such agreement; PROVIDED that the encumbrances and
restrictions in any such extension, refinancing, renewal or replacement are no
less favorable in any material respect to the holders than those encumbrances or
restrictions that are then in effect and that are being extended, refinanced,
renewed or replaced;
(ii)
existing under or by reason of applicable law;
(iii)
existing with respect to any Person or the property or assets of such
Person acquired by the Company or any Restricted Subsidiary, at the time
of such acquisition and not Incurred in contemplation thereof, which
encumbrances or restrictions are not applicable to any Person or the property or
assets of any Person other than such Person or the property or assets of such
Person so acquired;
(iv)
in the case of clause (iv) of the first paragraph of this "Limitation on
Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries" covenant, (A) that restrict in a customary manner the subletting,
assignment or transfer of any property or asset that is a lease, license,
conveyance or contract or similar property or asset, (B) existing by virtue of
any transfer of, agreement to transfer, option or right with respect to, or Lien
on, any property or assets of the Company or any Restricted Subsidiary, not
otherwise prohibited by the Indenture or (C) arising or agreed to in the
ordinary course of business, not relating to any Indebtedness, and that do not,
individually or in the aggregate, detract from the value of property or assets
of the Company or any Restricted Subsidiary in any manner material to the
Company or any Restricted Subsidiary;
(v)
imposed pursuant to an agreement that has been entered into for the sale
or disposition of Capital Stock of, or property or assets of, the Company
or a Restricted Subsidiary; PROVIDED that such encumbrance or restriction shall
only remain in force during the pendency of such acquisition or disposition; or
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(vi)
imposed pursuant to agreements governing Indebtedness permitted to be
Incurred under clauses (xiii) and (xiv) of the second paragraph of the
"Limitation of Indebtedness" covenant.
Nothing contained in this "Limitation on Dividend and Other Payment
Restrictions Affecting Restricted Subsidiaries" covenant shall prevent the
Company or any Restricted Subsidiary from (a) creating, Incurring, assuming or
suffering to exist any Liens otherwise permitted in the "Limitation on Liens
Securing Certain Indebtedness" covenant or (b) restricting the sale or other
disposition of property or assets of the Company or any of its Restricted
Subsidiaries that secure Indebtedness of the Company or any of its Restricted
Subsidiaries.
LIMITATION ON TRANSACTIONS WITH AFFILIATES
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into or make any contract, agreement, loan, advance or
Guarantee with, or any contract, agreement, loan, advance or Guarantee for the
specific benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction"), unless (i) such Affiliate Transaction is on terms that are no
less favorable to the Company or the relevant Restricted Subsidiary than those
that would have been obtained in a comparable transaction by the Company or such
Restricted Subsidiary with an unrelated Person and (ii) the Company delivers to
the Trustee (A) with respect to any Affiliate Transaction involving aggregate
consideration in excess of $1.0 million, a resolution of the Board of Directors
set forth in an Officers' Certificate certifying that such Affiliate Transaction
complies with clause (A) above and that such Affiliate Transaction has been
approved by a majority of the disinterested members of the Board of Directors
and (B) with respect to any Affiliate Transaction involving aggregate
consideration in excess of $5.0 million, a written opinion, appraisal or
certification from a nationally recognized professional experienced in
evaluating similar types of transactions stating that the terms of such
transaction are fair to the Company or such Restricted Subsidiary, as the case
may be, from a financial point of view; PROVIDED that the following shall not be
deemed to constitute Affiliate Transactions:
(i) the payment of reasonable fees to directors of the Company who are not
employees of the Company;
(ii) agreements and arrangements existing on the date hereof;
(iii) any employment agreement entered into by the Company or any of its
Restricted Subsidiaries in the ordinary course of business of the Company or
such Restricted Subsidiary;
(iv) the adoption of employee benefit plans in the ordinary course of
business and payments and other transactions thereunder; PROVIDED that any such
adoption, payment or other transaction shall have been approved by a majority of
the disinterested members of the Board;
(v) transactions between or among the Company and/or its Wholly Owned
Restricted Subsidiaries;
(vi) any contract, agreement, loan, advance or Guarantee for the general
benefit of the Company and its stockholders, including stockholders that are
Affiliates of the Company; and
(vii) any Affiliate Transactions permitted by the provisions of the
Indenture described above under the caption "-- Limitation on Restricted
Payments."
LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF WHOLLY OWNED
RESTRICTED SUBSIDIARIES
The Indenture will provide that the Company will not sell, and will not
permit any Restricted Subsidiary, directly or indirectly, to issue or sell any
shares of Capital Stock of a Restricted Subsidiary, other than ART Licensing
(including options, warrants or other rights to purchase shares of such Capital
Stock), except (i) to the Company or a Wholly Owned Restricted Subsidiary, (ii)
issuances or sales to foreign nationals of shares of Capital Stock of foreign
Restricted Subsidiaries, to the extent required by applicable law, (iii) if,
immediately after giving effect to such issuance or sale, such Restricted
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Subsidiary would no longer constitute a Restricted Subsidiary or (iv) issuances
or sales of Common Stock of Restricted Subsidiaries, if within six months of
each such issuance or sale, the Company or such Restricted Subsidiary applies an
amount not less than the Net Cash Proceeds thereof (if any) in accordance with
clause (A) or (B) of the first paragraph of the "Disposition of Proceeds of
Asset Sales" covenant.
BUSINESS ACTIVITIES OF THE COMPANY
The Company will not, and will not permit any Restricted Subsidiary to,
engage in (i) any business other than the Telecommunications Business and such
business activities as are incidental or related thereto and (ii) any business,
activities or services in which the Company and its Restricted Subsidiaries were
engaged on the Issue Date. In addition, the Company will (i) at such time and to
the extent permitted by the FCC, transfer, or cause to be transferred, all FCC
licenses and authorizations of the Company and its Restricted Subsidiaries to
ART Licensing and (ii) cause ART Licensing to remain a Wholly Owned Restricted
Subsidiary of the Company.
Notwithstanding the foregoing, to the extent permitted by the FCC, the
Company will not permit ART Licensing to engage in any business or activity,
other than the application for, acquisition of or ownership of FCC licenses and
authorizations; PROVIDED, HOWEVER, that ART Licensing shall be permitted to own
and operate any equipment or assets that were owned by ART Licensing prior to
the Issue Date.
CHANGE IN CONTROL
In the event of a Change in Control, the Company must commence and
consummate an Offer to Purchase for all the Notes then outstanding, at a
purchase price equal to (i) 101% of the Accreted Value thereof, in the case of
any such purchase prior to , 2001, or (ii) 101% of the principal
amount at maturity thereof, together with accrued and unpaid interest, if any,
to the date of purchase, in the case of any such purchase on or after
, 2001. Not later than 20 days following any Change in Control, the
Company will mail a notice to each holder describing the transaction or
transactions that constitute the Change in Control and offering to repurchase
Notes pursuant to the procedures required by the Indenture and described in such
notice.
The Indenture does not contain provisions that permit the holders of the
Notes to require that the Company repurchase or redeem the Notes in the event of
a highly leveraged transaction, including a takeover, recapitalization or
similar restructuring, that may adversely effect the holders of the Notes if
such transaction does not otherwise constitute a Change in Control. See "--
Certain Definitions." In addition, with the consent of at least 66 2/3% in
principal amount at maturity of the Notes then outstanding, the Company may
amend, and the holders of Notes may waive any Default in the performance of, the
provisions described in this "Change in Control" covenant. See "-- Amendments
and Waivers." There can be no assurance that the Company will have sufficient
funds available at the time of any Change in Control to make any debt payment
(including repurchases of Notes) required by the foregoing covenant (as well as
may be contained in other securities of the Company which might be outstanding
at the time).
DISPOSITION OF PROCEEDS OF ASSET SALES
The Indenture will provide that the Company will not, and will not permit
any Restricted Subsidiary to, consummate any Asset Sale, unless (a) the
consideration received by the Company or such Restricted Subsidiary is at least
equal to the fair market value of the assets sold or disposed of and (b) at
least 85% of the consideration received consists of cash or Temporary Cash
Investments, PROVIDED that any notes or other obligations received by the
Company or any such Restricted Subsidiary as consideration that are converted by
the Company or such Restricted Subsidiary into cash within 30 days of their
receipt (to the extent of the cash received), shall be deemed to be cash for
purposes of this provision. In the event and to the extent that the Net Cash
Proceeds received by the Company or its Restricted Subsidiaries from one or more
Asset Sales occurring on or after the Issue Date in any period of 12 consecutive
months exceed 10% of Adjusted Consolidated Net Tangible Assets (determined as of
the
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date closest to the commencement of such 12-month period for which a
consolidated balance sheet of the Company and its Restricted Subsidiaries has
been prepared), then the Company shall or shall cause the relevant Restricted
Subsidiary to (i) within six months after the date Net Cash Proceeds so received
exceed 10% of Adjusted Consolidated Net Tangible Assets (A) apply an amount
equal to such excess Net Cash Proceeds to permanently repay unsubordinated
Indebtedness of the Company or any of its Restricted Subsidiaries owing to a
Person other than the Company or any of its Restricted Subsidiaries or (B)
invest an equal amount, or the amount not so applied pursuant to clause (A) (or
enter into a definitive agreement committing to so invest within six months
after the date of such agreement), in property or assets of a nature or type or
that are used in a business (or in a company having property and assets of a
nature or type, or engaged in a business) similar or related to the nature or
type of the property and assets of, or the business of, the Company and its
Restricted Subsidiaries existing on the date of such Investment (as determined
in good faith by the Board, whose determination shall be conclusive and
evidenced by a resolution of the Board and (ii) apply (no later than the end of
the six-month period referred to in clause (i)) such excess Net Cash Proceeds
(to the extent not applied pursuant to clause (i)) as provided in the following
paragraph of this "Disposition of Proceeds of Asset Sales" covenant. The amount
of such excess Net Cash Proceeds required to be applied (or to be committed to
be applied) during such six-month period as set forth in clause (i) of the
preceding sentence and not applied as so required by the end of such period
shall constitute "Excess Proceeds."
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Offer to Purchase pursuant to this
"Limitation on Asset Sales" covenant totals at least $5.0 million, the Company
must commence, not later than the fifteenth business day of such month, and
consummate an Offer to Purchase from the holders on a pro rata basis an
aggregate principal amount of Notes equal to the Excess Proceeds on such date,
at a purchase price equal to (i) 101% of the Accreted Value thereof (determined
at the date of purchase), if such purchase is prior to , 2001, or
(ii) 101% of the principal amount at maturity thereof, plus accrued and unpaid
interest, if any, to the date of purchase, if such purchase is on or after
, 2001.
NO AMENDMENT TO AGREEMENT
The Indenture will provide that the Company will not amend, modify or alter
the Voting Trust Agreement without having obtained the consent of the holders of
not less than a majority in principal amount at maturity of the Notes then
outstanding.
REPORTS
The Indenture will provide that, whether or not required by the rules and
regulations of the Securities and Exchange Commission (the "Commission"), so
long as any Notes are outstanding, the Company will furnish to the Holders of
Notes (i) all quarterly and annual financial information that would be required
to be contained in a filing with the Commission on Forms 10-Q and 10-K if the
Company were required to file such Forms, including a "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and, with respect
to the annual information only, a report thereon by the Company's certified
independent accountants and (ii) all current reports that would be required to
be filed with the Commission on Form 8-K if the Company were required to file
such reports. In addition, whether or not required by the rules and regulations
of the Commission, the Company will file a copy of all such information and
reports with the Commission for public availability (unless the Commission will
not accept such a filing) and make such information available to securities
analysts and prospective investors upon request.
CONSOLIDATION, MERGER, SALE OF ASSETS, ETC.
The Indenture will provide that the Company shall not consolidate with,
merge with or into, or sell, convey, transfer, lease or otherwise dispose of all
or substantially all of its property and assets (as an entirety or substantially
an entirety in one transaction or a series of related transactions) to, any
Person (other than a consolidation or merger with or into a Wholly Owned
Restricted Subsidiary with a positive net worth; PROVIDED that, in connection
with any such merger or consolidation, no consideration (other
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than Common Stock in the surviving Person or the Company) shall be issued or
distributed to the stockholders of the Company) or permit any Person to merge
with or into the Company unless: (i) the Company shall be the continuing Person,
or the Person (if other than the Company) formed by such consolidation or into
which the Company is merged or that acquired or leased such property and assets
of the Company shall be a corporation organized and validly existing under the
laws of the United States of America or any jurisdiction thereof and shall
expressly assume, by a supplemental indenture, executed and delivered to the
Trustee, all of the obligations of the Company on all of the Notes and under the
Indenture; (ii) immediately after giving effect to such transaction, no Default
or Event of Default shall have occurred and be continuing; (iii) immediately
after giving effect to such transaction on a pro forma basis, the Indebtedness
to Total Market Capitalization Ratio (determined as of a date no earlier than 10
days prior to such transaction) of the Company, or any person becoming the
successor obligor of the Notes, would be no greater than 130% of the
Indebtedness to Total Market Capitalization Ratio of the Company immediately
prior to giving effect to such transaction; PROVIDED that this clause (iii)
shall not apply to any transaction or series of transactions effected solely for
the purpose of creating a parent corporation of which the Company shall be a
Wholly Owned Subsidiary and whose stockholders shall be identical (without
regard to the exercise of options or warrants, or securities convertible or
exchangeable into shares of Common Stock) to those of the Company immediately
prior thereto; and (iv) the Company delivers to the Trustee an Officers'
Certificate (attaching the arithmetic computations to demonstrate compliance
with clause (iii)) and an Opinion of Counsel, in each case, stating that such
consolidation, merger or transfer and such supplemental indenture complies with
this provision and that all conditions precedent provided for herein relating to
such transaction have been complied with; PROVIDED, HOWEVER, that clause (iii)
above does not apply if, in the good faith determination of the Board, whose
determination shall be evidenced by a resolution of the Board, the principal
purpose of such transaction is to change the state of incorporation of the
Company; and PROVIDED FURTHER that any such transaction shall not have as one of
its purposes the evasion of the foregoing limitations.
EVENTS OF DEFAULT AND REMEDIES
The following events are "Events of Default" under the Indenture:
(i)
default in the payment of interest on the Notes when it becomes due and
payable, and continuance of such default for a period of 30 days or more;
or
(ii)
default in the payment of principal of, or premium, if any, on the Notes
when due; or
(iii)
default in the performance, or breach, of any covenant described under
"Certain Covenants -- Limitation on Restricted Payments," "-- Limitation
on Indebtedness," "-- Change in Control," "-- Disposition of Proceeds of Asset
Sales" and "Consolidation, Merger, Sale of Assets, Etc."; or
(iv)
default in the performance, or breach, of any covenant in the Indenture
(other than defaults specified in clause (i), (ii) or (iii) above), and
the continuance of such default or breach for a period of 30 days or more after
written notice to the Company by the Trustee or to the Company and the Trustee
by the holders of at least 25% in aggregate principal amount at maturity of the
outstanding Notes (in each case, when such notice is deemed received in
accordance with the Indenture); or
(v)
default under any mortgage, indenture or instrument under which there may
be issued or by which there may be secured or evidenced any Indebtedness
for money borrowed by the Company or any of its Restricted Subsidiaries (or the
payment of which is Guaranteed by the Company or any of its Restricted
Subsidiaries) whether such Indebtedness or Guarantee now exists, or is created
after the Issue Date, which default (A) is caused by a failure to pay principal
of or premium, if any, or interest on such Indebtedness prior to the expiration
of the grace period provided in such Indebtedness on the date of such default (a
"Payment Default") or (B) results in the acceleration of such Indebtedness prior
to its express maturity and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such Indebtedness
under which there has been a Payment Default, or the maturity of which has been
so accelerated, aggregates $5.0 million or more; or
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(vi)
any final judgment or order (not covered by insurance) for the payment of
money in excess of $5.0 million in the aggregate for all such final
judgments or orders against all such Persons (treating any deductibles,
self-insurance or retention as not so covered) shall be rendered against the
Company or any Significant Subsidiary and shall not be paid or discharged, and
there shall be any period of 60 consecutive days following entry of the final
judgment or order that causes the aggregate amount for all such final judgments
or orders outstanding and not paid or discharged against all such Persons to
exceed $5.0 million during which a stay of enforcement of such final judgment or
order, by reason of a pending appeal or otherwise, shall not be in effect; or
(vii)
a court having jurisdiction in the premises enters a decree or order for
(A) relief in respect of the Company or any Significant Subsidiary in an
involuntary case under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect, (B) the appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar official of the Company or
any Significant Subsidiary or for all or substantially all of the property and
assets of the Company or any Significant Subsidiary or (C) the winding up or
liquidation of the affairs of the Company or any Significant Subsidiary and, in
each case, such decree or order shall remain unstayed and in effect for a period
of 60 consecutive days; or
(viii)
the Company or any Significant Subsidiary (A) commences a voluntary case
under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or consents to the entry of an order for relief in an
involuntary case under any such law, (B) consents to the appointment of or
taking possession by a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of the Company or any Significant Subsidiary or
for all or substantially all of the property and assets of the Company or any
Significant Subsidiary or (C) effects any general assignment for the benefit of
creditors.
If any Event of Default (other than an Event of Default specified in clause
(vii) or (viii) above with respect to the Company) occurs and is continuing,
then the Trustee or the holders of at least 25% in principal amount at maturity
of outstanding Notes may, by written notice, and the Trustee upon the request of
the holders of not less than 25% in principal amount at maturity of the
outstanding Notes shall, declare the Default Amount of, and any accrued and
unpaid interest on, all outstanding Notes to be immediately due and payable and
upon any such declaration such amounts shall become immediately due and payable.
If an Event of Default specified in clause (vii) or (viii) above with respect to
the Company occurs and is continuing, then the Default Amount of, and any
accrued and unpaid interest on, all outstanding Notes shall IPSO FACTO become
and be immediately due and payable without any declaration or other act on the
part of the Trustee or any holder.
After a declaration of acceleration, the holders of a majority in aggregate
principal amount at maturity of outstanding Notes may, by notice to the Trustee,
rescind such declaration of acceleration if all existing Events of Default,
other than nonpayment of the Default Amount of, and any accrued and unpaid
interest on, the Notes that has become due solely as a result of such
acceleration, have been cured or waived and if the rescission of acceleration
would not conflict with any judgment or decree. The holders of a majority in
principal amount at maturity of the outstanding Notes also have the right to
waive past defaults under the Indenture, except a default in the payment of the
Default Amount of, or any interest on, any outstanding Note, or in respect of a
covenant or a provision that cannot be modified or amended without the consent
of all holders of Notes.
No holder of any of the Notes has any right to institute any proceeding with
respect to the Indenture or any remedy thereunder, unless the holders of at
least 25% in principal amount at maturity of the outstanding Notes have made
written request, and offered reasonable security or indemnity, to the Trustee to
institute such proceeding as Trustee, the Trustee has failed to institute such
proceeding within 60 days after receipt of such notice and the Trustee has not
within such 60-day period received directions inconsistent with such written
request by holders of a majority in principal amount at maturity of the
outstanding Notes. Such limitations do not apply, however, to a suit instituted
by a holder of a Note for the enforcement of the payment of the Default Amount
of, or any accrued and unpaid interest on, such Note on or after the respective
due dates expressed in such Note.
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During the existence of an Event of Default, the Trustee is required to
exercise such rights and powers vested in it under the Indenture and use the
same degree of care and skill in its exercise thereof as a prudent Person would
exercise under the circumstances in the conduct of such Person's own affairs.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, if an Event of Default shall occur and be continuing, the Trustee is
not under any obligation to exercise any of its rights or powers under the
Indenture at the request or direction of any of the holders unless such holders
shall have offered to such Trustee reasonable security or indemnity. Subject to
certain provisions concerning the rights of the Trustee, the holders of a
majority in principal amount at maturity of the outstanding Notes have the right
to direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred on the
Trustee.
The Indenture provides that the Trustee will, within 45 days after the
occurrence of any Default, give to the holders of the Notes notice of such
Default known to it, unless such Default shall have been cured or waived;
PROVIDED that the Trustee shall be protected in withholding such notice if it
determines in good faith that the withholding of such notice is in the interest
of such holders.
The Company is required to furnish to the Trustee annually a statement as to
its compliance with all conditions and covenants under the Indenture.
DEFEASANCE
The Company may at any time terminate all of its obligations with respect to
the Notes ("defeasance"), except for certain obligations, including those
regarding any trust established for a defeasance and obligations to register the
transfer or exchange of the Notes, to replace mutilated, destroyed, lost or
stolen Notes as required by the Indenture and to maintain agencies in respect of
the Notes. The Company may at any time terminate its obligations under certain
covenants set forth in the Indenture, some of which are described under "Certain
Covenants" above, and any omission to comply with such obligations shall not
constitute a Default with respect to the Notes ("covenant defeasance"). To
exercise either defeasance or covenant defeasance, the Company must irrevocably
deposit in trust with the Trustee, for the benefit of the holders of the Notes,
money (in United States dollars) or U.S. government obligations (denominated in
United States dollars), or a combination thereof, in such amounts as will be
sufficient to pay the principal of, premium, if any, and interest on the
outstanding Notes to redemption or maturity and comply with certain other
conditions, including the delivery of a legal opinion as to certain tax matters.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of Notes)
as to all outstanding Notes when either (a) all such Notes theretofore
authenticated and delivered (except lost, stolen or destroyed Notes that have
been replaced or paid and Notes for whose payment money has theretofore been
deposited in trust or segregated and held in trust by the Company and thereafter
repaid to the Company or discharged from such trust) have been delivered to the
Trustee for cancellation or (b)(i) all such Notes not theretofore delivered to
the Trustee for cancellation have become due and payable by their terms or shall
have been called for redemption and the Company has irrevocably deposited or
caused to be deposited with the Trustee as trust funds in trust for the purpose
an amount of money sufficient to pay and discharge the entire Indebtedness on
the Notes not theretofore delivered to the Trustee for cancellation or
redemption, for the principal amount, premium, if any, and accrued interest to
the date of such deposit; (ii) the Company has paid all other sums payable by it
under the Indenture; and (iii) the Company has delivered irrevocable
instructions to the Trustee to apply the deposited money toward the payment of
the Notes at maturity or on the redemption date, as the case may be. In
addition, the Company must deliver an Officers' Certificate and an Opinion of
Counsel stating that all conditions precedent to satisfaction and discharge have
been complied with.
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AMENDMENTS AND WAIVERS
From time to time the Company, when authorized by resolutions of its Board,
and the Trustee, without the consent of the holders of the Notes, may amend,
waive or supplement the Indenture or the Notes for certain specified purposes,
including, among other things, curing ambiguities, defects or inconsistencies,
maintaining the qualification of the Indenture under the Trust Indenture Act or
making any change that does not adversely affect the rights of any holder. Other
amendments and modifications of the Indenture and the Notes may be made by the
Company and the Trustee with the consent of the holders of not less than a
majority of the aggregate principal amount at maturity of the outstanding Notes
(including consents obtained in connection with a tender offer or exchange offer
for Notes); PROVIDED that no such modification or amendment may, without the
consent of the holder of each outstanding Note affected thereby, (i) reduce the
principal amount at maturity of, extend the fixed maturity of, or alter the
redemption provisions of, the Notes or amend or modify the calculation of the
Accreted Value or the Default Amount so as to reduce the amount of the Accreted
Value or the Default Amount, (ii) change the currency in which any Notes or any
premium or the accrued interest thereon is payable, (iii) reduce the percentage
in principal amount at maturity outstanding of Notes who must consent to an
amendment, supplement or waiver or consent to take any action under the
Indenture or the Notes, (iv) impair the right to institute suit for the
enforcement of any payment on or with respect to the Notes, (v) waive a default
in payment with respect to the Notes, (vi) reduce the rate or extend the time
for payment of interest on the Notes or (vii) adversely affect the ranking of
the Notes in a manner adverse to the holder of the Notes.
In addition, without the consent of at least 66 2/3% in principal amount at
maturity of the Notes then outstanding (including consents obtained in
connection with a tender offer or exchange offer for Notes), no amendment to the
Indenture may make any change in, and no waiver may be made with respect to any
Default in the performance of, the provisions described above under the captions
"Change in Control" and "Disposition of Proceeds of Asset Sales."
CONCERNING THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in the Indenture. If an Event of Default has occurred and is continuing, the
Trustee will exercise such rights and powers vested in it under the Indenture
and use the same degree of care and skill in its exercise as a prudent Person
would exercise under the circumstances in the conduct of such Person's own
affairs.
The Indenture and the provisions of the Trust Indenture Act incorporated by
reference therein contain certain limitations on the rights of the Trustee
thereunder, should it become a creditor of the Company, to obtain payment of
claims in certain cases, or to realize on certain property received by it in
respect of any such claims, as security or otherwise. The Trustee is permitted
to engage in other transactions; PROVIDED, HOWEVER, that if it acquires any
conflicting interest, it must eliminate such conflict or resign.
GOVERNING LAW
The Indenture and the Notes will be governed by, and construed in accordance
with, the laws of the State of New York without giving effect to the principles
of conflicts of law thereof.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for any other capitalized terms used herein for which
no definition is provided.
"ACCRETED VALUE" as of any Specified Date, means with respect to each $1,000
principal amount at maturity of Notes:
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(i) if the Specified Date occurs on one of the following dates (each, a
"Semi-Annual Accrual Date"), the amount set forth below opposite such
date:
<TABLE>
<CAPTION>
SEMI-ANNUAL ACCRUAL DATE ACCRETED VALUE
- --------------------------------------------------------------- --------------
<S> <C>
, 1996......................................... $
, 1997.........................................
, 1997.........................................
, 1998.........................................
, 1998.........................................
, 1999.........................................
, 1999.........................................
, 2000.........................................
, 2000.........................................
, 2001.........................................
, 2001......................................... $ 1,000.00
</TABLE>
(ii)if the Specified Date occurs before the first Semi-Annual Accrual
Date, the sum of (A) the original issue price and (B) an amount equal
to the product of (1) the Accreted Value for the first Semi-Annual Accrual
Date less the original issue price and (2) a fraction, the numerator of
which is the number of days from the Issue Date to the Specified Date, using
a 360-day year of twelve 30-day months, and the denominator of which is the
number of days elapsed from the issue date of the Notes to the first Semi-
Annual Accrual Date, using a 360-day year of twelve 30-day months;
(iii)
if the Specified Date occurs between two Semi-Annual Accrual Dates,
the sum of (A) the Accreted Value for the Semi-Annual Accrual Date
immediately preceding the Specified Date and (B) an amount equal to the
product of (1) the Accreted Value for the immediately following Semi-Annual
Accrual Date less the Accreted Value for the immediately preceding
Semi-Annual Accrual Date and (2) a fraction, the numerator of which is the
number of days from the immediately preceding Semi-Annual Accrual Date to
the Specified Date, using a 360-day year of twelve 30-day months, and the
denominator of which is 180; or
(iv)if the Specified Date occurs after the last Semi-Annual Accrual Date,
$1,000.
"ACQUIRED DEBT" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"ADJUSTED CONSOLIDATED NET INCOME" means, for any period, the aggregate net
income (or loss) of the Company and its Restricted Subsidiaries for such period
determined in conformity with GAAP; PROVIDED that the following items shall be
excluded in computing Adjusted Consolidated Net Income (without duplication):
(i) the net income of any Person (other than net income attributable to a
Restricted Subsidiary) in which any Person (other than the Company or any of its
Restricted Subsidiaries) has a joint interest and the net income of any
Unrestricted Subsidiary, except to the extent of the amount of dividends or
other distributions actually paid to the Company or any of its Restricted
Subsidiaries by such other Person (including, without limitation, an
Unrestricted Subsidiary) during such period; (ii) solely for the purposes of
calculating the amount of Restricted Payments that may be made pursuant to
clause (C) of the first paragraph of the "Limitation on Restricted Payments"
covenant described above (and in such case, except to the extent includable
pursuant to clause (i) above), the net income (or loss) of any Person accrued
prior to the date it becomes a Restricted Subsidiary or is merged into or
consolidated with the Company or any of its Restricted Subsidiaries or all or
substantially all of the property and assets of such Person are acquired by the
Company or any of its Restricted Subsidiaries; (iii) the net income of any
Restricted Subsidiary to the extent that the declaration or payment of dividends
or similar distributions by such Restricted Subsidiary of such net income is not
at the time permitted by the operation of
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the terms of its charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to such Restricted
Subsidiary; (iv) any gains or losses (on an after-tax basis) attributable to
Asset Sales; (v) except for purposes of calculating the amount of Restricted
Payments that may be made pursuant to clause (C) of the first paragraph of the
"Limitation on Restricted Payments" covenant described above, any amount paid
as, or accrued for, cash dividends on Preferred Stock of the Company or any
Restricted Subsidiary owned by Persons other than the Company and any of its
Restricted Subsidiaries; and (vi) all extraordinary or nonrecurring gains and
losses.
"ADJUSTED CONSOLIDATED NET TANGIBLE ASSETS" means the total amount of assets
of the Company and its Restricted Subsidiaries (less applicable depreciation,
amortization and other valuation reserves), except to the extent resulting from
write-ups of capital assets (excluding write-ups in connection with accounting
for acquisitions in conformity with GAAP), after deducting therefrom (i) all
current liabilities of the Company and its Restricted Subsidiaries (excluding
intercompany items) and (ii) all goodwill, trade names, trademarks, patents,
unamortized debt discount and expense and other like intangibles (other than
licenses issued by the FCC), all as set forth on the quarterly or annual
consolidated balance sheet of the Company and its Restricted Subsidiaries,
prepared in conformity with GAAP and most recently filed with the Commission
pursuant to the "Reports" covenant; PROVIDED that the value of any licenses
issued by the FCC shall, in the event of an auction for similar licenses, be
equal to the fair market value ascribed thereto in good faith by the Board and
evidenced by a resolution of the Board. As used in the Indenture, references to
financial statements of the Company and its Restricted Subsidiaries shall be
adjusted to exclude Unrestricted Subsidiaries if the context requires.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; PROVIDED that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control. For purposes of the Indenture, the term "Affiliate"
shall at all times include Laurence S. Zimmerman, Landover Holdings Corporation
and their respective Affiliates.
"ART LICENSING" means ART Licensing Corp., a Delaware corporation and a
wholly owned subsidiary of the Company, or any successor thereto, or such other
Subsidiary or Subsidiaries of the Company formed for the purpose of the
application for, acquisition of or ownership of FCC licenses and authorizations.
"ART WEST" means ART West Joint Venture, a Delaware partnership owned by the
Company and Extended Communications, Inc.
"ASSET ACQUISITION" means (i) an Investment by the Company or any of its
Restricted Subsidiaries in any other Person pursuant to which such Person shall
become a Restricted Subsidiary of the Company or shall be merged into or
consolidated with the Company or any of its Restricted Subsidiaries or (ii) an
acquisition by the Company or any of its Restricted Subsidiaries of the property
and assets of any Person other than the Company or any of its Restricted
Subsidiaries that constitute substantially all of a division or line of business
of such Person.
"ASSET SALE" means any sale, transfer or other disposition (including by way
of merger, consolidation or sale-leaseback transaction) in one transaction or a
series of related transactions by the Company or any of its Restricted
Subsidiaries to any Person other than the Company or any of its Restricted
Subsidiaries of (i) all or any of the Capital Stock of any Restricted
Subsidiary, (ii) all or substantially all of the property and assets of an
operating unit or business of the Company or any of its Restricted Subsidiaries
or (iii) any other property or assets of the Company or any of its Restricted
Subsidiaries (including Capital Stock of any Unrestricted Subsidiaries) outside
the ordinary course of business of the Company or such Restricted Subsidiary;
PROVIDED that the following shall not be included within the meaning of "Asset
Sale": (A) sales or other dispositions of inventory, receivables and other
current assets;
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(B) sales or other dispositions of equipment that has become worn out, obsolete,
damaged or otherwise unsuitable for use in connection with the business of the
Company or its Restricted Subsidiaries; (C) Permitted Asset Swaps; (D) sales,
transfers or other dispositions otherwise constituting Asset Sales in an
aggregate amount not to exceed $500,000 during the relevant twelve-month period
referred to in the "Disposition of Proceeds of Asset Sales" covenant; (E) any
Restricted Payment permitted by the "Limitation on Restricted Payments"
covenant; (F) any Lien permitted to be Incurred by the "Limitation on Liens
Securing Certain Indebtedness" covenant; (G) any transaction that is governed by
the provisions of the "Consolidation, Merger, Sale of Assets, Etc." covenant;
(H) any sale, transfer or other disposition of the Capital Stock of an
Unrestricted Subsidiary; and (I) any disposition pursuant to the Option
Agreement, dated as of July 3, 1996, between the Company and Commco, L.L.C.
"AVERAGE LIFE" means, at any date of determination with respect to any debt
security, the quotient obtained by dividing (i) the sum of the products of (A)
the number of years from such date of determination to the dates of each
successive scheduled principal payment of such debt security and (B) the amount
such principal payment by (ii) the sum of all such principal payments.
"BOARD" means the Board of Directors of the Company.
"CAPITAL STOCK" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
"CAPITALIZED LEASE" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) of which the discounted present value
of the rental obligations of such Person as lessee, in conformity with GAAP, is
required to be capitalized on the balance sheet of such Person; and "Capitalized
Lease Obligations" means the discounted present value of the rental obligations
under such lease.
"CHANGE IN CONTROL" means such time as (i) a "person" or "group" (within the
meaning of Sections 13(d) and 14(d)(2) of the Exchange Act) becomes the ultimate
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of Voting
Stock representing more than 50% of the total voting power of the Voting Stock
of the Company on a fully diluted basis, (ii) individuals who on the Issue Date
constitute the Board (together with any new directors whose election by the
Board or whose nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds of the members of the Board then in
office who either were members of the Board on the Issue Date or whose election
or nomination for election was previously so approved) cease for any reason to
constitute a majority of the members of the Board then in office and (iii) the
merger or consolidation of the Company with or into another corporation, or the
merger or consolidation of another corporation with and into the Company, with
the effect that, immediately after such transaction, the stockholders of the
Company immediately prior to such transaction hold less than 50% of the Voting
Stock of the Person surviving such merger or consolidation.
"COMMON STOCK" means the common stock, par value $.001 per share, of the
Company.
"CONSOLIDATED EBITDA" means, for any period, the sum of the amounts for such
period of (i) Adjusted Consolidated Net Income, (ii) Consolidated Interest
Expense, to the extent such amount was deducted in calculating Adjusted
Consolidated Net Income, (iii) income taxes, to the extent such amount was
deducted in calculating Adjusted Consolidated Net Income (other than income
taxes (either positive or negative) attributable to extraordinary and
non-recurring gains or losses or sales of assets), (iv) depreciation expense, to
the extent such amount was deducted in calculating Adjusted Consolidated Net
Income, (v) amortization expense, to the extent such amount was deducted in
calculating Adjusted Consolidated Net Income, (vi) all other non-cash items
reducing Adjusted Consolidated Net Income (other than items that will require
cash payments and for which an accrual or reserve is, or is required by GAAP to
be, made), less all non-cash items increasing Adjusted Consolidated Net
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Income and (vii) all cash dividend payments (and non-cash dividend payments in
the case of a Person that is a Restricted Subsidiary) on any series of preferred
stock of such Person, all as determined on a consolidated basis for the Company
and its Restricted Subsidiaries in conformity with GAAP; PROVIDED that, if any
Restricted Subsidiary is not a Wholly Owned Restricted Subsidiary, Consolidated
EBITDA shall be reduced (to the extent not otherwise reduced in accordance with
GAAP) by an amount equal to (A) the amount of the Adjusted Consolidated Net
Income attributable to such Restricted Subsidiary MULTIPLIED BY (B) the quotient
of (1) the number of shares of outstanding Common Stock of such Restricted
Subsidiary not owned on the last day of such period by the Company or any of its
Restricted Subsidiaries DIVIDED BY (2) the total number of shares of outstanding
Common Stock of such Restricted Subsidiary on the last day of such period.
Notwithstanding the foregoing, the provision for taxes based on the income or
profits of, and the depreciation and amortization and other non-cash charges of,
a Restricted Subsidiary of a Person shall be added to Adjusted Consolidated Net
Income to compute Consolidated EBITDA only to the extent (and in the same
proportion) that the net income of such Restricted Subsidiary was included in
calculating the Adjusted Consolidated Net Income of such Person and only if a
corresponding amount would be permitted at the date of determination to be
dividended to the Company by such Restricted Subsidiary without prior approval
(that has not been obtained), pursuant to the terms of its charter and all
agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to that Restricted Subsidiary or its
stockholders.
"CONSOLIDATED INTEREST EXPENSE" means, for any period, the aggregate amount
of interest in respect of Indebtedness (including amortization of original issue
discount on any Indebtedness and the interest portion of any deferred payment
obligation, calculated in accordance with the effective interest method of
accounting; all commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing and net payments
(if any) pursuant to Hedging Obligations; and Indebtedness that is Guaranteed or
secured by the Company or any of its Restricted Subsidiaries) and all but the
principal component of rentals in respect of Capitalized Lease Obligations paid,
accrued or scheduled to be paid or to be accrued by the Company and its
Restricted Subsidiaries during such period; EXCLUDING, HOWEVER, (i) any amount
of such interest of any Restricted Subsidiary if the net income of such
Restricted Subsidiary is excluded from the calculation of Adjusted Consolidated
Net Income pursuant to clause (iii) of the definition thereof (but only in the
same proportion as the net income of such Restricted Subsidiary is excluded from
the calculation of Adjusted Consolidated Note Income pursuant to clause (iii) of
the definition thereof) and (ii) any premiums, fees and expenses (and any
amortization thereof) payable in connection with the offering of the Notes, all
as determined on a consolidated basis (without taking into account Unrestricted
Subsidiaries) in conformity with GAAP.
"CREDIT FACILITY" means a bank credit facility, to be entered into among the
Company, Canadian Imperial Bank of Commerce, Inc., as agent (the "Agent"), and
certain lenders to be party thereto, on substantially the terms set forth in the
Summary of Terms and Conditions of the Agent, dated as of June 23, 1996, and any
amendment, extension, restatement, refinancing or refunding thereof; PROVIDED
that the Company and the Agent shall have (A) executed a commitment letter with
respect to such facility not later than January 1, 1997 and (B) entered into
such facility not later than June 30, 1997; PROVIDED FURTHER that, in the event
that the Company and the Agent shall have failed to execute a commitment letter
or enter into such facility within the time periods specified in the second
provision of this definition, clauses (xiii) and (xiv) of the second paragraph
of the "Limitation on Indebtedness" covenant shall be of no further force and
effect.
"DEFAULT" means any event that is, or with the passage of time or the giving
of notice or both would be, an Event of Default.
"DEFAULT AMOUNT" means (i) as of any date prior to , 2001, the
Accreted Value of the Notes (plus any applicable premium thereon) as of such
date and (ii) as of any date on or after , 2001, 100% of the
principal amount at maturity of the Notes (plus any applicable premium thereon).
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"DIRECTED INVESTMENT" means any Investment in a Telecommunications Business
that is made by investing the net proceeds of the issuance of Capital Stock
(other than Redeemable Stock) by the Company (or options, warrants or other
rights to purchase such Capital Stock) after the Issue Date; PROVIDED that such
Investment shall be made with such net proceeds in the form received by the
Company and shall be limited to an amount equal to (A) 50% of such net proceeds
to the extent that such net proceeds consist of cash, and (B) 100% of such net
proceeds to the extent such net proceeds consist of Capital Stock or
Telecommunications Assets; PROVIDED FURTHER that such Investment is made within
180 days of such issuance of Capital Stock.
"EQUITY OFFERING" means an underwritten public offering or flotation of
Common Stock of the Company which has been registered under the Securities Act
and/or admitted to listing on a national securities exchange.
"FAIR MARKET VALUE" means the price that would be paid in an arm's length
transaction between an informed and willing seller under no compulsion to sell
and an informed and willing buyer under no compulsion to buy, as determined in
good faith by the Board (whose determination shall be conclusive) and evidenced
by a resolution of the Board.
"FCC" means the United States Federal Communications Commission and any
state or local telecommunications authority, department, commission or agency
(and any successors thereto).
"GAAP" means generally accepted accounting principles in the United States
of America as in effect from time to time, including, without limitation, those
set forth in the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession. All ratios and computations contained in the Indenture
shall be computed in conformity with GAAP applied on a consistent basis, except
that calculations made for purposes of determining compliance with the terms of
the covenants and with other provisions of the Indenture shall be made without
giving effect to (i) the amortization of any expenses incurred in connection
with the offering of the Notes and (ii) except as otherwise provided, the
amortization of any amounts required or permitted by Accounting Principles Board
Opinion Nos. 16 and 17.
"GUARANTEE" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness or other obligation of any
other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness or other obligation of such other Person (whether arising by virtue
of partnership arrangements, or by agreements to keep-well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (ii) entered into for purposes of assuring
in any other manner the obligee of such Indebtedness or other obligation of the
payment thereof or to protect such obligee against loss in respect thereof (in
whole or in part); PROVIDED that the term "Guarantee" shall not include
endorsements for collection or deposit in the ordinary course of business. The
term "Guarantee" used as a verb has a corresponding meaning.
"HEDGING OBLIGATIONS" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates.
"INCUR" means, with respect to any Indebtedness, to incur, create, issue,
assume, Guarantee or otherwise become liable for or with respect to, or become
responsible for, the payment of, contingently or otherwise, such Indebtedness,
including, with respect to the Company and its Restricted Subsidiaries, an
"incurrence" of Indebtedness by reason of a Person becoming a Restricted
Subsidiary of the Company; PROVIDED that neither the accrual of interest nor the
accretion of original issue discount shall be considered an Incurrence of
Indebtedness.
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"INDEBTEDNESS" means, with respect to any Person at any date of
determination (without duplication), (i) all indebtedness of such person for
borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments (whether negotiable or
non-negotiable), (iii) all obligations of such Person in respect of letters of
credit or other similar instruments (including reimbursement obligations with
respect thereto), (iv) all obligations of such Person to pay the deferred and
unpaid purchase price of property or services, which purchase price is due more
than six months after the date of placing such property in service or taking
delivery and title thereto or the completion of such services, except trade
payables and escrows, holdbacks and comparable arrangements to secure
indemnification obligations under acquisition agreements, (v) all obligations of
such Person as lessee under Capitalized Leases, (vi) all indebtedness of other
Persons secured by a Lien on any asset of such Person, whether or not such
indebtedness is assumed by such Person, PROVIDED that the amount of such
indebtedness shall be the lesser of (A) the fair market value of such asset at
such date of determination and (B) the amount of such indebtedness, (vii) the
balance deferred and unpaid of the purchase price of any property or
representing any Hedging Obligations, except any such balance that constitutes
an accrued expense or trade payable and (viii) all indebtedness of other Persons
Guaranteed by such Person to the extent such indebtedness is Guaranteed by such
Person. The amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date of all unconditional obligations as described
above and, with respect to contingent obligations that are included in any of
clauses (i) through (viii) above, the maximum liability upon the occurrence of
the contingency giving rise to the obligation, PROVIDED (A) that the amount
outstanding at any time of any Indebtedness issued with original issue discount
is the face amount of such Indebtedness and (B) that Indebtedness shall not
include any liability for federal, state, local or other taxes.
"INDEBTEDNESS TO EBITDA RATIO" means, as at any date of determination, the
ratio of (i) the aggregate amount of Indebtedness of the Company and its
Restricted Subsidiaries on a consolidated basis ("Consolidated Indebtedness") as
at the date of determination (the "Transaction Date") to (ii) the Consolidated
EBITDA of the Company for the then most recent four full fiscal quarters for
which reports have been filed pursuant to the "Reports" covenant described above
(such four full fiscal quarter period being referred to herein as the "Four
Quarter Period"); PROVIDED that (x) pro forma effect shall be given to any
Indebtedness Incurred from the beginning of the Four Quarter Period through the
Transaction Date (including any Indebtedness Incurred on the Transaction Date),
to the extent outstanding on the Transaction Date, (y) if during the period
commencing on the first day of such Four Quarter Period through the Transaction
Date (the "Reference Period"), the Company or any of the Restricted Subsidiaries
shall have engaged in any Asset Sale, Consolidated EBITDA for such period shall
be reduced by an amount equal to the EBITDA (if positive), or increased by an
amount equal to the EBITDA (if negative), directly attributable to the assets
which are the subject of such Asset Sale any related retirement of Indebtedness
as if such Asset Sale and related retirement of Indebtedness had occurred on the
first day of such Reference Period or (z) if during such Reference Period the
Company or any of the Restricted Subsidiaries shall have made any Asset
Acquisition, Consolidated EBITDA of the Company shall be calculated on a pro
forma basis as if such Asset Acquisition and any Incurrence of Indebtedness to
finance such Asset Acquisition had taken place on the first day of such
Reference Period.
"INDEBTEDNESS TO TOTAL MARKET CAPITALIZATION RATIO" means, at any date of
determination, the ratio of (i) the aggregate amount of Indebtedness of the
Company and Restricted Subsidiaries on a consolidated basis outstanding to (ii)
the Total Market Capitalization of the Company.
"INVESTMENT" in any Person means any direct or indirect advance, loan or
extension of credit (including, without limitation, by way of Guarantee or
similar arrangement; but excluding advances to customers in the ordinary course
of business that are, in conformity with GAAP, recorded as accounts receivable
on the balance sheet of the Company or its Restricted Subsidiaries) or capital
contribution to (by means of any transfer of cash or other property to others or
any payment for property or services for the account or use of others), or any
purchase or acquisition of Capital Stock, bonds, notes, debentures or other
similar instruments issued by, such Person and shall include (i) the designation
of a Restricted Subsidiary as an Unrestricted Subsidiary and (ii) the fair
market value of the Capital Stock held by the
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Company and the Restricted Subsidiaries of any Person that has ceased to be a
Restricted Subsidiary by reason of any transaction permitted by clause (iii) of
the "Limitation on the Issuance and Sale of Capital Stock of Restricted
Subsidiaries" covenant. For purposes of the definition of "Unrestricted
Subsidiary" and the "Limitation on Restricted Payments" covenant, (i)
"Investment" shall include the fair market value of the assets (net of
liabilities) of any Restricted Subsidiary of the Company at the time that such
Restricted Subsidiary is designated an Unrestricted Subsidiary and shall exclude
the fair market value of the assets (net of liabilities) of any Unrestricted
Subsidiary at the time that such Unrestricted Subsidiary is designated a
Restricted Subsidiary of the Company and (ii) any property transferred to or
from an Unrestricted Subsidiary shall be valued at its fair market value at the
time of such transfer, in each case as determined by the Board in good faith.
"ISSUE DATE" means the date of original issuance of the Notes.
"LIEN" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the nature
thereof, any option or other agreement to sell or give a security interest in
and any filing of or agreement to give any financing statement under the Uniform
Commercial Code (or equivalent statutes) of any jurisdiction).
"NET CASH PROCEEDS" means (a) with respect to any Asset Sale, the proceeds
of such Asset Sale in the form of cash or cash equivalents, including payments
in respect of deferred payment obligations (to the extent corresponding to the
principal, but not interest, component thereof) when received in the form of
cash or cash equivalents (except to the extent such obligations are financed or
sold with recourse to the Company or any Restricted Subsidiary of the Company)
and proceeds from the conversion of other property received when converted to
cash or cash equivalents, net of (i) brokerage commissions and other fees and
expenses (including fees and expenses of counsel and investment bankers) related
to such Asset Sale, (ii) provisions for all taxes (whether or not such taxes
will actually be paid or are payable) as a result of such Asset Sale without
regard to the consolidated results of operations of the Company and its
Restricted Subsidiaries, taken as a whole, (iii) payments made to repay
Indebtedness or any other obligation outstanding at the time of such Asset Sale
that either (A) is secured by a Lien on the property or assets sold or (B) is
required to be paid as a result of such sale and (iv) appropriate amounts to be
provided by the Company or any Restricted Subsidiary of the Company as a reserve
against any liabilities associated with such Asset Sale, including, without
limitation, pension and other post-employment benefit liabilities, liabilities
related to environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale, all as determined in conformity
with GAAP and (b) with respect to any issuance or sale of Capital Stock, the
proceeds of such issuance or sale in the form of cash or cash equivalents,
including payments in respect of deferred payment obligations (to the extent
corresponding to the principal, but not interest, component thereof) when
received in the form of cash or cash equivalents (except to the extent such
obligations are financed or sold with recourse to the Company or any Restricted
Subsidiary of the Company) and proceeds from the conversion of other property
received when converted to cash or cash equivalents, net of attorney's fees,
underwriters' or placement agents' fees, discounts or commissions and brokerage,
consultant and other fees incurred in connection with such issuance or sale and
net of taxes paid or payable as a result thereof.
"NON-RECOURSE DEBT" means Indebtedness (a) as to which neither the Company
nor any of its Restricted Subsidiaries (i) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness) or (ii) is directly or indirectly liable (as a guarantor or
otherwise); (b) no default with respect to which (including any rights that the
holders thereof may have to take enforcement action against an Unrestricted
Subsidiary) would permit (upon notice, lapse of time or both) any holder of any
other Indebtedness (other than the Notes) of the Company or any of its
Restricted Subsidiaries to declare a default on such other Indebtedness or cause
the payment thereof to be accelerated or payable prior to its stated maturity;
and (c) as to which the lender of any indebtedness
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for borrowed money in an aggregate amount in excess of $5.0 million has been
notified in writing that such lender will not have any recourse to the stock or
assets of the Company or any of its Restricted Subsidiaries.
"OFFER TO PURCHASE" means an offer to purchase Notes by the Company from the
holders that is required by the "Disposition of Proceeds of Asset Sales" or
"Change in Control" covenants of the Indenture and which is commenced by mailing
a notice to the Trustee and each holder stating: (i) the covenant pursuant to
which the offer is being made and that all Notes validly tendered will be
accepted for payment on a pro rata basis; (ii) the purchase price and the date
of purchase (which shall be a business day no earlier than 30 days nor later
than 60 days from the date such notice is mailed) (the "Payment Date"); (iii)
that any Note not tendered will continue to accrue interest pursuant to its
terms; (iv) that, unless the Company defaults in the payment of the purchase
price, any Note accepted for payment pursuant to the Offer to Purchase shall
cease to accrue interest on and after the Payment Date; (v) that holders
electing to have a Note purchased pursuant to the Offer to Purchase will be
required to surrender the Note together with the form entitled "Option of the
Holder to Elect Purchase" on the reverse side thereof completed, to the Paying
Agent at the address specified in the notice prior to the close of business on
the business day immediately preceding the Payment Date; (vi) that holders will
be entitled to withdraw their election if the Payment Agent receives, not later
than the close of business on the third business day immediately preceding the
Payment Date, a telegram, facsimile transmission or letter setting forth the
name of such holder, the principal amount of Notes delivered for purchase and a
statement that such holder is withdrawing his election to have such Notes
purchased; and (vii) that holders whose Notes are being purchased only in part
will be issued new Notes equal in principal amount to the unpurchased portion
thereof; PROVIDED that each Note purchased and each new Note issued shall be in
a principal amount of $1,000 or integral multiples thereof. On the Payment Date,
the Company shall (i) accept for payment on a pro rata basis Notes or portions
thereof tendered pursuant to an Offer to Purchase, (ii) deposit with the Paying
Agent money sufficient to pay the purchase price of all Notes or portions
thereof so accepted and (iii) deliver, or cause to be delivered, to the Trustee
all Notes or portions thereof so accepted together with an Officers' Certificate
specifying the Notes or portions thereof so accepted for payment by the Company.
The Paying Agent shall promptly mail to the holders of Notes so accepted for
payment in an amount equal to the purchase price, and the Trustee shall promptly
authenticate and mail to such holders a new Note equal in principal amount to
any unpurchased portion of the Note surrendered; PROVIDED that each Note
purchased and each new Note issued shall be in a principal amount of $1,000 or
integral multiples thereof. The Company will publicly announce the results of an
Offer to Purchase as soon as practicable after the Payment Date. The Trustee
shall act as the Paying Agent for an Offer to Purchase. The Company will comply
with Rule 14e-1 under the Exchange Act and any other securities laws and
regulations thereunder to the extent such laws and regulations are applicable,
in the event that the Company is required to repurchase Notes pursuant to an
Offer to Purchase.
"PERMITTED ASSET SWAP" means any disposition by the Company or any of its
Restricted Subsidiaries of Telecommunications Assets or a majority of the Voting
Stock of a Restricted Subsidiary in exchange for comparable Telecommunications
Assets or a majority of the Voting Stock of a comparable Restricted Subsidiary;
PROVIDED that the Board shall have approved such disposition and exchange and
determined the fair market value of the assets subject to such transaction as
evidenced by a resolution of the Board or such fair market value has been
determined by a written opinion of an investment banking firm of national
standing or other recognized independent expert with experience appraising the
terms and conditions of the type of transaction contemplated thereby.
"PERMITTED INVESTMENTS" MEANS:
(i) an Investment in a Restricted Subsidiary or a Person which will,
upon the making of such Investment, become a Restricted Subsidiary or be
merged or consolidated with or into or transfer or convey all or
substantially all its assets to, the Company or a Restricted Subsidiary;
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(ii) Temporary Cash Investments;
(iii) payroll, travel and similar advances to cover matters that are
expected at the time of such advances ultimately to be treated as expenses
in accordance with GAAP;
(iv) loans or advances to employees (other than executive officers of
the Company) in an aggregate principal amount not to exceed $1.0 million at
any one time outstanding;
(v) stock, obligations or securities received in satisfaction of
judgments;
(vi) Investments, to the extent that the consideration provided by the
Company or any of its Restricted Subsidiaries consists solely of Capital
Stock (other than Redeemable Stock) of the Company;
(vii) notes payable to the Company that are received by the Company as
payment of the purchase price for Capital Stock (other than Redeemable
Stock) of the Company;
(viii) Investments in an aggregate amount not to exceed $20.0 million at
any one time outstanding;
(ix) Investments in an aggregate amount not to exceed $1.0 million at
any time outstanding in Unrestricted Subsidiaries engaged in the
Telecommunications Business outside of the United States;
(x) Investments in entities (other than ART West) that own licenses
granted by the FCC; PROVIDED that (A) such Investments are made pursuant to
a senior promissory note, in an amount equal to such Investment, that by its
terms is payable in full at or before any required repayment of principal on
the Notes, (B) such promissory note is secured equally and ratably with (or
prior to) any other secured Indebtedness of such entity, (C) such Investment
is made and used for the purpose of effecting, and does not exceed the
amount reasonably required to effect, the minimum build-out with respect to
such licenses that is required by the FCC as a prerequisite to the transfer
of a majority equity interest in such entity to the Company or one of its
Restricted Subsidiaries, as determined in good faith by the Board and (D)
the Company, at the time such Investment is made, had a contractual right
to, and intends (subject in all cases to compliance with applicable FCC
rules and regulations) to, acquire such majority equity interest;
(xi) Investments existing on the Issue Date;
(xii) the acquisition of all equity interests of ART West not otherwise
owned by the Company; and
(xiii) Directed Investments.
"PERMITTED LIENS" MEANS:
(i) Liens for taxes, assessments, governmental charges or claims that
are being contested in good faith by appropriate legal proceedings timely
instituted and diligently conducted and for which a reserve or other
appropriate provision, if any, as shall be required in conformity with GAAP
shall have been made;
(ii) statutory or common law Liens of landlords and carriers,
warehousemen, mechanics, suppliers, materialmen, repairmen or other similar
Liens arising in the ordinary course of business and with respect to amounts
not yet delinquent or being contested in good faith by appropriate legal
proceedings timely instituted and diligently conducted and for which a
reserve or other appropriate provision, if any, as shall be required in
conformity with GAAP shall have been made;
(iii) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security;
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(iv) Liens incurred or deposits made to secure the performance of
tenders, bids, leases, statutory or regulatory obligations, bankers'
acceptances, surety and appeal bonds, government contracts, performance and
return- of-money bonds and other obligations of a similar nature incurred in
the ordinary course of business (exclusive of obligations for the payment of
borrowed money) and a bank's unexercised right of set-off with respect to
deposits made in the ordinary course;
(v) easements, rights-of-way, municipal and zoning ordinances and
similar charges, encumbrances, title defects or other irregularities that do
not materially interfere with the ordinary course of business of the Company
or any of its other irregularities that do not materially interfere with the
ordinary course of business of the Company or any of its Subsidiaries;
(vi) Liens (including extensions and renewals thereof) upon real or
personal property acquired after the Issue Date; PROVIDED that (A) such Lien
is created solely for the purpose of securing Indebtedness Incurred in
accordance with the "Limitation on Indebtedness" covenant, (1) to finance
the cost (including the cost of improvement or construction) of the item of
property or assets subject thereto and such Lien is created prior to, at the
time of or within six months after the later of the acquisition, the
completion of construction or the commencement of full operation of such
property or (2) to refinance any Indebtedness previously so secured, (B) the
principal amount of the Indebtedness secured by such Lien does not exceed
100% of such cost and (C) any such Lien shall not extend to or cover any
property or assets other than such item of property or assets and any
improvements on such item;
(vii) leases or subleases granted to others that do not materially
interfere with the ordinary course of business of the Company and its
Restricted Subsidiaries, taken as a whole;
(viii) Liens encumbering property or assets under construction arising
from progress or partial payments by a customer of the Company or its
Restricted Subsidiaries relating to such property or assets;
(ix) any interest or title of a lessor in the property subject to any
Capitalized Lease or operating lease;
(x) Liens arising from filing Uniform Commercial Code financing
statements regarding leases;
(xi) Liens on property of, or on shares of stock or Indebtedness of, any
corporation existing at the time such corporation becomes, or becomes a part
of, any Restricted Subsidiary; PROVIDED that such Liens do not extend to or
cover any property or assets of the Company or any Restricted Subsidiary
other than the property or assets acquired;
(xii) Liens in favor of the Company or any Restricted Subsidiary;
(xiii) Liens arising from the rendering of a final judgment or order
against the Company or any Restricted Subsidiary of the Company that does
not give rise to an Event of Default;
(xiv) Liens securing reimbursement obligations with respect to letters of
credit that encumber documents and the property relating to such letters of
credit and the products and proceeds thereof;
(xv) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with the
importation of goods;
(xvi) Liens arising out of conditional sale, title retention, consignment
or similar arrangements for the sale of goods entered into by the Company or
any of its Restricted Subsidiaries in the ordinary course of business in
accordance with the past practices of the Company and its Restricted
Subsidiaries prior to the Issue Date;
(xvii) Liens on or sales of receivables;
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(xviii) Liens securing other Indebtedness in an aggregate amount not to
exceed $250,000 at any one time;
(xix) Liens on assets of Unrestricted Subsidiaries that secure
Non-Recourse Debt of Unrestricted Subsidiaries;
(xx) Liens existing on the Issue Date;
(xxi) Liens granted after the Issue Date on any assets or Capital Stock of
the Company or its Restricted Subsidiaries created in favor of the holders
of the Notes;
(xxii) Liens with respect to the assets of a Restricted Subsidiary granted
by such Restricted Subsidiary to the Company or a Wholly Owned Restricted
Subsidiary to secure Indebtedness owing to the Company or such other Wholly
Owned Restricted Subsidiary;
(xxiii) Liens securing Indebtedness which is Incurred to refinance secured
Indebtedness which is permitted to be Incurred under clause (iii) of the
second paragraph of the "Limitation on Indebtedness" covenant; PROVIDED that
such Liens do not extend to or cover any property or assets of the Company
or any Restricted Subsidiary other than the property or assets securing the
Indebtedness being refinanced;
(xxiv) purchase money Liens upon equipment, software or systems acquired or
held by the Company or any of its Restricted Subsidiaries taken or retained
by the seller (or a financing institution acting on behalf of the seller) of
such equipment, software or systems to secure all or a part of the purchase
price therefor; PROVIDED that such Liens do not extend to or cover any
property or assets of the Company or any Restricted Subsidiary other than
the equipment so acquired; and
(xxv) Liens securing Indebtedness which is permitted to be Incurred under
clause (xiii) or (xiv) of the second paragraph of the "Limitation on
Indebtedness" covenant.
"PERSON" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"PREFERRED STOCK" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
Person's preferred or preference stock, whether now outstanding or issued after
the Issue Date, and including, without limitation, all classes and series of
preferred or preference stock of such Person.
"REDEEMABLE STOCK" means any class or series of Capital Stock of any Person
that by its terms or otherwise is (i) required to be redeemed prior to the
Stated Maturity of the Notes, (ii) redeemable at the option of the holder of
such class or series of Capital Stock at any time prior to the Stated Maturity
of the Notes (unless the redemption price is, at the Company's option, without
conditions precedent, payable solely is Common Stock (other than Redeemable
Stock) of the Company) or (iii) convertible into or exchangeable for Capital
Stock referred to in clause (i) or (ii) above or Indebtedness having a scheduled
maturity prior to the Stated Maturity of the Notes; PROVIDED that any Capital
Stock that would not constitute Redeemable Stock but for provisions thereof
giving holders thereof the right to require such Person to repurchase or redeem
such Capital Stock upon the occurrence of an "asset sale" or "change of control"
occurring prior to the Stated Maturity of the Notes shall not constitute
Redeemable Stock if the "asset sale" or "change of control" provisions
applicable to such Capital Stock are no more favorable to the holders of such
Capital Stock than the provisions contained in "Disposition of Proceeds of Asset
Sales" and "Change in Control" covenants described above and such Capital Stock
specifically provides that such Person will not repurchase or redeem any such
stock pursuant to such provision prior to the Company's repurchase of such Notes
as are required to be repurchased pursuant to the "Disposition of Proceeds of
Asset Sales" and "Change in Control" covenants described above.
"RESTRICTED SUBSIDIARY" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
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"SIGNIFICANT SUBSIDIARY" means, at any date of determination, any Restricted
Subsidiary of the Company that, together with its Subsidiaries, (i) for the most
recent fiscal year of the Company, accounted for more than 10% of the
consolidated revenues of the Company and its Restricted Subsidiaries or (ii) as
of the end of such fiscal year, had assets accounting for more than 10% of the
consolidated assets of the Company and its Restricted Subsidiaries, all as set
forth on the most recently available consolidated financial statements of the
Company for such fiscal year.
"SPECIFIED DATE" means any redemption date, any date of purchase of Notes
pursuant to the "Disposition of Proceeds of Asset Sales" or "Change in Control"
covenants described above, or any date on which the Notes are due and payable
after an Event of Default.
"STATED MATURITY" means, (i) with respect to any debt security, the date
specified in such debt security as the fixed date on which the final installment
of principal of such debt security is due and payable and (ii) with respect to
any scheduled installment of principal of or interest on any debt security, the
date specified in such debt security as the fixed date on which such installment
is due and payable.
"STRATEGIC EQUITY INVESTOR" means any company which is (or a controlled
Affiliate of any company which is or a controlled Affiliate of which is) engaged
principally in a cable or telecommunications business which has a total market
capitalization of at least $1.0 billion.
"SUBSIDIARY" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"TELECOMMUNICATIONS ASSETS" means all assets (including, without limitation,
assets consisting of subscribers), rights (contractual or otherwise) and
properties, whether tangible or intangible, used in connection with a
Telecommunications Business.
"TELECOMMUNICATIONS BUSINESS" means, when used in reference to any Person,
that such Person is engaged primarily in the business of (i) providing voice,
video or data communications services, (ii) creating, developing, marketing or
selling communications related equipment, software and other devices or (iii)
evaluating, participating in or pursuing any other activity or opportunity that
is related or incidental to those identified in clauses (i) or (ii) above.
"TEMPORARY CASH INVESTMENT" means any of the following: (i) direct
obligations of the United States or any agency thereof or obligations fully and
unconditionally guaranteed by the United States or any agency thereof; (ii) time
deposit accounts, certificates of deposit and money market deposits maturing
within six months of the date of acquisition thereof issued by a bank or trust
company which is organized under the laws of the United States, any state
thereof or any foreign country recognized by the United States, and which bank
or trust company has capital, surplus and undivided profits aggregating in
excess of $50.0 million (or the foreign currency equivalent thereof) and has
outstanding debt which is rated "A" (or such similar equivalent rating) or
higher by at least one nationally recognized statistical rating organization (as
defined in Rule 436 under the Securities Act) or any money-market fund sponsored
by a registered broker dealer or mutual fund distributor; (iii) repurchase
obligations with a term of not more than 30 days for underlying securities of
the types described in clause (i) above entered into with a bank meeting the
qualifications described in clause (ii) above; (iv) commercial paper, maturing
not more than six months after the date of acquisition, issued by a corporation
other than an Affiliate of the Company) organized and in existence under the
laws of the United States, any state thereof or any foreign country recognized
by the United States with rating at the time as of which any investment therein
is made of "P-1" (or higher) according to Moody's Investors Service, Inc. or
"A-1" (or higher) according to Standard & Poor's Ratings Group; and (v)
securities with maturities of six months
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or less from the date of acquisition issued or fully and unconditionally
guaranteed by any state, commonwealth or territory of the United States, or by
any political subdivision or taxing authority thereof, and rated at least "A" by
Standard & Poor's Ratings Group or Moody's Investors Service, Inc.; PROVIDED
that, notwithstanding the foregoing, the maturity of any of the foregoing that
is applied to provide security in favor of the Indebtedness referred to in
clause (xxiv) of the definition of "Permitted Liens" may occur as late as the
earliest date that such Indebtedness may be redeemed at the option of the
obligor with respect to such Indebtedness and provided further that the Company
shall cause such Liens referred to in such clause (xxiv) to be incurred no later
than the first anniversary of the Issue Date.
"TOTAL MARKET CAPITALIZATION" of any Person means, as of any day of
determination, the sum of (a) the consolidated Indebtedness of such Person and
its Restricted Subsidiaries on such day, PLUS (b) the product of (i) the
aggregate number of outstanding shares of Common Stock of such Person on such
day (which shall not include any options or warrants on, or securities
convertible or exchangeable into, shares of Common Stock of such Person) and
(ii) the average Closing Price of such Common Stock over the 10 consecutive
Trading Days ending not earlier than 10 Trading Days immediately prior to such
date of determination, PLUS (c) the liquidation value of any outstanding shares
of Preferred Stock of such Person on such day. If no such Closing Price exists
with respect to shares of any such class, the value of such shares for purposes
of clause (b) of the preceding sentence shall be determined by the Board in good
faith and evidenced by a resolution of the Board filed with the Trustee.
Notwithstanding the foregoing, unless the Company's Common Stock is listed on
any national securities exchange or on the Nasdaq National Market, the "Total
Market Capitalization" of the Company shall mean, as of any day of
determination, the enterprise value (without duplication) of the Company and its
Restricted Subsidiaries (including the fair market value of their debt and
equity, but excluding the enterprise value of the Company's Unrestricted
Subsidiaries), as determined by an independent banking firm of national standing
with experience in such valuations and evidenced by a written opinion in
customary form filed with the Trustee; PROVIDED that for purposes of any such
determination, the enterprise value of the Company shall be calculated as if the
Company were a publicly held corporation without a controlling stockholder. For
purposes of any such determination, such banking firm's written opinion may
state that such fair market value is no less than a specified amount and such
opinion may be as of a date no earlier than 90 days prior to the date of such
determination.
"TRADING DAY" with respect to a securities exchange or automated quotation
system means a day on which such exchange or system is open for a full day of
trading.
"UNRESTRICTED SUBSIDIARY" means any Subsidiary that is designated by the
Board as an Unrestricted Subsidiary pursuant to a resolution of the Board; but
only to the extent that such Subsidiary (i) has no Indebtedness other than
Non-Recourse Debt; (ii) is not party to any agreement, contract, arrangement or
understanding with the Company or any Restricted Subsidiary of the Company
unless the terms of any such agreement, contract, arrangement or understanding
are no less favorable to the Company or such Restricted Subsidiary than those
that might be obtained at the time from Persons who are not Affiliates of the
Company; (iii) is a Person with respect to which neither the Company nor any of
its Restricted Subsidiaries has any direct or indirect obligation (A) to
subscribe for additional equity interests, except to the extent that such
obligation complies with the "Limitation on Restricted Payments" covenant, or
(B) to maintain or preserve such Person's financial condition or to cause such
Person to achieve any specified levels of operating results; (iv) is not a
guarantor of or otherwise directly or indirectly provides credit support for any
Indebtedness of the Company or any of its Restricted Subsidiaries; and (v) has,
immediately prior to the commencement of material business operations, at least
one director on its board of directors that is not a director or executive
officer of the Company or any of its Restricted Subsidiaries and has at least
one executive officer that is not a director or executive officer of the Company
or any of its Restricted Subsidiaries. Any such designation by the Board shall
be evidenced to the Trustee by filing with the Trustee a certified copy of the
resolution of the Board giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
conditions and was permitted by the covenant described above under the caption
"Limitation on Restricted Payments." If, at any time, any Unrestricted
Subsidiary would fail to meet the foregoing
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requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an
Unrestricted Subsidiary for purposes of the Indenture and any Indebtedness of
such Subsidiary shall be deemed to be Incurred by a Restricted Subsidiary of the
Company as of such date (and, if such Indebtedness is not permitted to be
Incurred as of such date under the covenant described under the caption
"Limitation on Indebtedness," the Company shall be in default of such covenant).
The Board may at any time designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; PROVIDED that such designation shall be deemed to be an
Incurrence of Indebtedness by a Restricted Subsidiary of the Company of any
outstanding Indebtedness of such Unrestricted Subsidiary and such designation
shall only be permitted if (i) such Indebtedness is permitted under the covenant
described under the caption "Limitation on Indebtedness" and (ii) no Default or
Event of Default would be in existence following such designation.
"VOTING STOCK" means, with respect to any Person, Capital Stock of any class
or kind ordinarily having the power to vote for the election of directors,
managers or other voting members of the governing body of such Person.
"VOTING TRUST AGREEMENT" means that certain Voting Trust and Irrevocable
Proxy Agreement, to be entered into on or prior to the Issue Date.
"WHOLLY OWNED" means, with respect to any Subsidiary of any Person, such
Subsidiary if all of the outstanding Capital Stock in such Subsidiary (other
than any director's qualifying shares or Investments by foreign nationals
mandated by applicable law) is owned by such Person or one or more Wholly Owned
Subsidiaries of such Person.
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DESCRIPTION OF WARRANTS
The Warrants will be issued pursuant to a warrant agreement (the "Warrant
Agreement") by and between the Company and Continental Stock Transfer and Trust
Company, as warrant agent (the "Warrant Agent"). The following summary of
certain provisions of the Warrant Agreement and the Warrants does not purport to
be complete and is qualified in its entirety by reference to the Warrant
Agreement and the Warrants, including the definitions therein of certain terms.
The Warrant Agreement will be substantially in the form of the Warrant Agreement
filed as an exhibit to the Registration Statement of which this Prospectus is a
part.
GENERAL
Each Warrant, when exercised, will entitle the holder thereof to receive
shares of Common Stock (such shares, the "Warrant Shares") at an exercise
price of $ per share (the "Exercise Price"). The Exercise Price and the
number of Warrant Shares issuable on exercise of a Warrant are both subject to
adjustment in certain cases referred to below. The Warrants are exercisable at
any time on or after the Separation Date. Unless exercised, the Warrants will
automatically expire on , 2006 (the "Expiration Date"). The Warrants
will entitle the holders thereof to purchase in the aggregate % of the
outstanding Common Stock of the Company on a fully diluted basis as of the date
of issuance of the Warrants after giving effect to the consummation of the
Offerings.
The Warrants may be exercised at any time on or after the Separation Date by
surrendering to the Company at the office of the Warrant Agent the Warrant
certificates evidencing such Warrants with the accompanying form of election to
purchase properly completed and executed, together with payment of the Exercise
Price. Payment of the Exercise Price may be made in the form of cash or a
certified or official bank check payable to the order of the Company. Upon
surrender of the Warrant certificate and payment of the Exercise Price, the
Warrant Agent will deliver or cause to be delivered, to or upon the written
order of such holder, a stock certificate representing the number of whole
Warrant Shares or other securities or property to which such holder is entitled
under the Warrant Agreement and the Warrants, including, without limitation, any
cash payment to adjust for fractional interests in Warrant Shares issuable upon
such exercise. If less than all of the Warrants evidenced by a Warrant
certificate are to be exercised, a new Warrant certificate will be issued for
the remaining number of Warrants. The Warrant Shares to be issued upon the
exercise of the Warrants will be registered under the Securities Act.
No fractional Warrant Share will be issued upon exercise of the Warrants. If
any fraction of a Warrant Share would, except for the foregoing provision, be
issuable on the exercise of any Warrants (or a specified portion thereof), the
Company shall pay an amount in cash equal to the current market price per
Warrant Share, as determined on the day immediately preceding the date the
Warrant is presented for exercise, multiplied by such fraction, computed to the
nearest whole U.S. cent.
Certificates for Warrants will be issued in registered form only, and no
service charge will be made for registration of transfer or exchange upon
surrender of any Warrant certificate at the office of the Warrant Agent
maintained for that purpose. The Company may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
with any registration, transfer or exchange of Warrant certificates.
The holders of the Warrants have no right to vote on matters submitted to
the stockholders of the Company and have no right to receive dividends. The
holders of the Warrants are not be entitled to share in the assets of the
Company in the event of liquidation, dissolution or winding up of the Company's
affairs.
In the event of taxable distribution to holders of Common Stock which
results in an adjustment to the number of Warrant Shares or other consideration
for which a Warrant may be exercised, the holders of the Warrants may, in
certain circumstances, be deemed to have received a distribution subject to
United States federal income tax as a dividend. See "Certain Federal Income Tax
Considerations".
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REGISTRATION OF WARRANT SHARES
Holders of Warrants will be able to exercise their Warrants only if a
registration statement relating to the Warrant Shares is then in effect, or the
exercise of such Warrants is exempt from the registration requirements of the
Securities Act, and such securities are qualified for sale or exempt from
qualification under the applicable securities laws of the states in which the
various holders of the Warrants or other persons to whom it is proposed that the
Warrant Shares be issued on exercise of the Warrants reside. The Company is
required under the terms of the Warrant Agreement to file and use its best
efforts to make effective, by the earlier of the Separation Date or 45 days
after the occurrence of a Change in Control, and (subject to certain "black-out"
periods not to exceed 45 days in any calendar year) maintain effective until the
expiration or exercise of all Warrants a shelf registration statement on an
appropriate form under the Securities Act covering the issuance of the Warrant
Shares upon the exercise of the Warrants. There can be no assurance that the
Company will be able to file, cause to be declared effective or keep a
registration statement continuously effective until all of the Warrants have
been exercised or have expired.
ADJUSTMENTS
The number of shares of Common Stock purchasable upon the exercise of the
Warrants and the Exercise Price both will be subject to adjustment in certain
events (subject to certain exceptions) including (i) the payment by the Company
of dividends (and other distributions) on Common Stock payable in Common Stock
or other shares of the Company's capital stock, (ii) subdivisions, combinations
and reclassifications of Common Stock, (iii) the issuance to all holders of
Common Stock of rights, options or warrants entitling them to subscribe for
Common Stock or of securities convertible into or exchangeable for Common Stock,
for a consideration per share of Common Stock which is less than the current
market price per share of Common Stock and (iv) the distribution to all holders
of Common Stock of any of the Company's assets, debt securities or any rights or
warrants to purchase securities (excluding those rights and warrants referred to
in clause (iii) above and excluding cash dividends less than a specified
amount). In addition, the Exercise Price may be reduced in the event of
purchases of Common Stock pursuant to a tender or exchange offer made by the
Company of any subsidiary thereof at a price greater than the sale price of the
Common Stock at the time such tender or exchange offer expires.
No adjustment in the Exercise Price will be required unless such adjustment
would require an increase or decrease of at least one percent (1%) in the
Exercise Price; PROVIDED, HOWEVER, that any adjustment which is not made will be
carried forward and taken into account in any subsequent adjustment.
In the case of certain consolidations or mergers of the Company, or the sale
of all or substantially all of the assets of the Company to another corporation,
each Warrant shall thereafter be exercisable for the right to receive the kind
and amount of shares of stock or other securities or property to which such
holder would have been entitled as a result of such consolidation, merger or
sale had the Warrants been exercised immediately prior thereto.
AUTHORIZED SHARES
The Company has authorized for issuance such number of shares of Common
Stock as shall be issuable upon the due exercise of all outstanding Warrants.
Such shares of Common Stock, when paid for and issued, will be duly and validly
issued, fully paid and non-assessable, free of preemptive rights and free from
all taxes, liens, charges and security interests with respect to the issue
thereof (other than any such tax, lien, charge or security interest imposed upon
or granted by the holder of the Common Stock).
AMENDMENT
From time to time, the Company and the Warrant Agent, without the consent of
the holders of the Warrants, may amend or supplement the Warrant Agreement for
certain purposes, including curing
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defects or inconsistencies or making changes that do not materially adversely
affect the rights of any holder. Any amendment or supplement to the Warrant
Agreement that has a material adverse effect on the interests of the holders of
the Warrants shall require the written consent of the holders of a majority of
the then outstanding Warrants (excluding Warrants held by the Company or any of
its Affiliates). The consent of each holder of the Warrants affected shall be
required for any amendment pursuant to which the Exercise Price would be
increased or the number of Warrant Shares purchasable upon exercise of Warrants
would be decreased (other than pursuant to adjustments provided in the Warrant
Agreement).
GOVERNING LAW
The Warrant Agreement and the Warrants will be governed by, and construed in
accordance with, the laws of the State of New York without regard to the
principles of conflicts of law thereof.
REPORTS
Whether or not the Company is subject to the reporting requirements of the
Exchange Act, the Company shall cause copies of the reports described under
"Description of Notes -- Certain Covenants -- Reports" to be filed with the
Commission (to the extent permitted) and the Warrant Agent and mailed to the
holders at their addresses appearing in the register of Warrants maintained by
the Warrant Agent to the same extent as such reports are furnished to the
holders of Notes in accordance with the Indenture.
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DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company currently consists 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 June 28, 1996, there were 10,013,055 shares of Common Stock
outstanding held of record by 11 stockholders (without giving effect to the
Merger or 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 share 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 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 June 28, 1996, there was one share of ART Series A Preferred Stock
outstanding held of record by Telecom. Upon the completion of the Merger, such
Preferred Stock will automatically be surrendered. See "Certain Transactions --
Merger." 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. In
addition, the terms of the Indenture will restrict the ability of the Company to
issue Preferred Stock. See "Description of Notes -- Certain Covenants."
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 Offerings,
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 of the Delaware General Corporation
Law ("Section 203"). 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 resulted in the stockholder becoming an interested
stockholder, (ii) upon consummation of the transaction which resulted in
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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.
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 National
Market under the symbol "ARTT."
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DESCRIPTION OF CERTAIN INDEBTEDNESS
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.
BRIDGE FINANCING
On March 8, 1996, the Company issued $5.0 million principal amount of Bridge
Notes in connection with the Bridge Financing. See "Certain Transactions --
Bridge Financing." The Bridge Notes are subordinated in right of payment to the
EMI Note and will be repaid with proceeds from the Offerings. 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 90 days after the date of the CommcoCCC Agreement.
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 Note and the Bridge Notes and will be repaid with
proceeds from the Offerings. See "Use of Proceeds."
CREDIT FACILITY
Canadian Imperial Bank of Commerce ("CIBC") has provided the Company a
Summary of Terms and Conditions on which it and other banks might extend credit
pursuant to a Senior Secured Revolving Credit Facility converting to an
Amortizing Term Loan (the "Credit Facility"). Under the Credit Facility, up to
$100,000,000 in revolving loans would be available based on incurrence
provisions which will be determined but would include measures of total debt to
operating cash flow, numbers of links, numbers of links per pop or market and
amount of revenue per link. The proceeds could be used to finance the
construction of the Company's systems, capital expenditures, permitted
acquisitions, operating losses and working capital. The Credit Facility would be
secured by all of the assets of the Company and its subsidiaries including a
pledge of stock of subsidiaries, and would be guaranteed by all subsidiaries,
excluding unrestricted subsidiaries to be determined. The interest rate would
initially be at 2.50% over the bank's base rate or 3.50% over LIBOR subject to
reduction. Mandatory prepayment will be required with respect to a percentage of
excess cash flow and proceeds of equity offerings. The revolving credit facility
will convert to a term loan after a period, for a term and with an amortization
to be determined.
In addition, the Credit Facility will include financial covenants to be
determined relating to ratios of total debt to annualized operating cash flow,
operating cash flow to cash interest expense, cash flow available for debt
service to pro forma fixed charges and total debt per total links as well as to
minimum revenues, operating cash flow (or maximum loss), minimum revenue per
link and minimum number of links. The Credit Facility will prohibit the Company
from making restricted payments and acquisitions other than permitted
acquisitions, from incurring indebtedness except with certain limitations or
liens,
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or merging, and will limit investments and asset sales. The Credit Facility will
contain a provision relating to change of control of the Company. The Credit
Facility will also contain customary events of default, including but not
limited to nonpayment of principal or interest when due, violations of
covenants, falsity of representations and warranties in any material respect,
actual or asserted invalidity of security documents and security interests and
the occurrence of certain events with respect to the Company or any subsidiary
including cross-default and cross-acceleration, bankruptcy, material judgments,
ERISA violations, change in control and loss or material impairment of FCC
licenses.
The Company will be required to pay a structuring fee which has not yet been
determined, a facility fee of 3.5% payable at closing and a commitment fee of
0.5% per annum on the unused portion of the facility. Execution of the Credit
Facility will be dependant upon, among other things, satisfactory due diligence
review by the banks, consummation of the Offerings on terms satisfactory to the
banks and negotiation and execution of mutually satisfactory documentation.
There is no assurance that the Credit Facility will be executed, what the terms
of the Credit Facility will be, or if executed, that the Company will be able to
borrow under the Credit Facility.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of the material United States federal
income tax considerations relevant to the purchase, ownership and disposition of
the Units, Notes and Warrants by holders acquiring Units on original issue for
cash, but does not purport to be a complete analysis of all potential tax
effects. The discussion is based upon the Internal Revenue Code of 1986, as
amended (the "Code"), Treasury regulations, Internal Revenue Service ("IRS")
rulings and pronouncements and judicial decisions all in effect as of the date
hereof, all of which are subject to change at any time, and any such change may
be applied retroactively in a manner that could adversely affect a holder of the
Units, Notes or Warrants. The discussion does not address all of the federal
income tax consequences that may be relevant to a holder in light of such
holder's particular circumstances or to holders subject to special rules, such
as certain financial institutions, insurance companies, dealers in securities,
foreign corporations, nonresident alien individuals and persons holding the
Units, Notes or Warrants as part of a "straddle," "hedge" or "conversion
transaction." Moreover, the effect of any applicable state, local or foreign tax
laws is not discussed. The discussion deals only with Units, Notes and Warrants
held as "capital assets" within the meaning of section 1221 of the Code.
The Company has not sought and will not seek any rulings from the IRS with
respect to the position of the Company discussed below. There can be no
assurance that the IRS will not take a different position concerning the tax
consequences of the purchase, ownership or disposition of the Units, Notes or
Warrants or that any such position would not be sustained.
PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH REGARD TO
THE APPLICATION OF THE TAX CONSIDERATIONS DISCUSSED BELOW TO THEIR PARTICULAR
SITUATIONS AS WELL AS THE APPLICATION OF ANY STATE, LOCAL, FOREIGN OR OTHER TAX
LAWS.
THE UNITS
Because the original purchasers of the Notes also will acquire Warrants,
each Note will be treated for federal income tax purposes as having been issued
as part of an "investment unit" consisting of the Note and associated Warrants.
The issue price of an investment unit consisting of the Note and associated
Warrants will be the first price at which a substantial amount of Units are sold
to the public for money (excluding sales to bond houses, brokers, or similar
persons or organizations acting in the capacity of underwriters, placement
agents or wholesalers). The "issue price" of an investment unit is allocated
between its component parts based on their relative fair market values. The
Company will allocate the issue price of a Unit between the Note and the
associated Warrants in accordance with the Company's determination of their
relative fair market values on the issue date. The Company will use that
allocation to determine the issue price of the Notes and the holder's tax basis
in the Warrants. Although the Company's allocation is not binding on the IRS, a
holder of a Unit must use the Company's allocation unless the holder discloses
on its federal income tax return that it plans to use an allocation that is
inconsistent with the Company's allocation.
THE NOTES
The Notes will be issued with "original issue discount" for federal income
tax purposes. A holder generally is required to include original issue discount
in gross income as it accrues, regardless of the holder's method of accounting
for federal income tax purposes. Accordingly, each holder will be required to
include amounts in gross income in advance of the receipt of the cash to which
such income is attributable.
The amount of original issue discount with respect to each Note is an amount
equal to the excess of the "stated redemption price at maturity" of such Note
over its issue price. The stated redemption price at maturity of each Note will
include all cash payments, including principal and interest, required to be
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made thereunder until maturity. The issue price of a Note will be equal to that
portion of the issue price of the Unit allocable to the Note as described above.
It is expected that each Note will be issued with a substantial amount of
original issue discount.
TAXATION OF ORIGINAL ISSUE DISCOUNT. Each holder of a Note will be required
to include in gross income an amount equal to the sum of the "daily portions" of
the original issue discount of the Note for all days during each taxable year in
which the holder holds the Note. The daily portions of original issue discount
will be determined on a constant interest rate basis by allocating to each day
during the taxable year in which the holder holds the Note a pro rata portion of
the original issue discount thereon that is attributable to the accrual period
in which such day is included. The amount of the original issue discount
attributable to each full accrual period will be the product of the "adjusted
issue price" of the Note at the beginning of such accrual period and the "yield
to maturity" of the Note (adjusted to reflect the length of the accrual period).
The adjusted issue price of a Note at the beginning of an accrual period is the
original issue price of the Note plus the aggregate amount of original issue
discount that has accrued in all prior accrual periods, less any cash payments
on the Note on or before the first day of such accrual period. The yield to
maturity is the discount rate that, when used in computing the present value of
all principal and interest payments to be made on the Note, produces an amount
equal to the issue price. Under these rules, holders will have to include
increasingly greater amounts of original issue discount in each successive
accrual period.
The accrual period generally is the six-month period ending on the day in
each calendar year corresponding to the day before the maturity date of the Note
or the date six months before such date. The initial accrual period of a note is
the short period beginning on the issue date and ending on the day before the
first day of the first full accrual period. The amount of original issue
discount attributable to an initial short accrual period may be computed under
any reasonable method.
The Company is required to furnish certain information to the IRS, and will
furnish annually to record holders of a Note, information with respect to
original issue discount accruing during the calendar year. That information will
be based upon the adjusted issue price of the Note as if the holder were the
original holder of the Note.
SALE OR RETIREMENT OF A NOTE. In general, a holder of a Note will recognize
gain or loss upon the sale, retirement or other taxable disposition of such Note
in an amount equal to the difference between (a) the amount of cash and the fair
market value of property received in exchange therefor and (b) the holder's
adjusted tax basis in such Note.
A holder's tax basis in a Note generally will be equal to the price paid for
such Note, increased by the amount of original issue discount, if any,
includable in gross income prior to the date of disposition, and decreased by
the amount of any payment on such Note prior to disposition.
Any gain or loss recognized on the sale, retirement, or other taxable
disposition of a Note generally will be capital gain or loss. Such capital gain
or loss generally will be long-term capital gain or loss if the Note has been
held for more than one year.
THE WARRANTS
Upon the sale or exchange of a Warrant (including the receipt of cash in
lieu of a fractional interest in a Warrant Share upon exercise of a Warrant), a
holder will recognize gain or loss in an amount equal to the difference between
the amount of cash and the fair market value of property received therefor and
the holder's tax basis in the Warrant. A holder's initial tax basis in a Warrant
acquired in the Unit Offering will be that portion of the issue price of the
Units allocable to the Warrant, as described above, subject to adjustment in the
events described below. Such gain or loss will be capital gain or loss if the
Warrant Shares to which the Warrants relate would be a capital asset in the
hands of the Warrant holder. Any such capital gain or loss will be long-term
capital gain or loss if the Warrant was held for more than one year.
118
<PAGE>
The exercise of a Warrant for cash will not result in a taxable event to the
holder of the Warrant (except to the extent of cash, if any, received in lieu of
fractional interest in a Warrant Share). Upon such exercise, the holder's tax
basis in the Warrant Shares obtained will be equal to the sum of such holder's
tax basis in the Warrant (described above) and the exercise price of the
Warrant; the holder's holding period with respect to such Warrant Shares will
commence on the day after the date of exercise. The holder will realize capital
gain or loss on the sale or exchange of a Warrant Share if the Warrant Share is
a capital asset in the hands of the holder, and such capital gain or loss will
be long-term if the Warrant Share was held for more than one year. If a Warrant
expires without being exercised, the holder will recognize a loss in an amount
equal to its tax basis in the Warrant. Such loss will be a capital loss if the
Warrant Shares to which the Warrants relate would have been a capital asset in
the hands of the Warrant holder, and such capital loss will be a long-term
capital loss is the Warrant was held for more than one year.
Adjustments to the conversion ratio of the Warrants, or the failure to make
adjustments, may in certain circumstances result in the receipt of taxable
constructive dividends by the holder, in which event the holder's tax basis in
the Warrants would be increased by an amount equal to the constructive dividend.
BACKUP WITHHOLDING
A holder of a Note may be subject to backup withholding at a rate of 31%
with respect to interest and original issue discount on, and gross proceeds upon
sale or retirement of, a Note unless such holder (i) is a corporation or other
exempt recipient and, when required, demonstrates that fact, or (ii) provides a
correct taxpayer identification number, certifies, when required, that such
holder is not subject to backup withholding, and otherwise complies with
applicable requirements of the backup withholding rules. Backup withholding is
not an additional tax; any amounts so withheld are creditable against the
holder's federal income tax, provided the required information is provided to
the IRS.
DEDUCTIBILITY OF ORIGINAL ISSUE DISCOUNT AND INTEREST PAYMENTS
The deduction by the Company in respect of interest (including original
issue discount) accrued with respect to the Notes will be limited in part and
deferred in part if the Notes are "applicable high yield discount obligations."
The Company anticipates that the Notes may be applicable high yield discount
obligations because, among other things, it is expected that the yield to
maturity of the Notes may exceed the sum of the applicable federal long-term
rate (a rate published by the IRS each month for application during the
following calendar month) in effect at the time of issuance of the Notes (the
"AFR") plus five percentage points. If the Notes are applicable high yield
discount obligations, then (i) if the yield to maturity of the Notes exceeds the
sum of the AFR plus six percentage points (such excess referred to below as the
"Disqualified Yield"), the deduction for interest (including original issue
discount) accrued on the Notes will be permanently disallowed to the extent such
interest or original issue discount is attributable to the Disqualified Yield,
and such interest (including original issue discount) would be treated as
dividends to corporate holders of the Notes for purposes of the dividends-
received deduction (to the extent that such amounts would have been treated as
dividends had they been distributions made by the Company with respect to its
stock) and (ii) the remainder of the original issue discount on the Notes would
not be deductible by the Company until paid.
119
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in a purchase agreement (the
"Purchase Agreement"), among the Company, Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch"), Montgomery Securities and Smith Barney Inc.
("Smith Barney" and, together with Merrill Lynch and Montgomery Securities, the
"Underwriters"), the Company has agreed to sell to the Underwriters, and each
Underwriter has agreed to purchase from the Company, severally but not jointly,
the number of Units set forth opposite its name below. The Purchase Agreement
provides that, subject to the terms and conditions set forth therein, the
Underwriters will be obligated to purchase all of the Units if any such Units
are purchased.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF UNITS
---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..........................................
Montgomery Securities............................................
Smith Barney Inc.................................................
---------
Total.................................................
---------
---------
</TABLE>
The Underwriters propose to offer the Units directly to the public at the
offering price set forth on the cover page of this Prospectus, and in part to
certain selected dealers at such price less a concession not in excess of %
per Unit. The several Underwriters may allow, and such dealers may reallow, a
discount not in excess of % per Unit to certain other dealers. After the
initial public offering, the public offering price, concession and discount may
be changed. The Underwriters do not intend to confirm sales to any accounts over
which they exercise discretionary authority.
There is currently no public market for the Units, the Notes or the
Warrants, and the Company does not intend to apply for listing of the Units, the
Notes or the Warrants on any securities exchange or on any inter-dealer
quotation system. The Common Stock (including the Warrant Shares) has been
approved for quotation on the Nasdaq National Market. The Company has been
advised by the Underwriters that, following the completion of the initial public
offering of the Notes, the Underwriters presently intend to make a market in the
Units, the Notes and the Warrants as permitted by applicable laws and
regulations; however, they are not obligated to do so and any such market-making
may be discontinued at any time without notice at the sole discretion of each
Underwriter. Accordingly, there can be no assurance as to whether an active
public market for the Units, the Notes or the Warrants will develop or, if a
public market does develop, as to the liquidity of the trading market for the
Units, the Notes or the Warrants. If an active public market does not develop,
the market price and liquidity for the Units, the Notes or the Warrants may be
adversely affected. See "Risk Factors -- Absence of Public Market; Possible
Volatility of Stock Price."
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended
(the "Securities Act"), and, under certain circumstances, to contribute to
payments the Underwriters may be required to make in respect thereof.
The Company has agreed that it will not, for a period of 180 days from the
date of this Prospectus, without the prior written consent of the Underwriters,
directly or indirectly, offer, sell, grant any option to purchase or otherwise
dispose of, any debt security of the Company which is publicly offered or sold
pursuant to Rule 144A under the Securities Act.
Montgomery Securities and Merrill Lynch are acting as underwriters in
connection with the Common Stock Offering and will receive customary
compensation in connection therewith. In connection with the CommcoCCC
Acquisition, Montgomery Securities has been retained by the Company as its
financial advisor 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.
120
<PAGE>
LEGAL MATTERS
The validity of the Units, the Notes and the Warrants offered hereby will be
passed upon for the Company by Hahn & Hessen LLP, New York, New York. Certain
legal matters in connection with the Unit 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 Bridge Notes and
5,500 Bridge Warrants and beneficially owns 13,627 shares of Common Stock.
Latham & Watkins, Washington, D.C., currently represents the Company with
respect to certain FCC matters.
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.
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. In addition, the Indenture and the Warrant Agreement provide that the
Company, to the extent that it is not required to file such information pursuant
to the Exchange Act, shall provide the Trustee and holders of the Notes and
Warrants with audited year-end financial statements of the Company prepared in
accordance with GAAP and substantially in the form of the Financial Statements
included in this Prospectus, and unaudited quarterly financial statements of the
Company prepared in accordance with GAAP and substantially in the form of the
Financial Statements included in this Prospectus.
121
<PAGE>
GLOSSARY
ACCESS CHARGES -- The fees paid by long distance carriers to LECs for
originating and terminating long distance calls on their local networks.
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.
CMRS -- Commercial mobile radio services.
COPPER WIRE -- A shorthand reference to traditional telephone lines using
electric current to carry signals over copper wire.
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 are required by the Telecommunications Act.
Dialing parity when implemented will enable customers to have dial only 1+ or 0+
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.
122
<PAGE>
ESMR (ENHANCED SPECIALIZED MOBILE RADIO) -- A recent mobile radio services
category involving technical and service enhancements to traditional "push to
talk" dispatch services.
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. 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 IntraLATA calls also can 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 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 comprising a
link.
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.
123
<PAGE>
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 an agreement 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
carriers while retaining the same telephone number. If number portability does
not exist, customers will have to change phone numbers when they change local
exchange carriers.
OFF-NET CUSTOMERS -- A customer that is not physically connected to a CAP'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 CAP's
network.
PCS (PERSONAL COMMUNICATIONS SERVICE) -- 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 TELECOMMUNICATIONS 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 connected
to end users and established to circumvent obstacles in the line of sight
between communications 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 transceivers) on the roofs of buildings, on special towers or
even on utility poles or pylons.
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<PAGE>
WIDEBAND -- Data streams between 64 kilobits and 1.544 megabits per second.
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.
125
<PAGE>
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 March 31, 1996............... F-3
Unaudited Pro Forma Condensed Balance Sheets -- Supplementary Combining Balance Sheet Data as of
December 31, 1995 and March 31, 1996................................................................. F-4
Unaudited Pro Forma Condensed Statement of Operations for the three months ended March 31, 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-8
Balance Sheets as of December 31, 1995 and 1994....................................................... F-9
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-10
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-11
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-12
Notes to Financial Statements......................................................................... F-13
Unaudited Interim Condensed Balance Sheets as of March 31, 1996 and 1995.............................. F-24
Unaudited Interim Condensed Statements of Operations for the three months ended March 31, 1996 and
1995................................................................................................. F-25
Unaudited Interim Condensed Statements of Cash Flows for the three months ended March 31, 1996 and
1995................................................................................................. F-26
Notes to Unaudited Interim Condensed Financial Statements............................................. F-27
Advanced Radio Telecom Corp.
Historical:
Report of Independent Accountants..................................................................... F-30
Balance Sheet as of December 31, 1995................................................................. F-31
Statement of Operations for the period from March 28, 1995 (date of inception) to December 31, 1995... F-32
Statement of Stockholders' Deficit for the period from March 28, 1995 (date of inception) to December
31, 1995............................................................................................. F-33
Statement of Cash Flows for the period from March 28, 1995 (date of inception) to December 31, 1995... F-34
Notes to Financial Statements......................................................................... F-35
Unaudited Interim Condensed Balance Sheet as of March 31, 1996........................................ F-47
Unaudited Interim Condensed Statement of Operations for the three months ended March 31, 1996......... F-48
Unaudited Interim Condensed Statement of Stockholders' Equity (Deficit) for the three months ended
March 31, 1996....................................................................................... F-49
Unaudited Interim Condensed Statement of Cash Flows for the three months ended March 31, 1996......... F-50
Notes to Unaudited Interim Condensed Financial Statements............................................. F-51
</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 8,
1996 issuance of the Bridge Notes in connection with the Bridge Financing; (ii)
the receipt of $2,220,000 in cash proceeds from the issuance of the Equipment
Note and Indemnity Warrants in connection with the Equipment Financing, after
deducting related expenses of $225,000; (iii) the receipt of $3,000,000 in cash
proceeds from the issuance of the CommcoCCC Notes and the CommcoCCC Warrants in
connection with the CommcoCCC Financing; (iv) the Conversion; and (v) the
Merger, including the issuance of ART Common Stock to Telecom stockholders and
the cancellation of all outstanding Telecom common stock.
The following unaudited pro forma as adjusted condensed financial statements
reflect further adjustments assuming (i) the sale by the Company of 7,500,000
shares of Common Stock offered in the Common Stock Offering based on an assumed
initial public offering price of $9.00 per share and the Units offered in the
Unit Offering assuming $175,000,000 in gross proceeds, in each case, after
deducting the estimated underwriting discount and offering expenses; (ii) the
receipt and application of the net proceeds therefrom to repay the Bridge Notes
and the CommcoCCC 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; and (iii) the consummation of the acquisition by the Company of the
CommcoCCC Assets in exchange for 16,500,000 shares of Common Stock at an assumed
value of $9.00 per share.
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 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
ASSETS
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, AS OF MARCH
1995 31, 1996
------------ ------------
HISTORICAL HISTORICAL
COMBINED (A) COMBINED (A)
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash
equivalents...... $ 633,654 $ 3,024,161
Other current
assets........... 52,325 61,226
------------ ------------
Total current
assets......... 685,979 3,085,387
Property and
equipment, net..... 3,581,561 6,380,895
Equity
investments........ 285,000 285,000
FCC licenses........ 4,235,734 4,235,734
Deferred financing
costs.............. 778,897 681,692
Equipment and other
deposits........... 284,012 344,417
Other assets........ 25,376 23,212
------------ ------------
$9,876,559 $15,036,337
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
and accrued
liabilities...... $3,694,489 $ 4,213,517
CommcoCCC Notes... --
------------ ------------
Total current
liabilities.... 3,694,489 4,213,517
Convertible notes
payable............ 4,950,000
Note payable to
EMI................ 1,500,000 1,500,000
Bridge notes
payable............ -- 3,983,082
Equipment financing
note payable....... -- --
Senior discount
notes.............. -- --
Deferred tax
liability.......... -- --
------------ ------------
Total
liabilities.... 10,144,489 9,696,599
------------ ------------
Redeemable Preferred
Stock.............. 44,930 --
------------ ------------
Stockholders'
equity:
Preferred stock,
par.............. 488 921
Common stock,
par.............. 25,304 28,127
Additional paid-in
capital.......... 3,031,405 19,375,335
Accumulated
deficit.......... (3,370,057 ) (14,064,645)
------------ ------------
Total
stockholders'
equity......... (312,860 ) 5,339,738
------------ ------------
$9,876,559 $15,036,337
------------ ------------
------------ ------------
<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...... $3,000,000(2)
$2,220,000(3) $ 8,244,161 62,35$7,474(1)
168,667,526(2)
(8,000,000)(3)
(6,000,000)(5)
(3,600,000)(6)
(3,000,000)(4) 218$,669,161
Other current
assets........... 61,226 61,226
--------------- ------------ ------------- -----------
Total current
assets......... 5,220,000 8,305,387 210,425,000 218,730,387
Property and
equipment, net..... 6,380,895 6,380,895
Equity
investments........ 285,000 (285,000)(5) --
FCC licenses........ 4,235,734 201,990,000(4)
6,285,000(5)
3,600,000(6) 216,110,734
Deferred financing
costs.............. 175,899(3) 857,591 (189,749)(1)
6,332,474(2) 7,000,316
Equipment and other
deposits........... 344,417 344,417
Other assets........ 23,212 23,212
--------------- ------------ ------------- -----------
$5,395,899 $ 20,432,236 428,1$57,725 448$,589,961
--------------- ------------ ------------- -----------
--------------- ------------ ------------- -----------
LIABILITIES AN
Current liabilities:
Accounts payable
and accrued
liabilities...... $ $ 4,213,517 $ 4$,213,517
CommcoCCC Notes... 2,975,000(2) 2,975,000 (2,975,000)(3) --
--------------- ------------ ------------- -----------
Total current
liabilities.... 2,975,000 7,188,517 (2,975,000) 4,213,517
Convertible notes
payable............ -- -- --
Note payable to
EMI................ 1,500,000 1,500,000
Bridge notes
payable............ 3,983,082 (3,983,082)(3)
Equipment financing
note payable....... 1,911,439(3) 1,911,439 1,911,439
Senior discount
notes.............. -- 159,800,000(2) 159,800,000
Deferred tax
liability.......... 50,490,000(4) 50,490,000
--------------- ------------ ------------- -----------
Total
liabilities.... 4,886,439 14,583,038 203,331,918 217,914,956
--------------- ------------ ------------- -----------
Redeemable Preferred
Stock.............. -- -- --
--------------- ------------ ------------- -----------
Stockholders'
equity:
Preferred stock,
par.............. (921)(1) --
Common stock,
par.............. 1,959(1) 30,086 7,500(1) --
16,500(4) 54,086
Additional paid-in
capital.......... (1,038)(1)
25,000(2)
484,460(3) 19,883,757 62,160,225(1)
15,200,000(2)
148,483,500(4) 245,727,482
Accumulated
deficit.......... (14,064,645) (1,041,918)(3) (15,106,563)
--------------- ------------ ------------- -----------
Total
stockholders'
equity......... 509,460 5,849,198 224,825,807 230,675,005
--------------- ------------ ------------- -----------
$5,395,899 $ 20,432,236 428,1$57,725 448$,589,961
--------------- ------------ ------------- -----------
--------------- ------------ ------------- -----------
</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>
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
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) --
Commco 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
Bridge notes
payable............ -- -- --
Equipment financing
note payable....... -- -- --
Senior discount
notes.............. -- -- --
-------------- -------------- ---------------- ------------
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.............. 10,013 15,291 25,304
Additional paid-in
capital.......... 988,375 2,845,372 (802,002)
(340) 3,031,405
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 MARCH 31, 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...... $ 5,970 $3,018,191 3$,024,161
Due from ART...... -- 498,100 (49$8,100) --
Other current
assets........... -- 61,226 61,226
--------------- ------------ --------------- -----------
Total current
assets......... 5,970 3,577,517 (498,100) 3,085,387
Note receivable from
Telecom............ -- -- --
Property and
equipment, net..... 1,292 6,379,603 6,380,895
Equity investments.. 3,242,401 -- (2,957,401) 285,000
FCC licenses........ 8,913 4,226,821 4,235,734
Deferred financing
costs, net......... -- 681,692 681,692
Equipment and other
deposits........... -- 344,417 344,417
Investment in ART... -- 44,930 (44,930) --
Other assets........ 23,212 -- 23,212
--------------- ------------ --------------- -----------
$3,281,788 $15,254,980 (3,50$0,431) 15$,036,337
--------------- ------------ --------------- -----------
--------------- ------------ --------------- -----------
Current liabilities:
Accounts payable
and accrued
liabilities...... 2,500 $4,211,017 4$,213,517
Due to Telecom.... 498,100 -- (49$8,100) --
Commco Notes...... -- -- --
--------------- ------------ --------------- -----------
Total current
liabilities.... 500,600 4,211,017 (498,100) 4,213,517
Convertible notes
payable............ -- -- --
Losses in excess of
equity investment.. -- --
Note payable to
ART................ -- --
Note payable to
EMI................ -- 1,500,000 1,500,000
Bridge notes
payable............ -- 3,983,082 3,983,082
Equipment financing
note payable....... -- -- --
Senior discount
notes.............. -- -- --
--------------- ------------ --------------- -----------
Total
liabilities.... 500,600 9,694,099 (498,100) 9,696,599
--------------- ------------ --------------- -----------
Redeemable Preferred
Stock.............. 44,930 -- (44,930) --
--------------- ------------ --------------- -----------
Stockholders'
equity:
Preferred stock,
par.............. -- 921 921
Common stock,
par.............. 10,013 18,114 28,127
Additional paid-in
capital.......... 7,783,889 19,189,302 (7,597,856) 19,375,335
Accumulated
deficit.......... (5,057,644) (13,647,456 ) 4,640,455 (14,064,645)
--------------- ------------ --------------- -----------
Total
stockholders'
equity
(deficit)...... 2,736,258 5,560,881 (2,957,401) 5,339,738
--------------- ------------ --------------- -----------
$3,281,788 $15,254,980 (3,50$0,431) 15$,036,337
--------------- ------------ --------------- -----------
--------------- ------------ --------------- -----------
</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>
THREE MONTHS ENDED MARCH 31, 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...... $ $ 9,620 $ 9,620 $ 9,620
---------------- -------------- ----------- -----------
Expenses:
General and
administrative
(H)................. 24,939 8,889,364 8,914,303 8,914,303
Market development
(I)................. -- 1,150,063 1,150,063 1,150,063
Research &
development......... -- 419,418 419,418 419,418
Depreciation and
amortization.......... 2,595 86,684 89,279 89,279
Interest, net........ 671 130,474 131,145 $ 198,425(4)
157,316(5)
86,360(6)
(44,507)(7) 528,739
---------------- -------------- ----------- --------------- -----------
Total expenses..... 28,205 10,676,003 10,704,208 397,594 11,101,802
Equity loss in
Telecom............... 3,626,570 -- $(3,626,570) -- --
---------------- -------------- --------------- ----------- --------------- -----------
Pretax loss............ 3,654,775 10,666,383 (3,626,570) 10,694,588 397,594 11,092,182
Deferred tax benefit... -- -- -- --
---------------- -------------- --------------- ----------- --------------- -----------
Net loss......... $ 3,654,775 $ 10,666,383 ($3,626,570) $10,694,588 $ 397,594 $11,092,182
---------------- -------------- --------------- ----------- --------------- -----------
---------------- -------------- --------------- ----------- --------------- -----------
Pro forma net loss per
share of common stock
(G)................... $ 0.12 $ 0.35
---------------- -----------
---------------- -----------
Pro forma weighted
average number of
shares of Common Stock
outstanding (G)....... 31,651,605 31,651,605
---------------- -----------
---------------- -----------
<CAPTION>
OFFERING PRO FORMA
ADJUSTMENTS (C) AS ADJUSTED
---------------- ------------
<S> <C> <C>
Operating revenue...... $ 9,620
------------
Expenses:
General and
administrative
(H)................. 8,914,303
Market development
(I)................. 1,150,063
Research &
development......... 419,418
Depreciation and
amortization.......... $ 1,350,692(8) 1,439,971
Interest, net........
(264,658)(3)
(86,360)(3)
5,811,579(7) 5,989,300
---------------- ------------
Total expenses..... 6,811,253 17,913,055
Equity loss in
Telecom............... --
---------------- ------------
Pretax loss............ 6,811,253 17,903,435
Deferred tax benefit... (459,236)(8) (459,236)
---------------- ------------
Net loss......... $ 6,352,017 $17,444,199
---------------- ------------
---------------- ------------
Pro forma net loss per
share of common stock
(G)................... $ 0.31
------------
------------
Pro forma weighted
average number of
shares of Common Stock
outstanding (G)....... 55,651,605
------------
------------
</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).......... $ 0.04
--------------
--------------
Pro forma weighted
average number of
shares of Common
Stock outstanding
(G)................ 31,651,605
--------------
--------------
<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 5,402,768(8) 5,418,452
Interest, net..... $1,019,145(4)
673,534(5)
270,438(6)
(110,828)(7) 1,974,275 (1,019,145)(3)
(270,438)(3)
23,246,316(7) 23,931,008
--------------- ---------- --------------- -----------
Total
expenses....... 1,852,289 5,092,925 27,359,501 32,452,426
Equity loss in
Telecom............ -- --
--------------- ---------- --------------- -----------
Pretax Loss......... 1,852,289 5,087,132 27,359,501 32,446,633
Deferred tax
benefit............ -- (1,836,941)(8) (1,836,941)
--------------- ---------- --------------- -----------
Net loss...... $1,852,289 $5,087,132 25,5$22,560 30$,609,692
--------------- ---------- --------------- -----------
--------------- ---------- --------------- -----------
Pro forma net loss
per share of Common
Stock (G).......... $ 0.16 $ 0.55
---------- -----------
---------- -----------
Pro forma weighted
average number of
shares of Common
Stock outstanding
(G)................ 31,651,605 55,651,605
---------- -----------
---------- -----------
</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 Telecom common stock,
issuance of ART Common Stock to Telecom stockholders, and cancellation of
the outstanding Telecom common stock and the ART Redeemable Preferred
Stock in connection with the Merger.
(2) Proceeds 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 totaled $25,000.
(3) Proceeds of $2,220,000 in cash from the Equipment Financing and issuance
of the Indemnity Warrants, net of the related financing costs of
$225,000. The value ascribed to the Indemnity Warrants totaled $484,460.
(4) Interest expense from the Bridge Financing provided by stockholders of
Telecom at the effective interest rate after giving effect to the value
ascribed to the Bridge Warrants, as if the 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) 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 7,500,000 shares of Common Stock offered in the Common Stock
Offering based on an assumed initial public offering price of $9.00 per
share, after deducting the estimated offering discount and related
expenses of $5,332,275.
(2) Assumed gross proceeds of $175,000,000 from the issuance of the Notes
and Warrants in the Unit Offering, and related estimated offering
discount and related expenses of $6,824,417. The value ascribed to the
Unit Warrants totaled $15,200,000.
(3) Repayment of the Bridge Financing and CommcoCCC Financing out of the net
proceeds from the Offerings and the reversal of the related interest
expense. The unamortized offering discount and deferred finance costs
associated with the Bridge Financing and CommcoCCC Financing will result
in an extraordinary loss of approximately $1,000,000 which has been
excluded from the pro forma as adjusted presentation.
(4) The acquisition of the CommcoCCC Assets in exchange for 16,500,000
shares of Common Stock of the Company based on an assumed value of $9.00
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 Offerings..
(6) The acquisition of the DCT assets for $3.6 million in cash, to be paid
out of the net proceeds from the Offerings.
(7) Interest expense on the Notes, at an assumed coupon rate of 13.5%
(resulting in an effective interest rate of 15.2% on the Notes, including
the amortization of debt issuance costs and original issue discount), as
if the Notes were issued as of the beginning of the respective periods.
If the interest rate on the Notes changed by 0.5%, interest expense would
change by approximately $765,000 and $191,250 for the year ended December
31, 1995 and three months ended March 31, 1996, respectively.
F-6
<PAGE>
(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 three months
ended March 31, 1996 and as of and for the year ended December 31, 1995.
(E) Represents the historical amounts of Telecom as of and for the three months
ended March 31, 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 stockholder equity amounts 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 Telecom common stock; (ii) issuance of ART Common Stock
to Telecom stockholders, (iii) the cancellation of the outstanding Telecom
common stock and the ART Series A Redeemable Preferred Stock; and (iv) the
issuance of 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 $9.00 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.............................................. 10,013,055(1)
Issuances of shares of Telecom serial preferred stock as converted
into shares of ART Common Stock.................................. 10,916,807
Issuances of shares of Telecom common stock as converted into
shares of ART Common Stock....................................... 8,100,807(2)
Options and warrants issued and outstanding....................... 2,620,936
--------------
Pro forma weighted average number of shares of Common Stock....... 31,651,605(3)
--------------
--------------
Pro Forma As Adjusted:
Pro forma weighted average number of shares of Common Stock....... 31,651,605
Common Stock issued in connection with the Common Stock Offering
and the acquisition of the CommcoCCC Assets...................... 24,000,000
--------------
Pro forma as adjusted weighted average number of shares of Common
Stock............................................................ 55,651,605(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
Common Stock Offering based on an assumed initial public offering price
of $9.00 per share. In measuring the dilutive effect, the treasury stock
method was used.
(H) General and administrative expense includes a non-recurring, non-cash
compensation expense of $802,002 and $6,795,514 for the year ended December
31, 1995 and for the three months ended March 31, 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 three months ended March 31, 1996
includes $1,053,000, representing the value ascribed to the Strategic
Distribution Agreement in connection with the February 1996 investment in
Telecom by Ameritech.
F-7
<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 2C, Note 5B and
the second paragraph of Note 9
as to which the date is June 26, 1996
F-8
<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; 10,013,055 and
5,890,032 shares issued and outstanding.......................................... 10,013 5,890
Additional paid-in capital........................................................ 988,375 90,246
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-9
<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).................. $ 0.04
-------------
-------------
Pro forma weighted average number of shares of Common
Stock outstanding (unaudited)............................ 31,651,605
-------------
-------------
</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 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 2,945,016 shares of Common Stock for cash... $ 2,945 $ 58,191 $ 61,136
Net loss.................................................... $ (6,594) (6,594)
--------- ----------- -------------- --------------
Balance, December 31, 1993.................................. 2,945 58,191 (6,594) 54,542
Issuance of 2,945,016 shares of Common Stock for cash....... 2,945 32,055 35,000
Net loss.................................................... (128,620) (128,620)
--------- ----------- -------------- --------------
Balance, December 31, 1994.................................. 5,890 90,246 (135,214) (39,078)
Issuance of 73,625 shares of Common Stock to ART West....... 74 24,926 25,000
Issuance of 4,049,398 shares of Common Stock to existing
shareholders............................................... 4,049 (4,049)
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.................................. $ 10,013 $ 988,375 $ (1,402,869) $ (404,481)
--------- ----------- -------------- --------------
--------- ----------- -------------- --------------
</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 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-12
<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 2,945,016 shares of Common Stock in exchange
for $1,136. During November 1993, ART redeemed 1,178,006 shares of Common Stock
from the Founding Stockholders and through a private placement issued 1,178,006
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 589,003
shares of Common Stock and a $70,000 Promissory Note. In connection with the
High Sky II financing, ART issued an additional aggregate of 2,356,013 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-13
<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 8,580,000 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 4,420,000
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, 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 5,153,778 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,
1,873,030 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-14
<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, (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 Telecom's serial preferred stock will be converted into 13 shares of
Telecom's 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 2,302,136
shares of Telecom common stock will be entitled to purchase an equivalent number
of shares of Common Stock on the same terms. Employee stock options to purchase
1,664,732 shares of Telecom's common stock will be converted into similar stock
options of the Company.
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.
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.
F-15
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
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.
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.
F-16
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
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.................................. $ 0.13 $ 0.01 $ --
-------------- ------------- ------------------
-------------- ------------- ------------------
Weighted average number shares of Common Stock
outstanding........................................ 10,013,055 9,178,633 5,006,527
-------------- ------------- ------------------
-------------- ------------- ------------------
</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 21,638,550
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 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
F-17
<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:
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 73,625 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 73,625 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.
C -- INVESTMENT IN TELECOM
The Company acquired 4,420,000 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.
F-18
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
5. EQUITY INVESTMENTS, CONTINUED:
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.
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
F-19
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
7. DCT AGREEMENTS, CONTINUED:
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 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.
F-20
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
8. COMMITMENTS, CONTINUED:
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 313,612 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.
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 4,049,398 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,
F-21
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
9. COMMON STOCK, CONTINUED:
respectively, and changed the par value per share from $.01 to $.001. 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
five for one stock split, the one for five reverse stock split and the 29,450.16
for 1 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-22
<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-23
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED INTERIM CONDENSED BALANCE SHEETS
AS OF MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
-------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash.............................................................................. $ 5,970 $ 255
-------------- ------------
Total current assets.......................................................... 5,970 255
Equity investments.................................................................. 3,242,401
FCC licenses........................................................................ 8,913
Property and equipment, net......................................................... 1,292 3,448
Other assets........................................................................ 23,212 34,030
-------------- ------------
Total assets.................................................................. $ 3,281,788 $ 37,733
-------------- ------------
-------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities.......................................... $ 2,500 $ 4,230
Due to Telecom.................................................................... 498,100
Notes payable..................................................................... 114,334
-------------- ------------
Total current liabilities..................................................... 500,600 118,564
Redeemable Preferred Stock, $.01 par value; 1,000 shares authorized; 1 share issued
and outstanding at March 31, 1996.................................................. 44,930
-------------- ------------
Commitments and contingencies
Stockholders' equity (deficit):
Common Stock, $.001 par value; 58,900,320 shares authorized; 10,013,055 and
5,890,032 shares issued and outstanding.......................................... 10,013 5,890
Additional paid-in capital........................................................ 7,783,889 90,246
Deficit accumulated during the development stage.................................. (5,057,644) (176,967)
-------------- ------------
Total stockholders' equity (deficit).......................................... 2,736,258 (80,831)
-------------- ------------
Total liabilities and stockholders' equity (deficit)........................ $ 3,281,788 $ 37,733
-------------- ------------
-------------- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-24
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED INTERIM CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------- ---------
<S> <C> <C>
Expenses:
General and administrative............................................................. $ 24,939 $ 40,878
Depreciation and amortization.......................................................... 2,595
Interest expense, net.................................................................. 671 875
------------- ---------
Total expenses..................................................................... 28,205 41,753
Equity loss on investment in Telecom..................................................... 3,626,570
------------- ---------
Net loss........................................................................... $ 3,654,775 $ 41,753
------------- ---------
------------- ---------
Pro forma net loss per share............................................................. $ 0.12
-------------
-------------
Pro forma weighted average number of shares of Common Stock outstanding (unaudited)...... 31,651,605
-------------
-------------
</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 CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
-------------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss............................................................................... $ (3,654,775) $ (41,753)
Adjustments to reconcile net loss to net cash used in operating activities:
Non-cash interest expense............................................................ 69,347
Depreciation and amortization........................................................ 2,595
Equity loss on investment in Telecom................................................. 3,626,570
Changes in operating assets and liabilities:
Accounts payable and accrued liabilities............................................. (43,836) (7,459)
-------------- ----------
Net cash used in operating activities.............................................. (99) (49,212)
-------------- ----------
Cash flows from financing activities:
Proceeds from loan and note payable.................................................... 44,334
-------------- ----------
Net cash provided by financing activities.......................................... -- 44,334
-------------- ----------
Net decrease in cash............................................................... (99) (4,878)
Cash, beginning of period................................................................ 6,069 5,133
-------------- ----------
Cash, end of period...................................................................... $ 5,970 $ 255
-------------- ----------
-------------- ----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-26
<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 March 31, 1996 and 1995, and the results of its operations and
its cash flows for the three months ended March 31, 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 (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
F-27
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS, CONTINUED
2. STOCKHOLDERS' AGREEMENT: (CONTINUED)
Telecom's serial preferred stock will be converted into 13 shares of Telecom's
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 2,302,136
shares of Telecom common stock will be entitled to purchase an equivalent number
of shares of Common Stock on the same terms. Employee stock options to purchase
1,664,732 shares of Telecom's common stock will be converted into similar stock
options of the Company.
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 THREE MONTHS ENDED
MARCH 31,
----------------------------
1996 1995
------------- -------------
<S> <C> <C>
Net loss per share.............................................. $ .37 $ --
------------- -------------
------------- -------------
Weighted average number shares of Common Stock outstanding...... 10,013,055 10,013,055
------------- -------------
------------- -------------
</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 21,638,550
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
three months ended March 31, 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 of $125 million to the Company
and receipt of FCC approval. In addition, the Company entered into a
F-28
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS, CONTINUED
5. INVESTMENTS: (CONTINUED)
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,
the Company has recognized its proportionate share of the losses of Telecom in
the amount of $3,626,570.
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 16.5 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 $3 million 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 50,000 shares of Common Stock
at a price of $15 per share. 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.
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 quarter ended March
31, 1996 totaled $175,000. The 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.
F-29
<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 2, 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 2B
as to which the date is June 26, 1996
F-30
<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, 7,779,135 shares issued and
outstanding................................................................. 7,779
Class B common stock, $.001 par value, 7,512,076 shares issued and
outstanding................................................................. 7,512
Additional paid-in capital................................................... 2,845,372
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-31
<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-32
<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......................... 4,420,000
Issuance of common stock to
Landover and affiliates for
cash............................. 260,000 8,320,000
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........ 3,099,135 2,852 4,189 7,041
Redemption of common stock from
Landover......................... (807,924)
--------- --------- ----------- ----------- ----- ----------- ---------
Balance at December 31, 1995...... 7,779,135 7,512,076 334,943 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......................... $ 4,420
Issuance of common stock to
Landover and affiliates for
cash............................. 260 $ 8,320
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........ 3,099 3 4 7
Serial preferred stock issuance
costs............................
Redemption of common stock from
Landover......................... (808)
Investment by ART as a result of
the release of escrow shares.....
Accrued stock option
compensation.....................
Net loss..........................
--
----------- ----------- ----- --- --- -----
Balance at December 31, 1995...... $ 7,779 $ 7,512 $ 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......................... $ (4,080) $ 340
Issuance of common stock to
Landover and affiliates for
cash............................. (7,560) 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........ (3,106)
Serial preferred stock issuance
costs............................ (229,814) (229,814)
Redemption of common stock from
Landover......................... (1,999,192) (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...... $ 2,845,372 $(2,981,073) $ (119,922)
----------- ------------- -----------
----------- ------------- -----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-33
<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-34
<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, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM,
IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS
PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary............................................... 3
Risk Factors..................................................... 11
The Company...................................................... 24
Use of Proceeds.................................................. 25
Dividend Policy.................................................. 25
Capitalization................................................... 26
Selected Historical Combined and Pro Forma Financial Data........ 27
Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................... 31
Business......................................................... 37
Management....................................................... 63
Principal Stockholders........................................... 74
Certain Transactions............................................. 76
Description of Units............................................. 81
Description of Notes............................................. 81
Description of Warrants.......................................... 110
Description of Capital Stock..................................... 113
Description of Certain Indebtedness.............................. 115
Certain Federal Income Tax Considerations........................ 117
Underwriting..................................................... 120
Legal Matters.................................................... 121
Experts.......................................................... 121
Available Information............................................ 121
Glossary......................................................... 122
Index to Financial Statements.................................... F-1
</TABLE>
------------------------
UNTIL , 1996 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE UNITS, NOTES OR WARRANTS, 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.
$175,000,000
GROSS PROCEEDS
[LOGO]
ADVANCED RADIO TELECOM CORP.
UNITS CONSISTING OF
SENIOR DISCOUNT NOTES
DUE 2006 AND
WARRANTS TO PURCHASE
SHARES OF COMMON STOCK
---------------------
PROSPECTUS
---------------------
MERRILL LYNCH & CO.
MONTGOMERY SECURITIES
SMITH BARNEY INC.
, 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 and the NASD filing fee, all of the amounts in the table below
are estimated.
<TABLE>
<CAPTION>
Securities and Exchange Commission registration fee................... $ 60,345
<S> <C> <C>
NASD filing fee....................................................... 18,500
Accounting fees and expenses.......................................... *
Printing.............................................................. *
Blue Sky fees and expenses (including counsel fees)................... 20,000
Legal fees and expenses............................................... *
Transfer Agent and Registrar fees and expenses........................ *
Miscellaneous expenses................................................ *
---------
TOTAL (estimated)..................................................... $
---------
---------
</TABLE>
- ------------------------
*To be completed by amendment.
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 Purchase 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 Offerings to 10,013,055
shares and 7,512,076 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 Offerings to 441,753 shares and 147,251
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 5,276,440 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 1,375,699 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 179,361
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 115,128 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 95,719 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 801,320 shares of Common Stock upon
completion of this offering) for $2,000,000 in a private placement. Telecom
simultaneously redeemed 807,924 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 400,634 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 3,026,738 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 635,609
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 877,136 shares of
Telecom common stock exercisable at a price of $.01 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.
BRIDGE NOTES
On March 8, 1996, Telecom issued in a private placement $5,000,000 principal
amount of two year, 10% unsecured notes (the "Bridge Notes") and five-year
warrants to purchase up to an aggregate of 1,100,000 shares of Telecom common
stock at a price of $6.25 per share (the "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 Bridge Notes and 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 16,500,000 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 50,000 shares of Common Stock at $15 per share.
The securities to be issued in the foregoing transaction will be offered and
sold in reliance on a 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>
<CAPTION>
1-1 Purchase Agreement.**
<C> <S> <C>
2-1 (a)Amended and Restated Certificate of Incorporation and By-laws of
Registrant.(2)
(b)Amendment to Amended and Restated Certificate of Incorporation.(2)
(c)Amended and Restated Certificate of Incorporation (to be effective prior to
the consummation of the Offerings) and Restated and Amended Bylaws (effective
on the date of the Prospectus) of Registrant.(2)
4-1 Specimen of Common Stock Certificate.(3)
4-2 (a) Indenture.
(b) Specimen of Senior Discount Note (See Exhibit 4-2(a)).**
4-3 Form of Lock-Up Agreement.(2)
4-4 (a) Form of Warrant Agreement.**
(b) Specimen of Warrant Certificate (See Exhibit 4-3(a)).**
5-1 Opinion and Consent of Hahn & Hessen LLP, counsel for the Registrant, with
respect to the Registrant's Common Stock and the Notes.*
9-1 (a) Voting Trust Agreement.(3)
(b) Form of Trustee Indemnification Agreement.(3)
(c) Voting Agreement.(3)
(d) Confidentiality Agreement.(3)
10-1 Employment and Consulting Agreements.
(a) Vernon L. Fotheringham, dated December 16, 1995.(1)
(b) Steven D. Comrie, dated February 2, 1996.(1)
(c) W. Theodore Pierson, Jr., dated May 8, 1995 and effective January 1,
1995.(1)
(d) I. Don Brown, dated February 16, 1996.(1)
(e) Charles Menatti, dated March 8, 1996.(1)
(f) James D. Miller, dated February 1, 1996.(1)
(g) Thomas A. Grina, dated April 26, 1996.**
10-2 (a) Second Amended and Restated Certificate of Incorporation and By-laws of
Telecom (filed as Exhibit 2-1 to the Registration on Form S-1 of the
Company dated May 2, 1996).(1)
(b) Certificate of Incorporation of ART Merger Corporation (to become the
Certificate of Incorporation of Telecom upon the completion of the
Merger).(2)
10-3 Form of Director Indemnification Agreement.(1)
10-4 (a) Registrant's Equity Incentive Plan, as amended.(2)
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S> <C>
(b) Form of Stock Option Agreement.(3)
10-5 (a) Registrant's 1996 Non-Employee Directors Automatic Stock Option Plan.(1)
(b) Form of Non-Employee Directors Stock Option Agreement.(2)
10-6 Stock Option Agreements.
(a) Comrie Non-Qualified Stock Option Agreement.(1)
(b) Comrie Incentive Stock Option Agreement.(1)
10-7 Management Consulting Agreement with Landover Holdings Corporation, dated
November 13, 1995.(1)
10-8 (a) ART West Joint Venture Agreement dated April 4, 1995, with Extended
Communications, Inc.(1)
(b) Put/Call Agreement dated October 1, 1994, with Extended Communications,
Inc.(1)
(c) Services Agreement dated October 1, 1994, with Extended Communications,
Inc.(1)
(d) Amendment dated April 4, 1995 to the Put/Call Agreement dated October 1,
1994, with Extended Communications, Inc.(1)
(e)Asset Purchase Agreement dated June 24, 1996 with Extended Communications,
Inc.(2)
(f) Management Agreement dated June 1, 1996 with ART West Partnership.(2)
10-9 (a) Put/Call Agreement dated September 1, 1994 with DCT Communications, Inc.(1)
(b) Services Agreement dated September 1, 1994 with DCT Communications, Inc.(1)
(c) Terms Sheet dated April 26, 1996 with DCT.(1)
(d) Purchase Agreement with DCT dated July 1, 1996.(2)
(e) Amendment to Services Agreement dated June 1996 with DCT.(2)
10-10 (a) Asset Purchase Agreement dated April 4, 1995 with EMI Communications
Corporation.(1)
(b) $1,500,000 Nonnegotiable and Nontransferable Promissory Note.(1)
(c) Maintenance Agreement dated November 14, 1995 with EMI Communications
Corporation.(1)
(d) Agreement dated November 14, 1995 with EMI Communications Corporations.(1)
10-11 38 GHz Radio Links Purchase Agreement dated August 11, 1995 with P-Com,
Inc.(1)+
10-12 (a) Agreement dated May 25, 1995 with Telecom One.(1)+
(b) Services Agreement dated April 24, 1996 with Telecom One.(1)
(c) Asset Purchase Agreement and Management Agreement with Telecom One dated
June 27, 1996.(2)
10-13 Agreement dated April 25, 1996 with GTE.(1)
10-14 Software License Agreement dated March 29, 1996 with GTE.(1)
10-15 Agreement dated July 12, 1995 with Southeast Research Partners, Inc.(1)
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.(1)
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.(1)
10-18 (a) Purchase Agreement dated April 21, 1995 with Landover Holdings
Corporation.(1)
(b) Letter Agreement dated May 8, 1995 with the Demetrees, Telecom, and
Landover Holdings Corporation.(1)
(c) Letter Agreement dated November 13, 1995 with Telecom, E2-2 Holdings, L.P.
and the Demetrees.(1)
10-19 Restated and Amended Stockholders' Agreement dated February 2, 1996 with
Telecom and the stockholders of each of Telecom and the Company.(1)
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.(2)
</TABLE>
II-5
<PAGE>
<TABLE>
<C> <S> <C>
10-21 Services Agreement dated May 8, 1995 with Telecom.(1)
10-22 Option Agreement dated February 2, 1996 with Telecom.(1)
10-23 (a) Securities Purchase Agreement dated November 13, 1995 with Telecom, Vernon
Fotheringham, W. Theodore Pierson, Jr., the stockholders of the Telecom
named therein and the Advent Partnerships.(1)
(b) Exchange Agreement dated February 2, 1996 with Telecom and the Advent
Partnerships.(1)
10-24 (a) Securities Purchase Agreement dated February 2, 1996 with Telecom and
Ameritech Development Corporation ("Ameritech"), including letter of
intent.(1)
(b) Warrant issued on February 2, 1996 to Ameritech.(1)
(c) Put/Call Agreement dated February 2, 1996 with Ameritech.(1)
10-25 Strategic Distribution Agreement dated April 29, 1996 with Ameritech.(1)
10-26 Restated and Amended Merger Agreement and Plan of Reorganization dated June 26,
1996 between the Company and Telecom.(2)
10-27 (a) $2,445,000 Promissory Note in favor of CRA, Inc. ("CRA")(1)
(b) Security Agreement with CRA(1)
(c) Indemnity Agreement(1)
(d) Form of Indemnity Warrant.(1)
10-28 Memorandum of Terms of Development and Procurement Agreement with American
Wireless with Extension Agreement dated April 25, 1996.(3)
10-29 (a) Purchase Agreement dated April 26, 1996 with Harris Corporation Farinon
Division ("Harris") (confidential treatment requested for certain terms).**
(b) PCS Marketing Agreement dated April 26, 1996 with Harris (confidential
treatment requested for certain terms).**
10-30 Form of Subscription Agreement dated March 8, 1996, including forms of Bridge
Note and Bridge Warrant.(2)
10-31 (a) Asset Acquisition Agreement and Plan of Reorganization dated July 3, 1996
with CommcoCCC, Inc.(2)
(b) Form of Note issued to Commco, L.L.C.(2)
(c) Form of Note issued to Columbia Capital Corporation.(2)
(d) Form of Warrant issued to Commco, L.L.C.(2)
(e) Form of Warrant issued to Columbia Capital Corporation.(2)
(f) Option Agreement dated July 3, 1996 with Commco, L.L.C.(2)
(g) Security Agreement dated June 27, 1996 with Columbia Capital
Corporation.(2)
(h) Form of Noncompetition Agreement with CommcoCCC.(2)
(i) CommcoCCC Management Agreement dated July 3, 1996.(2)
(j) Right of First Offer Agreement dated July 3, 1996.**
(k) Engagement Letter with Montgomery Securities dated May 23, 1996.(2)
10-32 Letter of Intent dated April 29, 1996 with Helioss Communications Inc.(2)
10-33 Letter of Intent dated March 26, 1996 with Advantage Telecom, Inc.(3)
10-34 Consulting Agreement dated March 1, 1996 with Trond Johannesen.(3)
11 Computation of Pro Forma Net Loss Per Share of Common Stock.**
12 Computation of Ratio of Earnings to Fixed Charges.**
21 Subsidiaries of the Registrant.(1)
23(a) Consent of the Registrant's Independent Accountants.
23(b) Consent of the Registrant's Counsel.*
25 Form T-1 Statement of Eligibility of The Bank of New York under the Trust
Indenture Act of 1939.
</TABLE>
- ------------------------
* To be filed by amendment.
** Previously filed.
+ Confidential treatment requested for the deleted portions of this document.
(1) Filed with the Registration Statement on Form S-1 of the Company dated May
2, 1996 (SEC Reg. No. 333-04388) ("Equity Registration Statement").
(2) Filed with Amendment No. 1 to Equity Registration Statement dated July 3,
1996.
(3) Filed with Amendment No. 2 to Equity Registration Statement.
II-6
<PAGE>
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;
(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-7
<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 July , 1996.
Advanced Radio Technologies
Corporation
By: /s/ THOMAS A. 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 July , 1996
Vernon L. Fotheringham Officer and Director
/s/ W. THEODORE PIERSON*
------------------------------------------- Executive Vice President, July , 1996
W. Theodore Pierson, Jr. General Counsel and Director
/s/ MATHEW C. GOVE*
------------------------------------------- Director July , 1996
Matthew C. Gove
/s/ THOMAS A. GRINA
------------------------------------------- Executive Vice President July , 1996
Thomas A. Grina and Chief Financial Officer
</TABLE>
- ------------------------
* By Thomas A. Grina, attorney-in-fact
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ------------- ----------------------------------------------------------------------------------------- -------------
<C> <S> <C>
1-1 Purchase Agreement.**
2-1 (a)Amended and Restated Certificate of Incorporation and By-laws of Registrant.(2)
(b)Amendment to Amended and Restated Certificate of Incorporation.(2)
(c)Amended and Restated Certificate of Incorporation (to be effective prior to the
consummation of the Offerings) and Restated and Amended Bylaws (effective on the date
of the Prospectus) of Registrant.(2)
4-1 Specimen of Common Stock Certificate.(3)
4-2 (a) Indenture.
(b) Specimen of Senior Discount Note (See Exhibit 4-2(a)).**
4-3 Form of Lock-Up Agreement.(2)
4-4 (a) Form of Warrant Agreement.**
(b) Specimen of Warrant Certificate (See Exhibit 4-3(a))**
5-1 Opinion and Consent of Hahn & Hessen LLP, counsel for the Registrant, with respect to the
Registrant's Common Stock and the Notes.*
9-1 (a) Voting Trust Agreement.(3)
(b) Form of Trustee Indemnification Agreement.(3)
(c) Voting Agreement.(3)
(d) Confidentiality Agreement.(3)
10-1 Employment and Consulting Agreements.
(a) Vernon L. Fotheringham, dated December 16, 1995.(1)
(b) Steven D. Comrie, dated February 2, 1996.(1)
(c) W. Theodore Pierson, Jr., dated May 8, 1995 and effective January 1, 1995.(1)
(d) I. Don Brown, dated February 16, 1996.(1)
(e) Charles Menatti, dated March 8, 1996.(1)
(f) James D. Miller, dated February 1, 1996.(1)
(g) Thomas A. Grina, dated April 26, 1996.**
10-2 (a) Second Amended and Restated Certificate of Incorporation and By-laws of Telecom
(filed as Exhibit 2-1 to the Registration on Form S-1 of the Company dated May 2,
1996).(1)
(b) Certificate of Incorporation of ART Merger Corporation (to become the Certificate of
Incorporation of Telecom upon the completion of the Merger).(2)
10-3 Form of Director Indemnification Agreement.(1)
10-4 (a) Registrant's Equity Incentive Plan, as amended.(2)
(b) Form of Stock Option Agreement.(3)
10-5 (a) Registrant's 1996 Non-Employee Directors Automatic Stock Option Plan.(1)
(b) Form of Non-Employee Directors Stock Option Agreement.(2)
10-6 Stock Option Agreements.
(a) Comrie Non-Qualified Stock Option Agreement.(1)
(b) Comrie Incentive Stock Option Agreement.(1)
10-7 Management Consulting Agreement with Landover Holdings Corporation, dated November 13,
1995.(1)
10-8 (a) ART West Joint Venture Agreement dated April 4, 1995, with Extended Communications,
Inc.(1)
(b) Put/Call Agreement dated October 1, 1994, with Extended Communications, Inc.(1)
(c) Services Agreement dated October 1, 1994, with Extended Communications, Inc.(1)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ------------- ----------------------------------------------------------------------------------------- -------------
(d) Amendment dated April 4, 1995 to the Put/Call Agreement dated October 1, 1994, with
Extended Communications, Inc.(1)
<C> <S> <C>
(e)Asset Purchase Agreement dated June 24, 1996 with Extended Communications, Inc.(2)
(f) Management Agreement dated June 1, 1996 with ART West Partnership.(2)
10-9 (a) Put/Call Agreement dated September 1, 1994 with DCT Communications, Inc.(1)
(b) Services Agreement dated September 1, 1994 with DCT Communications, Inc.(1)
(c) Terms Sheet dated April 26, 1996 with DCT.(1)
(d) Purchase Agreement with DCT dated July 1, 1996.(2)
(e) Amendment to Services Agreement dated June 1996 with DCT.(2)
10-10 (a) Asset Purchase Agreement dated April 4, 1995 with EMI Communications Corporation.(1)
(b) $1,500,000 Nonnegotiable and Nontransferable Promissory Note.(1)
(c) Maintenance Agreement dated November 14, 1995 with EMI Communications Corporation.(1)
(d) Agreement dated November 14, 1995 with EMI Communications Corporations.(1)
10-11 38 GHz Radio Links Purchase Agreement dated August 11, 1995 with P-Com, Inc.(1)+
10-12 (a) Agreement dated May 25, 1995 with Telecom One.(1)+
(b) Services Agreement dated April 24, 1996 with Telecom One.(1)
(c) Asset Purchase Agreement and Management Agreement with Telecom One dated June 27,
1996.(2)
10-13 Agreement dated April 25, 1996 with GTE.(1)
10-14 Software License Agreement dated March 29, 1996 with GTE.(1)
10-15 Agreement dated July 12, 1995 with Southeast Research Partners, Inc.(1)
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.(1)
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.(1)
10-18 (a) Purchase Agreement dated April 21, 1995 with Landover Holdings Corporation.(1)
(b) Letter Agreement dated May 8, 1995 with the Demetrees, Telecom, and Landover Holdings
Corporation.(1)
(c) Letter Agreement dated November 13, 1995 with Telecom, E2-2 Holdings, L.P. and the
Demetrees.(1)
10-19 Restated and Amended Stockholders' Agreement dated February 2, 1996 with Telecom and the
stockholders of each of Telecom and the Company.(1)
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.(2)
10-21 Services Agreement dated May 8, 1995 with Telecom.(1)
10-22 Option Agreement dated February 2, 1996 with Telecom.(1)
10-23 (a) Securities Purchase Agreement dated November 13, 1995 with Telecom, Vernon
Fotheringham, W. Theodore Pierson, Jr., the stockholders of the Telecom named therein
and the Advent Partnerships.(1)
(b) Exchange Agreement dated February 2, 1996 with Telecom and the Advent
Partnerships.(1)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ------------- ----------------------------------------------------------------------------------------- -------------
10-24 (a) Securities Purchase Agreement dated February 2, 1996 with Telecom and Ameritech
Development Corporation ("Ameritech"), including letter of intent.(1)
<C> <S> <C>
(b) Warrant issued on February 2, 1996 to Ameritech.(1)
(c) Put/Call Agreement dated February 2, 1996 with Ameritech.(1)
10-25 Strategic Distribution Agreement dated April 29, 1996 with Ameritech.(1)
10-26 Restated and Amended Merger Agreement and Plan of Reorganization dated June 26, 1996
between the Company and Telecom.(2)
10-27 (a) $2,445,000 Promissory Note in favor of CRA, Inc. ("CRA")(1)
(b) Security Agreement with CRA(1)
(c) Indemnity Agreement(1)
(d) Form of Indemnity Warrant.(1)
10-28 Memorandum of Terms of Development and Procurement Agreement with American Wireless with
Extension Agreement dated April 25, 1996.(1)
10-29 (a) Purchase Agreement dated April 26, 1996 with Harris Corporation Farinon Division
("Harris") (confidential treatment requested for certain terms).**
(b) PCS Marketing Agreement dated April 26, 1996 with Harris (confidential treatment
requested for certain terms).**
10-30 Form of Subscription Agreement dated March 8, 1996, including forms of Bridge Note and
Bridge Warrant.(2)
10-31 (a) Asset Acquisition Agreement and Plan of Reorganization dated July 3, 1996 with
CommcoCCC, Inc.(2)
(b) Form of Note issued to Commco, L.L.C.(2)
(c) Form of Note issued to Columbia Capital Corporation.(2)
(d) Form of Warrant issued to Commco, L.L.C.(2)
(e) Form of Warrant issued to Columbia Capital Corporation.(2)
(f) Option Agreement dated July 3, 1996 with Commco, L.L.C.(2)
(g) Security Agreement dated June 27, 1996 with Columbia Capital Corporation.(2)
(h) Form of Noncompetition Agreement with CommcoCCC.(2)
(i) CommcoCCC Management Agreement dated July 3, 1996.(2)
(j) Right of First Offer Agreement dated July 3, 1996.(2)
(k) Engagement Letter with Montgomery Securities dated May 23, 1996.(2)
10-32 Letter of Intent dated April 29, 1996 with Helioss Communications Inc.(2)
10-33 Letter of Intent dated March 26, 1996 with Advantage Telecom, Inc.(3)
10-34 Consulting Agreement dated March 1, 1996 with Trond Johannesen(3)
11 Computation of Pro Forma Net Loss Per Share of Common Stock.**
12 Computation of Ratio of Earnings to Fixed Charges.**
21 Subsidiaries of the Registrant.(1)
23(a) Consent of the Registrant's Independent Accountants.
23(b) Consent of the Registrant's Counsel.*
25 Form T-1 Statement of Eligibility of The Bank of New York under the Trust Indenture Act
of 1939.
</TABLE>
- ------------------------
* To be filed by amendment.
** Previously filed.
+ Confidential treatment requested for the deleted portions of this document.
(1) Filed with the Registration Statement on Form S-1 of the Company dated May
2, 1996 (SEC Reg. No. 333-04388) ("Equity Registration Statement").
(2) Filed with Amendment No. 1 to Equity Registration Statement.
(3) Filed with Amendment No. 2 to Equity Registration Statement.
<PAGE>
L&W DRAFT 7/10/96
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ADVANCED RADIO TELECOM CORP.
Units Consisting of
$_______________ Principal Amount at Maturity
of ___% Senior Discount Notes due 2006
and
Warrants to Purchase __________ Shares of Common Stock
INDENTURE
Dated as of _____________, 1996
THE BANK OF NEW YORK
Trustee
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CROSS-REFERENCE TABLE*
Trust Indenture
Act Section Indenture Section
310 (a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(5) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
311 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
312 (a). . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.05
(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.03
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . .
313 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06
(b)(1) . . . . . . . . . . . . . . . . . . . . . . . . . .
(b)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06; 10.02
(d). . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06
314 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.03; 10.02
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . .
(c)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . 10.04
(c)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . 10.04
(c)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(d). . . . . . . . . . . . . . . . . . . . . . . . . . . .
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.05
(f). . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
315 (a). . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.01
(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.05, 10.02
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.01
(d). . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.01
(e). . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.11
316 (a)(last sentence) . . . . . . . . . . . . . . . . . . . . 2.09
(a)(1)(A). . . . . . . . . . . . . . . . . . . . . . . . . 6.05
(a)(1)(B) . . . . . . . . . . . . . . . . . . . . . . . . 6.04
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.07
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.13
317 (a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . 6.08
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . 6.09
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.04
318 (a). . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.01
(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(c). . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.01
N.A. means not applicable.
*This Cross-Reference Table is not part of the Indenture.
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.01. Definitions . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.02. Other Definitions . . . . . . . . . . . . . . . . . . . . . 18
Section 1.03. Incorporation by Reference of Trust Indenture Act . . . . . 18
Section 1.04. Rules of Construction . . . . . . . . . . . . . . . . . . . 19
ARTICLE 2
THE NOTES
Section 2.01. Form and Dating . . . . . . . . . . . . . . . . . . . . . . 19
Section 2.02. Execution and Authentication. . . . . . . . . . . . . . . . 19
Section 2.03. Registrar and Paying Agent. . . . . . . . . . . . . . . . . 20
Section 2.04. Paying Agent to Hold Money in Trust . . . . . . . . . . . . 20
Section 2.05. Lists of Holders of the Notes . . . . . . . . . . . . . . . 21
Section 2.06. Transfer and Exchange . . . . . . . . . . . . . . . . . . . 21
Section 2.07. Replacement Notes . . . . . . . . . . . . . . . . . . . . . 22
Section 2.08. Outstanding Notes . . . . . . . . . . . . . . . . . . . . . 22
Section 2.09. Treasury Notes. . . . . . . . . . . . . . . . . . . . . . . 22
Section 2.10. Temporary Notes . . . . . . . . . . . . . . . . . . . . . . 22
Section 2.11. Cancellation. . . . . . . . . . . . . . . . . . . . . . . . 23
Section 2.12. Defaulted Interest. . . . . . . . . . . . . . . . . . . . . 23
Section 2.13. Record Date . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 2.14. CUSIP Number. . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE 3
REDEMPTION
Section 3.01. Notices to Trustee. . . . . . . . . . . . . . . . . . . . . 24
Section 3.02. Selection of Notes to Be Redeemed . . . . . . . . . . . . . 24
Section 3.03. Notice of Redemption. . . . . . . . . . . . . . . . . . . . 24
Section 3.04. Effect of Notice of Redemption. . . . . . . . . . . . . . . 25
Section 3.05. Deposit of Redemption Price . . . . . . . . . . . . . . . . 25
Section 3.06. Notes Redeemed in Part. . . . . . . . . . . . . . . . . . . 25
Section 3.07. Optional Redemption . . . . . . . . . . . . . . . . . . . . 25
Section 3.08. Mandatory Redemption. . . . . . . . . . . . . . . . . . . . 26
ARTICLE 4
COVENANTS
Section 4.01. Payment of Notes. . . . . . . . . . . . . . . . . . . . . . 26
Section 4.02. Maintenance of Office or Agency . . . . . . . . . . . . . . 27
Section 4.03. Reports . . . . . . . . . . . . . . . . . . . . . . . . . . 27
i
<PAGE>
Section 4.04. Compliance Certificate. . . . . . . . . . . . . . . . . . . 27
Section 4.05. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 4.06. Stay, Extension and Usury Laws. . . . . . . . . . . . . . . 28
Section 4.07. Limitation on Restricted Payments . . . . . . . . . . . . . 29
Section 4.08. Limitation on Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries . . . . . . . . . . . . . 31
Section 4.09. Limitation on Indebtedness. . . . . . . . . . . . . . . . . 33
Section 4.10. Limitation on Issuances and Sales of Capital Stock of
Wholly Owned Restricted Subsidiaries. . . . . . . . . . . . 36
Section 4.11. Disposition of Proceeds of Asset Sales. . . . . . . . . . . 36
Section 4.12. Limitation on Transactions with Affiliates. . . . . . . . . 37
Section 4.13. Limitation on Liens Securing Certain Indebtedness . . . . . 38
Section 4.14. Corporate Existence . . . . . . . . . . . . . . . . . . . . 38
Section 4.15. Change of Control . . . . . . . . . . . . . . . . . . . . . 38
Section 4.16. Business Activities of the Company. . . . . . . . . . . . . 38
Section 4.17. No Amendment to Agreement . . . . . . . . . . . . . . . . . 39
ARTICLE 5
SUCCESSORS
Section 5.01. Consolidation, Merger, Sale of Assets, Etc. . . . . . . . . 39
Section 5.02. Successor Corporation Substituted . . . . . . . . . . . . . 40
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.01. Events of Default . . . . . . . . . . . . . . . . . . . . . 40
Section 6.02. Acceleration. . . . . . . . . . . . . . . . . . . . . . . . 41
Section 6.03. Other Remedies. . . . . . . . . . . . . . . . . . . . . . . 42
Section 6.04. Waiver of Past Defaults . . . . . . . . . . . . . . . . . . 42
Section 6.05. Control by Majority . . . . . . . . . . . . . . . . . . . . 43
Section 6.06. Limitation on Suits . . . . . . . . . . . . . . . . . . . . 43
Section 6.07. Rights of Holders of Notes to Receive Payment . . . . . . . 43
Section 6.08. Collection Suit by Trustee. . . . . . . . . . . . . . . . . 43
Section 6.09. Trustee May File Proofs of Claim. . . . . . . . . . . . . . 44
Section 6.10. Priorities. . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 6.11. Undertaking for Costs . . . . . . . . . . . . . . . . . . . 45
ARTICLE 7
TRUSTEE
Section 7.01. Duties of Trustee . . . . . . . . . . . . . . . . . . . . . 45
Section 7.02. Rights of Trustee . . . . . . . . . . . . . . . . . . . . . 46
Section 7.03. Individual Rights of Trustee. . . . . . . . . . . . . . . . 46
Section 7.04. Trustee's Disclaimer. . . . . . . . . . . . . . . . . . . . 46
Section 7.05. Notice of Defaults. . . . . . . . . . . . . . . . . . . . . 47
Section 7.06. Reports by Trustee to Holders of the Notes. . . . . . . . . 47
Section 7.07. Compensation and Indemnity. . . . . . . . . . . . . . . . . 47
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Section 7.08. Replacement of Trustee. . . . . . . . . . . . . . . . . . . 48
Section 7.09. Successor Trustee by Merger, etc. . . . . . . . . . . . . . 49
Section 7.10. Eligibility; Disqualification . . . . . . . . . . . . . . . 49
Section 7.11. Preferential Collection of Claims Against Company . . . . . 49
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.01. Option to Effect Legal Defeasance or Covenant Defeasance. . 49
Section 8.02. Legal Defeasance and Discharge. . . . . . . . . . . . . . . 49
Section 8.03. Covenant Defeasance . . . . . . . . . . . . . . . . . . . . 50
Section 8.04. Conditions to Legal or Covenant Defeasance. . . . . . . . . 50
Section 8.05. Deposited Money and Government Securities to be Held in
Trust; Other Miscellaneous Provisions.. . . . . . . . . . . 51
Section 8.06. Repayment to Company. . . . . . . . . . . . . . . . . . . . 52
Section 8.07. Reinstatement . . . . . . . . . . . . . . . . . . . . . . . 52
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.01. Without Consent of Holders of Notes . . . . . . . . . . . . 52
Section 9.02. With Consent of Holders of Notes. . . . . . . . . . . . . . 53
Section 9.03. Compliance with Trust Indenture Act . . . . . . . . . . . . 54
Section 9.04. Revocation and Effect of Consents . . . . . . . . . . . . . 54
Section 9.05. Notation on or Exchange of Notes. . . . . . . . . . . . . . 55
Section 9.06. Trustee to Sign Amendments, etc . . . . . . . . . . . . . . 55
Section 9.07. Payment for Consents. . . . . . . . . . . . . . . . . . . . 55
ARTICLE 10
MISCELLANEOUS
Section 10.01. Trust Indenture Act Controls. . . . . . . . . . . . . . . . 55
Section 10.02. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 10.03. Communication by Holders of Notes with Other Holders of
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 10.04. Certificate and Opinion as to Conditions Precedent. . . . . 57
Section 10.05. Statements Required in Certificate or Opinion . . . . . . . 57
Section 10.06. Rules by Trustee and Agents . . . . . . . . . . . . . . . . 57
Section 10.07. No Personal Liability of Partners, Directors, Officers,
Employees and Stockholders. . . . . . . . . . . . . . . . . 58
Section 10.08. Governing Law . . . . . . . . . . . . . . . . . . . . . . . 58
Section 10.09. No Adverse Interpretation of Other Agreements . . . . . . . 58
Section 10.10. Successors. . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 10.11. Severability. . . . . . . . . . . . . . . . . . . . . . . . 58
Section 10.12. Counterpart Originals . . . . . . . . . . . . . . . . . . . 58
Section 10.13. Table of Contents, Headings, etc. . . . . . . . . . . . . . 58
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EXHIBITS
Exhibit A Form of Note
iv
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INDENTURE dated as of July ___, 1996 between Advanced Radio Telecom Corp.,
f/k/a Advanced Radio Technologies Corporation, a Delaware corporation (the
"Company"), and The Bank of New York, as trustee (the "Trustee").
The Company and the Trustee agree as follows for the benefit of each other
and for the equal and ratable benefit of the Holders of the ___% Senior Discount
Notes due 2006 (the "Notes"):
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
SECTION 1.01. DEFINITIONS.
"ACCRETED VALUE" as of any Specified Date, means with respect to each
$1,000 principal amount at maturity of Notes:
(i) if the Specified Date occurs on one of the following dates (each,
a "Semi-Annual Accrual Date"), the amount set forth below opposite such
date:
Semi-Annual Accrual Date Accreted Value
------------------------ --------------
, 1996 . . . . . . . . . . . . . . . . . . . $
, 1997 . . . . . . . . . . . . . . . . . . .
, 1997 . . . . . . . . . . . . . . . . . . .
, 1998 . . . . . . . . . . . . . . . . . . .
, 1998 . . . . . . . . . . . . . . . . . . .
, 1999 . . . . . . . . . . . . . . . . . . .
, 1999 . . . . . . . . . . . . . . . . . . .
, 2000 . . . . . . . . . . . . . . . . . . .
, 2000 . . . . . . . . . . . . . . . . . . .
, 2001 . . . . . . . . . . . . . . . . . . .
, 2001 . . . . . . . . . . . . . . . . . . . $1,000.00
(ii) if the Specified Date occurs before the first Semi-Annual Accrual
Date, the sum of (A) the original issue price and (B) an amount equal to
the product of (1) the Accreted Value for the first Semi-Annual Accrual
Date less the original issue price and (2) a fraction, the numerator of
which is the number of days from the Issue Date to the Specified Date,
using a 360-day year of twelve 30-day months, and the denominator of which
is the number of days elapsed from the issue date of the Notes to the first
Semi-Annual Accrual Date, using a 360-day year of twelve 30-day months;
(iii) if the Specified Date occurs between two Semi-Annual Accrual
Dates, the sum of (A) the Accreted Value for the Semi-Annual Accrual Date
immediately preceding the Specified Date and (B) an amount equal to the
product of (1) the Accreted Value for the immediately following Semi-Annual
Accrual Date less the Accreted Value for the immediately preceding Semi-
Annual Accrual Date and (2) a fraction, the numerator of which is the
number of days from the immediately preceding Semi-Annual Accrual Date to
the Specified Date, using a 360-day year of twelve 30-day months, and the
denominator of which is 180; or
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(iv) if the Specified Date occurs after the last Semi-Annual Accrual
Date, $1,000.
"ACQUIRED DEBT" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"ADJUSTED CONSOLIDATED NET INCOME" means, for any period, the aggregate net
income (or loss) of the Company and its Restricted Subsidiaries for such period
determined in conformity with GAAP; PROVIDED that the following items shall be
excluded in computing Adjusted Consolidated Net Income (without duplication):
(i) the net income of any Person (other than net income attributable to a
Restricted Subsidiary) in which any Person (other than the Company or any of its
Restricted Subsidiaries) has a joint interest and the net income of any
Unrestricted Subsidiary, except to the extent of the amount of dividends or
other distributions actually paid to the Company or any of its Restricted
Subsidiaries by such other Person (including, without limitation, an
Unrestricted Subsidiary) during such period; (ii) solely for the purposes of
calculating the amount of Restricted Payments that may be made pursuant to
clause (C) of Section 4.07(a) hereof (and in such case, except to the extent
includable pursuant to clause (i) above), the net income (or loss) of any Person
accrued prior to the date it becomes a Restricted Subsidiary or is merged into
or consolidated with the Company or any of its Restricted Subsidiaries or all or
substantially all of the property and assets of such Person are acquired by the
Company or any of its Restricted Subsidiaries; (iii) the net income of any
Restricted Subsidiary to the extent that the declaration or payment of dividends
or similar distributions by such Restricted Subsidiary of such net income is not
at the time permitted by the operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to such Restricted Subsidiary; (iv) any gains or losses
(on an after-tax basis) attributable to Asset Sales; (v) except for purposes of
calculating the amount of Restricted Payments that may be made pursuant to
clause (C) of Section 4.07(a) hereof, any amount paid as, or accrued for, cash
dividends on Preferred Stock of the Company or any Restricted Subsidiary owned
by Persons other than the Company and any of its Restricted Subsidiaries; and
(vi) all extraordinary or nonrecurring gains and losses.
"ADJUSTED CONSOLIDATED NET TANGIBLE ASSETS" means the total amount of
assets of the Company and its Restricted Subsidiaries (less applicable
depreciation, amortization and other valuation reserves), except to the extent
resulting from write-ups of capital assets (excluding write-ups in connection
with accounting for acquisitions in conformity with GAAP), after deducting
therefrom (i) all current liabilities of the Company and its Restricted
Subsidiaries (excluding intercompany items) and (ii) all goodwill, trade names,
trademarks, patents, unamortized debt discount and expense and other like
intangibles (other than licenses issued by the FCC), all as set forth on the
quarterly or annual consolidated balance sheet of the Company and its Restricted
Subsidiaries, prepared in conformity with GAAP and most recently filed with the
Commission pursuant to Section 4.03 hereof; PROVIDED that the value of any
licenses issued by the FCC shall, in the event of an auction for similar
licenses, be equal to the fair market value ascribed thereto in good faith by
the Board and evidenced by a resolution of the Board. As used herein,
references to financial statements of the Company and its Restricted
Subsidiaries shall be adjusted to exclude Unrestricted Subsidiaries if the
context requires.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of
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this definition, "control" (including, with correlative meanings, the terms
"controlling," "controlled by" and "under common control with"), as used with
respect to any Person, shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of such
Person, whether through the ownership of voting securities, by agreement or
otherwise; PROVIDED that beneficial ownership of 10% or more of the voting
securities of a Person shall be deemed to be control. For purposes hereof, the
term "Affiliate" shall at all times include Laurence S. Zimmerman, Landover
Holdings Corporation and their respective Affiliates.
"AGENT" means any Registrar, Paying Agent or co-registrar.
"ART LICENSING" means ART Licensing Corp., a Delaware corporation and a
wholly owned subsidiary of the Company, or any successor thereto, or such other
Subsidiary or Subsidiaries of the Company formed for the purpose of the
application for, acquisition of or ownership of FCC licenses and authorizations.
"ART WEST" means ART West Joint Venture, a Delaware partnership owned by
the Company and Extended Communications, Inc.
"ASSET ACQUISITION" means (i) an Investment by the Company or any of its
Restricted Subsidiaries in any other Person pursuant to which such Person shall
become a Restricted Subsidiary of the Company or shall be merged into or
consolidated with the Company or any of its Restricted Subsidiaries or (ii) an
acquisition by the Company or any of its Restricted Subsidiaries of the property
and assets of any Person other than the Company or any of its Restricted
Subsidiaries that constitute substantially all of a division or line of business
of such Person.
"ASSET SALE" means any sale, transfer or other disposition (including by
way of merger, consolidation or sale-leaseback transaction) in one transaction
or a series of related transactions by the Company or any of its Restricted
Subsidiaries to any Person other than the Company or any of its Restricted
Subsidiaries of (i) all or any of the Capital Stock of any Restricted
Subsidiary, (ii) all or substantially all of the property and assets of an
operating unit or business of the Company or any of its Restricted Subsidiaries
or (iii) any other property or assets of the Company or any of its Restricted
Subsidiaries (including Capital Stock of any Unrestricted Subsidiaries) outside
the ordinary course of business of the Company or such Restricted Subsidiary;
PROVIDED that the following shall not be included within the meaning of "Asset
Sale": (A) sales or other dispositions of inventory, receivables and other
current assets; (B) sales or other dispositions of equipment that has become
worn out, obsolete, damaged or otherwise unsuitable for use in connection with
the business of the Company or its Restricted Subsidiaries; (C) Permitted Asset
Swaps; (D) sales, transfers or other dispositions otherwise constituting Asset
Sales in an aggregate amount not to exceed $500,000 during the relevant twelve-
month period referred to in Section 4.11 hereof; (E) any Restricted Payment
permitted by Section 4.07 hereof; (F) any Lien permitted to be Incurred by
Section 4.13 hereof; (G) any transaction that is governed by the provisions of
Article 5 hereof; (H) any sale, transfer or other disposition of the Capital
Stock of an Unrestricted Subsidiary; and (I) any disposition pursuant to the
Option Agreement, dated as of July 3, 1996, between the Company and Commco,
L.L.C.
"AVERAGE LIFE" means, at any date of determination with respect to any debt
security, the quotient obtained by dividing (i) the sum of the products of
(A) the number of years from such date of
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determination to the dates of each successive scheduled principal payment of
such debt security and (B) the amount such principal payment by (ii) the sum of
all such principal payments.
"BOARD" means the Board of Directors of the Company.
"BUSINESS DAY" means any day other than a Legal Holiday.
"CAPITAL STOCK" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
"CAPITALIZED LEASE" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) of which the discounted present value
of the rental obligations of such Person as lessee, in conformity with GAAP, is
required to be capitalized on the balance sheet of such Person; and "Capitalized
Lease Obligations" means the discounted present value of the rental obligations
under such lease.
"CHANGE IN CONTROL" means such time as (i) a "person" or "group" (within
the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act) becomes the
ultimate "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of
Voting Stock representing more than 50% of the total voting power of the Voting
Stock of the Company on a fully diluted basis, (ii) individuals who on the Issue
Date constitute the Board (together with any new directors whose election by the
Board or whose nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds of the members of the Board then in
office who either were members of the Board on the Issue Date or whose election
or nomination for election was previously so approved) cease for any reason to
constitute a majority of the members of the Board then in office and (iii) the
merger or consolidation of the Company with or into another corporation, or the
merger or consolidation of another corporation with and into the Company, with
the effect that, immediately after such transaction, the stockholders of the
Company immediately prior to such transaction hold less than 50% of the Voting
Stock of the Person surviving such merger or consolidation.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the common stock, par value $.001 per share, of the
Company.
"CONSOLIDATED EBITDA" means, for any period, the sum of the amounts for
such period of (i) Adjusted Consolidated Net Income, (ii) Consolidated Interest
Expense, to the extent such amount was deducted in calculating Adjusted
Consolidated Net Income, (iii) income taxes, to the extent such amount was
deducted in calculating Adjusted Consolidated Net Income (other than income
taxes (either positive or negative) attributable to extraordinary and non-
recurring gains or losses or sales of assets), (iv) depreciation expense, to the
extent such amount was deducted in calculating Adjusted Consolidated Net Income,
(v) amortization expense, to the extent such amount was deducted in calculating
Adjusted Consolidated Net Income, (vi) all other non-cash items reducing
Adjusted Consolidated Net Income (other than items that will require cash
payments and for which an accrual or reserve is, or is required by GAAP to be,
made), less all non-cash items increasing Adjusted Consolidated Net Income and
(vii) all
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cash dividend payments (and non-cash dividend payments in the case of a Person
that is a Restricted Subsidiary) on any series of preferred stock of such
Person, all as determined on a consolidated basis for the Company and its
Restricted Subsidiaries in conformity with GAAP; PROVIDED that, if any
Restricted Subsidiary is not a Wholly Owned Restricted Subsidiary, Consolidated
EBITDA shall be reduced (to the extent not otherwise reduced in accordance with
GAAP) by an amount equal to (A) the amount of the Adjusted Consolidated Net
Income attributable to such Restricted Subsidiary MULTIPLIED BY (B) the quotient
of (1) the number of shares of outstanding Common Stock of such Restricted
Subsidiary not owned on the last day of such period by the Company or any of its
Restricted Subsidiaries DIVIDED BY (2) the total number of shares of outstanding
Common Stock of such Restricted Subsidiary on the last day of such period.
Notwithstanding the foregoing, the provision for taxes based on the income or
profits of, and the depreciation and amortization and other non-cash charges of,
a Restricted Subsidiary of a Person shall be added to Adjusted Consolidated Net
Income to compute Consolidated EBITDA only to the extent (and in the same
proportion) that the net income of such Restricted Subsidiary was included in
calculating the Adjusted Consolidated Net Income of such Person and only if a
corresponding amount would be permitted at the date of determination to be
dividended to the Company by such Restricted Subsidiary without prior approval
(that has not been obtained), pursuant to the terms of its charter and all
agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to that Restricted Subsidiary or its
stockholders.
"CONSOLIDATED INTEREST EXPENSE" means, for any period, the aggregate amount
of interest in respect of Indebtedness (including amortization of original issue
discount on any Indebtedness and the interest portion of any deferred payment
obligation, calculated in accordance with the effective interest method of
accounting; all commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing and net payments
(if any) pursuant to Hedging Obligations; and Indebtedness that is Guaranteed or
secured by the Company or any of its Restricted Subsidiaries) and all but the
principal component of rentals in respect of Capitalized Lease Obligations paid,
accrued or scheduled to be paid or to be accrued by the Company and its
Restricted Subsidiaries during such period; EXCLUDING, HOWEVER, (i) any amount
of such interest of any Restricted Subsidiary if the net income of such
Restricted Subsidiary is excluded from the calculation of Adjusted Consolidated
Net Income pursuant to clause (iii) of the definition thereof (but only in the
same proportion as the net income of such Restricted Subsidiary is excluded from
the calculation of Adjusted Consolidated Note Income pursuant to clause (iii) of
the definition thereof) and (ii) any premiums, fees and expenses (and any
amortization thereof) payable in connection with the offering of the Notes, all
as determined on a consolidated basis (without taking into account Unrestricted
Subsidiaries) in conformity with GAAP.
"CREDIT FACILITY" means a bank credit facility, to be entered into among
the Company, Canadian Imperial Bank of Commerce, Inc., as agent (the "Agent"),
and certain lenders to be party thereto, on substantially the terms set forth in
the Summary of Terms and Conditions of the Agent, dated as of June 23, 1996, and
any amendment, extension, restatement, refinancing or refunding thereof;
PROVIDED that the Company and the Agent shall have (A) executed a commitment
letter with respect to such facility not later than January 1, 1997 and (B)
entered into such facility not later than June 30, 1997; PROVIDED FURTHER that,
in the event that the Company and the Agent shall have failed to execute a
commitment letter or enter into such facility within the time periods specified
in the first proviso of this definition, Sections 4.09(b)(xiii) and (xiv) hereof
shall be of no further force and effect.
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"CORPORATE TRUST OFFICE OF THE TRUSTEE" shall be at the address of the
Trustee specified in Section 10.02 or such other address as to which the Trustee
may give notice to the Company.
"DEFAULT" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.
"DEFAULT AMOUNT" means (i) as of any date prior to , 2001, the
Accreted Value of the Notes (plus any applicable premium thereon) as of such
date and (ii) as of any date on or after , 2001, 100% of the principal
amount at maturity of the Notes (plus any applicable premium thereon).
"DIRECTED INVESTMENT" means any Investment in a Telecommunications Business
that is made by investing the net proceeds of the issuance of Capital Stock
(other than Redeemable Stock) by the Company (or options, warrants or other
rights to purchase such Capital Stock) after the Issue Date; PROVIDED that such
Investment shall be made with such net proceeds in the form received by the
Company and shall be limited to an amount equal to (A) 50% of such net proceeds
to the extent that such net proceeds consist of cash, and (B) 100% of such net
proceeds to the extent such net proceeds consist of Capital Stock or
Telecommunications Assets; PROVIDED FURTHER that such Investment is made within
180 days of such issuance of Capital Stock.
"EQUITY OFFERING" means an underwritten public offering or flotation of
Common Stock of the Company which has been registered under the Securities Act
and/or admitted to listing on a national securities exchange.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended (or
any successor act), and the rules and regulations thereunder.
"FAIR MARKET VALUE" means the price that would be paid in an arm's length
transaction between an informed and willing seller under no compulsion to sell
and an informed and willing buyer under no compulsion to buy, as determined in
good faith by the Board (whose determination shall be conclusive) and evidenced
by a resolution of the Board.
"FCC" means the United States Federal Communications Commission and any
state or local telecommunications authority, department, commission or agency
(and any successors thereto).
"GAAP" means generally accepted accounting principles in the United States
of America as in effect from time to time, including, without limitation, those
set forth in the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession. All ratios and computations contained herein shall be
computed in conformity with GAAP applied on a consistent basis, except that
calculations made for purposes of determining compliance with the terms of the
covenants and with other provisions hereof shall be made without giving effect
to (i) the amortization of any expenses incurred in connection with the offering
of the Notes and (ii) except as otherwise provided, the amortization of any
amounts required or permitted by Accounting Principles Board Opinion Nos. 16 and
17.
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"GOVERNMENT SECURITIES" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States is pledged.
"GUARANTEE" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness or other obligation of any
other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness or other obligation of such other Person (whether arising by virtue
of partnership arrangements, or by agreements to keep-well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (ii) entered into for purposes of assuring
in any other manner the obligee of such Indebtedness or other obligation of the
payment thereof or to protect such obligee against loss in respect thereof (in
whole or in part); PROVIDED that the term "Guarantee" shall not include
endorsements for collection or deposit in the ordinary course of business. The
term "Guarantee" used as a verb has a corresponding meaning.
"HEDGING OBLIGATIONS" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates.
"HOLDER" means a Person in whose name a Note is registered.
"INCUR" means, with respect to any Indebtedness, to incur, create, issue,
assume, Guarantee or otherwise become liable for or with respect to, or become
responsible for, the payment of, contingently or otherwise, such Indebtedness,
including, with respect to the Company and its Restricted Subsidiaries, an
"incurrence" of Indebtedness by reason of a Person becoming a Restricted
Subsidiary of the Company; PROVIDED that neither the accrual of interest nor the
accretion of original issue discount shall be considered an Incurrence of
Indebtedness.
"INDEBTEDNESS" means, with respect to any Person at any date of
determination (without duplication), (i) all indebtedness of such person for
borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments (whether negotiable or non-
negotiable), (iii) all obligations of such Person in respect of letters of
credit or other similar instruments (including reimbursement obligations with
respect thereto), (iv) all obligations of such Person to pay the deferred and
unpaid purchase price of property or services, which purchase price is due more
than six months after the date of placing such property in service or taking
delivery and title thereto or the completion of such services, except trade
payables and escrows, holdbacks and comparable arrangements to secure
indemnification obligations under acquisition agreements, (v) all obligations of
such Person as lessee under Capitalized Leases, (vi) all indebtedness of other
Persons secured by a Lien on any asset of such Person, whether or not such
indebtedness is assumed by such Person, PROVIDED that the amount of such
indebtedness shall be the lesser of (A) the fair market value of such asset at
such date of determination and (B) the amount of such indebtedness, (vii) the
balance deferred and unpaid of the purchase price of any property or
representing any Hedging Obligations, except any such balance that constitutes
an accrued expense or trade payable and (viii) all indebtedness of other Persons
Guaranteed by such Person to the extent such indebtedness is Guaranteed by such
Person. The amount of
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Indebtedness of any Person at any date shall be the outstanding balance at such
date of all unconditional obligations as described above and, with respect to
contingent obligations that are included in any of clauses (i) through (viii)
above, the maximum liability upon the occurrence of the contingency giving rise
to the obligation, PROVIDED (A) that the amount outstanding at any time of any
Indebtedness issued with original issue discount is the face amount of such
Indebtedness and (B) that Indebtedness shall not include any liability for
federal, state, local or other taxes.
"INDEBTEDNESS TO EBITDA RATIO" means, as at any date of determination, the
ratio of (i) the aggregate amount of Indebtedness of the Company and its
Restricted Subsidiaries on a consolidated basis ("Consolidated Indebtedness") as
at the date of determination (the "Transaction Date") to (ii) the Consolidated
EBITDA of the Company for the then most recent four full fiscal quarters for
which reports have been filed pursuant to Section 4.03 hereof (such four full
fiscal quarter period being referred to herein as the "Four Quarter Period");
PROVIDED that (x) pro forma effect shall be given to any Indebtedness Incurred
from the beginning of the Four Quarter Period through the Transaction Date
(including any Indebtedness Incurred on the Transaction Date), to the extent
outstanding on the Transaction Date, (y) if during the period commencing on the
first day of such Four Quarter Period through the Transaction Date (the
"Reference Period"), the Company or any of the Restricted Subsidiaries shall
have engaged in any Asset Sale, Consolidated EBITDA for such period shall be
reduced by an amount equal to the EBITDA (if positive), or increased by an
amount equal to the EBITDA (if negative), directly attributable to the assets
which are the subject of such Asset Sale any related retirement of Indebtedness
as if such Asset Sale and related retirement of Indebtedness had occurred on the
first day of such Reference Period or (z) if during such Reference Period the
Company or any of the Restricted Subsidiaries shall have made any Asset
Acquisition, Consolidated EBITDA of the Company shall be calculated on a pro
forma basis as if such Asset Acquisition and any Incurrence of Indebtedness to
finance such Asset Acquisition had taken place on the first day of such
Reference Period.
"INDEBTEDNESS TO TOTAL MARKET CAPITALIZATION RATIO" means, at any date of
determination, the ratio of (i) the aggregate amount of Indebtedness of the
Company and its Restricted Subsidiaries on a consolidated basis outstanding to
(ii) the Total Market Capitalization of the Company.
"INDENTURE" means this Indenture, as amended or supplemented from time to
time.
"INVESTMENT" in any Person means any direct or indirect advance, loan or
extension of credit (including, without limitation, by way of Guarantee or
similar arrangement; but excluding advances to customers in the ordinary course
of business that are, in conformity with GAAP, recorded as accounts receivable
on the balance sheet of the Company or its Restricted Subsidiaries) or capital
contribution to (by means of any transfer of cash or other property to others or
any payment for property or services for the account or use of others), or any
purchase or acquisition of Capital Stock, bonds, notes, debentures or other
similar instruments issued by, such Person and shall include (i) the designation
of a Restricted Subsidiary as an Unrestricted Subsidiary and (ii) the fair
market value of the Capital Stock held by the Company and the Restricted
Subsidiaries of any Person that has ceased to be a Restricted Subsidiary by
reason of any transaction permitted by clause (iii) of Section 4.10 hereof. For
purposes of the definition of "Unrestricted Subsidiary" and Section 4.07 hereof,
(i) "Investment" shall include the fair market value of the assets (net of
liabilities) of any Restricted Subsidiary of the Company at the time that such
Restricted Subsidiary is designated an Unrestricted Subsidiary and shall exclude
the fair market value of the assets (net of liabilities) of any Unrestricted
Subsidiary at the time that such Unrestricted Subsidiary is designated a
Restricted Subsidiary of the Company and (ii) any property transferred to or
from an
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Unrestricted Subsidiary shall be valued at its fair market value at the time of
such transfer, in each case as determined by the Board in good faith.
"ISSUE DATE" means the date of original issuance of the Notes.
"LEGAL HOLIDAY" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York or at a place of payment are authorized by
law, regulation or executive order to remain closed. If a payment date is a
Legal Holiday at a place of payment, payment may be made at that place on the
next succeeding day that is not a Legal Holiday, and no interest shall accrue
for the intervening period.
"LIEN" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"NET CASH PROCEEDS" means (a) with respect to any Asset Sale, the proceeds
of such Asset Sale in the form of cash or cash equivalents, including payments
in respect of deferred payment obligations (to the extent corresponding to the
principal, but not interest, component thereof) when received in the form of
cash or cash equivalents (except to the extent such obligations are financed or
sold with recourse to the Company or any Restricted Subsidiary of the Company)
and proceeds from the conversion of other property received when converted to
cash or cash equivalents, net of (i) brokerage commissions and other fees and
expenses (including fees and expenses of counsel and investment bankers) related
to such Asset Sale, (ii) provisions for all taxes (whether or not such taxes
will actually be paid or are payable) as a result of such Asset Sale without
regard to the consolidated results of operations of the Company and its
Restricted Subsidiaries, taken as a whole, (iii) payments made to repay
Indebtedness or any other obligation outstanding at the time of such Asset Sale
that either (A) is secured by a Lien on the property or assets sold or (B) is
required to be paid as a result of such sale and (iv) appropriate amounts to be
provided by the Company or any Restricted Subsidiary of the Company as a reserve
against any liabilities associated with such Asset Sale, including, without
limitation, pension and other post-employment benefit liabilities, liabilities
related to environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale, all as determined in conformity
with GAAP and (b) with respect to any issuance or sale of Capital Stock, the
proceeds of such issuance or sale in the form of cash or cash equivalents,
including payments in respect of deferred payment obligations (to the extent
corresponding to the principal, but not interest, component thereof) when
received in the form of cash or cash equivalents (except to the extent such
obligations are financed or sold with recourse to the Company or any Restricted
Subsidiary of the Company) and proceeds from the conversion of other property
received when converted to cash or cash equivalents, net of attorney's fees,
underwriters' or placement agents' fees, discounts or commissions and brokerage,
consultant and other fees incurred in connection with such issuance or sale and
net of taxes paid or payable as a result thereof.
"NON-RECOURSE DEBT" means Indebtedness (a) as to which neither the Company
nor any of its Restricted Subsidiaries (i) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness) or (ii) is directly or indirectly liable (as a guarantor or
otherwise); (b) no default with respect to which (including any rights that the
holders thereof may have
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to take enforcement action against an Unrestricted Subsidiary) would permit
(upon notice, lapse of time or both) any holder of any other Indebtedness (other
than the Notes) of the Company or any of its Restricted Subsidiaries to declare
a default on such other Indebtedness or cause the payment thereof to be
accelerated or payable prior to its stated maturity; and (c) as to which the
lender of any indebtedness for borrowed money in an aggregate amount in excess
of $5.0 million has been notified in writing that such lender will not have any
recourse to the stock or assets of the Company or any of its Restricted
Subsidiaries.
"NOTES" means the Notes described above issued under this Indenture.
"OFFER TO PURCHASE" means an offer to purchase Notes by the Company from
the holders that is required by Section 4.11 or Section 4.15 hereof and which is
commenced by mailing a notice to the Trustee and each holder stating: (i) the
covenant pursuant to which the offer is being made and that all Notes validly
tendered will be accepted for payment on a pro rata basis; (ii) the purchase
price and the date of purchase (which shall be a business day no earlier than 30
days nor later than 60 days from the date such notice is mailed) (the "Payment
Date"); (iii) that any Note not tendered will continue to accrue interest
pursuant to its terms; (iv) that, unless the Company defaults in the payment of
the purchase price, any Note accepted for payment pursuant to the Offer to
Purchase shall cease to accrue interest on and after the Payment Date; (v) that
holders electing to have a Note purchased pursuant to the Offer to Purchase will
be required to surrender the Note together with the form entitled "Option of the
Holder to Elect Purchase" on the reverse side thereof completed, to the Paying
Agent at the address specified in the notice prior to the close of business on
the business day immediately preceding the Payment Date; (vi) that holders will
be entitled to withdraw their election if the Payment Agent receives, not later
than the close of business on the third business day immediately preceding the
Payment Date, a telegram, facsimile transmission or letter setting forth the
name of such holder, the principal amount of Notes delivered for purchase and a
statement that such holder is withdrawing his election to have such Notes
purchased; and (vii) that holders whose Notes are being purchased only in part
will be issued new Notes equal in principal amount to the unpurchased portion
thereof; PROVIDED that each Note purchased and each new Note issued shall be in
a principal amount of $1,000 or integral multiples thereof. On the Payment
Date, the Company shall (i) accept for payment on a pro rata basis Notes or
portions thereof tendered pursuant to an Offer to Purchase, (ii) deposit with
the Paying Agent money sufficient to pay the purchase price of all Notes or
portions thereof so accepted and (iii) deliver, or cause to be delivered, to the
Trustee all Notes or portions thereof so accepted together with an Officers'
Certificate specifying the Notes or portions thereof so accepted for payment by
the Company. The Paying Agent shall promptly mail to the holders of Notes so
accepted for payment in an amount equal to the purchase price, and the Trustee
shall promptly authenticate and mail to such holders a new Note equal in
principal amount to any unpurchased portion of the Note surrendered; PROVIDED
that each Note purchased and each new Note issued shall be in a principal amount
of $1,000 or integral multiples thereof. The Company will publicly announce the
results of an Offer to Purchase as soon as practicable after the Payment Date.
The Trustee shall act as the Paying Agent for an Offer to Purchase. The Company
will comply with Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable, in the event that the Company is required to repurchase Notes
pursuant to an Offer to Purchase.
"OFFICER" means, with respect to any Person, the Chairman of the Board, the
Chief Executive Officer, the President, the Chief Operating Officer, the Chief
Financial Officer, the Treasurer, any Assistant Treasurer, Controller, Secretary
or any Vice-President of such Person.
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"OFFICERS' CERTIFICATE" means a certificate (a) signed by two Officers of
the Company, one of whom must be the principal executive officer, principal
financial officer, treasurer or principal accounting officer of the Company, and
(b) which complies with Sections 10.04 and 10.05 hereof.
"OPINION OF COUNSEL" means an opinion (a) from legal counsel, who may be an
employee of or counsel to the Company, any Subsidiary of the Company or the
Trustee, and (b) which complies with Sections 10.04 and 10.05 hereof.
"PERMITTED ASSET SWAP" means any disposition by the Company or any of its
Restricted Subsidiaries of Telecommunications Assets or a majority of the Voting
Stock of a Restricted Subsidiary in exchange for comparable Telecommunications
Assets or a majority of the Voting Stock of a comparable Restricted Subsidiary;
PROVIDED that the Board shall have approved such disposition and exchange and
determined the fair market value of the assets subject to such transaction as
evidenced by a resolution of the Board or such fair market value has been
determined by a written opinion of an investment banking firm of national
standing or other recognized independent expert with experience appraising the
terms and conditions of the type of transaction contemplated thereby.
"PERMITTED INVESTMENTS" means:
(i) an Investment in a Restricted Subsidiary or a Person which will,
upon the making of such Investment, become a Restricted Subsidiary or be
merged or consolidated with or into or transfer or convey all or
substantially all its assets to, the Company or a Restricted Subsidiary;
(ii) Temporary Cash Investments;
(iii) payroll, travel and similar advances to cover matters that are
expected at the time of such advances ultimately to be treated as expenses
in accordance with GAAP;
(iv) loans or advances to employees (other than executive officers of
the Company) in an aggregate principal amount not to exceed $1.0 million at
any one time outstanding;
(v) stock, obligations or securities received in satisfaction of
judgments;
(vi) Investments, to the extent that the consideration provided by the
Company or any of its Restricted Subsidiaries consists solely of Capital
Stock (other than Redeemable Stock) of the Company;
(vii) notes payable to the Company that are received by the Company as
payment of the purchase price for Capital Stock (other than Redeemable
Stock) of the Company;
(viii) Investments in an aggregate amount not to exceed $20.0 million at
any one time outstanding;
(ix) Investments in an aggregate amount not to exceed $1.0 million at
any time outstanding in Unrestricted Subsidiaries engaged in the
Telecommunications Business outside of the United States;
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(x) Investments in entities (other than ART West) that own licenses
granted by the FCC; PROVIDED that (A) such Investments are made pursuant to
a senior promissory note, in an amount equal to such Investment, that by
its terms is payable in full at or before any required repayment of
principal on the Notes, (B) such promissory note is secured equally and
ratably with (or prior to) any other secured Indebtedness of such entity,
(C) such Investment is made and used for the purpose of effecting, and does
not exceed the amount reasonably required to effect, the minimum build-out
with respect to such licenses that is required by the FCC as a prerequisite
to the transfer of a majority equity interest in such entity to the Company
or one of its Restricted Subsidiaries, as determined in good faith by the
Board and (D) the Company, at the time such Investment is made, had a
contractual right to, and intends (subject in all cases to compliance with
applicable FCC rules and regulations) to, acquire such majority equity
interest;
(xi) Investments existing on the Issue Date;
(xii) the acquisition of all equity interests of ART West not otherwise
owned by the Company; and
(xiii) Directed Investments.
"PERMITTED LIENS" means:
(i) Liens for taxes, assessments, governmental charges or claims that
are being contested in good faith by appropriate legal proceedings timely
instituted and diligently conducted and for which a reserve or other
appropriate provision, if any, as shall be required in conformity with GAAP
shall have been made;
(ii) statutory or common law Liens of landlords and carriers,
warehousemen, mechanics, suppliers, materialmen, repairmen or other similar
Liens arising in the ordinary course of business and with respect to
amounts not yet delinquent or being contested in good faith by appropriate
legal proceedings timely instituted and diligently conducted and for which
a reserve or other appropriate provision, if any, as shall be required in
conformity with GAAP shall have been made;
(iii) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance
and other types of social security;
(iv) Liens incurred or deposits made to secure the performance of
tenders, bids, leases, statutory or regulatory obligations, bankers'
acceptances, surety and appeal bonds, government contracts, performance and
return-of-money bonds and other obligations of a similar nature incurred in
the ordinary course of business (exclusive of obligations for the payment
of borrowed money) and a bank's unexercised right of set-off with respect
to deposits made in the ordinary course;
(v) easements, rights-of-way, municipal and zoning ordinances and
similar charges, encumbrances, title defects or other irregularities that
do not materially interfere with the ordinary course of business of the
Company or any of its other irregularities that do not materially interfere
with the ordinary course of business of the Company or any of its
Subsidiaries;
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(vi) Liens (including extensions and renewals thereof) upon real or
personal property acquired after the Issue Date; PROVIDED that (A) such
Lien is created solely for the purpose of securing Indebtedness Incurred in
accordance with Section 4.09 hereof, (1) to finance the cost (including the
cost of improvement or construction) of the item of property or assets
subject thereto and such Lien is created prior to, at the time of or within
six months after the later of the acquisition, the completion of
construction or the commencement of full operation of such property or
(2) to refinance any Indebtedness previously so secured, (B) the principal
amount of the Indebtedness secured by such Lien does not exceed 100% of
such cost and (C) any such Lien shall not extend to or cover any property
or assets other than such item of property or assets and any improvements
on such item;
(vii) leases or subleases granted to others that do not materially
interfere with the ordinary course of business of the Company and its
Restricted Subsidiaries, taken as a whole;
(viii) Liens encumbering property or assets under construction arising
from progress or partial payments by a customer of the Company or its
Restricted Subsidiaries relating to such property or assets;
(ix) any interest or title of a lessor in the property subject to any
Capitalized Lease or operating lease;
(x) Liens arising from filing Uniform Commercial Code financing
statements regarding leases;
(xi) Liens on property of, or on shares of stock or Indebtedness of,
any corporation existing at the time such corporation becomes, or becomes a
part of, any Restricted Subsidiary; PROVIDED that such Liens do not extend
to or cover any property or assets of the Company or any Restricted
Subsidiary other than the property or assets acquired;
(xii) Liens in favor of the Company or any Restricted Subsidiary;
(xiii) Liens arising from the rendering of a final judgment or order
against the Company or any Restricted Subsidiary of the Company that does
not give rise to an Event of Default;
(xiv) Liens securing reimbursement obligations with respect to letters
of credit that encumber documents and the property relating to such letters
of credit and the products and proceeds thereof;
(xv) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with the
importation of goods;
(xvi) Liens arising out of conditional sale, title retention,
consignment or similar arrangements for the sale of goods entered into by
the Company or any of its Restricted Subsidiaries in the ordinary course of
business in accordance with the past practices of the Company and its
Restricted Subsidiaries prior to the Issue Date;
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(xvii) Liens on or sales of receivables;
(xviii) Liens securing other Indebtedness in an aggregate amount not to
exceed $250,000 at any one time;
(xix) Liens on assets of Unrestricted Subsidiaries that secure Non-
Recourse Debt of Unrestricted Subsidiaries;
(xx) Liens existing on the Issue Date;
(xxi) Liens granted after the Issue Date on any assets or Capital Stock
of the Company or its Restricted Subsidiaries created in favor of the
holders of the Notes;
(xxii) Liens with respect to the assets of a Restricted Subsidiary
granted by such Restricted Subsidiary to the Company or a Wholly Owned
Restricted Subsidiary to secure Indebtedness owing to the Company or such
other Wholly Owned Restricted Subsidiary;
(xxiii) Liens securing Indebtedness which is Incurred to refinance
secured Indebtedness which is permitted to be Incurred under Section
4.09(b)(iii) hereof; PROVIDED that such Liens do not extend to or cover any
property or assets of the Company or any Restricted Subsidiary other than
the property or assets securing the Indebtedness being refinanced;
(xxiv) purchase money Liens upon equipment, software or systems acquired
or held by the Company or any of its Restricted Subsidiaries taken or
retained by the seller (or a financing institution acting on behalf of the
seller) of such equipment, software or systems to secure all or a part of
the purchase price therefor; PROVIDED that such Liens do not extend to or
cover any property or assets of the Company or any Restricted Subsidiary
other than the equipment so acquired; and
(xxv) Liens securing Indebtedness which is permitted to be Incurred
under Section 4.09(b)(xiii) or (xiv) hereof.
"PERSON" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"PREFERRED STOCK" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
Person's preferred or preference stock, whether now outstanding or issued after
the Issue Date, and including, without limitation, all classes and series of
preferred or preference stock of such Person.
"REDEEMABLE STOCK" means any class or series of Capital Stock of any Person
that by its terms or otherwise is (i) required to be redeemed prior to the
Stated Maturity of the Notes, (ii) redeemable at the option of the holder of
such class or series of Capital Stock at any time prior to the Stated Maturity
of the Notes (unless the redemption price is, at the Company's option, without
conditions precedent, payable solely is Common Stock (other than Redeemable
Stock) of the Company) or (iii) convertible into or exchangeable for Capital
Stock referred to in clause (i) or (ii) above or Indebtedness having a
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scheduled maturity prior to the Stated Maturity of the Notes; PROVIDED that any
Capital Stock that would not constitute Redeemable Stock but for provisions
thereof giving holders thereof the right to require such Person to repurchase or
redeem such Capital Stock upon the occurrence of an "asset sale" or "change of
control" occurring prior to the Stated Maturity of the Notes shall not
constitute Redeemable Stock if the "asset sale" or "change of control"
provisions applicable to such Capital Stock are no more favorable to the holders
of such Capital Stock than the provisions contained in Sections 4.11 and 4.15
hereof and such Capital Stock specifically provides that such Person will not
repurchase or redeem any such stock pursuant to such provision prior to the
Company's repurchase of such Notes as are required to be repurchased pursuant to
Sections 4.11 and 4.15 hereof.
"RESPONSIBLE OFFICER," when used with respect to the Trustee, means any
officer within the Corporate Trust Administration of the Trustee (or any
successor group of the Trustee) or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above designated
officers and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of his knowledge of
and familiarity with the particular subject.
"RESTRICTED SUBSIDIARY" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"SECURITIES ACT" means the Securities Act of 1933, as amended (or any
successor act), and the rules and regulations thereunder.
"SIGNIFICANT SUBSIDIARY" means, at any date of determination, any
Restricted Subsidiary of the Company that, together with its Subsidiaries, (i)
for the most recent fiscal year of the Company, accounted for more than 10% of
the consolidated revenues of the Company and its Restricted Subsidiaries or (ii)
as of the end of such fiscal year, had assets accounting for more than 10% of
the consolidated assets of the Company and its Restricted Subsidiaries, all as
set forth on the most recently available consolidated financial statements of
the Company for such fiscal year.
"SPECIFIED DATE" means any redemption date, any date of purchase of Notes
pursuant to Section 4.11 or Section 4.15 hereof, or any date on which the Notes
are due and payable after an Event of Default.
"STATED MATURITY" means, (i) with respect to any debt security, the date
specified in such debt security as the fixed date on which the final installment
of principal of such debt security is due and payable and (ii) with respect to
any scheduled installment of principal of or interest on any debt security, the
date specified in such debt security as the fixed date on which such installment
is due and payable.
"STRATEGIC EQUITY INVESTOR" means any company which is (or a controlled
Affiliate of any company which is or a controlled Affiliate of which is) engaged
principally in a cable or telecommunications business which has a total market
capitalization of at least $1.0 billion.
"SUBSIDIARY" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the
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other Subsidiaries of that Person (or a combination thereof) and (ii) any
partnership (a) the sole general partner or the managing general partner of
which is such Person or a Subsidiary of such Person or (b) the only general
partners of which are such Person or of one or more Subsidiaries of such Person
(or any combination thereof).
"TELECOMMUNICATIONS ASSETS" means all assets (including, without
limitation, assets consisting of subscribers), rights (contractual or otherwise)
and properties, whether tangible or intangible, used in connection with a
Telecommunications Business.
"TELECOMMUNICATIONS BUSINESS" means, when used in reference to any Person,
that such Person is engaged primarily in the business of (i) providing voice,
video or data communications services, (ii) creating, developing, marketing or
selling communications related equipment, software and other devices or (iii)
evaluating, participating in or pursuing any other activity or opportunity that
is related or incidental to those identified in clauses (i) or (ii) above.
"TEMPORARY CASH INVESTMENT" means any of the following: (i) direct
obligations of the United States or any agency thereof or obligations fully and
unconditionally guaranteed by the United States or any agency thereof; (ii) time
deposit accounts, certificates of deposit and money market deposits maturing
within six months of the date of acquisition thereof issued by a bank or trust
company which is organized under the laws of the United States, any state
thereof or any foreign country recognized by the United States, and which bank
or trust company has capital, surplus and undivided profits aggregating in
excess of $50.0 million (or the foreign currency equivalent thereof) and has
outstanding debt which is rated "A" (or such similar equivalent rating) or
higher by at least one nationally recognized statistical rating organization (as
defined in Rule 436 under the Securities Act) or any money-market fund sponsored
by a registered broker dealer or mutual fund distributor; (iii) repurchase
obligations with a term of not more than 30 days for underlying securities of
the types described in clause (i) above entered into with a bank meeting the
qualifications described in clause (ii) above; (iv) commercial paper, maturing
not more than six months after the date of acquisition, issued by a corporation
other than an Affiliate of the Company) organized and in existence under the
laws of the United States, any state thereof or any foreign country recognized
by the United States with rating at the time as of which any investment therein
is made of "P-1" (or higher) according to Moody's Investors Service, Inc. or
"A-1" (or higher) according to Standard & Poor's Ratings Group; and
(v) securities with maturities of six months or less from the date of
acquisition issued or fully and unconditionally guaranteed by any state,
commonwealth or territory of the United States, or by any political subdivision
or taxing authority thereof, and rated at least "A" by Standard & Poor's Ratings
Group or Moody's Investors Service, Inc.; PROVIDED that, notwithstanding the
foregoing, the maturity of any of the foregoing that is applied to provide
security in favor of the Indebtedness referred to in clause (xxiv) of the
definition of "Permitted Liens" may occur as late as the earliest date that such
Indebtedness may be redeemed at the option of the obligor with respect to such
Indebtedness and PROVIDED FURTHER that the Company shall cause such Liens
referred to in such clause (xxiv) to be incurred no later than the first
anniversary of the Issue Date.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa-
77bbbb) as in effect on the date on which this Indenture is qualified under the
TIA, except as provided in Section 9.03.
"TOTAL MARKET CAPITALIZATION" of any Person means, as of any day of
determination, the sum of (a) the consolidated Indebtedness of such Person and
its Restricted Subsidiaries on such day, PLUS (b) the product of (i) the
aggregate number of outstanding shares of Common Stock of such Person on such
day
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(which shall not include any options or warrants on, or securities convertible
or exchangeable into, shares of Common Stock of such Person) and (ii) the
average Closing Price of such Common Stock over the 10 consecutive Trading Days
ending not earlier than 10 Trading Days immediately prior to such date of
determination, PLUS (c) the liquidation value of any outstanding shares of
Preferred Stock of such Person on such day. If no such Closing Price exists
with respect to shares of any such class, the value of such shares for purposes
of clause (b) of the preceding sentence shall be determined by the Board in good
faith and evidenced by a resolution of the Board filed with the Trustee.
Notwithstanding the foregoing, unless the Company's Common Stock is listed on
any national securities exchange or on the Nasdaq National Market, the "Total
Market Capitalization" of the Company shall mean, as of any date of
determination, the enterprise value (without duplication) of the Company and its
Restricted Subsidiaries (including the fair market value of their debt and
equity, but excluding the enterprise value of the Company's Unrestricted
Subsidiaries), as determined by an independent banking firm of national standing
with experience in such valuations and evidenced by a written opinion in
customary form filed with the Trustee; PROVIDED that for purposes of any such
determination, the enterprise value of the Company shall be calculated as if the
Company were a publicly held corporation without a controlling stockholder. For
purposes of any such determination, such banking firm's written opinion may
state that such fair market value is no less than a specified amount and such
opinion may be as of a date no earlier than 90 days prior to the date of such
determination.
"TRUSTEE" means the party named as such above until a successor replaces it
in accordance with the applicable provisions of this Indenture and thereafter
means the successor serving hereunder.
"TRADING DAY" with respect to a securities exchange or automated quotation
system means a day on which such exchange or system is open for full day of
trading.
"UNRESTRICTED SUBSIDIARY" means any Subsidiary that is designated by the
Board as an Unrestricted Subsidiary pursuant to a resolution of the Board; but
only to the extent that such Subsidiary (i) has no Indebtedness other than Non-
Recourse Debt; (ii) is not party to any agreement, contract, arrangement or
understanding with the Company or any Restricted Subsidiary of the Company
unless the terms of any such agreement, contract, arrangement or understanding
are no less favorable to the Company or such Restricted Subsidiary than those
that might be obtained at the time from Persons who are not Affiliates of the
Company; (iii) is a Person with respect to which neither the Company nor any of
its Restricted Subsidiaries has any direct or indirect obligation (A) to
subscribe for additional equity interests, except to the extent that such
obligation complies with Section 4.07 hereof, or (B) to maintain or preserve
such Person's financial condition or to cause such Person to achieve any
specified levels of operating results; (iv) is not a guarantor of or otherwise
directly or indirectly provides credit support for any Indebtedness of the
Company or any of its Restricted Subsidiaries; and (v) has, immediately prior to
the commencement of material business operations, at least one director on its
board of directors that is not a director or executive officer of the Company or
any of its Restricted Subsidiaries and has at least one executive officer that
is not a director or executive officer of the Company or any of its Restricted
Subsidiaries. Any such designation by the Board shall be evidenced to the
Trustee by filing with the Trustee a certified copy of the resolution of the
Board giving effect to such designation and an Officers' Certificate certifying
that such designation complied with the foregoing conditions and was permitted
by Section 4.07 hereof. If, at any time, any Unrestricted Subsidiary would fail
to meet the foregoing requirements as an Unrestricted Subsidiary, it shall
thereafter cease to be an Unrestricted Subsidiary for purposes of this Indenture
and any Indebtedness of such Subsidiary shall be deemed to be Incurred by a
Restricted Subsidiary of the Company as of such date (and, if such Indebtedness
is not permitted to be
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Incurred as of such date under Section 4.09 hereof, the Company shall be in
default of such covenant). The Board may at any time designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; PROVIDED that such designation shall
be deemed to be an Incurrence of Indebtedness by a Restricted Subsidiary of the
Company of any outstanding Indebtedness of such Unrestricted Subsidiary and such
designation shall only be permitted if (i) such Indebtedness is permitted under
Section 4.09 hereof and (ii) no Default or Event of Default would be in
existence following such designation.
"VOTING STOCK" means, with respect to any Person, Capital Stock of any
class or kind ordinarily having the power to vote for the election of directors,
managers or other voting members of the governing body of such Person.
"VOTING TRUST AGREEMENT" means that certain Voting Trust and Irrevocable
Proxy Agreement, to be entered into on or prior to the Issue Date.
"WHOLLY OWNED" means, with respect to any Subsidiary of any Person, such
Subsidiary if all of the outstanding Capital Stock in such Subsidiary (other
than any director's qualifying shares or Investments by foreign nationals
mandated by applicable law) is owned by such Person or one or more Wholly Owned
Subsidiaries of such Person.
SECTION 1.02. OTHER DEFINITIONS.
Defined in
TERM Section
"Affiliate Transaction". . . . . . . . . . . . . . 4.12
"Bankruptcy Law" . . . . . . . . . . . . . . . . . 4.01
"Covenant Defeasance". . . . . . . . . . . . . . . 8.03
"Custodian". . . . . . . . . . . . . . . . . . . . 6.01
"Event of Default" . . . . . . . . . . . . . . . . 6.01
"Excess Proceeds". . . . . . . . . . . . . . . . . 4.11
"Legal Defeasance" . . . . . . . . . . . . . . . . 8.02
"Paying Agent" . . . . . . . . . . . . . . . . . . 2.03
"Payment Default". . . . . . . . . . . . . . . . . 6.01
"Registrar". . . . . . . . . . . . . . . . . . . . 2.03
"Restricted Payments". . . . . . . . . . . . . . . 4.07
SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"INDENTURE SECURITIES" means the Notes;
"INDENTURE SECURITY HOLDER" means a Holder of a Note;
"INDENTURE TO BE QUALIFIED" means this Indenture;
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"INDENTURE TRUSTEE" or "INSTITUTIONAL TRUSTEE" means the Trustee;
"OBLIGOR" on the Notes means the Company and any successor obligor
upon the Notes.
All other terms used in this Indenture that are defined by the TIA, defined
by TIA reference to another statute or defined by Commission rule under the TIA
have the meanings so assigned to them.
SECTION 1.04. RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned
to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the plural
include the singular; and
(5) provisions apply to successive events and transactions.
ARTICLE 2
THE NOTES
SECTION 2.01. FORM AND DATING.
The Notes and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit A hereto, the terms of which are
incorporated in and made a part of this Indenture. The Notes may have
notations, legends or endorsements approved as to form by the Company and
required by law, stock exchange rule, agreements to which the Company is subject
or usage. Each Note shall be dated the date of its authentication. The Notes
shall be issuable only in denominations of $1,000 and integral multiples
thereof.
SECTION 2.02. EXECUTION AND AUTHENTICATION.
Two Officers of the Company shall sign the Notes for the Company by manual
or facsimile signature. The Company's seal shall be reproduced on the Notes.
If an Officer whose signature is on a Note no longer holds that office at
the time the Note is authenticated, the Note shall nevertheless be valid.
A Note shall not be valid until authenticated by the manual signature of
the Trustee. The signature of the Trustee shall be conclusive evidence that the
Note has been authenticated under this
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Indenture. The form of Trustee's certificate of authentication to be borne by
the Notes shall be substantially as set forth in Exhibit A hereto.
The Trustee shall, upon a written order of the Company signed by two
Officers of the Company, authenticate Notes for original issue up to an
aggregate face amount (at maturity) stated in paragraph 4 of the Notes. The
aggregate principal amount of Notes outstanding at any time shall not exceed the
amount set forth therein except as provided in Section 2.07.
The Trustee may appoint an authenticating agent acceptable to the Company
to authenticate Notes. Unless limited by the terms of such appointment, an
authenticating agent may authenticate Notes whenever the Trustee may do so.
Each reference in this Indenture to authentication by the Trustee includes
authentication by such agent. An authenticating agent has the same rights as an
Agent to deal with the Company or an Affiliate of the Company.
SECTION 2.03. REGISTRAR AND PAYING AGENT.
The Company shall maintain (i) an office or agency where Notes may be
presented for registration of transfer or for exchange (including any co-
registrar, the "REGISTRAR") and (ii) an office or agency where Notes may be
presented for payment ("PAYING AGENT") and an office or agency in the Borough of
Manhattan, City and State of New York, where notices and demands upon the
Company in respect of the Notes and this Indenture may be served. The Registrar
shall maintain an office or agency in the Borough of Manhattan, City and State
of New York, where Notes may be presented for registration of transfer or for
exchange, and the Paying Agent shall maintain an office or agency in the Borough
of Manhattan, City and State of New York, where Notes may be presented for
payment. The Registrar shall keep a register of the Notes and of their transfer
and exchange. The Company may appoint one or more co-registrars and one or more
additional paying agents. The term "Paying Agent" includes any additional
paying agent. The Company may change any Paying Agent, Registrar or
co-registrar without prior notice to any Holder of a Note. The Company shall
notify the Trustee and the Trustee, at the Company's direction, shall notify the
Holders of the Notes of the name and address of any Agent not a party to this
Indenture. The Company may act as Paying Agent, Registrar or co-registrar. The
Company shall enter into an appropriate agency agreement with any Agent not a
party to this Indenture, which shall incorporate the provisions of the TIA. The
agreement shall implement the provisions of this Indenture that relate to such
Agent. The Company shall notify the Trustee of the name and address of any such
Agent. If the Company fails to maintain a Registrar or Paying Agent, or fails
to give the foregoing notice, the Trustee shall act as such, and shall be
entitled to appropriate compensation in accordance with Section 7.07.
The Company initially appoints the Trustee as Registrar, Paying Agent and
agent for service of notices and demands in connection with the Notes.
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST.
The Company shall require each Paying Agent other than the Trustee to agree
in writing that the Paying Agent shall hold in trust for the benefit of the
Holders of the Notes or the Trustee all money held by the Paying Agent for the
payment of principal of, premium, if any, and interest on the Notes, and shall
notify the Trustee of any Default by the Company in making any such payment.
While any such Default continues, the Trustee may require a Paying Agent to pay
all money held by it to the Trustee.
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The Company at any time may require a Paying Agent to pay all money held by it
to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other
than the Company) shall have no further liability for the money delivered to the
Trustee. If the Company acts as Paying Agent, it shall segregate and hold in a
separate trust fund for the benefit of the Holders of the Notes all money held
by it as Paying Agent.
SECTION 2.05. LISTS OF HOLDERS OF THE NOTES.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Holders of the Notes and shall otherwise comply with TIA Section 312(a). If the
Trustee is not the Registrar, the Company shall furnish to the Trustee at least
seven Business Days before each interest payment date and at such other times as
the Trustee may request in writing a list in such form and as of such date as
the Trustee may reasonably require of the names and addresses of Holders of the
Notes, including the aggregate principal amount of the Notes held by each
thereof, and the Company shall otherwise comply with TIA Section 312(a).
SECTION 2.06. TRANSFER AND EXCHANGE.
When Notes are presented to the Registrar with a request to register the
transfer of or to exchange them for an equal principal amount of Notes of other
denominations, the Registrar shall register the transfer of or make the exchange
if its requirements for such transactions are met; PROVIDED, HOWEVER, that any
Note presented or surrendered for registration of transfer or exchange shall be
duly endorsed or accompanied by a written instruction of transfer in form
satisfactory to the Registrar and the Trustee duly executed by the Holder
thereof or by his attorney duly authorized in writing. To permit registrations
of transfer and exchanges, the Company shall issue and the Trustee shall
authenticate Notes at the Registrar's request, subject to such rules as the
Trustee may reasonably require.
Neither the Company nor the Registrar shall be required to (i) issue,
register the transfer of or exchange Notes during a period beginning at the
opening of business on a Business Day 15 days before the day of any selection of
Notes for redemption under Section 3.02 or (ii) register the transfer of or
exchange any Note so selected for redemption in whole or in part, except the
unredeemed portion of any Note being redeemed in part.
No service charge shall be made to any Holder of a Note for any
registration of transfer or exchange (except as otherwise expressly permitted
herein), but the Company may require payment of a sum sufficient to cover any
transfer tax or similar governmental charge payable in connection therewith
(other than such transfer tax or similar governmental charge payable upon
exchanges pursuant to Sections 2.10, 3.06 or 9.05, which shall be paid by the
Company).
Prior to due presentment to the Trustee for registration of the transfer of
any Note, the Trustee, any Agent and the Company may deem and treat the Person
in whose name any Note is registered as the absolute owner of such Note for the
purpose of receiving payment of principal of, premium, if any, and interest on
such Note and for all other purposes whatsoever, whether or not such Note is
overdue, and neither the Trustee, any Agent nor the Company shall be affected by
notice to the contrary.
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SECTION 2.07. REPLACEMENT NOTES.
If any mutilated Note is surrendered to the Trustee, or the Company and the
Trustee receive evidence to their satisfaction of the destruction, loss or theft
of any Note, the Company shall issue and the Trustee shall authenticate a
replacement Note if the Trustee's requirements for replacements of Notes are
met. If required by the Trustee or the Company, an indemnity bond must be
supplied by the Holder that is sufficient in the judgment of the Trustee and the
Company to protect the Company, the Trustee, any Agent or any authenticating
agent from any loss which any of them may suffer if a Note is replaced. Each of
the Company and the Trustee may charge for its expenses in replacing a Note.
Every replacement Note is an additional obligation of the Company.
SECTION 2.08. OUTSTANDING NOTES.
The Notes outstanding at any time are all the Notes authenticated by the
Trustee except for those cancelled by it, those delivered to it for cancellation
and those described in this Section as not outstanding.
If a Note is replaced pursuant to Section 2.07, it ceases to be outstanding
unless the Trustee receives proof satisfactory to it that the replaced Note is
held by a bona fide purchaser.
If the principal amount of any Note is considered paid under Section 4.01,
it ceases to be outstanding and interest on it ceases to accrue.
Subject to Section 2.09, a Note does not cease to be outstanding because
the Company, a Subsidiary of the Company or an Affiliate of the Company holds
the Note.
SECTION 2.09. TREASURY NOTES.
In determining whether the Holders of the required principal amount of
Notes have concurred in any direction, waiver or consent, Notes owned by the
Company, any Subsidiary of the Company or any Affiliate of the Company shall be
considered as though not outstanding, except that for purposes of determining
whether the Trustee shall be protected in relying on any such direction, waiver
or consent, only Notes which a Responsible Officer knows to be so owned shall be
so considered. Notwithstanding the foregoing, Notes that are to be acquired by
the Company, any Subsidiary of the Company or an Affiliate of the Company
pursuant to an exchange offer, tender offer or other agreement shall not be
deemed to be owned by the Company, a Subsidiary of the Company or an Affiliate
of the Company until legal title to such Notes passes to the Company or such
Subsidiary or Affiliate, as the case may be.
SECTION 2.10. TEMPORARY NOTES.
Until definitive Notes are ready for delivery, the Company may prepare and
the Trustee shall authenticate temporary Notes. Temporary Notes shall be
substantially in the form of definitive Notes but may have variations that the
Company and the Trustee consider appropriate for temporary Notes. Without
unreasonable delay, the Company shall prepare and the Trustee, upon receipt of
the written order of the Company signed by two Officers of the Company, shall
authenticate definitive Notes in exchange
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for temporary Notes. Until such exchange, temporary Notes shall be entitled to
the same rights, benefits and privileges as definitive Notes.
SECTION 2.11. CANCELLATION.
The Company at any time may deliver Notes to the Trustee for cancellation.
The Registrar and Paying Agent shall forward to the Trustee any Notes
surrendered to them for registration of transfer, exchange or payment. The
Trustee shall cancel all Notes surrendered for registration of transfer,
exchange, payment, replacement or cancellation and shall retain or destroy
cancelled Notes (subject to the record retention requirement of the Exchange
Act), unless the Company directs cancelled Notes to be returned to it. The
Company may not issue new Notes to replace Notes that it has redeemed or paid or
that have been delivered to the Trustee for cancellation. All cancelled Notes
held by the Trustee shall, at the direction of the Company, be destroyed and
certification of their destruction delivered to the Company, unless by a written
order, signed by two Officers of the Company, the Company shall direct that
cancelled Notes be returned to it.
SECTION 2.12. DEFAULTED INTEREST.
If the Company defaults in a payment of interest on the Notes, it shall pay
the defaulted interest in any lawful manner plus, to the extent lawful, interest
payable on the defaulted interest, to the Persons who are Holders of the Notes
on a subsequent special record date, which date shall be at the earliest
practicable date but in all events at least five Business Days prior to the
payment date, in each case at the rate provided in the Notes and in
Section 4.01. The Company shall, with the consent of the Trustee, fix or cause
to be fixed each such special record date and payment date. At least 15 days
before the special record date, the Company (or the Trustee, in the name of and
at the expense of the Company) shall mail to Holders of the Notes a notice that
states the special record date, the related payment date and the amount of such
interest to be paid.
SECTION 2.13. RECORD DATE.
The record date for purposes of determining the identity of Holders of the
Notes entitled to vote or consent to any action by vote or consent authorized or
permitted under this Indenture shall be determined as provided for in TIA
Section 316(c).
SECTION 2.14. CUSIP NUMBER.
The Company in issuing the Notes may use a "CUSIP" number and, if it does
so, the Trustee shall use the CUSIP number in notices of redemption or exchange
as a convenience to Holders; PROVIDED that any such notice may state that no
representation is made as to the correctness or accuracy of the CUSIP number
printed in the notice or on the Notes and that reliance may be placed only on
the other identification numbers printed on the Notes. The Company will
promptly notify the Trustee of any change in the CUSIP number.
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ARTICLE 3
REDEMPTION
SECTION 3.01. NOTICES TO TRUSTEE.
If the Company elects to redeem Notes pursuant to the optional redemption
provisions of Section 3.07, it shall furnish to the Trustee, at least 30 days
(unless a shorter period is acceptable to the Trustee) but not more than 60 days
before a redemption date, an Officers' Certificate setting forth (i) the
redemption date, (ii) the principal amount of Notes to be redeemed and (iii) the
redemption price.
SECTION 3.02. SELECTION OF NOTES TO BE REDEEMED.
If less than all of the Notes are to be redeemed, the Trustee shall select
the Notes to be redeemed among the Holders of the Notes in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed, or, if the Notes are not so listed, on a PRO RATA basis, by
lot or in accordance with any other method the Trustee considers fair and
appropriate (and in such manner as complies with applicable legal and stock
exchange requirements, if any), PROVIDED that no Notes of $1,000 or less shall
be redeemed in part. In the event of partial redemption by lot, the particular
Notes to be redeemed shall be selected, unless otherwise provided herein, not
less than 35 nor more than 60 days prior to the redemption date by the Trustee
from the outstanding Notes not previously called for redemption.
The Trustee shall promptly notify the Company in writing of the Notes
selected for redemption and, in the case of any Note selected for partial
redemption, the principal amount thereof to be redeemed. Notes and portions of
them selected shall be in amounts of $1,000 or whole multiples of $1,000; except
that if all of the Notes of a Holder are to be redeemed, the entire outstanding
amount of Notes held by such Holder, even if not a multiple of $1,000, shall be
redeemed. Except as provided in the preceding sentence, provisions of this
Indenture that apply to Notes called for redemption also apply to portions of
Notes called for redemption.
SECTION 3.03. NOTICE OF REDEMPTION.
Subject to the provisions of Sections 4.11 and 4.15 hereof, at least
30 days but not more than 60 days before a redemption date, the Company shall
mail or cause to be mailed, by first class mail, a notice of redemption to each
Holder whose Notes are to be redeemed at its registered address; PROVIDED that
in the event of a redemption pursuant to Section 3.07(b) arising out of a sale
of the Company's Capital Stock (other than Disqualified Stock) to a Strategic
Equity Investor, such notice shall not be mailed prior to the consummation of
such sale.
The notice shall identify the Notes to be redeemed and shall state: (a) the
redemption date; (b) the redemption price; (c) if any Note is being redeemed in
part, the portion of the principal amount of such Note to be redeemed and that,
after the redemption date upon surrender of such Note, a new Note or Notes in
principal amount equal to the unredeemed portion shall be issued; (d) the name
and address of the Paying Agent; (e) that Notes called for redemption must be
surrendered to the Paying Agent to collect the redemption price; (f) that,
unless the Company defaults in making such redemption payment, interest on Notes
called for redemption ceases to accrue on and after the redemption date; (g) the
paragraph of the Notes and/or Section of this Indenture pursuant to which the
Notes called for redemption
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are being redeemed; and (h) that no representation is made as to the correctness
or accuracy of the CUSIP number, if any, listed in such notice or printed on the
Notes.
At the Company's request, the Trustee shall give the notice of redemption
in the Company's name and at its expense; PROVIDED, HOWEVER, that the Company
shall have delivered to the Trustee, at least 45 days prior to the redemption
date, an Officers' Certificate requesting that the Trustee give such notice and
setting forth the information to be stated in such notice as provided in the
preceding paragraph.
SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption is mailed in accordance with Section 3.03, Notes
called for redemption become due and payable on the redemption date at the
redemption price. A notice of redemption may not be conditional.
SECTION 3.05. DEPOSIT OF REDEMPTION PRICE.
One Business Day prior to the redemption date, the Company shall deposit
with the Trustee or with the Paying Agent money sufficient to pay the redemption
price of and accrued interest on all Notes to be redeemed on that date. The
Trustee or the Paying Agent shall promptly return to the Company any money
deposited with the Trustee or the Paying Agent by the Company in excess of the
amounts necessary to pay the redemption price of, and accrued interest on, all
Notes to be redeemed.
If the Company complies with the provisions of the preceding paragraph, on
and after the redemption date, interest shall cease to accrue on the Notes or
the portions of Notes called for redemption. If a Note is redeemed on or after
an interest record date but on or prior to the related interest payment date,
then any accrued and unpaid interest shall be paid to the Person in whose name
such Note was registered at the close of business on such record date. If any
Note called for redemption shall not be so paid upon surrender for redemption
because of the failure of the Company to comply with the preceding paragraph,
interest shall be paid on the unpaid principal, from the redemption date until
such principal is paid, and to the extent lawful on any interest not paid on
such unpaid principal, in each case at the rate provided in the Notes and in
Section 4.01.
SECTION 3.06. NOTES REDEEMED IN PART.
Upon surrender of a Note that is redeemed in part, the Company shall issue
and the Trustee shall authenticate for the Holder of the Note at the expense of
the Company a new Note equal in principal amount to the unredeemed portion of
the Note surrendered.
SECTION 3.07. OPTIONAL REDEMPTION.
(a) Except as set forth in Section 3.07(b) below, the Company shall not
have the option to redeem the Notes prior to _________ 2001. Thereafter, the
Notes will be redeemable at the option of the Company, in whole or in part, at
any time on or after , 2001, upon not less than 30 nor more than 60
days' notice, at the redemption prices (expressed as percentages of principal
amount at maturity)
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set forth below, plus accrued and unpaid interest, if any, to the date of
redemption, if redeemed during the 12-month period beginning on of the
years indicated below:
Redemption
Year Price
- ---- ----------
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . %
2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . %
2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . %
2004 and thereafter. . . . . . . . . . . . . . . . . . . . . . . . . 100.000%
(b) Notwithstanding the provisions of Section 3.07(a) above, in the event
a sale by the Company of its Common Stock in one or more Equity Offerings or
Investments by one or more Strategic Equity Investors for an aggregate purchase
price equal to or exceeding $70.0 million, on or prior to , 1999, the
Company may, at its option, use all or a portion of the net proceeds thereof to
redeem up to a maximum of 33 1/3% of the initially outstanding aggregate
principal amount at maturity of the Notes at a redemption price equal to %
of the Accreted Value of the Notes (determined as of the redemption date);
PROVIDED that not less than 66 2/3% of the initially outstanding aggregate
principal amount at maturity of the Notes remain outstanding following such
redemption. Any such redemption must be effected upon not less than 30 nor more
than 60 days' notice given within 30 days after any such Equity Offering or sale
to a Strategic Equity Investor resulting in such gross proceeds, as the case may
be.
(c) Any redemption pursuant to this Section 3.07 shall be made pursuant to
the provisions of Sections 3.01 through 3.06 hereof.
SECTION 3.08. MANDATORY REDEMPTION.
Except as set forth under Sections 4.11 and 4.15 hereof, the Company shall
not be required to make mandatory redemption payments with respect to the Notes.
There are no sinking fund payments with respect to the Notes.
ARTICLE 4
COVENANTS
SECTION 4.01. PAYMENT OF NOTES.
The Company shall pay or cause to be paid the principal of, premium, if
any, and interest on the Notes on the dates and in the manner provided in the
Notes. Principal, premium, if any, and interest shall be considered paid on the
date due if the Paying Agent, if other than the Company, holds as of 10:00 a.m.
Eastern Time on the due date money deposited by the Company in immediately
available funds and designated for and sufficient to pay all principal, premium,
if any, and interest then due.
The Company shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue principal at the rate equal to
the then applicable interest rate on the Notes to the extent lawful; it shall
pay interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue installments of interest (without regard to any
applicable grace period) at the same rate to the extent lawful.
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The term "BANKRUPTCY LAW" means title 11, U.S. Code or any similar federal
or state law for the relief of debtors.
SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY.
The Company shall maintain an office or agency (which may be an office of
the Trustee or an affiliate of the Trustee, Paying Agent, Registrar or
co-registrar) where Notes may be surrendered for registration of transfer or
exchange and where notices and demands to or upon the Company in respect of the
Notes and this Indenture may be served. The Company shall give prompt written
notice to the Trustee of the location, and any change in the location, of such
office or agency. If at any time the Company shall fail to maintain any such
required office or agency or shall fail to furnish the Trustee with the address
thereof, such presentations, surrenders, notices and demands may be made or
served at the Corporate Trust Office of the Trustee.
The Company may also from time to time designate one or more other offices
or agencies where the Notes may be presented or surrendered for any or all such
purposes and may from time to time rescind such designations; PROVIDED, HOWEVER,
that no such designation or rescission shall in any manner relieve the Company
of its obligation to maintain an office or agency for such purposes. The
Company shall give prompt written notice to the Trustee of any such designation
or rescission and of any change in the location of any such other office or
agency.
The Company hereby designates the Corporate Trust Office of the Trustee as
one such office or agency of the Company in accordance with Section 2.03.
SECTION 4.03. REPORTS.
(a) Whether or not required by the rules and regulations of the Securities
and Exchange Commission (the "COMMISSION"), so long as any Notes are
outstanding, the Company will furnish to the Holders of Notes (i) all quarterly
and annual financial information that would be required to be contained in a
filing with the Commission on Forms 10-Q and 10-K if the Company were required
to file such Forms, including a "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and, with respect to the annual
information only, a report thereon by the Company's certified independent
accountants and (ii) all current reports that would be required to be filed with
the Commission on Form 8-K if the Company were required to file such reports.
In addition, whether or not required by the rules and regulations of the
Commission, the Company will file a copy of all such information and reports
with the Commission for public availability (unless the Commission will not
accept such a filing) and make such information available to securities analysts
and prospective investors upon request. The Company shall also comply with the
provisions of TIA Section 314(a).
(b) The Company shall provide the Trustee with a sufficient number of
copies of all SEC Reports that the Trustee may be required to deliver to the
Holders of the Notes under this Section 4.03.
SECTION 4.04. COMPLIANCE CERTIFICATE.
(a) The Company shall deliver to the Trustee, within 120 days after the
end of each fiscal year, an Officers' Certificate stating that a review of the
activities of the Company and its Subsidiaries during the preceding fiscal year
has been made under the supervision of the signing Officers with a view
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to determining whether the Company has kept, observed, performed and fulfilled,
and has caused each of its Subsidiaries to keep, observe, perform and fulfill,
its obligations under this Indenture, and further stating, as to each such
Officer signing such certificate, that to the best of his or her knowledge the
Company has kept, observed, performed and fulfilled, and has caused each of its
Subsidiaries to keep, observe, perform and fulfill, each and every covenant
contained in this Indenture and no such Person is in default in the performance
or observance of any of the terms, provisions and conditions of this Indenture
to be performed or observed by it (or, if a Default or Event of Default shall
have occurred, describing all such Defaults or Events of Default of which he or
she may have knowledge and what action each is taking or proposes to take with
respect thereto) and that to the best of his or her knowledge no event has
occurred and remains in existence by reason of which payments on account of the
principal of, premium, if any, or interest, if any, on the Notes are prohibited
or if such event has occurred, a description of the event and what action each
is taking or proposes to take with respect thereto.
(b) So long as not contrary to the then current recommendations of the
American Institute of Certified Public Accountants, the year-end financial
statements delivered pursuant to Section 4.03 above shall be accompanied by a
written statement of the Company's independent public accountants (who shall be
a firm of established national reputation) that in making the examination
necessary for certification of such financial statements, nothing has come to
their attention which would lead them to believe that the Company has violated
any provisions of Article Four or Article Five of this Indenture or, if any such
violation has occurred, specifying the nature and period of existence thereof,
it being understood that such accountants shall not be liable directly or
indirectly to any Person for any failure to obtain knowledge of any such
violation.
(c) The Company shall, so long as any of the Notes are outstanding,
deliver to the Trustee, forthwith upon any Officer becoming aware of (i) any
Default or Event of Default or (ii) any default under any Indebtedness referred
to in Section 6.01(e), an Officers' Certificate specifying such Default, Event
of Default or default and what action the Company is taking or proposes to take
with respect thereto.
(d) At the time of any Restricted Payment, the Company and its
Subsidiaries shall deliver to the Trustee an Officer's Certificate required by
Section 4.07(d).
SECTION 4.05. TAXES.
The Company shall pay, and shall cause each of its Subsidiaries to pay,
prior to delinquency, all material taxes, assessments, and governmental levies,
except as contested in good faith and by appropriate proceedings or where the
failure to effect such payment is not adverse in any material respect to the
Holders of the Notes.
SECTION 4.06. STAY, EXTENSION AND USURY LAWS.
The Company covenants (to the extent that it may lawfully do so) that it
shall not at any time insist upon, plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay, extension or usury law wherever
enacted, now or at any time hereafter in force, that may affect the covenants or
the performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it shall not, by
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resort to any such law, hinder, delay or impede the execution of any power
herein granted to the Trustee, but shall suffer and permit the execution of
every such power as though no such law has been enacted.
SECTION 4.07. LIMITATION ON RESTRICTED PAYMENTS.
(a) The Company will not, and will not permit any Restricted Subsidiary
to, directly or indirectly, (i) declare or pay any dividend or make any
distribution on its or such Restricted Subsidiary's Capital Stock (other than
dividends or distributions payable solely in shares of its or such Restricted
Subsidiary's Capital Stock (other than Redeemable Stock) held by such holders or
in options, warrants or other rights to acquire such shares of Capital Stock)
other than such Capital Stock held by the Company or any of its Restricted
Subsidiaries (and other than pro rata dividends or distributions on Common Stock
of Restricted Subsidiaries), (ii) repurchase, redeem, retire or otherwise
acquire for value any shares of Capital Stock (including options, warrants or
other rights to acquire such shares of Capital Stock) of the Company (other than
any such Capital Stock held by the Company or any Wholly Owned Restricted
Subsidiary of the Company), (iii) make any voluntary or optional principal
payment, or voluntary or optional redemption, repurchase, defeasance, or other
acquisition or retirement for value, of Indebtedness of the Company that is
subordinated in right of payment to the Notes or (iv) make any Investment, other
than a Permitted Investment, in any Person (such payments or any other actions
described in clauses (i) through (iv) being collectively "RESTRICTED PAYMENTS")
if, at the time of, and after giving effect to, the proposed Restricted Payment:
(A) a Default or Event of Default shall have occurred and be
continuing;
(B) except with respect to any Investment (other than an Investment
consisting of the designation of a Restricted Subsidiary as an Unrestricted
Subsidiary), the Company could not Incur at least $1.00 of Indebtedness
under Section 4.09(a) hereof; and
(C) the aggregate amount expended for all Restricted Payments (the
amount so expended, if other than in cash, to be determined in good faith
by the Board, whose determination shall be conclusive and evidenced by a
resolution of the Board) after the Issue Date shall exceed the sum of (1)
50% of the aggregate amount of the Adjusted Consolidated Net Income (or, if
the Adjusted Consolidated Net Income is a loss, MINUS 100% of such amount)
(determined by excluding income resulting from transfers of assets by the
Company or a Restricted Subsidiary to an Unrestricted Subsidiary) accrued
on a cumulative basis during the period (taken as one accounting period)
beginning on the first day of the fiscal quarter immediately following the
Issue Date and ending on the last day of the last fiscal quarter preceding
the date for which reports have been filed pursuant to Section 4.03 hereof,
PLUS (2) the aggregate Net Cash Proceeds received by the Company after the
Issue Date from the issuance and sale permitted by this Indenture of its
Capital Stock (other than Redeemable Stock) to a Person who is not a
Subsidiary of the Company, or from the issuance to a Person who is not a
Subsidiary of the Company of any options, warrants or other rights to
acquire Capital Stock of the Company (in each case, exclusive of any
convertible Indebtedness, Redeemable Stock or any options, warrants or
other rights that are redeemable at the option of the holder, or are
required to be redeemed, prior to the Stated Maturity of the Notes), MINUS
the actual amount of Net Cash Proceeds used to make such Directed
Investments, PLUS (3) an amount equal to the net reduction in Investments
(other than reductions in Permitted Investments) in any Person resulting
from payments of interest on Indebtedness, dividends, repayments of loans
or advances, or other
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transfers of assets, in each case to the Company or any Restricted
Subsidiary (except to the extent any such payment is included in the
calculation of Adjusted Consolidated Net Income), or from the redesignation
of Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each
case as provided in the definition of "Investments"), not to exceed the
amount of Investments previously made by the Company and its Restricted
Subsidiaries in such Person.
(b) The foregoing provision shall not be violated by reason of:
(i) the payment of any dividend within 60 days after the date of
declaration thereof if, at said date of declaration, such payment would
comply with the foregoing paragraph;
(ii) the redemption, repurchase, defeasance or other acquisition or
retirement for value of Indebtedness that is subordinated in right of
payment to the Notes, including premium, if any, and accrued and unpaid
interest, with the proceeds of, or in exchange for, Indebtedness Incurred
under Section 4.09(b)(iii) hereof;
(iii) the repurchase, redemption or other acquisition of Capital Stock
of the Company (or options, warrants or other rights to acquire such
Capital Stock) in exchange for, or out of the proceeds of a substantially
concurrent offering of, shares of Capital Stock or options, warrants or
other rights to acquire such Capital Stock (in each case, other than
Redeemable Stock) of the Company;
(iv) the making of any principal payment or repurchase, redemption,
retirement, defeasance or other acquisition for value of Indebtedness of
the Company which is subordinated in right of payment to the Notes in
exchange for, or out of the proceeds of, a substantially concurrent
offering of, shares of the Capital Stock of the Company (other than
Redeemable Stock);
(v) payments or distributions, in the nature of satisfaction of
dissenters' rights, pursuant to or in connection with a consolidation,
merger or transfer of assets that complies with the provisions hereof
applicable to mergers, consolidations and transfers of all or substantially
all of the property and assets of the Company;
(vi) any purchase or acquisition from, or withholding on issuances to,
any employee of the Company's Capital Stock in order to satisfy any
applicable federal, state or local tax payments in respect of the receipt
of shares of the Company's Capital Stock;
(vii) any purchase or acquisition from, or withholding on issuances to,
any employee of the Company's Capital Stock in order to pay the purchase
price of such Capital Stock or similar instrument pursuant to a stock
option, equity incentive or other employee benefit plan or agreement of the
Company or any of its Restricted Subsidiaries;
(viii) the repurchase of shares of, or options to purchase shares of,
the Company's Capital Stock from employees of the Company in connection
with the termination of their employment; PROVIDED that (A) the aggregate
price paid for all such repurchased shares of Capital Stock made in any
twelve-month period shall not exceed $250,000 PLUS the aggregate cash
proceeds received by the Company during such twelve-month period from any
reissuance of such
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Capital Stock by the Company to employees of the Company and its Restricted
Subsidiaries and (B) no Default shall have occurred and be continuing
immediately after such transaction;
(ix) payments and distributions pursuant to any tax sharing agreement
between the Company and any other Person with which the Company files a
consolidated tax return or with which the Company is part of a consolidated
group, in each case, for federal income tax purposes;
(x) cash payments in lieu of the issuance of fractional shares of
Common Stock of the Company upon conversion of any class of Preferred Stock
of the Company; and
(xi) the issuance of shares of Common Stock upon exercise of warrants
to purchase shares of common stock of ART Licensing existing on the Issue
Date, including any contribution of such shares of Common Stock to ART
Licensing, any payment by ART Licensing to the Company in consideration
thereof and any contribution by the Company to ART Licensing in respect
thereof.
PROVIDED that, except in the case of clauses (i) and (ii), no Default or Event
of Default shall have occurred and be continuing or occur as a consequence of
the actions or payments set forth herein. Any Investments made other than in
cash shall be valued, in good faith, by the Board.
(c) Each Restricted Payment permitted pursuant to the preceding paragraph
(other than the Restricted Payment referred to in clause (ii) thereof) and the
Net Cash Proceeds from any issuance of Capital Stock referred to in clause (iii)
or (iv) shall be included in calculating whether the conditions of clause (C) of
Section 4.07(a) hereof have been met with respect to any subsequent Restricted
Payments. In the event the proceeds of an issuance of Capital Stock of the
Company and are used for the redemption, repurchase or other acquisition of the
Notes or Indebtedness that is PARI PASSU with the Notes, then the Net Cash
Proceeds of such issuance shall be included in clause (C) of Section 4.07(a)
hereof only to the extent such proceeds are not used for such redemption,
repurchase or other acquisition of Indebtedness.
(d) The Board may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default. For
purposes of making such determination, all outstanding Investments by the
Company and its Restricted Subsidiaries (except to the extent repaid in cash) in
the Subsidiary so designated will be deemed to be Restricted Payments at the
time of such designation and will reduce the amount available for Restricted
Payments under the first paragraph of this covenant. All such outstanding
Investments will be deemed to constitute Investments in an amount valued in
accordance with the definition of "Investment." Such designation will only be
permitted if such Restricted Payment would be permitted at such time and if such
Restricted Subsidiary otherwise meets the definition of an Unrestricted
Subsidiary.
SECTION 4.08. LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING
RESTRICTED SUBSIDIARIES.
(a) The Company will not, and will not permit any Restricted Subsidiary
to, create or otherwise cause or suffer to exist or become effective any
consensual encumbrance or restriction of any kind on the ability of any
Restricted Subsidiary to (i) pay dividends or make other distributions permitted
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by applicable law on any Capital Stock of such Restricted Subsidiary owned by
the Company or any other Restricted Subsidiary, (ii) pay any Indebtedness owed
to the Company or any other Restricted Subsidiary that owns, directly or
indirectly, any Capital Stock of such Restricted Subsidiary, (iii) make loans or
advances to the Company or any other Restricted Subsidiary that owns, directly
or indirectly, any Capital Stock of such Restricted Subsidiary or (iv) transfer
any of its property or assets to the Company or any other Restricted Subsidiary
that owns, directly or indirectly, any Capital Stock of such Restricted
Subsidiary.
(b) The foregoing provisions shall not prohibit any encumbrances or
restrictions:
(i) existing on the Issue Date in this Indenture or any other
agreement in effect on the Issue Date, and any extension, refinancing,
renewal or replacement of any such agreement; PROVIDED that the
encumbrances and restrictions in any such extension, refinancing, renewal
or replacement are no less favorable in any material respect to the holders
than those encumbrances or restrictions that are then in effect and that
are being extended, refinanced, renewed or replaced;
(ii) existing under or by reason of applicable law;
(iii) existing with respect to any Person or the property or assets of
such Person acquired by the Company or any Restricted Subsidiary, at the
time of such acquisition and not Incurred in contemplation thereof, which
encumbrances or restrictions are not applicable to any Person or the
property or assets of any Person other than such Person or the property or
assets of such Person so acquired;
(iv) in the case of clause (iv) of Section 4.08(a) hereof, (A) that
restrict in a customary manner the subletting, assignment or transfer of
any property or asset that is a lease, license, conveyance or contract or
similar property or asset, (B) existing by virtue of any transfer of,
agreement to transfer, option or right with respect to, or Lien on, any
property or assets of the Company or any Restricted Subsidiary, not
otherwise prohibited hereby or (C) arising or agreed to in the ordinary
course of business, not relating to any Indebtedness, and that do not,
individually or in the aggregate, detract from the value of property or
assets of the Company or any Restricted Subsidiary in any manner material
to the Company or any Restricted Subsidiary; or
(v) imposed pursuant to an agreement that has been entered into for
the sale or disposition of Capital Stock of, or property or assets of, the
Company or a Restricted Subsidiary; PROVIDED that such encumbrance or
restriction shall only remain in force during the pendency of such
acquisition or disposition; or
(vi) imposed pursuant to agreements governing Indebtedness permitted
to be Incurred under Sections 4.07(b)(xiii) and (xiv) hereof.
(c) Nothing contained in this Section 4.08 shall prevent the Company or
any Restricted Subsidiary from (a) creating, Incurring, assuming or suffering to
exist any Liens otherwise permitted in Section 4.13 hereof or (b) restricting
the sale or other disposition of property or assets of the Company
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or any of its Restricted Subsidiaries that secure Indebtedness of the Company or
any of its Restricted Subsidiaries.
SECTION 4.09. LIMITATION ON INDEBTEDNESS.
(a) The Company will not, and will not permit any of its Subsidiaries to,
Incur any Indebtedness (including Acquired Debt); PROVIDED that the Company may
Incur Indebtedness (including Acquired Debt) if, after giving effect to the
Incurrence of such Indebtedness and the receipt and application of the proceeds
therefrom, the Indebtedness to EBITDA Ratio would be greater than zero and less
than 5 to 1.
(b) The foregoing provisions will not apply to:
(i) Indebtedness of the Company outstanding at any time in an
aggregate principal amount not to exceed $100.0 million, less any amount of
Indebtedness permanently repaid as provided under Section 4.11 hereof;
(ii) Indebtedness of any of the Company's Restricted Subsidiaries
owing to the Company; PROVIDED, HOWEVER, that (A) any subsequent issuance
or transfer of Capital Stock that results in any such Indebtedness being
held by a Person other than the Company and (B) any sale or other transfer
of any such Indebtedness to a Person that is not the Company shall be
deemed, in each case, to constitute an Incurrence of such Indebtedness by
the Company;
(iii) Indebtedness issued in exchange for, or the net proceeds of which
are used to refinance or refund, then outstanding Indebtedness, other than
Indebtedness Incurred under clause (i), (ii), (v), (vi) or (viii) of this
paragraph, and any refinancings thereof in an amount not to exceed the
amount so refinanced or refunded (plus premiums, accrued interest, fees and
expenses); PROVIDED that Indebtedness the proceeds of which are used to
refinance or refund the Notes or Indebtedness that is PARI PASSU with, or
subordinated in right of payment to, the Notes shall only be permitted
under this clause (iii) if (A) in case the Notes are refinanced in part or
the Indebtedness to be refinanced is PARI PASSU with the Notes, such new
Indebtedness (by its terms or by the terms of any agreement or instrument
pursuant to which such new Indebtedness is outstanding) is PARI PASSU with,
or is expressly made subordinate in right of payment to, the remaining
Notes, (B) in case the Indebtedness to be refinanced is subordinated in
right of payment to the Notes, such new Indebtedness, by its terms or by
the terms of any agreement or instrument pursuant to which such new
Indebtedness is outstanding, is expressly made subordinate in right of
payment to the Notes at least to the extent that the Indebtedness to be
refinanced is subordinated to the Notes, and (C) such new Indebtedness,
determined as of the date of Incurrence of such new Indebtedness, does not
have a Stated Maturity prior to the Stated Maturity of the Indebtedness to
be refinanced or refunded, and the Average Life of such new Indebtedness is
at least equal to the remaining Average Life of the Indebtedness to be
refinanced or refunded; and PROVIDED FURTHER that in no event may
Indebtedness of the Company be refinanced by means of any Indebtedness of
any Restricted Subsidiary of the Company pursuant to this clause (iii);
(iv) Indebtedness (A) in respect of performance, surety or appeal
bonds provided in the ordinary course of business; and (B) arising from
agreements providing for indemnification, adjustment of purchase price or
similar obligations, or from Guarantees or letters of credit, surety
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bonds or performance bonds securing any obligations of the Company or any
of the Restricted Subsidiaries pursuant to such agreements, in any case
Incurred in connection with the disposition of any business, assets or
Restricted Subsidiary of the Company (other than Guarantees of Indebtedness
Incurred by any Person acquiring all or any portion of such business,
assets or Restricted Subsidiary of the Company for the purpose of financing
such acquisition), in a principal amount not to exceed the gross proceeds
actually received by the Company or any Restricted Subsidiary in connection
with such disposition;
(v) without duplication of clause (viii) hereof, Indebtedness of the
Company not to exceed, at any one time outstanding, two TIMES an amount
equal to (A) the aggregate proceeds (less appropriate fees and
expenses)(which proceeds may consist of cash, Capital Stock of an entity
that as a result of such transaction becomes a Restricted Subsidiary of the
Company, or Telecommunications Assets which in connection with such
transaction become held by the Company or a Restricted Subsidiary of the
Company, and the value of which proceeds shall be the fair market value
thereof as determined in good faith by the Board, which in all events shall
make any appropriate adjustments on account of any Indebtedness associated
with such Capital Stock or Telecommunications Assets in making such
determination) received by the Company from the issuance and sale of its
Capital Stock (other than Redeemable Stock and Preferred Stock that
provides for the payment of dividends in cash) MINUS (B) the fair market
value of any Directed Investments made with the proceeds of such issuances
or sales; PROVIDED that such Indebtedness (x) does not have a Stated
Maturity prior to the Stated Maturity of the Notes and has an Average Life
longer than the Notes and (y) is unsecured and is expressly subordinated in
right of payment to the Notes;
(vi) Indebtedness to the extent such Indebtedness is secured by Liens
permitted under clause (xxiv) of the definition of "Permitted Liens;"
(vii) Indebtedness of the Company, to the extent the proceeds thereof
are immediately used to purchase Notes tendered in an Offer to Purchase
made as a result of a Change in Control;
(viii) without duplication of clause (v) hereof, Indebtedness of the
Company Incurred in connection with the acquisition of (A) 38 GHz licenses
or authorizations through auctions conducted by the FCC or (B) other
licenses or authorizations through other spectrum auctions conducted by the
FCC with respect to other frequencies approved for microwave point-to-point
transmissions, in an amount not to exceed, at any one time outstanding, the
greater of (1) $10.0 million and (2) an amount equal to the aggregate
proceeds (less appropriate fees and expenses)(which proceeds may consist of
cash, Capital Stock of an entity that as a result of such transaction
becomes a Restricted Subsidiary of the Company, or Telecommunications
Assets which in connection with such transaction become held by the Company
or a Restricted Subsidiary of the Company, and the value of which proceeds
shall be the fair market value thereof as determined in good faith by the
Board, which in all events shall make any appropriate adjustments on
account of any Indebtedness associated with such Capital Stock or
Telecommunications Assets in making such determination) received by the
Company from the issuance and sale of its Capital Stock (other than
Redeemable Stock and Preferred Stock that provides for the payment of
dividends in cash) MINUS the fair market value of any Directed Investments
made with the proceeds of such issuances; PROVIDED that such Indebtedness
(x) does not have a Stated Maturity prior to the Stated Maturity of the
Notes and has an Average Life
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longer than the Notes and (y) is unsecured and is PARI PASSU or
subordinated in right of payment with the Notes;
(ix) revolving credit Indebtedness of any Restricted Subsidiary
Incurred pursuant to a credit facility in an aggregate amount not to
exceed, at any one time outstanding, the greater of 62.5% and such greater
percentage permitted pursuant to such credit facility of the accounts
receivable net of reserves and allowances for doubtful accounts, determined
in accordance with GAAP, of such Restricted Subsidiary and its Restricted
Subsidiaries (without duplication); PROVIDED that such Indebtedness is not
Guaranteed by the Company or any of its other Restricted Subsidiaries;
(x) the Incurrence by the Company or any of its Restricted
Subsidiaries of Hedging Obligations that are Incurred for the purpose of
fixing or hedging interest rate risk with respect to any floating rate
Indebtedness of the Company or any Restricted Subsidiary, as the case may
be, that is permitted by the terms hereof to be outstanding;
(xi) the Incurrence by the Company's Unrestricted Subsidiaries of Non-
Recourse Debt, PROVIDED, HOWEVER, that if any such Indebtedness ceases to
be Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be
deemed to constitute an Incurrence of Indebtedness by a Restricted
Subsidiary of the Company;
(xii) the Incurrence by Unrestricted Subsidiaries of Indebtedness to
the Company or any Restricted Subsidiary of the Company to the extent
permitted by Section 4.07 hereof;
(xiii) Indebtedness of the Company in an aggregate amount not to exceed
$100.0 million Incurred pursuant to the Credit Facility;
(xiv) Guarantees by the Company's Restricted Subsidiaries of the
Indebtedness referred to in clause (xiii) above;
(xv) Indebtedness of the Company existing on the Issue Date; and
(xvi) Indebtedness of the Company represented by the Notes and this
Indenture.
(c) For purposes of determining compliance with this Section 4.09, in the
event that an item of Indebtedness meets the criteria of more than one of the
types of Indebtedness described in the above clauses, the Company, in its sole
discretion, shall classify such item of Indebtedness and only be required to
include the amount and type of such Indebtedness in one of such clauses.
(d) The Company will not, and will not permit any Restricted Subsidiary
to, Incur any Guarantee of Indebtedness of any Unrestricted Subsidiary.
(e) Notwithstanding the foregoing, ART Licensing shall not Incur any
Indebtedness or issue any Preferred Stock; PROVIDED that ART Licensing may Incur
Indebtedness of the type and in the amount set forth in clause (xiv) of the
second paragraph of this Section_____.
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SECTION 4.10. LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF WHOLLY
OWNED RESTRICTED SUBSIDIARIES.
The Company will not sell, and will not permit any Restricted Subsidiary,
directly or indirectly, to issue or sell any shares of Capital Stock of a
Restricted Subsidiary, other than ART Licensing (including options, warrants or
other rights to purchase shares of such Capital Stock), except (i) to the
Company or a Wholly Owned Restricted Subsidiary, (ii) issuances or sales to
foreign nationals of shares of Capital Stock of foreign Restricted Subsidiaries,
to the extent required by applicable law, (iii) if, immediately after giving
effect to such issuance or sale, such Restricted Subsidiary would no longer
constitute a Restricted Subsidiary or (iv) issuances or sales of Common Stock of
Restricted Subsidiaries, if within six months of each such issuance or sale, the
Company or such Restricted Subsidiary applies an amount not less than the Net
Cash Proceeds thereof (if any) in accordance with Section 4.11(a)(i)(A) or (B).
SECTION 4.11. DISPOSITION OF PROCEEDS OF ASSET SALES.
(a) The Company will not, and will not permit any Restricted Subsidiary
to, consummate any Asset Sale, unless (a) the consideration received by the
Company or such Restricted Subsidiary is at least equal to the fair market value
of the assets sold or disposed of and (b) at least 85% of the consideration
received consists of cash or Temporary Cash Investments, PROVIDED that any notes
or other obligations received by the Company or any such Restricted Subsidiary
as consideration that are converted by the Company or such Restricted Subsidiary
into cash within 30 days of their receipt (to the extent of the cash received),
shall be deemed to be cash for purposes of this provision. In the event and to
the extent that the Net Cash Proceeds received by the Company or its Restricted
Subsidiaries from one or more Asset Sales occurring on or after the Issue Date
in any period of 12 consecutive months exceed 10% of Adjusted Consolidated Net
Tangible Assets (determined as of the date closest to the commencement of such
12-month period for which a consolidated balance sheet of the Company and its
Restricted Subsidiaries has been prepared), then the Company shall, or shall
cause the relevant Restricted Subsidiary to, (i) within six months after the
date Net Cash Proceeds so received exceed 10% of Adjusted Consolidated Net
Tangible Assets (A) apply an amount equal to such excess Net Cash Proceeds to
permanently repay unsubordinated Indebtedness of the Company or any of its
Restricted Subsidiaries owing to a Person other than the Company or any of its
Restricted Subsidiaries or (B) invest an equal amount, or the amount not so
applied pursuant to clause (A) (or enter into a definitive agreement committing
to so invest within six months after the date of such agreement), in property or
assets of a nature or type or that are used in a business (or in a company
having property and assets of a nature or type, or engaged in a business)
similar or related to the nature or type of the property and assets of, or the
business of, the Company and its Restricted Subsidiaries existing on the date of
such Investment (as determined in good faith by the Board, whose determination
shall be conclusive and evidenced by a resolution of the Board and (ii) apply
(no later than the end of the six-month period referred to in clause (i)) such
excess Net Cash Proceeds (to the extent not applied pursuant to clause (i)) as
provided in the following paragraph of this Section 4.11. The amount of such
excess Net Cash Proceeds required to be applied (or to be committed to be
applied) during such six-month period as set forth in clause (i) of the
preceding sentence and not applied as so required by the end of such period
shall constitute "Excess Proceeds."
(b) If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Offer to Purchase pursuant to this
Section 4.11 totals at least $5.0 million,
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the Company must commence, not later than the fifteenth business day of such
month, and consummate an Offer to Purchase from the holders on a pro rata basis
an aggregate principal amount of Notes equal to the Excess Proceeds on such
date, at a purchase price equal to (i) 101% of the Accreted Value thereof
(determined at the date of purchase), if such purchase is prior to ,
2001, or (ii) 101% of the principal amount at maturity thereof, plus accrued and
unpaid interest, if any, to the date of purchase, if such purchase is on or
after , 2001.
SECTION 4.12. LIMITATION ON TRANSACTIONS WITH AFFILIATES.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, sell, lease, transfer or otherwise dispose of any of its
properties or assets to, or purchase any property or assets from, or enter into
or make any contract, agreement, loan, advance or Guarantee with, or any
contract, agreement, loan, advance or Guarantee for the specific benefit of, any
Affiliate (each of the foregoing, an "AFFILIATE TRANSACTION"), unless (i) such
Affiliate Transaction is on terms that are no less favorable to the Company or
the relevant Restricted Subsidiary than those that would have been obtained in a
comparable transaction by the Company or such Restricted Subsidiary with an
unrelated Person and (ii) the Company delivers to the Trustee (A) with respect
to any Affiliate Transaction involving aggregate consideration in excess of $1.0
million, a resolution of the Board of Directors set forth in an Officers'
Certificate certifying that such Affiliate Transaction complies with clause (A)
above and that such Affiliate Transaction has been approved by a majority of the
disinterested members of the Board of Directors and (B) with respect to any
Affiliate Transaction involving aggregate consideration in excess of $5.0
million, a written opinion, appraisal or certification from a nationally
recognized professional experienced in evaluating similar types of transactions
stating that the terms of such transaction are fair to the Company or such
Restricted Subsidiary, as the case may be, from a financial point of view;
PROVIDED that the following shall not be deemed to constitute Affiliate
Transactions:
(i) the payment of reasonable fees to directors of the Company who
are not employees of the Company;
(ii) agreements and arrangements existing on the date hereof;
(iii) any employment agreement entered into by the Company or any of
its Restricted Subsidiaries in the ordinary course of business of the
Company or such Restricted Subsidiary;
(iv) the adoption of employee benefit plans in the ordinary course of
business and payments and other transactions thereunder; PROVIDED that any
such adoption, payment or other transaction shall have been approved by a
majority of the disinterested members of the Board;
(v) transactions between or among the Company and/or its Wholly Owned
Restricted Subsidiaries;
(vi) any contract, agreement, loan, advance or Guarantee for the
general benefit of the Company and its stockholders, including stockholders
that are Affiliates of the Company; and
(vii) any Affiliate Transactions permitted by the provisions of Section
4.07 hereof.
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SECTION 4.13. LIMITATION ON LIENS SECURING CERTAIN INDEBTEDNESS.
The Company will not, and will not permit any Subsidiary to, create, Incur,
assume or suffer to exist any Lien, other than Permitted Liens, on any of its
assets or properties of any character, or any shares of Capital Stock or
Indebtedness of any Subsidiary, without making effective provision for all of
the Notes and all other amounts due hereunder to be directly secured equally and
ratably with (or, if the obligation or liability to be secured by such Lien is
subordinated in right of payment to the Notes prior to) the obligation or
liability secured by such Lien.
SECTION 4.14. CORPORATE EXISTENCE.
Subject to Article 5, the Company shall do or cause to be done all things
necessary to preserve and keep in full force and effect (i) its existence as a
corporation, and the corporate, partnership or other existence of any
Subsidiary, in accordance with the respective organizational documents (as the
same may be amended from time to time) of the Company or any such Subsidiary and
(ii) the rights (charter and statutory), licenses and franchises of the Company
and its Subsidiaries; PROVIDED, HOWEVER, that the Company shall not be required
to preserve any such right, license or franchise, or the corporate, partnership
or other existence of any of its Subsidiaries if the Board of Directors of the
Company shall determine that the preservation thereof is no longer desirable in
the conduct of the business of the Company and its Subsidiaries, taken as a
whole, and that the loss thereof is not adverse in any material respect to the
Holders of the Notes.
SECTION 4.15. CHANGE OF CONTROL.
In the event of a Change in Control, the Company must commence and
consummate an Offer to Purchase for all the Notes then outstanding, at a
purchase price equal to (i) 101% of the Accreted Value thereof, in the case of
any such purchase prior to , 2001, or (ii) 101% of the principal
amount at maturity thereof, together with accrued and unpaid interest, if any,
to the date of purchase, in the case of any such purchase on or after
, 2001. Not later than 20 days following any Change in Control, the Company
will mail a notice to each holder describing the transaction or transactions
that constitute the Change in Control and offering to repurchase Notes pursuant
to the procedures required by this Indenture and described in such notice.
SECTION 4.16. BUSINESS ACTIVITIES OF THE COMPANY.
(a) The Company will not, and will not permit any Restricted Subsidiary
to, engage in (i) any business other than the Telecommunications Business and
such business activities as are incidental or related thereto and (ii) any
business, activities or services in which the Company and its Restricted
Subsidiaries were engaged on the Issue Date. In addition, the Company will (i)
at such time and to the extent permitted by the FCC, transfer, or cause to be
transferred, all FCC licenses and authorizations of the Company and its
Restricted Subsidiaries to ART Licensing and (ii) cause ART Licensing to remain
a Wholly Owned Restricted Subsidiary of the Company.
(b) Notwithstanding the foregoing, to the extent permitted by the FCC, the
Company will not permit ART Licensing to engage in any business or activity,
other than the application for, acquisition of or ownership of FCC licenses and
authorizations.
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SECTION 4.17. NO AMENDMENT TO AGREEMENT.
The Company will not amend, modify or alter the Voting Trust Agreement
without having obtained the consent of the holders of not less than a majority
in principal amount at maturity of the Notes then outstanding.
ARTICLE 5
SUCCESSORS
SECTION 5.01. CONSOLIDATION, MERGER, SALE OF ASSETS, ETC.
(a) The Company shall not consolidate with, merge with or into, or sell,
convey, transfer, lease or otherwise dispose of all or substantially all of its
property and assets (as an entirety or substantially an entirety in one
transaction or a series of related transactions) to, any Person (other than a
consolidation or merger with or into a Wholly Owned Restricted Subsidiary with a
positive net worth; PROVIDED that, in connection with any such merger or
consolidation, no consideration (other than Common Stock in the surviving Person
or the Company) shall be issued or distributed to the stockholders of the
Company) or permit any Person to merge with or into the Company unless: (i) the
Company shall be the continuing Person, or the Person (if other than the
Company) formed by such consolidation or into which the Company is merged or
that acquired or leased such property and assets of the Company shall be a
corporation organized and validly existing under the laws of the United States
of America or any jurisdiction thereof and shall expressly assume, by a
supplemental indenture, executed and delivered to the Trustee, all of the
obligations of the Company on all of the Notes and under this Indenture;
(ii) immediately after giving effect to such transaction, no Default or Event of
Default shall have occurred and be continuing; (iii) immediately after giving
effect to such transaction on a pro forma basis, the Indebtedness to Total
Market Capitalization Ratio (determined as of a date no earlier than 10 days
prior to such transaction) of the Company, or any person becoming the successor
obligor of the Notes, would be no greater than 130% of the Indebtedness to Total
Market Capitalization Ratio of the Company immediately prior to giving effect to
such transaction; PROVIDED that this clause (iii) shall not apply to any
transaction or series of transactions effected solely for the purpose of
creating a parent corporation of which the Company shall be a Wholly Owned
Subsidiary and whose stockholders shall be identical (without regard to the
exercise of options or warrants, or securities convertible or exchangeable into
shares of Common Stock) to those of the Company immediately prior thereto; and
(iv) the Company delivers to the Trustee an Officers' Certificate (attaching the
arithmetic computations to demonstrate compliance with clause (iii)) and an
Opinion of Counsel, in each case, stating that such consolidation, merger or
transfer and such supplemental indenture complies with this provision and that
all conditions precedent provided for herein relating to such transaction have
been complied with; PROVIDED, HOWEVER, that clause (iii) above does not apply
if, in the good faith determination of the Board, whose determination shall be
evidenced by a resolution of the Board, the principal purpose of such
transaction is to change the state of incorporation of the Company; and PROVIDED
FURTHER that any such transaction shall not have as one of its purposes the
evasion of the foregoing limitations.
(b) The Company shall deliver to the Trustee prior to such transaction an
Officers' Certificate covering clauses (i) through (v) of Section 5.01(a)
hereof, stating that such transaction and such supplemental indenture comply
with this Indenture, and an Opinion of Counsel covering paragraphs (i), (ii) and
(v) of the foregoing paragraph.
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SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED.
Upon any consolidation or merger, or any sale, lease, conveyance or other
disposition of all or substantially all of the assets of the Company in
accordance with Section 5.01, the successor corporation formed by such
consolidation or into or with which the Company is merged or to which such sale,
lease, conveyance or other disposition is made shall succeed to, and be
substituted for (so that from and after the date of such consolidation, merger,
sale, lease, conveyance or other disposition, the provisions of this Indenture
referring to the Company shall refer instead to the successor corporation and
not to the Company), and may exercise every right and power of the Company under
this Indenture with the same effect as if such successor Person has been named
as the Company, herein; PROVIDED, HOWEVER, that the predecessor Company shall
not be relieved from the obligations to pay the principal of and interest on the
Notes, except in the case of a sale of all of the Company's assets that meets
the requirements of Section 5.01 hereof.
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.01. EVENTS OF DEFAULT.
Each of the following constitutes an "EVENT OF DEFAULT":
(a) default in the payment of interest on the Notes when it becomes
due and payable, and continuance of such default for a period of 30 days or
more; or
(b) default in the payment of principal of, or premium, if any, on
the Notes when due; or
(c) default in the performance, or breach, of any covenant described
under Sections 4.07, 4.08, 4.11 and 4.15 and Article 5 hereof; or
(d) default in the performance, or breach, of any covenant in this
Indenture (other than defaults specified in clause (a), (b) or (c) above),
and the continuance of such default or breach for a period of 30 days or
more after written notice to the Company by the Trustee or to the Company
and the Trustee by the holders of at least 25% in aggregate principal
amount at maturity of the outstanding Notes (in each case, when such notice
is deemed received in accordance with this Indenture); or
(e) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is Guaranteed by the Company or any
of its Restricted Subsidiaries) whether such Indebtedness or Guarantee now
exists, or is created after the Issue Date, which default (i) is caused by
a failure to pay principal of or premium, if any, or interest on such
Indebtedness prior to the expiration of the grace period provided in such
Indebtedness on the date of such default (a "PAYMENT DEFAULT") or
(ii) results in the acceleration of such Indebtedness prior to its express
maturity and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such
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Indebtedness under which there has been a Payment Default, or the maturity
of which has been so accelerated, aggregates $5.0 million or more; or
(f) any final judgment or order (not covered by insurance) for the
payment of money in excess of $5.0 million in the aggregate for all such
final judgments or orders against all such Persons (treating any
deductibles, self-insurance or retention as not so covered) shall be
rendered against the Company or any Significant Subsidiary and shall not be
paid or discharged, and there shall be any period of 60 consecutive days
following entry of the final judgment or order that causes the aggregate
amount for all such final judgments or orders outstanding and not paid or
discharged against all such Persons to exceed $5.0 million during which a
stay of enforcement of such final judgment or order, by reason of a pending
appeal or otherwise, shall not be in effect; or
(g) a court having jurisdiction in the premises enters a decree or
order for (i) relief in respect of the Company or any Significant
Subsidiary in an involuntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, (ii) the
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of the Company or any Significant
Subsidiary or for all or substantially all of the property and assets of
the Company or any Significant Subsidiary or (iii) the winding up or
liquidation of the affairs of the Company or any Significant Subsidiary
and, in each case, such decree or order shall remain unstayed and in effect
for a period of 60 consecutive days; or
(h) the Company or any Significant Subsidiary (i) commences a
voluntary case under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect, or consents to the entry of an order for
relief in an involuntary case under any such law, (ii) consents to the
appointment of or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Company or any
Significant Subsidiary or for all or substantially all of the property and
assets of the Company or any Significant Subsidiary or (iii) effects any
general assignment for the benefit of creditors.
The term "CUSTODIAN" means any receiver, trustee, assignee, liquidator or
similar official under any Bankruptcy Law.
SECTION 6.02. ACCELERATION.
If any Event of Default (other than an Event of Default specified in clause
(vii) or (viii) above with respect to the Company) occurs and is continuing,
then the Trustee or the holders of at least 25% in principal amount at maturity
of outstanding Notes may, by written notice, and the Trustee upon the request of
the holders of not less than 25% in principal amount at maturity of the
outstanding Notes shall, declare the Default Amount of, and any accrued and
unpaid interest on, all outstanding Notes to be immediately due and payable and
upon any such declaration such amounts shall become immediately due and payable.
If an Event of Default specified in clause (vii) or (viii) above with respect to
the Company occurs and is continuing, then the Default Amount of, and any
accrued and unpaid interest on, all outstanding Notes shall IPSO FACTO become
and be immediately due and payable without any declaration or other act on the
part of the Trustee or any holder.
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After a declaration of acceleration, the holders of a majority in aggregate
principal amount at maturity of outstanding Notes may, by notice to the Trustee,
rescind such declaration of acceleration if all existing Events of Default,
other than nonpayment of the Default Amount of, and any accrued and unpaid
interest on, the Notes that has become due solely as a result of such
acceleration, have been cured or waived and if the rescission of acceleration
would not conflict with any judgment or decree. The holders of a majority in
principal amount at maturity of the outstanding Notes also have the right to
waive past defaults under this Indenture, except a default in the payment of the
Default Amount of, or any interest on, any outstanding Note, or in respect of a
covenant or a provision that cannot be modified or amended without the consent
of all holders of Notes.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Notes pursuant to Section
3.07, an equivalent premium shall also become and be immediately due and payable
to the extent permitted by law. If an Event of Default occurs prior to _______,
1999 by reason of any willful action (or inaction) taken (or not taken) by or on
behalf of the Company with the intention of avoiding the prohibition on
redemption of the Notes prior to such date pursuant to Section 3.07, then the
premium payable for purposes of this paragraph for each of the years beginning
on _______ of the years set forth below shall be as set forth in the following
table, expressed as a percentage of the amount that would otherwise be due but
for the provisions of this paragraph, plus accrued interest, if any, to the date
of payment:
Year Percentage
---- ----------
1994 . . . . . . . . . . . . . . . . . . _______%
1995 . . . . . . . . . . . . . . . . . . _______%
1996 . . . . . . . . . . . . . . . . . . _______%
1997 . . . . . . . . . . . . . . . . . . _______%
1998 . . . . . . . . . . . . . . . . . . _______%
SECTION 6.03. OTHER REMEDIES.
If an Event of Default occurs and is continuing, the Trustee may pursue any
available remedy to collect the payment of principal, premium, if any, and
interest on the Notes or to enforce the performance of any provision of the
Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any of
the Notes or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder of a Note in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. All remedies
are cumulative to the extent permitted by law.
SECTION 6.04. WAIVER OF PAST DEFAULTS.
Holders of not less than a majority in aggregate principal amount of the
then outstanding Notes by written notice to the Trustee may, on behalf of the
Holders of all of the Notes, waive an existing Default or Event of Default and
its consequences, except a continuing Default or Event of Default in the
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payment of the principal of, premium, if any, or interest on, the Notes. Upon
any such waiver, such Default shall cease to exist, and any Event of Default
arising therefrom shall be deemed to have been cured for every purpose of this
Indenture; but no such waiver shall extend to any subsequent or other Default or
impair any right consequent thereon.
SECTION 6.05. CONTROL BY MAJORITY.
Holders of a majority in principal amount of the then outstanding Notes may
direct the time, method and place of conducting any proceeding for exercising
any remedy available to the Trustee or exercising any trust or power conferred
on it. However, the Trustee may refuse to follow any direction that conflicts
with the law or this Indenture or that the Trustee determines may be unduly
prejudicial to the rights of other Holders of Notes or that may involve the
Trustee in Personal liability.
SECTION 6.06. LIMITATION ON SUITS.
A Holder of a Note may pursue a remedy with respect to this Indenture or
the Notes only if: (a) the Holder of a Note gives to the Trustee written notice
of a continuing Event of Default; (b) the Holders of at least 25% in principal
amount of the then outstanding Notes make a written request to the Trustee to
pursue the remedy; (c) such Holder of a Note or Holders of Notes offer and, if
requested, provide to the Trustee indemnity satisfactory to the Trustee against
any loss, liability or expense; (d) the Trustee does not comply with the request
within 60 days after receipt of the request and the offer and, if requested, the
provision of indemnity; and (e) during such 60-day period the Holders of a
majority in principal amount of the then outstanding Notes do not give the
Trustee a direction inconsistent with the request.
A Holder of a Note may not use this Indenture to prejudice the rights of
another Holder of a Note or to obtain a preference or priority over another
Holder of a Note.
SECTION 6.07. RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the right of any
Holder of a Note to receive payment of principal, premium, if any, and interest
on the Note, on or after the respective due dates expressed in the Note, or to
bring suit for the enforcement of any such payment on or after such respective
dates, shall not be impaired or affected without the consent of the Holder of
the Note.
SECTION 6.08. COLLECTION SUIT BY TRUSTEE.
Subject to Section 6.02 hereof, if an Event of Default specified in
Section 6.01(a) or (b) occurs and is continuing, the Trustee is authorized to
recover judgment in its own name and as trustee of an express trust against the
Company for the whole amount of principal of, premium, if any, and interest
remaining unpaid on the Notes and interest on overdue principal and, to the
extent lawful, interest and such further amount as shall be sufficient to cover
the costs and expenses of collection, including the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel.
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SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee is authorized to file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders of the Notes allowed in any judicial proceedings relative to the Company
(or any other obligor upon the Notes), the Company's creditors or the Company's
property and shall be entitled and empowered to collect, receive and distribute
any money or other property payable or deliverable on any such claims and any
custodian in any such judicial proceeding is hereby authorized by each Holder of
a Note to make such payments to the Trustee, and in the event that the Trustee
shall consent to the making of such payments directly to the Holders of the
Notes, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 7.07. To the
extent that the payment of any such compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, and any other amounts due the
Trustee under Section 7.07 out of the estate in any such proceeding, shall be
denied for any reason, payment of the same shall be secured by a Lien on, and
shall be paid out of, any and all distributions, dividends, money, securities
and other properties which the Holders of the Notes may be entitled to receive
in such proceeding whether in liquidation or under any plan of reorganization or
arrangement or otherwise. Nothing contained herein shall be deemed to authorize
the Trustee to authorize or consent to or accept or adopt on behalf of any
Holder of a Note any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder of a Note thereof,
or to authorize the Trustee to vote in respect of the claim of any Holder of a
Note in any such proceeding.
SECTION 6.10. PRIORITIES.
If the Trustee collects any money pursuant to this Article, it shall pay
out the money in the following order:
FIRST: to the Trustee, its agents and attorneys for amounts due under
Section 7.07, including payment of all compensation, expense and
liabilities incurred, and all advances made, by the Trustee and the costs
and expenses of collection;
SECOND: (i) first to Holders of Notes, for amounts due and unpaid on
such Notes for principal, premium, if any, and interest, ratably, without
preference or priority of any kind according to the amounts due and payable
on the Notes for principal, premium, if any, and interest, respectively,
and (ii) second, to the extent any other monies are available, to Holders
of all Notes for amounts due and unpaid on all such Notes for principal,
premium, if any, and interest, ratably, without preference or priority of
any kind, according to the amounts due and payable on the Notes; and
THIRD: to the Company or to such party as a court of competent
jurisdiction shall direct.
The Trustee may fix a record date and payment date for any payment to
Holders of Notes.
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SECTION 6.11. UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under this Indenture
or in any suit against the Trustee for any action taken or omitted by it as a
Trustee, a court in its discretion may require the filing by any party litigant
in the suit of an undertaking to pay the costs of the suit, and the court in its
discretion may assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in the suit, having due regard to the merits and good
faith of the claims or defenses made by the party litigant. This Section does
not apply to a suit by the Trustee, a suit by a Holder of a Note pursuant to
Section 6.07, or a suit by Holders of more than 10% in principal amount of the
then outstanding Notes.
ARTICLE 7
TRUSTEE
SECTION 7.01. DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture, and
use the same degree of care and skill in their exercise, as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined solely by the
express provisions of this Indenture and the Trustee need perform only
those duties that are specifically set forth in this Indenture and no
others, and no implied covenants or obligations shall be read into this
Indenture against the Trustee, and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture. However,
the Trustee shall examine the certificates and opinions to determine
whether or not they conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liabilities for its own negligent
action, its own negligent failure to act, or its own willful misconduct, except
that: (i) this paragraph does not limit the effect of paragraph (b) of this
Section; (ii) the Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer, unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts; and (iii) the Trustee shall not
be liable with respect to any action it takes or omits to take in good faith in
accordance with a direction received by it pursuant to Section 6.05.
(d) Whether or not therein expressly so provided, every provision of this
Indenture that in any way relates to the Trustee is subject to paragraphs (a),
(b), and (c) of this Section.
(e) No provision of this Indenture shall require the Trustee to expend or
risk its own funds or incur any liability. The Trustee shall be under no
obligation to exercise any of its rights and powers
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under this Indenture at the request of any Holder of Notes, unless such Holder
shall have offered to the Trustee security and indemnity satisfactory to the
Trustee against any loss, liability or expense.
(f) The Trustee shall not be liable for interest on any money received by
it except as the Trustee may agree in writing with the Company. Money held in
trust by the Trustee need not be segregated from other funds except to the
extent required by law.
SECTION 7.02. RIGHTS OF TRUSTEE.
(a) The Trustee may conclusively rely upon any document believed by it to
be genuine and to have been signed or presented by the proper Person. The
Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not
be liable for any action it takes or omits to take in good faith in reliance on
such Officers' Certificate or Opinion of Counsel. The Trustee may consult with
counsel and the advice of such counsel or any Opinion of Counsel shall be full
and complete authorization and protection from liability in respect of any
action taken, suffered or omitted by it hereunder in good faith and in reliance
thereon.
(c) The Trustee may act through its attorneys and agents and shall not be
responsible for the misconduct or negligence of any agent appointed with due
care.
(d) The Trustee shall not be liable for any action it takes or omits to
take in good faith which it believes to be authorized or within its rights or
powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any demand,
request, direction or notice from the Company shall be sufficient if signed by
an Officer of the Company.
(f) The Trustee shall be under no obligation to exercise any of the rights
or powers vested in it by this Indenture at the request or direction of any of
the Holders unless such Holders shall have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities that might be
incurred by it in compliance with such request or direction.
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become the owner or
pledgee of Notes and may otherwise deal with the Company or any Affiliate of the
Company with the same rights it would have if it were not Trustee. However, in
the event that the Trustee acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
as trustee or resign. Any Agent may do the same with like rights and duties.
The Trustee is also subject to Sections 7.10 and 7.11.
SECTION 7.04. TRUSTEE'S DISCLAIMER.
The Trustee shall not be responsible for and makes no representation as to
the validity or adequacy of this Indenture or the Notes, it shall not be
accountable for the Company's use of the proceeds
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from the Notes or any money paid to the Company or upon the Company's direction
under any provision of this Indenture, it shall not be responsible for the use
or application of any money received by any Paying Agent other than the Trustee,
and it shall not be responsible for any statement or recital herein or any
statement in the Notes or any other document in connection with the sale of the
Notes or pursuant to this Indenture other than its certificate of
authentication.
SECTION 7.05. NOTICE OF DEFAULTS.
If a Default or Event of Default occurs and is continuing and if it is
known to a Responsible Officer of the Trustee, the Trustee shall mail to Holders
of Notes a notice of the Default or Event of Default within 90 days after it
occurs. Except in the case of a Default or Event of Default in payment of
principal of, premium, if any, or interest on any Note, the Trustee may withhold
the notice if and so long as a committee of its Responsible Officers in good
faith determines that withholding the notice is in the interests of the Holders
of the Notes.
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES.
Within 60 days after each May 15 beginning with the May 15 following the
date of this Indenture, the Trustee shall mail to the Holders of the Notes a
brief report dated as of such reporting date that complies with TIA Section
313(a) (but if no event described in TIA Section 313(a) has occurred within the
twelve months preceding the reporting date, no report need be transmitted). The
Trustee also shall comply with TIA Section 313(b)(2). The Trustee shall also
transmit by mail all reports as required by TIA Section 313(c).
A copy of each report at the time of its mailing to the Holders of Notes
shall be mailed to the Company and filed with the Commission and each stock
exchange on which the Notes are listed. The Company shall promptly notify the
Trustee when the Notes are listed on any stock exchange.
SECTION 7.07. COMPENSATION AND INDEMNITY.
The Company shall pay to the Trustee from time to time reasonable
compensation for its acceptance of this Indenture and services hereunder. The
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Company shall reimburse the Trustee promptly
upon request for all reasonable disbursements, advances and expenses incurred or
made by it in addition to the compensation for its services. Such expenses
shall include the reasonable compensation, disbursements and expenses of the
Trustee's agents and counsel.
The Company shall indemnify the Trustee against any and all losses,
liabilities or expenses incurred by it arising out of or in connection with the
acceptance or administration of its duties under this Indenture, except any such
loss, liability or expense as may be attributable to the negligence or bad faith
of the Trustee. The Trustee shall notify the Company promptly of any claim for
which it may seek indemnity. Failure by the Trustee to so notify the Company
shall not relieve the Company of its obligations hereunder. The Company shall
defend the claim and the Trustee shall cooperate in the defense. The Trustee
may have separate counsel and the Company shall pay the reasonable fees and
expenses of such counsel. The Company need not pay for any settlement made
without its consent, which consent shall not be unreasonably withheld.
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The obligations of the Company under this Section 7.07 shall survive the
satisfaction and discharge of this Indenture.
To secure the Company' payment obligations in this Section, the Trustee
shall have a Lien prior to the Notes on all money or property held or collected
by the Trustee, except that held in trust to pay principal, premium, if any, and
interest on particular Notes. Such Lien shall survive the satisfaction and
discharge of this Indenture.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(g) or (h) occurs, the expenses and the
compensation for the services (including the fees and expenses of its agents and
counsel) are intended to constitute expenses of administration under any
Bankruptcy Law.
SECTION 7.08. REPLACEMENT OF TRUSTEE.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section.
The Trustee may resign in writing at any time and be discharged from the
trust hereby created by so notifying the Company. The Holders of Notes of a
majority in principal amount of the then outstanding Notes may remove the
Trustee by so notifying the Trustee and the Company in writing. The Company may
remove the Trustee if: (a) the Trustee fails to comply with Section 7.10; (b)
the Trustee is adjudged a bankrupt or an insolvent or an order for relief is
entered with respect to the Trustee under any Bankruptcy Law; (c) a Custodian or
public officer takes charge of the Trustee or its property; or (d) the Trustee
becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the office
of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the then outstanding Notes may appoint a
successor Trustee to replace the successor Trustee appointed by the Company.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company, or
the Holders of Notes of at least 10% in principal amount of the then outstanding
Notes may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
If the Trustee after written request by any Holder of a Note who has been a
Holder of a Note for at least six months fails to comply with Section 7.10, such
Holder of a Note may petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its appointment
to the retiring Trustee and to the Company. Thereupon, the resignation or
removal of the retiring Trustee shall become effective, and the successor
Trustee shall have all the rights, powers and duties of the Trustee under this
Indenture. The successor Trustee shall mail a notice of its succession to
Holders of the Notes. The retiring Trustee shall promptly transfer all property
held by it as Trustee to the successor Trustee, provided all sums owing to the
Trustee hereunder have been paid and subject to the Lien provided for
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in Section 7.07. Notwithstanding replacement of the Trustee pursuant to this
Section 7.08, the Company's obligations under Section 7.07 shall continue for
the benefit of the retiring Trustee.
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates, merges or converts into, or transfers all or
substantially all of its corporate trust business to, another corporation, the
successor corporation without any further act shall be the successor Trustee.
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION.
There shall at all times be a Trustee hereunder which shall be a
corporation organized and doing business under the laws of the United States of
America or of any state thereof authorized under such laws to exercise corporate
trustee power, shall be subject to supervision or examination by federal or
state authority and shall have a combined capital and surplus of at least $25
million as set forth in its most recent published annual report of condition.
This Indenture shall always have a Trustee who satisfies the requirements
of TIA Section 310(a)(1), (2) and (5). The Trustee is subject to TIA Section
310(b).
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
The Trustee is subject to TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). A Trustee who has resigned or been
removed shall be subject to TIA Section 311(a) to the extent indicated therein.
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 8.01. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE.
The Company may, at the option of its Board of Directors evidenced by a
resolution set forth in an Officers' Certificate, at any time, with respect to
the Notes, elect to have either Section 8.02 or 8.03 be applied to all
outstanding Notes upon compliance with the conditions set forth below in this
Article Eight.
SECTION 8.02. LEGAL DEFEASANCE AND DISCHARGE.
Upon the Company's exercise under Section 8.01 of the option applicable to
this Section 8.02, the Company shall be deemed to have been discharged from its
obligations with respect to all outstanding Notes on the date the conditions set
forth below are satisfied (hereinafter, "LEGAL DEFEASANCE"). For this purpose,
such Legal Defeasance means that the Company shall be deemed to have paid and
discharged the entire Indebtedness represented by the outstanding Notes, which
shall thereafter be deemed to be "outstanding" only for the purposes of
Section 8.05 and the other Sections of this Indenture referred to in (a) and (b)
below, and to have satisfied all of its other obligations under such Notes and
this Indenture (and the Trustee, on demand of and at the expense of the Company,
shall execute proper instruments
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acknowledging the same), except for the following which shall survive until
otherwise terminated or discharged hereunder: (a) the rights of holders of
outstanding Notes to receive payments in respect of the principal of, premium,
if any, and interest on, such Notes when such payments are due, or on the
redemption date, as the case may be; (b) the Company's obligations with respect
to the Notes concerning the issuance of temporary Notes, the registration of
Notes, mutilated, destroyed, lost or stolen Notes and the maintenance of an
office or agency for payment and money for security payments held in trust; (c)
the rights, powers, trust, duties and immunities of the Trustee, and the
Company's obligations in connection therewith; and (d) the legal defeasance
provisions of this Indenture.
SECTION 8.03. COVENANT DEFEASANCE.
Upon the Company's exercise under Section 8.01 of the option applicable to
this Section 8.03, the Company shall be released from its obligations under the
covenants contained in Sections 4.03, 4.04, 4.07, 4.08, 4.09, 4.10, 4.11, 4.12,
4.13, 4.14, 4.15, 4.16 and 4.17 and Article Five with respect to the outstanding
Notes on and after the date the conditions set forth below are satisfied
(hereinafter, "COVENANT DEFEASANCE"), and the Notes shall thereafter be deemed
not "outstanding" for the purposes of any direction, waiver, consent or
declaration or act of Holders (and the consequences of any thereof) in
connection with such covenants, but shall continue to be deemed "outstanding"
for all other purposes hereunder (it being understood that such Notes shall not
be deemed outstanding for accounting purposes). For this purpose, such Covenant
Defeasance means that, with respect to the outstanding Notes, the Company may
omit to comply with and shall have no liability in respect of any term,
condition or limitation set forth in any such covenant, whether directly or
indirectly, by reason of any reference elsewhere herein to any such covenant or
by reason of any reference in any such covenant to any other provision herein or
in any other document and such omission to comply shall not constitute a Default
or an Event of Default under Section 6.01(c), but, except as specified above,
the remainder of this Indenture and such Notes shall be unaffected thereby. In
addition, upon the Company' exercise under Section 8.01 of the option applicable
to this Section 8.03, Sections 6.01(d) through 6.01(f) shall not constitute
Events of Default.
SECTION 8.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE.
The following shall be the conditions to the application of either
Section 8.02 or Section 8.03 to the outstanding Notes:
(a) The Company shall irrevocably have deposited or caused to be
deposited with the Trustee (or another trustee satisfying the requirements
of Section 7.10 who shall agree to comply with the provisions of this
Article Eight applicable to it) as trust funds in trust for the purpose of
making the following payments, specifically pledged as security for, and
dedicated solely to, the benefit of the Holders of such Notes, (i) the
Company shall irrevocably deposit with the Trustee, in trust, for the
benefit of the Holders of the Notes, cash in U.S. dollars, non-callable
U.S. government obligations, or a combination thereof, in such amounts as
will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants selected by the Company, to pay the
principal of, premium, if any, and interest on the outstanding Notes, on
the stated maturity or on the applicable optional redemption date, as the
case may be, of such principal or installment of principal of, premium, if
any, or interest on the outstanding Notes; (ii) in the case of legal
defeasance, the Company shall deliver to the Trustee an opinion of counsel
in the United States reasonably acceptable to the Trustee confirming that
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(A) the Company has received from, or there has been published by, the
Internal Revenue Service a ruling or (B) since the date hereof, there has
been a change in the applicable federal income tax law, in either case to
the effect that, and based thereon such opinion of counsel shall confirm
that, the holders of the outstanding Notes will not recognize income, gain
or loss for federal income tax purposes as a result of such legal
defeasance and will be subject to federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if
such legal defeasance had not occurred; (iii) in the case of covenant
defeasance, the Company shall deliver to the Trustee an opinion of counsel
in the United States reasonably acceptable to the Trustee confirming that
the holders of the outstanding Notes will not recognize income, gain or
loss for federal income tax purposes as a result of such covenant
defeasance and will be subject to federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if
such covenant defeasance had not occurred; (iv) no Default or Event of
Default shall have occurred and be continuing on the date of such deposit
or insofar as Events of Default from bankruptcy or insolvency events are
concerned, at any time in the period ending on the 91st day after the date
of deposit; (v) such legal defeasance or covenant defeasance shall not
result in a breach or violation of, or constitute a default under any
material agreement or instrument (other than this Indenture) to which the
Company is a party or by which the Company is bound; (vi) the Company shall
have delivered to the Trustee an Officers' Certificate stating that the
deposit was not made by the Company with the intent of preferring the
holders of Notes over the other creditors of the Company with the intent of
defeating, hindering, delaying or defrauding creditors of the Company or
others; (vii) the Company shall have delivered to the Trustee an Officers'
Certificate and an opinion of counsel, each stating that all conditions
precedent provided for relating to the legal defeasance or the covenant
defeasance have been complied with; and (viii) the Company shall have paid
or duly provided for payment of all amounts due to the Trustee pursuant to
Section 7.07 hereof.
SECTION 8.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST;
OTHER MISCELLANEOUS PROVISIONS.
Subject to Section 8.06, all money and Government Securities (including the
proceeds thereof) deposited with the Trustee (or other qualifying trustee,
collectively for purposes of this Section 8.05, the "TRUSTEE") pursuant to
Section 8.04 in respect of the outstanding Notes shall be held in trust and
applied by the Trustee, in accordance with the provisions of such Notes and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as Paying Agent) as the Company may determine, to
the Holders of such Notes of all sums due and to become due thereon in respect
of principal, premium, if any, and interest, but such money need not be
segregated from other funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the cash or Government Securities
deposited pursuant to Section 8.04 or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is for
the account of the Holders of the outstanding Notes.
Anything in this Article Eight to the contrary notwithstanding, the Trustee
shall deliver or pay to the Company from time to time upon the request of the
Company any money or Government Securities held by it as provided in
Section 8.04 which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee (which
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may be the opinion delivered under Section 8.04(a)), are in excess of the amount
thereof which would then be required to be deposited to effect an equivalent
Legal Defeasance or Covenant Defeasance.
SECTION 8.06. REPAYMENT TO COMPANY.
Any money deposited with the Trustee or any Paying Agent, or then held by
the Company, in trust for the payment of the principal of, premium, if any, or
interest on any Note and remaining unclaimed for two years after such principal,
and premium, if any, or interest has become due and payable shall be paid to the
Company on its request or (if then held by the Company) shall be discharged from
such trust; and the Holder of such Note shall thereafter, as a creditor, look
only to the Company for payment thereof, and all liability of the Trustee or
such Paying Agent with respect to such trust money, and all liability of the
Company as trustee thereof, shall thereupon cease; PROVIDED, HOWEVER, that the
Trustee or such Paying Agent, before being required to make any such repayment,
may at the expense of the Company cause to be published once, in the New York
Times and The Wall Street Journal (national edition), notice that such money
remains unclaimed and that, after a date specified therein, which shall not be
less than 30 days from the date of such notification or publication, any
unclaimed balance of such money then remaining will be repaid to the Company.
SECTION 8.07. REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any United States Dollars
or Government Securities in accordance with Section 8.02 or 8.03, as the case
may be, by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application, then
the Company's obligations under this Indenture and the Notes shall be revived
and reinstated as though no deposit had occurred pursuant to Section 8.02 or
8.03 until such time as the Trustee or Paying Agent is permitted to apply all
such money in accordance with Section 8.02 or 8.03, as the case may be;
PROVIDED, HOWEVER, that, if the Company makes any payment of principal of,
premium, if any, or interest on any Note following the reinstatement of its
obligations, the Company shall be subrogated to the rights of the Holders of
such Notes to receive such payment from the money held by the Trustee or Paying
Agent.
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
SECTION 9.01. WITHOUT CONSENT OF HOLDERS OF NOTES.
Notwithstanding Section 9.02 hereof, the Company and the Trustee may amend
or supplement this Indenture or the Notes without the consent of any Holder of a
Note: (a) to cure any ambiguity, defect or inconsistency; (b) to provide for
uncertificated Notes in addition to or in place of certificated Notes; (c) to
provide for the assumption of the Company's obligations to Holders of the Notes
in the case of a merger or consolidation; (d) to make any change that would
provide any additional rights or benefits to the Holders of the Notes or that
does not adversely affect the legal rights under this Indenture of any such
Holder; or (e) to comply with requirements of the Commission in order to effect
or maintain the qualification of this Indenture under the Trust Indenture Act.
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Upon the request of the Company accompanied by a resolution of the Board of
Directors of the Company authorizing the execution of any such amended or
supplemental indenture, and upon receipt by the Trustee of the documents
described in Section 9.06, the Trustee shall join with the Company in the
execution of any amended or supplemental indenture authorized or permitted by
the terms of this Indenture and to make any further appropriate agreements and
stipulations which may be therein contained, but the Trustee shall not be
obligated to enter into such amended or supplemental indenture which affects its
own rights, duties or immunities under this Indenture or otherwise.
SECTION 9.02. WITH CONSENT OF HOLDERS OF NOTES.
The Company and the Trustee may amend or supplement this Indenture or the
Notes or any amended or supplemental indenture with the written consent of the
Holders of Notes of not less than a majority in aggregate principal amount of
the Notes then outstanding (including consents obtained in connection with a
tender offer or exchange offer for the Notes), and any existing Default and its
consequences or compliance with any provision of this Indenture or the Notes may
be waived with the consent of the Holders of a majority in principal amount of
the then outstanding Notes (including consents obtained in connection with a
tender offer or exchange offer for the Notes).
Upon the request of the Company accompanied by a resolution of the Board of
Directors of the Company authorizing the execution of any such amended or
supplemental indenture, and upon the filing with the Trustee of evidence
satisfactory to the Trustee of the consent of the Holders of Notes as aforesaid,
and upon receipt by the Trustee of the documents described in Section 9.06, the
Trustee shall join with the Company in the execution of such amended or
supplemental indenture unless such amended or supplemental indenture affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise, in
which case the Trustee may in its discretion, but shall not be obligated to,
enter into such amended or supplemental indenture.
It shall not be necessary for the consent of the Holders of Notes under
this Section 9.02 to approve the particular form of any proposed amendment or
waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section becomes
effective, the Company shall mail to the Holders of Notes affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such amended or supplemental
indenture or waiver. Subject to Sections 6.04 and 6.07, the Holders of a
majority in aggregate principal amount of the Notes then outstanding may waive
compliance in a particular instance by the Company with any provision of this
Indenture or the Notes. However, without the consent of each Holder affected,
an amendment or waiver may not (with respect to any Notes held by a non-
consenting Holder of Notes):
(i) reduce the percentage in principal amount at maturity outstanding
of Notes whose Holders must consent to an amendment, supplement or waiver
or consent to take any action under this Indenture or the Notes;
(ii) reduce the principal at maturity or extend the fixed maturity of
any Note or alter the provisions with respect to the redemption of the
Notes (other than Section 4.11 or Section 4.15 hereof);
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(iii) reduce the rate of or change the time for payment of interest on
any Notes or amend or modify the calculation of the Accreted Value or
Default Amount so as to reduce the amount of the Accreted Value or Default
Amount;
(iv) waive a Default or Event of Default in the payment of principal
of or premium, if any, or interest on the Notes (except a rescission of
acceleration of the Notes by the holders of at least a majority in
aggregate principal amount of the Notes and a waiver of the payment default
that resulted from such acceleration);
(v) make any Note, or any premium or accrued interest thereon,
payable in money other than that stated in the Notes;
(vi) make any change in the provisions of this Indenture relating to
waivers of past Defaults or the rights of holders of Notes to receive
payments of principal of, premium, if any, or interest on the Notes;
(vii) waive a redemption payment with respect to any Note (other than a
payment required by Sections 4.11 or 4.15 hereof);
(viii) make any change in the foregoing amendment and waiver provisions;
(ix) impair the right to institute suit for the enforcement of any
payment on or with respect to the Notes; or
(x) adversely affect the ranking of the Notes in a manner adverse to
the holders of the Notes.
In addition, without the consent of at least 66 2/3% in principal amount at
maturity of the Notes then outstanding (including consents obtained in
connection with a tender offer or exchange offer for Notes), no amendment to
this Indenture may make any change in, and no waiver may be made with respect to
any Default in the performance of, Section 4.11 or Section 4.15 hereof.
SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT.
Every amendment or supplement to this Indenture or the Notes shall be set
forth in a amended or supplemental indenture that complies with the TIA as then
in effect.
SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS.
Until an amendment, supplement or waiver becomes effective, a consent to it
by a Holder of a Note is a continuing consent by the Holder of a Note and every
subsequent Holder of a Note or portion of a Note that evidences the same debt as
the consenting Holder's Note, even if notation of the consent is not made on any
Note. However, any such Holder of a Note or subsequent Holder of a Note may
revoke the consent as to its Note if the Trustee receives written notice of
revocation before the date the waiver, supplement or amendment becomes
effective. An amendment, supplement or waiver becomes effective in accordance
with its terms and thereafter binds every Holder of a Note.
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The Company may fix a record date for determining which Holders of the
Notes must consent to such amendment, supplement or waiver. If the Company
fixes a record date, the record date shall be fixed at (i) the later of 30 days
prior to the first solicitation of such consent or the date of the most recent
list of Holders of Notes furnished to the Trustee prior to such solicitation
pursuant to Section 2.05 or (ii) such other date as the Company shall designate.
SECTION 9.05. NOTATION ON OR EXCHANGE OF NOTES.
The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Note thereafter authenticated. The Company in
exchange for all Notes may issue and the Trustee shall authenticate new Notes
that reflect the amendment, supplement or waiver.
Failure to make the appropriate notation or issue a new Note shall not
affect the validity and effect of such amendment, supplement or waiver.
SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall sign any amended or supplemental indenture authorized
pursuant to this Article 9 if the amendment or supplement does not adversely
affect the rights, duties, liabilities or immunities of the Trustee. The
Company may not sign an amendment or supplemental indenture until the Board of
Directors approves it. If it does, the Trustee may, but need not, sign it. In
signing such amendment or supplemental indenture, the Trustee shall be entitled
to receive, and, subject to Section 7.01 hereof, shall be fully protected in
relying upon, an Officers' Certificate and an Opinion of Counsel as conclusive
evidence that such amendment or supplemental indenture is authorized or
permitted by this Indenture, that it is not inconsistent herewith, and that it
will be valid and binding upon the Company in accordance with its terms. The
Company may not sign an amendment or supplemental indenture until the Board of
Directors approves it.
SECTION 9.07. PAYMENT FOR CONSENTS.
The Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, pay or cause to be paid any consideration, whether by
way of interest, fee or otherwise, to any Holder of Notes for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of this Indenture or the Notes, unless such consideration is offered to be paid
or agreed to be paid to all Holders of the Notes that consent, waive or agree to
amend in the time frame set forth in the solicitation documents relating to such
consent, waiver or agreement.
ARTICLE 10
MISCELLANEOUS
SECTION 10.01. TRUST INDENTURE ACT CONTROLS.
If any provision of this Indenture limits, qualifies or conflicts with the
duties imposed by TIA Section 318(c), the imposed duties shall control.
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SECTION 10.02. NOTICES.
Any notice or communication by the Company or the Trustee to the other is
duly given if in writing and delivered in Person or mailed by first class mail
(registered or certified, return receipt requested), telex, telecopier or
overnight air courier guaranteeing next day delivery, to the other's address:
If to the Company:
Advanced Radio Telecom Corp.
500 108th Avenue, N.E., Suite 2600
Bellevue, Washington 98004
Telecopier No.: (206) 688-0703
Attention: Chief Financial Officer
If to the Trustee:
The Bank of New York
101 Barclay Street, 21st Floor
New York, New York 10286
Telecopier No.: (212) 815-5915
Attention: Corporate Trust Administration
The Company or the Trustee, by notice to the other may designate additional
or different addresses for subsequent notices or communications.
All notices and communications (other than those sent to Holders of Notes)
shall be deemed to have been duly given: at the time delivered by hand, if
Personally delivered; five Business Days after being deposited in the mail,
postage prepaid, if mailed; when answered back, if telexed; when receipt
acknowledged, if telecopied; and the next Business Day after timely delivery to
the courier, if sent by overnight air courier guaranteeing next day delivery.
Any notice or communication to a Holder of a Note shall be mailed by first
class mail, certified or registered, return receipt requested, or by overnight
air courier guaranteeing next day delivery to its address shown on the register
kept by the Registrar. Any notice or communication shall also be so mailed to
any Person described in TIA Section 313(c), to the extent required by the TIA.
Failure to mail a notice or communication to a Holder of a Note or any defect in
it shall not affect its sufficiency with respect to other Holders of Notes.
If a notice or communication is mailed in the manner provided above within
the time prescribed, it is duly given, whether or not the addressee receives it.
If the Company mails a notice or communication to Holders of Notes, it
shall mail a copy to the Trustee and each Agent at the same time.
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SECTION 10.03. COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF NOTES.
Holders of the Notes may communicate pursuant to TIA Section 312(b) with
other Holders of Notes with respect to their rights under this Indenture or the
Notes. The Company, the Trustee, the Registrar and anyone else shall have the
protection of TIA Section 312(c).
SECTION 10.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company to the Trustee to take any
action under this Indenture, the Company shall furnish to the Trustee:
(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth
in Section 10.05) stating that, in the opinion of the signers, all
conditions precedent and covenants, if any, provided for in this Indenture
relating to the proposed action have been satisfied; and
(b) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth
in Section 10.05) stating that, in the opinion of such counsel, all such
conditions precedent and covenants have been satisfied.
SECTION 10.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture (other than a certificate provided
pursuant to TIA Section 314(a)(4)) shall include:
(a) a statement that the Person making such certificate or opinion
has read such covenant or condition;
(b) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he has made such
examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
satisfied; and
(d) a statement as to whether or not, in the opinion of such Person,
such condition or covenant has been satisfied.
SECTION 10.06. RULES BY TRUSTEE AND AGENTS.
The Trustee may make reasonable rules for action by or at a meeting of
Holders of Notes. The Registrar or Paying Agent may make reasonable rules and
set reasonable requirements for its functions.
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SECTION 10.07. NO PERSONAL LIABILITY OF PARTNERS, DIRECTORS, OFFICERS, EMPLOYEES
AND STOCKHOLDERS.
No director, officer, employee, incorporator or stockholder of the Company,
as such, shall have any liability for any obligations of the Company under the
Notes or this Indenture or for any claim based on, in respect of, or by reason
of, such obligations or their creation. Each Holder of the Notes by accepting a
Note waives and releases all such liability. The waiver and release are part of
the consideration for issuance of the Notes.
SECTION 10.08. GOVERNING LAW.
The internal law of the State of New York shall govern and be used to
construe this Indenture and the Notes.
SECTION 10.09. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret another indenture, loan or debt
agreement of the Company or its Subsidiaries. Any such indenture, loan or debt
agreement may not be used to interpret this Indenture.
SECTION 10.10. SUCCESSORS.
All agreements of the Company in this Indenture and the Notes shall bind
its successors. All agreements of the Trustee in this Indenture shall bind its
successor.
SECTION 10.11. SEVERABILITY.
In case any provision in this Indenture or in the Notes shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
SECTION 10.12. COUNTERPART ORIGINALS.
The parties may sign any number of copies of this Indenture. Each signed
copy shall be an original, but all of them together represent the same
agreement.
SECTION 10.13. TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and Headings of the Articles
and Sections of this Indenture have been inserted for convenience of reference
only, are not to be considered a part of this Indenture and shall in no way
modify or restrict any of the terms or provisions hereof.
[Signatures on following page]
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SIGNATURES
Dated as of _______, 1996 ADVANCED RADIO TELECOM CORP.
(SEAL)
By:
--------------------------------
Name:
Title:
Attest:
- ------------------------------
Name:
Title:
Dated as of _______, 1996 THE BANK OF NEW YORK,
as Trustee
(SEAL)
By:
--------------------------------
Name:
Title:
Attest:
- ------------------------------
Name:
Title:
59
<PAGE>
EXHIBIT A
(Face of Note)
__% Senior Discount Note due 2006
No. $__________
Advanced Radio Telecom Corp.
promises to pay to
_______________________________
or its registered assigns
the principal sum of _________________________
Dollars on _______, 2006.
Interest Payment Dates: __________ and ________, commencing __________, 1996.
Record Dates: __________ and _________ (whether or not a Business Day).
Dated: .
ADVANCED RADIO TELECOM CORP.
By:
--------------------------------
Name:
Title:
(SEAL)
Attest:
By:
--------------------------------
Name:
Title:
This is one of the Notes
referred to in the within-
mentioned Indenture:
THE BANK OF NEW YORK,
as Trustee
By:
--------------------------------
Authorized Signatory
<PAGE>
(Back of Note)
__% Senior Discount Note due 2006
Capitalized terms used herein have the meanings assigned to them in the
Indenture (as defined below) unless otherwise indicated.
1. INTEREST. Advanced Radio Telecom Corp., a Delaware corporation (the
"COMPANY"), promises to pay interest on the principal amount of this Note at the
rate and in the manner specified below. The Notes will accrete at a rate of
% compounded semiannually, to an aggregate principal amount of $ million by
, 2001. Cash interest will not accrue on the Notes prior to ,
2001. Commencing , 2002, cash interest on the Notes will be payable, at
a rate of % per annum, semi-annually in arrears on each and
(each, an "INTEREST PAYMENT DATE"), to the holders of record of Notes at
the close of business on the and immediately preceding such
Interest Payment Date. Cash interest on the Notes will accrue from the most
recent Interest Payment Date to which interest has been paid or duly provided
for, or, if no interest has been paid or duly provided for, , 2001.
Cash interest will be computed on the basis of a 360-day year of twelve 30-day
months. If, prior to , 2001, the Company defaults in any payment
of principal (including any accreted original issue discount), whether at
maturity, upon redemption or otherwise, if the payment of cash interest on the
Notes is then permitted by law, cash interest will accrue on the amount in
default at the rate of interest borne by the Notes on or after ,
2001 and, if the payment of such cash interest is not permitted by law, original
issue discount will continue to accrete at the rate then in effect. On or after
, 2001, interest on overdue principal and, to the extent permitted by
law, on overdue installments of interest will accrue at the rate of interest
borne by the Notes.
2. METHOD OF PAYMENT. The Company will pay interest on the Notes (except
defaulted interest) to the Persons who are registered Holders of Notes at the
close of business on the record date next preceding the Interest Payment Date,
even if such Notes are cancelled after such record date and on or before such
Interest Payment Date. The Holder hereof must surrender this Note to a Paying
Agent to collect principal payments. The Company will pay principal and
interest in money of the United States that at the time of payment is legal
tender for payment of public and private debts. Principal of, premium, if any,
and interest on the Notes will be payable, and the Notes will be exchangeable
and transferable, at the office or agency of the Company in The City of New York
maintained for such purposes (which initially will be the office of the
Trustee); PROVIDED, HOWEVER, the payment of interest may be made by check mailed
to the address of the Person entitled thereto as shown on the security register.
The Notes will be issued only in fully registered form without coupons and only
in denominations of $1,000 and any integral multiple thereof. No service charge
will be made for any registration of transfer, exchange or redemption of Notes,
but the Company may require payment in certain circumstances of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
therewith. Unless otherwise designated by the Company, the Company's office or
agency will be the office of the Trustee maintained for such purpose.
3. PAYING AGENT AND REGISTRAR. Initially, the Trustee will act as Paying
Agent and Registrar. The Company may change any Paying Agent, Registrar or
co-registrar without prior notice to any Holder of a Note. The Company may act
in any such capacity.
4. INDENTURE. The Company issued the Notes under an Indenture, dated as
of July __, 1996 (the "INDENTURE"), between the Company and the Trustee. The
terms of the Notes include those stated in the Indenture and those made part of
the Indenture by reference to the Trust Indenture Act of 1939, as amended (15
U.S. Code Sections 77aaa-77bbbb), as in effect on the date of the Indenture.
The Notes are
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<PAGE>
subject to all such terms, and Holders of Notes are referred to the Indenture
and such act for a statement of such terms. The terms of the Indenture shall
govern any inconsistencies between the Indenture and the Notes. The Notes are
obligations of the Company limited to the sum of $_____________ in aggregate
face amount (at maturity) of Notes to be issued on the Issue Date.
5. OPTIONAL REDEMPTION. The Notes will be redeemable at the option of the
Company, in whole or in part, at any time on or after , 2001, upon not
less than 30 nor more than 60 days' notice, at the redemption prices (expressed
as percentages of principal amount at maturity) set forth below, plus accrued
and unpaid interest, if any, to the date of redemption, if redeemed during the
12-month period beginning on of the years indicated below:
Redemption
Year Price
---- ----------
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . %
2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . %
2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . %
2004 and thereafter. . . . . . . . . . . . . . . . . . . . 100.000%
Notwithstanding the foregoing, in the event a sale by the Company of its
Common Stock in one or more Equity Offerings or Investments by one or more
Strategic Equity Investors for an aggregate purchase price equal to or exceeding
$70.0 million, on or prior to , 1999, the Company may, at its option,
use all or a portion of the net proceeds thereof to redeem up to a maximum of 33
1/3% of the initially outstanding aggregate principal amount at maturity of the
Notes at a redemption price equal to % of the Accreted Value of the Notes
(determined as of the redemption date); PROVIDED that not less than 66 2/3% of
the initially outstanding aggregate principal amount at maturity of the Notes
remain outstanding following such redemption. Any such redemption must be
effected upon not less than 30 nor more than 60 days' notice given within 30
days after any such Equity Offering or sale to a Strategic Equity Investor
resulting in such gross proceeds, as the case may be.
6. MANDATORY REDEMPTION. The Company is not required to make mandatory
sinking fund payments with respect to the Notes. However, (i) upon the
occurrence of a Change in Control, the Company is obligated to make an offer to
purchase all outstanding Notes at a price of (A) 101% of the Accreted Value
thereof (determined at the date of purchase), if such purchase is prior to
, 2001, or (B) 101% of the principal amount at maturity thereof, plus accrued
interest thereon, if any, to the date of purchase, if such purchase is on or
after , 2001 and (ii) the Company may be obligated to make an offer
to purchase Notes with the Net Cash Proceeds of certain Asset Sales at a price
of (A) 101% of the Accreted Value thereof (determined at the date of purchase),
if such purchase is prior to , 2001, or (B) 101% of the principal
amount at maturity thereof, plus accrued and unpaid interest, if any, to the
date of purchase, if such purchase is on or after , 2001. Holders of
Notes that are the subject of an Offer to Purchase will receive an Offer to
Purchase from the Company prior to any related purchase date and may elect to
have such Notes purchased by completing the form entitled "Option of Holder to
Elect Purchase" appearing below.
7. NOTICE OF REDEMPTION. Notice of redemption shall be mailed at least 30
days but not more than 60 days before the redemption date to each Holder whose
Notes are to be redeemed at its registered address. Notes may be redeemed in
part but only in whole multiples of $1,000, unless all of the Notes held by a
Holder of Notes are to be redeemed. On and after the redemption date, interest
ceases to accrue on Notes or portions of them called for redemption.
A-3
<PAGE>
8. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form
without coupons in denominations of $1,000 and integral multiples of $1,000.
The transfer of Notes may be registered and Notes may be exchanged as provided
in the Indenture. The Registrar and the Trustee may require a Holder of a Note,
among other things, to furnish appropriate endorsements and transfer documents
and to pay any taxes and fees required by law or permitted by the Indenture.
Neither the Company nor the Registrar need exchange or register the transfer of
any Note or portion of a Note selected for redemption. Also, neither the
Company nor the Registrar need exchange or register the transfer of any Notes
for a period of 15 days before a selection of Notes to be redeemed.
9. PERSONS DEEMED OWNERS. Prior to due presentment to the Trustee for
registration of the transfer of this Note, the Trustee, any Agent and the
Company may deem and treat the Person in whose name this Note is registered as
its absolute owner for the purpose of receiving payment of principal of,
premium, if any, and interest on this Note and for all other purposes
whatsoever, whether or not this Note is overdue, and neither the Trustee, any
Agent nor the Company shall be affected by notice to the contrary. The
registered Holder of a Note shall be treated as its owner for all purposes.
10. AMENDMENTS, SUPPLEMENT AND WAIVERS. Subject to certain exceptions,
the Indenture or the Notes may be amended or supplemented with the consent of
the Holders of at least a majority in principal amount of the then outstanding
Notes, and any existing default or compliance with any provision of the
Indenture or the Notes may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Notes. Without the consent
of any Holder of a Note, the Indenture or the Notes may be amended or
supplemented to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Notes in addition to or in place of certificated Notes, to
provide for the assumption of the Company's obligations to Holders of the Notes
in case of a merger or consolidation, to make any change that would provide any
additional rights or benefits to the Holders of the Notes or that does not
adversely affect the legal rights under the Indenture of any such Holder, or to
comply with the requirements of the Commission in order to effect or maintain
the qualification of the Indenture under the Trust Indenture Act. However,
without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder of Notes): reduce the
percentage in principal amount at maturity outstanding of Notes whose Holders
must consent to an amendment, supplement or waiver or consent to take any action
under the Indenture or the Notes; reduce the principal at maturity or extend the
fixed maturity of any Note or alter the provisions with respect to the
redemption of the Notes (other than Section 4.11 or 4.15 of the Indenture);
reduce the rate of or change the time for payment of interest on any Notes or
amend or modify the calculation of the Accreted Value or Default Amount so as to
reduce the amount of the Accreted Value or Default Amount; waive a Default or
Event of Default in the payment of principal of or premium, if any, or interest
on the Notes (except a rescission of acceleration of the Notes by the holders of
at least a majority in aggregate principal amount of the Notes and a waiver of
the payment default that resulted from such acceleration); make any Note, or any
premium or accrued interest thereon, payable in money other than that stated in
the Notes; make any change in the provisions of this Indenture relating to
waivers of past Defaults or the rights of holders of Notes to receive payments
of principal of, premium, if any, or interest on the Notes; waive a redemption
payment with respect to any Note (other than a payment required by Sections 4.11
or 4.15 of the Indenture); make any change in the foregoing amendment and waiver
provisions; impair the right to institute suit for the enforcement of any
payment on or with respect to the Notes; or adversely affect the ranking of the
Notes in a manner adverse to the holders of the Notes.
11. DEFAULTS AND REMEDIES. The following events are "Events of Default"
under the Indenture: (i) default in the payment of interest on the Notes when it
becomes due and payable, and continuance of such default for a period of 30 days
or more; (ii) default in the payment of principal of, or premium, if any, on the
Notes when due; (iii) default in the performance, or breach, of any covenant
described
A-4
<PAGE>
under Sections 4.07, 4.09, 4.11 and 4.15 and Article 5 of the Indenture; (iv)
default in the performance, or breach, of any covenant in the Indenture (other
than defaults specified in clause (i), (ii) or (iii) above), and the continuance
of such default or breach for a period of 30 days or more after written notice
to the Company by the Trustee or to the Company and the Trustee by the holders
of at least 25% in aggregate principal amount at maturity of the outstanding
Notes (in each case, when such notice is deemed received in accordance with the
Indenture); (v) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is Guaranteed by the Company or any of its
Restricted Subsidiaries) whether such Indebtedness or Guarantee now exists, or
is created after the Issue Date, which default (A) is caused by a failure to pay
principal of or premium, if any, or interest on such Indebtedness prior to the
expiration of the grace period provided in such Indebtedness on the date of such
default (a "PAYMENT DEFAULT") or (B) results in the acceleration of such
Indebtedness prior to its express maturity and, in each case, the principal
amount of any such Indebtedness, together with the principal amount of any other
such Indebtedness under which there has been a Payment Default, or the maturity
of which has been so accelerated, aggregates $5.0 million or more; (vi) any
final judgment or order (not covered by insurance) for the payment of money in
excess of $5.0 million in the aggregate for all such final judgments or orders
against all such Persons (treating any deductibles, self-insurance or retention
as not so covered) shall be rendered against the Company or any Significant
Subsidiary and shall not be paid or discharged, and there shall be any period of
60 consecutive days following entry of the final judgment or order that causes
the aggregate amount for all such final judgments or orders outstanding and not
paid or discharged against all such Persons to exceed $5.0 million during which
a stay of enforcement of such final judgment or order, by reason of a pending
appeal or otherwise, shall not be in effect; or (vii) certain events of
bankruptcy or insolvency with respect to the Company or any Significant
Subsidiary. If any Event of Default (other than an Event of Default specified
in clause (vii) or (viii) above with respect to the Company) occurs and is
continuing, then the Trustee or the holders of at least 25% in principal amount
at maturity of outstanding Notes may, by written notice, and the Trustee upon
the request of the holders of not less than 25% in principal amount at maturity
of the outstanding Notes shall, declare the Default Amount of, and any accrued
and unpaid interest on, all outstanding Notes to be immediately due and payable
and upon any such declaration such amounts shall become immediately due and
payable. If an Event of Default specified in clause (vii) or (viii) above with
respect to the Company occurs and is continuing, then the Default Amount of, and
any accrued and unpaid interest on, all outstanding Notes shall IPSO FACTO
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any holder. Holders of the Notes may not enforce
the Indenture or the Notes except as provided in the Indenture. Subject to
certain limitations, Holders of a majority in principal amount of the then
outstanding Notes may direct the Trustee in its exercise of any trust or power.
The Trustee may withhold from Holders of the Notes notice of any continuing
Default or Event of Default (except a Default or Event of Default relating to
the payment of principal or interest) if it determines that withholding notice
is in their interest. The Holders of a majority in aggregate principal amount
of the Notes then outstanding, by notice to the Trustee, may on behalf of the
Holders of all of the Notes waive any existing Default or Event of Default and
its consequences under the Indenture except a continuing Default or Event of
Default in the payment of interest or premium on, or the principal of, the
Notes. The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
12. TRUSTEE DEALINGS WITH COMPANY. The Trustee under the Indenture, in
its individual or any other capacity, may make loans to, accept deposits from,
and perform services for the Company or its Affiliates, and may otherwise deal
with the Company or its Affiliates, as if it were not Trustee; however, if the
Trustee acquires any conflicting interest, it must eliminate such conflict
within 90 days or resign.
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<PAGE>
13. NO PERSONAL LIABILITIES OF DIRECTORS, OFFICERS, EMPLOYEES AND
STOCKHOLDERS. No director, officer, employee, incorporator or stockholder of
the Company, as such, shall have any liability for any obligations of the
Company under the Notes or the Indenture or for any claim based on, in respect
of, or by reason of, such obligations or their creation. Each Holder of the
Notes by accepting a Note waives and releases all such liability. The waiver
and release are part of the consideration for issuance of the Notes.
14. AUTHENTICATION. This Note shall not be valid until authenticated by
the manual signature of the Trustee or an authenticating agent.
15. ABBREVIATIONS. Customary abbreviations may be used in the name of a
Holder of a Note or an assignee, such as: TEN COM (= tenants in common), TEN
ENT (= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (=
Uniform Gifts to Minors Act).
16. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes and has directed the Trustee to use
CUSIP numbers in notices of redemption as a convenience to Holders of Notes. No
representation is made as to the accuracy of such numbers either as printed on
the Notes or as contained in any notice of redemption and reliance may be placed
only on the other identification numbers placed thereon.
The Company will furnish to any Holder of a Note upon written request and
without charge a copy of the Indenture. Request may be made to:
Advanced Radio Telecom Corp.
500 108th Avenue, N.E., Suite 2600
Bellevue, Washington 98004
Attention: Chief Financial Officer
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<PAGE>
ASSIGNMENT FORM
To assign this Note, fill in the form below: (I) or (we) assign and
transfer this Note to
________________________________________________________________________________
(Insert assignee's soc. sec. or tax I.D. no.)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint _______________________________________________________
agent to transfer this Note on the books of the Company. The agent may
substitute another to act for him.
________________________________________________________________________________
Date: ______________
Your Signature:
(Sign exactly as your name appears on the face of
this Note)
Signature Guarantee.
A-7
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have all or any part of this Note purchased by the
Company pursuant to Section 4.11 or Section 4.15 of the Indenture check the
appropriate box:
/ / Section 4.11 / / Section 4.15
If you want to have only part of the Note purchased by the Company pursuant
to Section 4.11 or Section 4.15 of the Indenture, state the amount you elect to
have purchased:
$ _______________
Date:____________
Your Signature:
(Sign exactly as your name appears on the face of
this Note)
Signature Guarantee.
A-8
<PAGE>
EXHIBIT 11
ADVANCED RADIO TECHNOLOGIES CORPORATION
COMPUTATION OF NET LOSS PER SHARE OF COMMON STOCK
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
---------------
<S> <C>
Net loss applicable to Common Stock............................................................................. $ 1,267,655
---------------
---------------
Shares:
Weighted average number of shares of Common Stock outstanding for primary computation....................... 10,013,055(1)
---------------
---------------
Net loss per share of Common Stock.............................................................................. $ 0.13
---------------
---------------
Pro Forma:
Shares:
Weighted average number of shares of Common Stock outstanding for primary computation....................... 10,013,055
Issuances of shares of Telecom serial preferred stock as converted into shares of ART Common Stock.......... 10,916,807
Issuance of Telecom common stock as converted into shares of ART Common Stock............................... 8,100,807(2)
Options and warrants issued and outstanding ................................................................ 2,620,936
---------------
Pro forma weighted average number of shares of Common Stock................................................... 31,651,605(3)
---------------
---------------
Pro forma net loss per share of Common Stock.................................................................... $ 0.04
---------------
---------------
Pro Forma As Adjusted
Shares:
Pro forma weighted average number of shares of Common Stock................................................. 31,651,605
Common Stock issued in connection with the Common Stock Offering and the acquisition of the CommcoCCC
Assets..................................................................................................... 24,000,000
---------------
Pro forma as adjusted weighted average number of shares of Common Stock....................................... 55,651,605(3)
---------------
---------------
Pro forma as adjusted net loss per share of Common Stock........................................................ $ 0.02
---------------
---------------
<CAPTION>
FOR THE THREE
MONTHS ENDED
MARCH 31, 1996
---------------
<S> <C>
Net loss applicable to Common Stock............................................................................. $ 3,654,775
---------------
---------------
Shares:
Weighted average number of shares of Common Stock outstanding for primary computation....................... 10,013,055(1)
---------------
---------------
Net loss per share of Common Stock.............................................................................. $ 0.37
---------------
---------------
Pro Forma:
Shares:
Weighted average number of shares of Common Stock outstanding for primary computation....................... 10,013,055
Issuances of shares of Telecom serial preferred stock as converted into shares of ART Common Stock.......... 10,916,807
Issuance of Telecom common stock as converted into shares of ART Common Stock............................... 8,100,807(2)
Options and warrants issued and outstanding ................................................................ 2,620,936
---------------
Pro forma weighted average number of shares of Common Stock................................................... 31,651,605(3)
---------------
---------------
Pro forma net loss per share of Common Stock.................................................................... $ 0.12
---------------
---------------
Pro Forma As Adjusted
Shares:
Pro forma weighted average number of shares of Common Stock................................................. 31,651,605
Common Stock issued in connection with the Common Stock Offering and the acquisition of the CommcoCCC
Assets..................................................................................................... 24,000,000
---------------
Pro forma as adjusted weighted average number of shares of Common Stock....................................... 55,651,605(3)
---------------
---------------
Pro forma as adjusted net loss per share of Common Stock........................................................ $ 0.07
---------------
---------------
</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 on a pro forma
as adjusted basis reflect those potentially dilutive instruments assuming
the sale of shares of Common Stock offered in the Common Stock Offering
based on an assumed initial public offering price of $10.00 per share. In
measuring the dilutive effect, the treasury stock method was used.
<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 2C, Note 5B and the second
paragraph of Note 9, as to which the date is June 26, 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 Note 2B as to which the date is June 26, 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
July 18, 1996
<PAGE>
================================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) |__|
--------------------------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
48 Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
-------------------------
ADVANCED RADIO TELECOM CORP.
(Exact name of obligor as specified in its charter)
Delaware 52-1348016
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
Advanced Radio Telecom Corp.
500 108th Avenue, N.E., Suite 2600
Bellevue, Washington 98004
(Address of principal executive offices) (Zip code)
______________________
Senior Discount Notes due 2006
(Title of the indenture securities)
================================================================================
<PAGE>
1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO WHICH
IT IS SUBJECT.
- --------------------------------------------------------------------------------
Name Address
- --------------------------------------------------------------------------------
Superintendent of Banks of the State of 2 Rector Street, New York,
New York N.Y. 10006, and Albany, N.Y.
12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York
(b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Yes.
2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
None. (See Note on page 3.)
16. LIST OF EXHIBITS.
EXHIBITS IDENTIFIED IN PARENTHESES BELOW, ON FILE WITH THE COMMISSION, ARE
INCORPORATED HEREIN BY REFERENCE AS AN EXHIBIT HERETO, PURSUANT TO RULE
7a-29 UNDER THE TRUST INDENTURE ACT OF 1939 (THE "ACT") AND RULE 24 OF THE
COMMISSION'S RULES OF PRACTICE.
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which contains the
authority to commence business and a grant of powers to exercise
corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1
filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to
Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1
to Form T-1 filed with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1
filed with Registration Statement No. 33-31019.)
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<PAGE>
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No.
33-44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or examining
authority.
NOTE
Inasmuch as this Form T-1 is filed prior to the ascertainment by the
Trustee of all facts on which to base a responsive answer to Item 2, the answer
to said Item is based on incomplete information.
Item 2 may, however, be considered as correct unless amended by an
amendment to this Form T-1.
-3-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New York,
a corporation organized and existing under the laws of the State of New York,
has duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in The City of New York, and State
of New York, on the 18th day of July, 1996.
THE BANK OF NEW YORK
By: /S/ VIVIAN GEORGES
-------------------------------
Name: VIVIAN GEORGES
Title: ASSISTANT VICE PRESIDENT
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<PAGE>
Consolidated Report of Condition of
THE BANK OF NEW YORK
of 48 Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System, at the close of business March 31, 1996,
published in accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act.
Dollar Amounts
ASSETS in Thousands
--------------
Cash and balances due from depos-
itory institutions:
Noninterest-bearing balances and
currency and coin .................. $ 2,461,550
Interest-bearing balances .......... 835,563
Securities:
Held-to-maturity securities ........ 802,064
Available-for-sale securities ...... 2,051,263
Federal funds sold in domestic offices
of the bank:
Federal funds sold ................. 3,885,475
Loans and lease financing
receivables:
Loans and leases, net of unearned
income .................27,820,159
LESS: Allowance for loan and
lease losses ..............509,817
LESS: Allocated transfer risk
reserve......................1,000
Loans and leases, net of unearned
income and allowance, and reserve 27,309,342
Assets held in trading accounts ...... 837,118
Premises and fixed assets (including
capitalized leases) ................ 614,567
Other real estate owned .............. 51,631
Investments in unconsolidated
subsidiaries and associated
companies .......................... 225,158
Customers' liability to this bank on
acceptances outstanding ............ 800,375
Intangible assets .................... 436,668
Other assets ......................... 1,247,908
-----------
Total assets ......................... $41,558,682
-----------
-----------
LIABILITIES
Deposits:
In domestic offices ................ $18,851,327
Noninterest-bearing .......7,102,645
Interest-bearing .........11,748,682
In foreign offices, Edge and
Agreement subsidiaries, and IBFs ... 10,965,064
Noninterest-bearing ..........37,855
Interest-bearing .........10,927,749
Federal funds purchased and secu-
rities sold under agreements to re-
purchase in domestic offices of
the bank and of its Edge and
Agreement subsidiaries, and in
IBFs:
Federal funds purchased ............ 1,224,886
Securities sold under agreements
to repurchase .................... 29,728
Demand notes issued to the U.S.
Treasury ........................... 118,870
Trading liabilities .................. 673,994
Other borrowed money:
With original maturity of one year
or less .......................... 2,713,248
With original maturity of more than
one year ......................... 20,780
Bank's liability on acceptances exe-
cuted and outstanding .............. 803,292
Subordinated notes and debentures .... 1,022,860
Other liabilities .................... 1,590,564
-----------
Total liabilities .................... 38,015,103
-----------
EQUITY CAPITAL
Common stock ........................ 942,284
Surplus ............................. 525,666
Undivided profits and capital
reserves .......................... 2,078,197
Net unrealized holding gains
(losses) on available-for-sale
securities ........................ 3,197
Cumulative foreign currency transla-
tion adjustments .................. ( 5,765)
-----------
Total equity capital ................ 3,543,579
-----------
Total liabilities and equity capital $41,558,682
-----------
-----------
I, Robert E. Keilman, Senior Vice President and Comptroller of the
above-named bank do hereby declare that this Report of Condition has been
prepared in conformance with the instructions issued by the Board of Governors
of the Federal Reserve System and is true to the best of my knowledge and
belief.
Robert E. Keilman
We, the undersigned directors, attest to the correctness of this
Report of Condition and declare that it has been examined by us and to the best
of our knowledge and belief has been prepared in conformance with the
instructions issued by the Board of Governors of the Federal Reserve System and
is true and correct.
J. Carter Bacot }
Thomas A. Renyi } Directors
Alan R. Griffith } --------------
