<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 19, 1996
REGISTRATION NO. 333-04388
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
Incorporation or Organization) 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 500 108TH AVENUE, N.E.,
2600 SUITE 2600
BELLEVUE, WASHINGTON 98004 BELLEVUE, WASHINGTON 98004
(206) 688-8700 (206) 688-8700
(Address, Including Zip Code, (Name, Address, Including
and Telephone Number, Zip Code, and Telephone
Including Area Code, of Number, Including Area Code,
Registrant's Principal of Agent for Service)
Executive Offices)
</TABLE>
<TABLE>
<S> <C> <C>
COPIES TO:
JAMES KARDON, ESQ. JOHN D. WATSON, JR., ESQ. W. THEODORE
HAHN & HESSEN LLP LATHAM & WATKINS PIERSON, JR.,
350 FIFTH AVENUE 1001 PENNSYLVANIA AVE., N.W. ESQ.
NEW YORK, NEW YORK 10118 WASHINGTON, D.C. 20004 PIERSON &
(212) 736-1000 (202) 637-2200 BURNETT, LLP
1667 K. STREET,
N.W., SUITE 801
WASHINGTON, D.C.
20006
(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 PROPOSED
TITLE OF EACH CLASS OF MAXIMUM MAXIMUM AMOUNT OF
SECURITIES TO BE AMOUNT TO OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED BE REGISTERED PER SHARE OFFERING PRICE FEE
<S> <C> <C> <C> <C>
Common Stock, $.001 par
value................... 8,625,000 Shares (1) $ (2) $77,625,000 $26,767
</TABLE>
(1) Includes 1,125,000 shares that the Underwriters have the option to purchase
to cover over-allotments, if any.
(2) Proposed maximum offering price per share to be supplied by amendment.
Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457 under the Securities Act.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ADVANCED RADIO TELECOM CORP.
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K SHOWING LOCATION
IN PROSPECTUS OF INFORMATION REQUIRED BY ITEMS OF FORM S-1
<TABLE>
<CAPTION>
ITEM AND CAPTION IN FORM S-1 CAPTION IN PROSPECTUS
- ---------------------------------------------------------------- -----------------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus...................... Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus.......................................... Inside Front Cover Page of Prospectus; Outside Back
Cover Page of Prospectus
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges........................... Prospectus Summary; Risk Factors
4. Use of Proceeds...................................... Use of Proceeds
5. Determination of Offering Price...................... Outside Front Cover Page of Prospectus; Risk Factors;
Underwriting
6. Dilution............................................. Dilution; Shares Eligible for Future Sale
7. Selling Security Holders............................. Not Applicable
8. Plan of Distribution................................. Outside Front Cover Page of Prospectus; Underwriting
9. Description of Securities to be Registered........... Outside Front Cover Page of Prospectus; Prospectus
Summary; Description of Capital Stock; Shares
Eligible for Future Sale
10. Interests of Named Experts and Counsel............... Legal Matters; Experts
11. Information with Respect to the Registrant........... Prospectus Summary; Risk Factors; The Company;
Dividend Policy; Capitalization; Selected Historical
Combined and Pro Forma Financial Data; Management's
Discussion and Analysis of Financial Condition and
Results of Operations; Business; Management;
Principal Stockholders; Certain Transactions;
Description of Capital Stock; Description of Certain
Indebtedness; Financial Statements.
12. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities...................... Not Applicable.
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
7,500,000 SHARES
[LOGO]
COMMON STOCK
ALL OF THE SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY ADVANCED
RADIO TELECOM CORP. ("ART" OR THE "COMPANY"). PRIOR TO THIS OFFERING, THERE HAS
BEEN NO PUBLIC MARKET FOR THE COMMON STOCK OF THE COMPANY. IT IS CURRENTLY
ESTIMATED THAT THE INITIAL PUBLIC OFFERING PRICE WILL BE BETWEEN $8.00 AND
$10.00 PER SHARE. SEE "UNDERWRITING" FOR A DISCUSSION OF THE FACTORS TO BE
CONSIDERED IN DETERMINING THE INITIAL PUBLIC OFFERING PRICE. THE COMMON STOCK
HAS BEEN APPROVED FOR QUOTATION ON THE NASDAQ NATIONAL MARKET UNDER THE SYMBOL
"ARTT."
CONCURRENTLY WITH THE OFFERING OF THE SHARES OF COMMON STOCK (THE "COMMON
STOCK OFFERING"), THE COMPANY IS OFFERING, PURSUANT TO A SEPARATE PROSPECTUS,
UNITS (THE "UNITS"), EACH CONSISTING OF $1,000 PRINCIPAL AMOUNT AT MATURITY
OF SENIOR DISCOUNT NOTES DUE 2006 (THE "NOTES") AND WARRANTS
(COLLECTIVELY, THE "WARRANTS") TO PURCHASE SHARES OF COMMON STOCK,
SUFFICIENT TO GENERATE GROSS PROCEEDS OF $175,000,000 (THE "UNIT OFFERING" AND,
TOGETHER WITH THE COMMON STOCK OFFERING, THE "OFFERINGS"). THE COMMON STOCK
OFFERING IS CONDITIONED UPON THE CONSUMMATION OF THE UNIT OFFERING.
AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF
RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS
WHICH SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN EVALUATING AN INVESTMENT
IN THE COMMON STOCK.
-----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS TO
TO PUBLIC DISCOUNT (1) COMPANY (2)
<S> <C> <C> <C>
PER SHARE............................. $ $ $
TOTAL (3)............................. $ $ $
</TABLE>
(1) SEE "UNDERWRITING" FOR INFORMATION CONCERNING INDEMNIFICATION OF THE
UNDERWRITERS AND OTHER MATTERS.
(2) BEFORE DEDUCTING EXPENSES PAYABLE BY THE COMPANY ESTIMATED AT $ .
(3) THE COMPANY HAS GRANTED TO THE UNDERWRITERS A 30-DAY OPTION TO PURCHASE UP
TO 1,125,000 ADDITIONAL SHARES OF COMMON STOCK SOLELY TO COVER
OVER-ALLOTMENTS, IF ANY. IF THE UNDERWRITERS EXERCISE THIS OPTION IN FULL,
THE PRICE TO PUBLIC WILL TOTAL $ , THE UNDERWRITING DISCOUNT WILL
TOTAL $ AND THE PROCEEDS TO COMPANY WILL TOTAL $ . SEE
"UNDERWRITING."
THE SHARES OF COMMON STOCK ARE OFFERED BY THE SEVERAL UNDERWRITERS NAMED
HEREIN SUBJECT TO RECEIPT AND ACCEPTANCE BY THEM AND SUBJECT TO THEIR RIGHT TO
REJECT ANY ORDER IN WHOLE OR IN PART. IT IS EXPECTED THAT DELIVERY OF THE
CERTIFICATES REPRESENTING SUCH SHARES WILL BE MADE AGAINST PAYMENT THEREFOR AT
THE OFFICE OF MONTGOMERY SECURITIES ON OR ABOUT , 1996.
-------------------
MONTGOMERY SECURITIES
MERRILL LYNCH & CO.
DEUTSCHE MORGAN GRENFELL
, 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 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
4
<PAGE>
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 these
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 COMMON STOCK OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company.......... 7,500,000 shares
Common Stock outstanding after the
offering.................................... 37,586,498 shares (1)
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 the acquisition of additional spectrum
rights and, potentially, related businesses.
Nasdaq National Market symbol................ ARTT
</TABLE>
- ------------------------------
(1) Assumes completion of the Merger and the Conversion. Excludes (i) 877,136
shares of Common Stock subject to the Ameritech Warrant (as defined), (ii)
1,100,000 shares of Common Stock subject to the Bridge Warrants (as
defined), (iii) 325,000 shares of Common Stock subject to the Indemnity
Warrants (as defined), (iv) 1,664,732 shares of Common Stock subject to
outstanding options under the Equity Incentive Plan (as defined), (v) 28,000
shares of Common Stock anticipated to be subject to outstanding options
under the Directors Plan (as defined) upon consummation of the Offerings,
(vi) 50,000 shares subject to the CommcoCCC Warrants (as defined) and (vii)
16,500,000 shares issuable upon the consummation of the CommcoCCC
Acquisition (as defined). As of June 28, 1996, an additional 835,268 shares
of Common Stock were available for issuance under the Equity Incentive Plan.
As of the date of this Prospectus, an additional 172,000 shares of Common
Stock were available for issuance under the Directors Plan. See "Certain
Transactions" and "Management -- Stock Option Plans." In addition, does not
give effect to the exercise of (i) the over-allotment option granted to the
Underwriters by the Company in the Common Stock Offering and (ii) the
Warrants. See "Underwriting."
CONCURRENT OFFERING
Concurrently with the Common Stock Offering, the Company is offering,
pursuant to a separate prospectus, Units, each consisting of $1,000 principal
amount at maturity of Notes and
Warrants to purchase shares of Common Stock of the Company, sufficient to
generate gross proceeds of $175,000,000 (the "Unit Offering" and, together with
the Common Stock Offering, the "Offerings"). The Warrants, when exercised, would
entitle the holders thereof to purchase shares of Common Stock representing %
of the Common Stock of the Company on a fully diluted basis after giving effect
to the Offerings. The Common Stock Offering is conditioned upon the consummation
of the Unit Offering. See "Description of Certain Indebtedness."
RISK FACTORS
An investment in the Common Stock offered hereby involves a high degree of
risk. See "Risk Factors" beginning on page 9 for a discussion of certain factors
which should be considered by prospective investors in evaluating an investment
in the Common Stock.
6
<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
DECEMBER 31, 1995 AS OF MARCH 31, 1996
------------------ --------------------------------------------------
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 (as
defined) and Indemnity Warrants 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 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
7
<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 (as defined). 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 above noted 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.
8
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, THE
FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING AN
INVESTMENT IN THE COMMON STOCK OFFERED HEREBY.
BUSINESS AND REGULATORY RISKS
LIMITED OPERATIONS; HISTORY OF NET LOSSES
Although the Company's business commenced in 1993, the Company has generated
only nominal revenues from operations to date. The Company's primary activities
have focused on the acquisition of wireless authorizations, the hiring of
management and other key personnel, the raising of capital, the acquisition of
equipment and the development of operating systems. 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
9
<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
10
<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
11
<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
12
<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.
13
<PAGE>
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 remaining 35 of which are managed by the Company through the
Company's interests in or arrangements with other companies. Under the current
FCC rules, the recipient of 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 CommcoCCC 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.
14
<PAGE>
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.
15
<PAGE>
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."
16
<PAGE>
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.
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.
17
<PAGE>
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 Certain Indebtedness -- The
Notes" and "-- 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.
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 Certain Indebtedness -- The
Notes."
LEGAL AND TRADING RISKS
ABSENCE OF PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Common Stock Offering, there has been no public market for the
Company's Common Stock. While the Common Stock 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 initial public offering
price will be determined solely by negotiations between the Company and the
Representatives. See "Underwriting" for a discussion of the factors to be
considered in determining the initial public offering price. The Company
believes that factors, such as (i) announcements of developments related to the
Company's business, (ii) announcements of new services by the Company or its
competitors, (iii) developments in the Company's relationships with its
18
<PAGE>
suppliers or customers, (iv) fluctuations in the Company's results of
operations, (v) a shortfall in revenues or earnings compared to analysts'
expectations and changes in analysts' recommendations or projections, (vi) sales
of substantial amounts of securities of the Company into the marketplace, (vii)
regulatory developments affecting the telecommunications industry or 38 GHz
services or (viii) general conditions in the telecommunications industry or the
worldwide economy, could cause the price of the Common Stock to fluctuate,
perhaps substantially.
CONTROL BY MANAGEMENT AND PRINCIPAL STOCKHOLDERS
Upon consummation of the 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
CommoCCC, 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 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 Certain Indebtedness --
The Notes."
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 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."
19
<PAGE>
DILUTION
Purchasers of shares of Common Stock in the Common Stock Offering will
experience immediate dilution of $7.19 in net tangible book value per share,
assuming an initial public offering price of $9.00 per share. To the extent
outstanding options and warrants (including the Warrants issued in the Unit
Offering) are exercised, there will be further dilution. Assuming the issuance
of 16,500,000 shares of Common Stock in connection with the CommcoCCC
Acquisition as of the date of this Prospectus, the purchasers of shares of
Common Stock in the Common Stock Offering will experience immediate dilution of
$8.73 in net tangible book value per share. See "Dilution."
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. See "Shares Eligible For Future Sale."
20
<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.
21
<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 $175.0 million 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 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 Certain Indebtedness --
The Notes."
22
<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 concurrently (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 both as 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.
23
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of March 31, 1996
was $5,673,585, or $0.19 per share of Common Stock, after giving effect to the
Equipment Financing, the Conversion, the CommcoCCC Financing, the Merger
(including the issuance of Common Stock to Telecom's stockholders and
cancellation of all Telecom common stock) and the issuance of the Units in the
Unit Offering and the use of the net proceeds therefrom for the repayment of
certain indebtedness and completion of certain pending acquisitions of spectrum
rights. "Pro forma net tangible book value per share" represents the amount of
the Company's total tangible assets comprised of cash and cash equivalents,
other current assets, net property and equipment, and equipment and other
deposits, less total liabilities (net of deferred finance costs) divided by the
pro forma number of shares of Common Stock outstanding. Without taking into
account any other changes in the net tangible book value after March 31, 1996,
other than to give effect to the receipt by the Company of net proceeds of
approximately $62.4 million from the sale of 7,500,000 shares of Common Stock
offered by the Common Stock Offering based on an assumed initial public offering
price of $9.00 per share, after deducting the estimated underwriting discount
and offering expenses, the pro forma net tangible book value of the Company as
of March 31, 1996 would have been approximately $68.0 million, or $1.81 per
share of Common Stock. This represents an immediate increase in pro forma net
tangible book value of $1.62 per share to existing stockholders and an immediate
dilution of $7.19 per share to new investors. The following table illustrates
this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................... $ 9.00
Pro forma net tangible book value per share as of March 31, 1996
before giving effect to the Common Stock Offering.............. $ 0.19
Increase in pro forma net tangible book value per share
attributable to new investors.................................. 1.62
---------
Pro forma net tangible book value per share as of March 31, 1996,
as adjusted for the Common Stock Offering........................ 1.81
---------
Dilution in pro forma net tangible book value per share to new
investors........................................................ $ 7.19
---------
---------
</TABLE>
The following table summarizes, as of March 31, 1996, after giving effect to
the Offerings, the number of shares of Common Stock purchased from the Company,
the total consideration paid to the Company and the average price per share paid
by the existing stockholders and by new investors purchasing Common Stock in the
Common Stock Offering. In the Common Stock Offering, based on an assumed initial
public offering price of $9.00 per share before deducting the estimated
underwriting discount and offering expenses, the number of shares of Common
Stock purchased from the Company is 7,500,000, the total consideration paid to
the Company is $67,500,000, the average price per share paid by the existing
stockholders is $0.32 and the price per share paid by new investors is $9.00.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------------ --------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------- --------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.............. 30,086,498 80.0% $ 9,622,156 12.5% $ 0.32
New investors...................... 7,500,000 20.0 67,500,000 87.5 9.00
------------- --------- -------------- -----------
Total.......................... 37,586,498 100.0% $ 77,122,156 100.0%
------------- --------- -------------- -----------
------------- --------- -------------- -----------
</TABLE>
The foregoing computations do not give effect to the exercise of any of the
following as of March 31, 1996: (i) 877,136 shares of Common Stock subject to
the Ameritech Warrant; (ii) 1,100,000 shares of Common Stock subject to the
Bridge Warrants; (iii) 325,000 shares of Common Stock subject to the Indemnity
Warrants; (iv) 50,000 shares of Common Stock subject to the CommcoCCC Warrants;
(v) 1,664,732 shares of Common Stock subject to outstanding options under the
Equity Incentive Plan; and (vi) 28,000 shares of Common Stock anticipated to be
subject to outstanding options under the Directors Plan upon the date of the
Offerings. As of June 28, 1996, an additional 835,268 shares of Common Stock
were available for issuance under the Equity Incentive Plan and an additional
172,000 shares of Common Stock were available for issuance under the Directors
Plan. See "Certain Transactions" and "Management -- Stock Option Plans." The
computations also do not give effect to the issuance of 16,500,000 shares of
Common Stock in connection with the CommcoCCC Acquisition which, at an assumed
value of $9.00 per share, would result in a decrease in the pro forma net
tangible book value of $53.5 million or $1.54 per share. In addition, the above
does not give effect to the exercise of (i) the over-allotment option granted to
the Underwriters by the Company in the Common Stock Offering and (ii) the
Warrants. See "Underwriting." To the extent that any outstanding options or
warrants are exercised, there will be further dilution to new investors. See
"Risk Factors -- Dilution."
24
<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 PRO FORMA AS
COMBINED (1) PRO FORMA (2) ADJUSTED (3) COMBINED (1) PRO FORMA (2) ADJUSTED (3)
------------- ------------- --------------- ------------- ------------- ---------------
<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 (4)............... -- $ 0.16 $ 0.55 -- $ 0.35 $ 0.31
Pro forma weighted average
number of shares of Common
Stock outstanding (4).......... -- 31,651,605 55,651,605 -- 31,651,605 55,651,605
OTHER FINANCIAL DATA:
EBITDA (5)...................... $ (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
DECEMBER 31,
1995 AS OF MARCH 31, 1996
------------- --------------------------------------------------
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>
25
<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:
Capital expenditures...... $ -- $ 5,175 $ -- $ -- $ --
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF 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>
26
<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:
Capital expenditures......................................................... $ 3,585,144 $ 2,861,241
<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."
(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.
27
<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,
28
<PAGE>
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 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 application 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."
29
<PAGE>
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.
30
<PAGE>
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
31
<PAGE>
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 authorizations 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 Authorizations -- 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
32
<PAGE>
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.
33
<PAGE>
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
34
<PAGE>
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.
35
<PAGE>
- 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.
36
<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
37
<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
Communications, 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
38
<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:
39
<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]
40
<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]
41
<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]
42
<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]
43
<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]
44
<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
45
<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 TO
MARKET OWNED MANAGED (1) ACQUIRE TOTAL
- ----------------------------------------- ----------- --------------- ------------- -----
<S> <C> <C> <C> <C>
300 MHZ OR MORE MARKETS
New York, NY 300 -- -- 300
Washington, D.C. 300 -- -- 300
Boston, MA 200 -- 100 300
Baltimore, MD 200 100 -- 300
Cincinnati, OH 100 -- 200 300
Portland, OR -- 100 200 300
Norfolk/Virginia Beach, VA -- 100 300 400
Columbus, OH -- 100 200 300
Providence, RI/Fall River, MA 200 -- 200 400
Memphis, TN 100 -- 200 300
Oklahoma City, OK -- 100 200 300
Birmingham, AL 100 -- 200 300
Buffalo/Niagara Falls, NY 300 -- 100 400
Dayton/Springfield, OH 100 100 100 300
Richmond/Petersburg, VA 100 -- 200 300
Rochester, NY 300 -- 200 500
Hartford, CT 200 100 200 500
Albany/Schenectady, NY 300 -- 200 500
Knoxville, TN 100 -- 200 300
New Haven/Waterbury, CT 200 -- 100 300
Syracuse, NY 200 -- 100 300
Harrisburg, PA 200 -- 100 300
Scranton/Wilkes-Barre, PA 300 -- 100 400
Springfield/Holyoke, MA 200 -- 200 400
Jackson, MS 100 -- 200 300
Shreveport, LA 100 -- 200 300
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
BANDWIDTH COVERED BY AUTHORIZATIONS (MHZ)
--------------------------------------------------------
UNDER
DEFINITIVE
AGREEMENT TO
MARKET OWNED MANAGED (1) ACQUIRE TOTAL
- ----------------------------------------- ----------- --------------- ------------- -----
<S> <C> <C> <C> <C>
200 MHZ MARKETS
Philadelphia, PA/Trenton, NJ 200 -- -- 200
Miami/Fort Lauderdale, FL 100 -- 100 200
Cleveland/Akron, OH 100 -- 100 200
Seattle/Tacoma, WA -- 100 100 200
St. Louis, MO 100 -- 100 200
Pittsburgh, PA 200 -- -- 200
Charlotte/Gastonia, NC -- -- 200 200
Nashville, TN 100 -- 100 200
Indianapolis, IN 100 -- 100 200
Louisville, KY 100 -- 100 200
Greensboro/Winston-Salem, NC -- 100 100 200
Las Vegas, NV -- 100 100 200
Austin, TX -- 100 100 200
Grand Rapids, MI -- 100 100 200
Omaha, NE -- -- 200 200
Honolulu, HI -- 100 100 200
Albuquerque, NM -- 100 100 200
Des Moines, IA 100 -- 100 200
Tucson, AZ -- 100 100 200
El Paso, TX -- -- 200 200
Worcester, MA 200 -- -- 200
Allentown/Bethlehem, PA 200 -- -- 200
Baton Rouge, LA 100 -- 100 200
Charleston, SC 100 100 -- 200
Mobile, AL 100 100 -- 200
100 MHZ MARKETS
Chicago, IL 100 -- -- 100
Detroit, MI -- -- 100 100
Dallas/Fort Worth, TX 100 -- -- 100
Houston, TX 100 -- -- 100
Atlanta, GA 100 -- -- 100
Minneapolis, MN 100 -- -- 100
Phoenix, AZ -- 100 -- 100
San Diego, CA -- 100 -- 100
Tampa-St. Petersburg, FL -- -- 100 100
Denver, CO -- 100 -- 100
Kansas City, MO 100 -- -- 100
Sacramento, CA -- 100 -- 100
Milwaukee, WI -- -- 100 100
San Antonio, TX 100 -- -- 100
Salt Lake City, UT -- 100 -- 100
Orlando, FL -- -- 100 100
New Orleans, LA 100 -- -- 100
Raleigh-Durham, NC -- -- 100 100
Little Rock, AR -- -- 100 100
Tulsa, OK -- -- 100 100
Greenville/Spartanburg, SC -- -- 100 100
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
BANDWIDTH COVERED BY AUTHORIZATIONS (MHZ)
--------------------------------------------------------
UNDER
DEFINITIVE
AGREEMENT TO
MARKET OWNED MANAGED (1) ACQUIRE TOTAL
- ----------------------------------------- ----------- --------------- ------------- -----
<S> <C> <C> <C> <C>
Toledo, OH -- -- 100 100
Spokane, WA -- 100 -- 100
Kingsport, TN/Bristol, VA -- -- 100 100
Fort Wayne, IN -- -- 100 100
Madison, WI 100 -- -- 100
Wichita, KS 100 -- -- 100
Springfield, MO -- -- 100 100
Sarasota/Bradenton, FL -- -- 100 100
Corpus Christi, TX -- -- 100 100
Chattanooga, TN -- -- 100 100
</TABLE>
- ------------------------------
(1) Includes authorizations (i) held by ART West, (ii) managed by ART under the
DCT services agreement and (iii) managed under the Telecom One services
agreement pursuant to a revenue-sharing arrangement. Does not include
authorizations included in the CommcoCCC Assets which are managed by the
Company on a short-term basis, pending the CommcoCCC Acquisition. The
Company recently has entered into definitive agreements to acquire all
outstanding interests in the authorizations held by ART West, DCT and
Telecom One. See "Business -- Agreements Relating to Licenses and
Authorizations."
In addition to the above authorizations, the Company has 71 applications
pending before the FCC for additional authorizations. However, due to the
"freeze" imposed by the 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.
48
<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
49
<PAGE>
purchased. The purchase price is payable in cash or, if the Commco Option is
exercised within the later of 120 days after the closing of the CommcoCCC
Acquisition or the date of grant by the FCC of the authorizations necessary to
exercise the Commco Option, with a two-year note secured by shares of Common
Stock having a value on the date of exercise 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
50
<PAGE>
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."
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
51
<PAGE>
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 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
52
<PAGE>
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 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
53
<PAGE>
areas which encompass or overlap the Company's market areas. In certain of the
Company's market areas, other 38 GHz service providers may have a longer history
of operations, a larger geographic footprint or substantially greater financial
resources than the Company. WinStar commenced its 38 GHz operations
approximately one year prior to the Company, has raised significant capital and
has the competitive advantages inherent in being the first to market 38 GHz
services. In addition to WinStar and BizTel, at least one other substantial
entity, Milliwave, L.P. ("Milliwave"), and several dozen smaller ones have been
granted 38 GHz authorizations in geographic regions in which the Company plans
to operate. Winstar has recently entered into a definitive agreement with
Milliwave to acquire Milliwave's 38 GHz licenses, subject to FCC approval, and
has agreed to manage such licenses pending the consummation of such acquisition.
Due to the relative ease and speed of deployment of 38 GHz technology, the
Company could face intense price competition and competition for customers
(including other telecommunications service providers) from other 38 GHz service
providers.
The Company also faces potential competition from new entrants to the 38 GHz
market, including LECs and other leading telecommunications companies. The NPRM
contemplates an auction of certain spectrum assets, including the lower fourteen
proposed 100 MHz channels (which are similar to those used by the Company) and
four proposed 50 MHz channels in the 38 GHz spectrum band, which have not been
previously available for commercial use. See "Risk Factors -- Government
Regulation." The grant of additional authorizations by the FCC in the 38 GHz
band, or other portions of the spectrum with similar characteristics, could
result in increased competition. The Company believes that, assuming that
additional channels are made available as proposed by the NPRM, additional
entities having greater resources than the Company could acquire authorizations
to provide 38 GHz services.
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.
54
<PAGE>
The Company may also face competition from cable television operators
deploying cable modems, which provide high speed data capability over installed
coaxial cable television networks. Although cable modems are not widely
available currently, the Company believes that the cable industry may support
the deployment of cable modems to residential cable customers through methods
such as price subsidies. Notwithstanding the cable industry's interest in rapid
deployment of cable modems, the Company believes that in order to provide
broadband capacity to a significant number of business and government users
cable operators will be required to spend significant time and capital in order
to upgrade their existing networks to the next generation of hybrid fiber
coaxial network architecture. However, there can be no assurance that cable
television operators will not emerge as a source of competition to the Company.
The Company may also face competition from electric utilities, LECs
operating outside their current local service areas, IXCs and other providers.
These entities provide transmission services using technologies which may enjoy
a greater degree of market acceptance than 38 GHz wireless broadband technology
in the provision of last mile broadband services. In addition, the Company may
face competition from new market entrants using wireless, fiber optic and
enhanced copper based networks to provide local service 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
55
<PAGE>
"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 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
56
<PAGE>
policies or what modifications, if any, may need to be made to satisfy those
policies. If the FCC were to void or require modifications of the management
arrangements, the Company's operating results would be adversely affected.
FCC REPORTING. The Company, as an operator of millimeter wave radio
facilities, 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
57
<PAGE>
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.
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.
58
<PAGE>
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.
59
<PAGE>
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 Omni TRACS network.
Over the last ten years, Mr. Fotheringham has advised several businesses in the
telecommunications industry, including American Mobile Satellite Corporation,
ClairCom Communications ("ClairCom") and McCaw Cellular Communications, Inc.
STEVEN D. COMRIE has served as President, Chief Operating Officer and a
director of the Company since July 1995. From 1992 to 1995, Mr. Comrie served as
vice president and general manager of
60
<PAGE>
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-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:
61
<PAGE>
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 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.
62
<PAGE>
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 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 Commco CCC 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.
63
<PAGE>
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 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.
64
<PAGE>
OPTION GRANTS. The following table sets forth certain information
regarding stock option grants made to the Named Executive Officers in fiscal
year 1995.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS (2) POTENTIAL REALIZABLE
---------------------------------------------------- VALUE AT ASSUMED ANNUAL
NUMBER OF PERCENT OF RATES OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR OPTION
UNDERLYING GRANTED TO EXERCISE TERM (1)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION ------------------------
NAME GRANTED FISCAL YEAR SHARE DATE 5% 10%
- -------------------------------- ------------ --------------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Steven D. Comrie 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 above. A
total of 2,500,000 shares of common stock are reserved for issuance under the
Equity Incentive
65
<PAGE>
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 dividend equivalents with respect to the shares
subject to the award.
The Equity Incentive Plan is administered by the Option Committee of the
Board of Directors (the
"Option Committee"). The Option Committee shall consist of at least two
directors. If the Common Stock is registered under the Securities Exchange Act
of 1934, all members of the Option Committee shall be "outside directors" as
defiined. All employees of the Company and any of its subsidiaries and other
persons or entities (including non-employee directors of the Company and its
subsidiaries) who, in the opinion of the Option Committee, are in a position to
make a significant contribution to the success of the Company or its
subsidiaries are eligible to participate in the Equity Incentive Plan.
STOCK OPTIONS. The exercise price of an ISO granted under the Equity
Incentive Plan may not be less than 100% (110% in the case of 10% shareholders)
of the fair market value of the Common Stock at the time of grant. The exercise
price of a nonstatutory option granted under the Equity Incentive Plan is
determined by the Option Committee. The term of each option may be set by the
Option Committee but cannot exceed ten years from grant (five years from grant
in the case of an incentive stock option granted to a 10% shareholder), and each
option will be exercisable at such time or times as the Option Committee
specifies. The option price may be paid in cash or check acceptable to the
Company or, if permitted by the Option Committee and subject to certain
additional limitations, by tendering shares of Common Stock, by using a
promissory note, by delivering to the Company an unconditional and irrevocable
undertaking by a broker promptly to deliver sufficient funds to pay the exercise
price, or a combination of the foregoing.
STOCK APPRECIATION RIGHTS. SARs may be granted either alone or in tandem
with stock option grants. Each SAR entitles the participant, in general, to
receive upon exercise the excess of a share's fair market value in cash or
common stock at the date of exercise over the share's fair market value on the
date the SAR was granted. The Option Committee may also grant SARs which provide
that following a change in control of the Company as determined by the Option
Committee, the holder of such right will be entitled to receive an amount
measured by specified values or averages of values prior to the change in
control. If an SAR is granted in tandem with an option, the SAR will be
exercisable only to the extent the option is exercisable. To the extent the
option is exercised, the accompanying SAR will cease to be exercisable, and vice
versa. An SAR granted in tandem with an ISO may be exercised only when the
market price of common stock subject to the option exceeds the exercise price of
such option. SARs not granted in tandem shall be exercisable at such time, and
on such conditions, as the Option Committee may specify.
STOCK AWARDS. The Equity Incentive Plan provides for awards of
nontransferable shares of restricted Common Stock subject to forfeiture as well
as of unrestricted shares of Common Stock. Awards may provide for acquisition of
restricted and unrestricted Common Stock for a purchase price specified by the
Option Committee, but in no event less than par value. Restricted Common Stock
is subject to repurchase by the Company at the original purchase price or to
forfeiture if no cash was paid by the participant if the participant ceases to
be an employee before the restrictions lapse. Other awards under the Equity
Incentive Plan may also be settled with restricted Common Stock. Restricted
securities shall become freely transferable upon the completion of the
Restricted Period including the passage of any applicable period of time and
satisfaction of any conditions to vesting. The Option Committee, in its sole
discretion, may waive all or part of the restrictions and conditions at any
time.
The Equity Incentive Plan also provides for deferred grants entitling the
recipient to receive shares of Common Stock in the future at such times and on
such conditions as the Option Committee may
66
<PAGE>
specify, and performance awards entitling the recipient to receive cash or
Common Stock following the attainment of performance goals determined by the
Option Committee. Performance conditions and provisions for deferred stock may
also be attached to other awards under the Equity Incentive Plan.
A loan may be made under the Equity Incentive Plan either in connection with
the purchase of Common Stock under an award or with the payment of any federal,
state and local tax with respect to income recognized as a result of an award.
The Option Committee will determine the terms of any loan, including the
interest rate (which may be zero). No loan may have a term exceeding ten years
in duration. In connection with any award, the Option Committee may also provide
for and grant a cash award to offset federal, state and local income taxes or to
make a participant whole for certain taxes.
Except as otherwise provided by the Option Committee, if a participant dies,
options and SARs held by such participant immediately prior to death, to the
extent then exercisable, may be exercised by the participant's executor,
administrator or transferee during a period of one year following such death (or
for the remainder of their original term, if less). Except as otherwise
determined by the Option Committee, options and SARs not exercisable at a
participant's death terminate. Outstanding awards of restricted Common Stock
must be transferred to the Company upon a participant's death and, similarly,
deferred Common Stock grants, performance awards and supplemental awards to
which a participant was not irrevocably entitled prior to death will be
forfeited, except as otherwise determined by the Option Committee.
In the case of termination of a participant's association with the Company
for reasons other than death, options and SARs remain exercisable, to the extent
they were exercisable immediately prior to termination, for three months (or for
the remainder of their original term, if less), shares of restricted Common
Stock must be resold to the Company, and other awards to which the participant
was not irrevocably entitled prior to termination will be forfeited, unless
otherwise determined by the Option Committee. If any such association is
terminated due to the participant's discharge for cause which, in the opinion of
the Option Committee, casts such discredit on the participant as to justify
immediate termination of any award under the Equity Incentive Plan, such
participant's options and SARs may be terminated immediately.
In the event of a consolidation or merger in which the Company is not the
surviving corporation or which results in the acquisition of substantially all
of the Company's outstanding Common Stock by a single person or entity or by a
group of persons and/or entities acting in concert or in the event of the sale
or transfer of substantially all of the Company's assets, the Option Committee
may determine that (i) each outstanding option and SAR will become immediately
exercisable unless otherwise provided at the time of grant, (ii) each
outstanding share of restricted Common Stock will immediately become free of all
restrictions and conditions, (iii) all conditions on deferred grants,
performance awards and supplemental grants which relate only to the passage of
time and continued employment will be removed and (iv) all loans under the
Equity Incentive Plan will be forgiven. The Committee may also arrange to have
the surviving or acquiring corporation or affiliate assume any award held by a
participant or grant a replacement award. If the optionee is terminated after a
change in control by the Company without cause, or in the case of certain
officers designated from time to time by the Option Committee resigns under
certain circumstances, within two years following the change in control, all
unvested options will vest and all options will be exercisable for the shorter
of four years or their original duration and all other awards will vest. If the
option committee makes no such determination, outstanding awards to the extent
not fully vested will be forfeited.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES. The following discussion, which is
based on the law as in effect on 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
67
<PAGE>
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
68
<PAGE>
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
69
<PAGE>
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."
70
<PAGE>
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
(1)(2)(4)(5)(7)(8)(9)(10)(11)(12)(13)(14)............... 20,276,045 65.6% 10,816,502(8)(15) 28.2%
</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.
71
<PAGE>
(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' over-allotment option 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.
72
<PAGE>
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
management and strategic consulting services to LHC, including services relating
to analysis and negotiation of acquisitions.
73
<PAGE>
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 to 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."
74
<PAGE>
ADVENT PRIVATE PLACEMENT. On November 13, 1995, ART sold, for an aggregate
of $5.0 million, $4.95 million principal amount of 10% notes due May 13, 1997
(the "Advent Notes") and $50,000 stated amount of ART Series A Preferred Stock
(collectively, with the Advent Notes, the "Advent/ART Securities") to Global
Private Equity II, L.P., Advent International Investors II, L.P. and Advent
Limited Partnership (collectively the "Advent Partnerships"), each a limited
partnership whose general partner is controlled by Advent International Corp.
("Advent") pursuant to a Securities Purchase Agreement, dated November 13, 1995,
among the Advent Partnerships, ART, Telecom, Vernon L. Fotheringham and W.
Theodore Pierson, Jr. (the "Advent Agreement"). The Advent Agreement provided
among other things that the Advent/ART Securities were convertible into, and in
the February 1996 Reorganization described below, were converted into, 232,826
shares of Telecom Series E preferred stock (which convert into 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
75
<PAGE>
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").
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
76
<PAGE>
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
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.
77
<PAGE>
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 Certain Indebtedness -- The Notes."
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
78
<PAGE>
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."
79
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
GENERAL
Upon consummation of the Common Stock Offering, the Company will have
outstanding 37,586,498 shares of Common Stock (assuming no exercise of the
Underwriters' over-allotment option and options or warrants after June 28,
1996). Of these shares, the 7,500,000 shares being sold in the Common Stock
Offering will be freely tradable without restriction under the Securities Act,
unless purchased by "affiliates" of the Company.
The remaining 30,086,498 shares of Common Stock held by existing
stockholders are "restricted" shares under the Securities Act (the "Restricted
Shares"), all of which are also subject to certain lock-up agreements between
certain stockholders and the Representatives (as defined). Beginning 90 days
after the date of this Prospectus, 10,013,055 shares will become available for
immediate sale to the public market subject to certain volume and other resale
restrictions pursuant to Rule 144 promulgated under the Securities Act, as
described below, unless such shares are registered. See "Registration Rights."
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. In addition, under a proposal currently pending before
the Securities and Exchange Commission, the date on which shares of Common Stock
become available for sale under Rule 144 may be significantly accelerated.
As of June 28, 1996, an aggregate of 4,044,868 shares of Common Stock will
be subject to outstanding options and warrants and an aggregate of 1,007,268
shares are reserved for future issuance pursuant to the Company's Equity
Incentive Plan and Directors Plan (collectively, the "Plans"). As of June 28,
1996, 639,302 of such shares were vested, and, 180 days following the date of
this Prospectus, an additional 59,109 of such shares will be vested. The Company
intends to file a Registration Statement on Form S-8 to register the shares of
Common Stock to be issued and issuable pursuant to the Plans. Thereafter, shares
of Common Stock issued under the Plans will be available for sale in the public
market upon vesting of such shares, subject, with respect to affiliates of the
Company, to certain volume limitations under Rule 144.
In general, under Rule 144 as currently in effect, beginning 90 days after
the Effective Date, a person (or persons whose shares are aggregated) who has
beneficially owned Restricted Shares for at least two years, will be entitled to
sell in any three-month period a number of shares that does not exceed the
greater of (i) 1% of the number of shares of Common Stock then outstanding
(approximately 375,865 shares immediately after the Common Stock Offering
assuming no exercise of the Underwriters' over-allotment option) and (ii) the
average weekly trading volume of the Company's Common Stock in the Nasdaq
National Market during the four calendar weeks immediately preceding the date on
which notice of the sale is filed with the Securities and Exchange Commission.
Sales pursuant to Rule 144 are subject to certain requirements relating to
manner of sale, notice and availability of current public information about the
Company. A person (or persons whose shares are aggregated) who is not deemed to
have been an affiliate of the Company at any time during the 90 days immediately
preceding the sale and who has beneficially owned Restricted Shares for at least
three years is entitled to sell such shares pursuant to Rule 144(k) without
regard to the limitations and requirements described above.
All holders of the Company's Common Stock, as well as all holders of
warrants or options to purchase Common Stock, have agreed not to sell, offer to
sell, contract to sell or otherwise sell, dispose of, loan, pledge or grant any
rights with respect to any shares of Common Stock, any options or warrants to
purchase Common Stock, or any securities convertible or exchangeable for Common
Stock, owned directly by such holders or with respect to which they have power
of disposition for a period of 180 days after the date of this Prospectus
without the prior written consent of Montgomery Securities. Montgomery
Securities may, in its sole discretion and at any time without notice, release
all or any portion of the securities subject to these lock-up agreements. In
addition, the Company has agreed not to sell, offer to sell, contract to sell or
otherwise sell or dispose of any shares of Common Stock or any rights to acquire
80
<PAGE>
Common Stock, other than pursuant to the Restated Equity Incentive Plan, upon
exercise of outstanding warrants and options or pursuant to the CommcoCCC
Agreement for a period of 180 days after the date of this Prospectus without the
prior consent of Montgomery Securities. See "Underwriting."
Prior to the Common Stock Offering, there has been no public market for the
Common Stock and there can be no assurance that a significant public market for
the Common Stock will develop or be sustained after the Common Stock Offering.
Sales of substantial amounts of Common Stock in the public market could
adversely affect the market price of the Common Stock and could impair the
Company's future ability to raise capital through the sale of its equity
securities.
REGISTRATION RIGHTS
Under the terms of an amended and restated registration rights agreement,
dated as of July 3, 1996, among the Company, Telecom, their respective
stockholders and the holders of the Bridge Warrants, Indemnity Warrants and
CommcoCCC Warrants (as amended, the "Registration Rights Agreement"), following
the consummation of the Offerings, such stockholders and the holders of the
Bridge Warrants, Indemnity Warrants and CommcoCCC Warrants, who are the holders
of an aggregate 31,561,498 shares of Common Stock on a fully-diluted basis (the
"Registrable Securities"), will be entitled to certain demand rights with
respect to the registration of such shares under the Securities Act. In
addition, under the Registration Rights Agreement, if the Company proposes to
register any of its securities under the Securities Act, either for its own
account or the account of other security holders, the holders of Registrable
Securities are entitled to notice of such registration and are entitled to
include their Registrable Securities in any such registration; PROVIDED, that,
among other things, that the underwriters have the right, subject to certain
limitations, to limit the number of such shares included therein.
Upon the consummation of the CommcoCCC Acquisition, the 16,500,000 shares to
be issued in connection therewith will also be subject to the Registration
Rights Agreement.
81
<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS
THE NOTES
Concurrently with the Common Stock Offering, the Company is offering,
pursuant to a separate prospectus, Units, each consisting of $1,000
principal amount at maturity of the Notes and Warrants to purchase shares
of Common Stock of the Company, sufficient to generate gross proceeds of
$175,000,000 in the Unit Offering. The Warrants, when exercised, would entitle
the holders thereof to purchase shares of Common Stock representing 5% of the
Common Stock of the Company on a fully diluted basis after giving effect to the
Offerings. The Common Stock Offering is conditioned upon the successful
consummation of the Unit Offering. The yield-to-maturity of the Notes will be
% (computed on a semiannual bond basis) calculated from , 1996.
Cash interest will not accrue on the Notes prior to , 2001,
however the principal amount of the Notes will accrete from the original
principal amount at issuance at a rate of % per annum until ,
2001. Thereafter, cash interest will accrue at a rate of % per annum, payable
semiannually in arrears. The Notes will be redeemable at the option of the
Company on or after , 2001, and the holders of the Notes will have
the right to require the Company to repurchase all or part of such holders'
Notes in the event of certain events involving a change of control with respect
to, or certain sales of assets by, the Company and its subsidiaries.
Subject to certain exceptions and qualifications, the Indenture will, among
other things, restrict the ability of the Company and its subsidiaries to (i)
incur indebtedness, (ii) pay dividends and 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 businesses other than those permitted by the Indenture or
(vi) sell certain assets. In addition, the Indenture will limit the ability of
the Company to consolidate, merge or sell all or substantially all of its
assets.
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
82
<PAGE>
of the Company, including a pledge of the Company's stock in Telecom. See
"Certain Transactions -- CommcoCCC Acquisition." The CommcoCCC Notes are
subordinated in right of payment to the EMI and the Bridge Notes and will be
repaid with proceeds from the 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, or merging and will limit investments and assets 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 dependent 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.
83
<PAGE>
UNDERWRITING
The underwriters named below (the "Underwriters"), represented by Montgomery
Securities, Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch")
and Deutsche Morgan Grenfell/C. J. Lawrence Inc. (together, the
"Representatives"), have severally agreed, subject to the terms and conditions
set forth in the Underwriting Agreement, to purchase from the Company the number
of shares of Common Stock indicated below opposite their respective names at the
initial public offering price less the underwriting discount set forth on the
cover page of this Prospectus. The Underwriting Agreement provides that the
obligations of the Underwriters are subject to certain terms and conditions
precedent and that the Underwriters are committed to purchase all of such
shares, if any are purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
---------
<S> <C>
Montgomery Securities............................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..........................................
Deutsche Morgan Grenfell/C. J. Lawrence Inc......................
---------
Total.............................................. 7,500,000
---------
---------
</TABLE>
The Representatives have advised the Company that the Underwriters initially
propose to offer the Common Stock to the public on the terms set forth on the
cover page of this Prospectus. The Underwriters may allow to selected dealers a
concession of not more than $ per share, and the Underwriters may allow,
and any such dealers may reallow, a concession of not more than $ per
share to certain other dealers. After the initial public offering, the price and
concessions and reallowances to dealers may be changed by the Representatives.
The Common Stock is offered subject to receipt and acceptance by the
Underwriters and to certain other conditions, including the right to reject
orders in whole or in part.
The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a maximum
of 1,125,000 additional shares of Common Stock to cover over-allotments, if any,
at the same price per share as the initial 7,500,000 shares to be purchased by
the Underwriters. To the extent the Underwriters exercise this option, each of
the Underwriters will be committed, subject to certain conditions, to purchase
such additional shares in approximately the same proportion as set forth in the
above table.
The Underwriting Agreement contains certain covenants of indemnity among the
Underwriters and the Company against certain civil liabilities, including
liability under the Securities Act of 1933, as amended (the "Securities Act").
Concurrently with the Common Stock Offering, the Company is offering,
pursuant to a separate prospectus, Units in the Unit Offering. Montgomery
Securities and Merrill Lynch are acting as underwriters in the Unit 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.
All holders of the Company's Common Stock prior to this offering, as well as
all holders of options, warrants or other rights to purchase Common Stock, have
agreed not to sell, offer to sell, contract to sell or otherwise sell, dispose
of, loan, pledge or grant any rights with respect to any shares of Common Stock,
any options or warrants to purchase Common Stock, or any securities convertible
or exchangeable for Common Stock, owned directly by such holders or with respect
to which they have power of disposition for a period of 180 days after the date
of this Prospectus without the prior written consent of Montgomery Securities.
Montgomery Securities may, in its sole discretion and at any time without
notice, release all or any portion of the securities subject to these lock-up
agreements. In addition, the
84
<PAGE>
Company has agreed not to sell, offer to sell, contract to sell or otherwise
sell or dispose of any shares of Common Stock or any rights to acquire Common
Stock, other than pursuant to the Equity Incentive Plan, upon exercise of
outstanding options and warrants or pursuant to the CommcoCCC Agreement, for a
period of 180 days after the Effective Date without the prior consent of
Montgomery Securities.
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority in excess of 5% of the number of shares of Common Stock offered
hereby.
Prior to the Common Stock Offering, there has been no public market for the
Common Stock of the Company. Consequently, the initial public offering price
will be determined through negotiations among the Company and the
Representatives. Among the factors to be considered in such negotiations will be
the history of, and prospects for, the Company and the industry in which it
competes, an assessment of the Company's management, the present state of the
Company's development, the prospects for future earnings of the Company, the
prevailing market conditions at the time of the Common Stock Offering, market
valuations of publicly traded companies that the Company and the Representatives
believe to be comparable to the Company, and other factors deemed relevant. See
"Risk Factors -- Absence of Public Market; Possible Volatility of Stock Price."
LEGAL MATTERS
The validity of the issuance of shares of Common Stock offered hereby will
be passed upon for the Company by Hahn & Hessen LLP, New York, New York. Certain
legal matters in connection with the Common Stock 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
85
<PAGE>
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.
86
<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 Telecommunication 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.
87
<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 intra-LATA calls can also be long distance calls.
INTERNET -- An array of interconnected networks using a common set of
protocols defining the information coding and processing requirements that can
communicate across hardware platforms and over many links now operated by a
consortium of telecommunications service providers and others.
ISP -- Internet service provider.
ITC (INDEPENDENT TELEPHONE COMPANY) -- A telephone company not associated or
formerly associated with the Bell Telephone system.
IXC (INTER-EXCHANGE CARRIERS) -- Usually referred to as long distance
providers. There are many facilities-based IXCs, including AT&T, MCI, WorldCom,
Sprint and Frontier.
KILOBIT -- One thousand bits of information. The information-carrying
capacity (i.e., bandwidth of a circuit may be measured in "kilobits per
second").
KBPS -- Kilobits per second.
LANS (LOCAL AREA NETWORKS) -- The interconnection of computers for the
purpose of sharing files, programs and various devices such as work stations,
printers and high-speed modems. LANs may include dedicated computers or file
servers that provide a centralized source of shared files and 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.
88
<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 30 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 communication ports, such as buildings in urban areas and hills in rural
areas.
RESELLERS -- Companies which purchase telecommunications services wholesale
from underlying carriers and resell them to end users at retail rates.
ROOF RIGHTS -- The legal right to locate, maintain and operate equipment
(most commonly transceivers) on the roofs of buildings, on special towers or
even on utility poles or pylons.
89
<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.
90
<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>
ADVANCED RADIO TELECOM CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
1. FORMATION OF THE COMPANY AND BASIS OF PRESENTATION:
THE COMPANY
Advanced Radio Telecom Corp. ("Telecom"), formerly named Advanced Radio
Technology Ltd., was incorporated in Delaware as a subsidiary of Advanced Radio
Technologies Corporation ("ART") on March 28, 1995, to develop, market and
deliver broadband telecommunication and information services throughout the
United States. The Company's business objective is to organize and finance local
operating facilities, establish strategic alliances with other businesses,
acquire new wireless telecommunications technologies, and market broadband
wireless services to telecommunications service providers and end users.
Telecom was organized by ART and Landover Holdings Corporation ("Landover")
with one of its initial objectives to acquire certain 38 GHz licenses in the
Northeastern United States from EMI Communications Corp. ("EMI") (see Note 4).
Under the terms of a purchase agreement between Telecom, Landover and ART dated
April 21, 1995 (the "Purchase Agreement"), Landover was obligated to purchase
$7.0 million of securities of Telecom. Pursuant to the Purchase Agreement and a
stockholders' agreement between Telecom, ART and their respective shareholders
dated May 8, 1995 (the "Stockholders' Agreement"), Telecom and ART will merge
once approval from the Federal Communications Commission (the "FCC") has been
granted. On February 2, 1996, Telecom and ART entered into a definitive merger
agreement (the "Merger Agreement") providing for a merger of Telecom and ART
(the "Merger"). (See Note 2).
INITIAL CAPITALIZATION
As its initial capitalization, Telecom issued 8,320,000 shares of Class B
common stock to Landover and 260,000 shares of Class A common stock to
consultants to Landover, for aggregate cash consideration of $1,020. Such shares
of Class B common stock and Class A common stock represented 64% and 2%,
respectively, of the total number of shares of capital stock of Telecom then
outstanding. Concurrently, Telecom issued 4,420,000 shares of Class A common
stock, representing 34% of the total number of shares of capital stock, to ART
for $340. The number of shares of Class A and Class B common stock issued at the
initial capitalization of Telecom shown above give effect to the 13 for 1 stock
split but are prior to the issuance of anti-dilutive shares (see Note 9). All
references to number of shares of common stock and per share amounts in the
accompanying financial statements and footnotes have been restated to reflect
the 13 for 1 stock split unless otherwise indicated.
Under the Purchase Agreement, Landover agreed to invest or cause to be
invested $7.0 million in Telecom and its affiliates (the "Landover Funding
Commitment"). In consideration for this $7.0 million investment, Telecom agreed
to issue serial preferred stock, the number of shares of which would be
designated by Landover.
BASIS OF PRESENTATION
The financial statements have been prepared on the going concern basis of
accounting, which contemplates realization of assets and liquidation of
liabilities in the ordinary course of business. Telecom has limited financial
resources, has incurred operating losses since inception and does not expect to
generate significant operating revenues until the commencement of its commercial
services, which is anticipated to occur in fiscal 1996. Telecom estimates that
revenues in 1996 will not be sufficient to fund its initial operating expenses
and other working capital needs, including consulting, service and purchase
commitments set forth in Notes 8 and 2. Telecom's funding of its initial
operating expenses, working capital needs and contractual commitments is
dependent upon its ability to raise additional
F-35
<PAGE>
ADVANCED RADIO TELECOM CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
1. FORMATION OF THE COMPANY AND BASIS OF PRESENTATION, CONTINUED:
financing. Telecom and ART have engaged various investment bankers to assist
them in raising financing through a public equity and debt offering of ART.
There can be no assurance that Telecom and ART will be successful in its effort
to raise additional financing through these offerings or, if available, that
Telecom and ART will be able to obtain it on acceptable terms. These conditions
raise substantial doubt about Telecom's ability to continue as a going concern.
The financial statements do not include any adjustments that might result from
the outcome of these uncertainties.
2. REORGANIZATION AND PENDING MERGER WITH ART:
A -- MERGER
Under the terms of the Purchase Agreement, Telecom and ART intend to operate
both companies as a single enterprise and were committed to merge if and when
permitted by the FCC. Concurrent with the Purchase Agreement, Telecom and ART
entered into an exclusive 20-year services agreement (the "Services Agreement")
for the construction, development and operation of systems in ART markets (see
Note 8).
On February 2, 1996, Telecom, ART and their respective shareholders agreed
to an amendment and restatement of the Stockholders' Agreement providing for (i)
termination effective on the closing of a public share offering; (ii) amendment
and restatement of the Certificate of Incorporation and reorganization of the
capital structure of Telecom (see Note 9); (iii) the exchange of the Advent
Notes and one share of ART Series A Redeemable Preferred Stock for Series E
preferred stock of Telecom (see Note 7); (iv) revision of provisions for
election of directors; (v) amendment and restatement of Telecom's registration
rights agreements; (vi) release of shares escrowed in connection with the
original Stockholders' Agreement (see Note 9); and (vii) approval of a
definitive agreement to merge ART and Telecom (the "Reorganization").
B -- AMENDED MERGER
The definitive merger agreement, as entered into on February 2, 1996 and
subsequently restated and amended on June 26, 1996, (the "Merger Agreement")
provides for the merger of a newly-formed wholly owned subsidiary of ART
("Merger Sub") into Telecom (the "Merger") subject to certain conditions,
including the receipt of FCC approval. Prior to the Merger, each outstanding
share of 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 ART. As a result, Telecom will become a wholly owned subsidiary
of ART. The Merger Agreement provides that if the Merger is not consummated by
May 13, 1997, the shares of Telecom's common stock owned by ART will be
surrendered to Telecom and the Services Agreement is to be revised to, among
other revisions, extend the term to 40 years and provide for a proportionate
participation by ART's stockholders in any dividends paid by Telecom or the
proceeds from any sale of Telecom. The Merger Agreement also provides for the
assignment of Telecom's interests in all of its agreements, including the
various services agreements, employment agreements, equipment purchase
agreements and purchase option agreements, to ART. Further, upon the Merger, the
holders of warrants to purchase an aggregate of 2,302,136 shares of Telecom
common stock will be entitled to purchase an equivalent number of shares of ART
Common Stock on the same terms. Employee stock options to purchase 1,664,732
shares of Telecom's common stock will be converted into similar stock options of
ART.
F-36
<PAGE>
ADVANCED RADIO TELECOM CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
3. SIGNIFICANT ACCOUNTING POLICIES:
DEVELOPMENT STAGE ENTERPRISE
Telecom is a development stage enterprise as defined in Statement of
Financial Accounting Standards No. 7, "Accounting and Reporting by Development
Stage Enterprises." The financial statements have been prepared on the going
concern basis of accounting.
CASH AND CASH EQUIVALENTS
Telecom considers all highly liquid investments purchased with remaining
maturities of three months or less to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation and amortization are
computed using the straight-line method over the estimated useful lives of the
related assets as follows: wireless transmission equipment - 5 years; office
furniture and equipment - 3 years.
FCC LICENSES
Telecom has obtained radio spectrum rights under FCC issued licenses
throughout the United States through the purchase of such rights held by others
and by petitioning the FCC directly. Such licenses are issued for an initial
term of six years and are renewable subject to review by the FCC. The costs
associated with the acquisition of such licenses are capitalized and amortized
on a straight-line basis over a 40-year period beginning upon commencement of
operations in the related market. The 40-year period is based upon management's
license renewal expectations.
RECOVERABILITY OF LONG-LIVED ASSETS
The recoverability of property and equipment and capitalized FCC
authorizations and licenses is dependent upon the successful development of
systems in each of the respective markets, or through sale of such assets.
Management estimates that it will recover the carrying amounts of those assets
from cash flow generated by the systems once they have been developed. However,
it is reasonably possible that such estimate will change as a result of the
failure to develop the FCC authorizations on a timely basis, technological,
regulatory or other changes.
Telecom's policy is to assess annually any impairment in value based upon a
comparison of projected operating cash flows from each market over its expected
period of operation, on an undiscounted basis, to the carrying amount of the
property and equipment, FCC licenses and other capitalized costs related to the
market.
FINANCING COSTS
Direct costs associated with obtaining equity financing are deferred and
charged to additional paid-in capital as the related funds are raised. Direct
costs associated with obtaining debt financing are deferred and amortized using
the effective interest rate method commencing when the related funds are raised.
Deferred costs associated with unsuccessful financings are charged to expense.
REVENUE RECOGNITION
Revenue from telecommunications services are recognized ratably over the
period such services are provided.
F-37
<PAGE>
ADVANCED RADIO TELECOM CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
3. SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
INCOME TAXES
Telecom accounts for income taxes under the liability method of accounting.
Under the liability method, deferred taxes are determined based on the
differences between the financial statement and tax bases of assets and
liabilities at enacted tax rates in effect in the year in which the differences
are expected to reverse. Valuation allowances are established, when necessary,
to reduce deferred tax assets to the amounts expected to be realized.
NET LOSS PER SHARE
Net loss per share of $0.19 is computed based on the loss for the period
from March 28, 1995 (date of inception) to December 31, 1995 divided by the
weighted average number of shares of common stock outstanding of 15,919,596.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CONCENTRATION OF CREDIT RISKS
Telecom places its temporary cash investments with major financial
institutions. At December 31, 1995, the Company's temporary cash investments are
principally placed in one entity. Other financial instruments which expose
Telecom to potential credit risk include the amount due from ART (Note 12) and
deposits on equipment (Note 8).
4. ACQUISITION OF ASSETS OF EMI:
On April 4, 1995, ART entered into a purchase option agreement with EMI to
acquire EMI's interest in certain 38 GHz radio spectrum licenses and related
assets in the Northeastern United States (the "EMI Assets") in exchange for $3.0
million in cash and a three year non-negotiable promissory note in the amount of
$1.5 million. Pursuant to the terms of the Purchase Agreement, in November 1995,
ART assigned its rights and obligations under the EMI purchase option agreement
to Telecom. The FCC subsequently approved the transfer of the EMI licenses and
Telecom directly purchased the EMI Assets in November 1995. The total purchase
price, including expenses, was allocated to the acquired assets as follows:
<TABLE>
<S> <C>
Property and equipment......................................... $ 297,150
FCC licenses................................................... 4,226,821
----------
$4,523,971
----------
----------
</TABLE>
The promissory note issued by Telecom, with a guarantee by ART, is payable
in quarterly installments of principal of $187,500 beginning January 1, 1997.
Interest is payable quarterly at a major commercial bank's prime rate plus 2.0%,
or 10.5% as of December 31, 1995.
On November 8, 1995 Landover advanced $175,000 to Telecom to fund a portion
of the initial payment to EMI. Telecom repaid such advance later in the same
month.
F-38
<PAGE>
ADVANCED RADIO TELECOM CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
5. PROPERTY AND EQUIPMENT:
PROPERTY AND EQUIPMENT COMPRISE:
<TABLE>
<S> <C>
Wireless transmission equipment................................ $3,496,905
Office furniture and equipment................................. 88,239
----------
3,585,144
Accumulated depreciation....................................... (5,306)
----------
$3,579,838
----------
----------
</TABLE>
As of December 31, 1995, excluding the property and equipment acquired from
EMI (Note 4), the wireless transmission equipment acquired to date has not been
placed into service.
6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES COMPRISE:
<TABLE>
<S> <C>
Accrued interest payable....................................... $ 20,712
Salaries and other employee related costs...................... 267,091
Trade accounts payable......................................... 496,104
Wireless transmission equipment payable........................ 2,666,630
----------
$3,450,537
----------
----------
</TABLE>
7. NOTE PAYABLE TO ART:
ART, Telecom and several entities referred to as the Advent Group
("Advent"), entered into a securities purchase agreement (the "Advent Purchase
Agreement") dated November 13, 1995 under which Advent agreed to acquire a 10%
interest in the combined entities of ART, Telecom and certain specified
affiliates. Pending the merger of these entities (see Note 2), ART issued
promissory notes (the "Advent Notes") with an aggregate principal amount of
$4,950,000 and one share of ART's Series A Redeemable Preferred Stock in
exchange for $5.0 million in cash.
The Advent Notes carried interest at a rate of 10% per annum and were
payable on demand at any time on or after May 13, 1997. The Advent Notes were
collateralized by certain assets of ART and Telecom. The Advent Notes were
convertible into that number of shares of preferred stock which represented in
the aggregate at least 10% of the fully diluted capital stock of the combined
entities described above, as defined in the Advent Purchase Agreement. The
Advent Notes were convertible either (i) immediately prior to an initial public
offering with aggregate gross proceeds of at least $10.0 million or (ii) at
Advent's election.
On November 13, 1995, the gross proceeds of $5.0 million received by ART
from Advent were transferred to Telecom in exchange for a note with terms
equivalent to the terms of the Advent Notes. In connection with the
Reorganization on February 2, 1996, ART, Telecom and Advent entered into an
exchange agreement under which the Advent Notes, including accrued interest, and
the one share of ART's Series A Redeemable Preferred Stock held by Advent were
exchanged for 232,826 shares of Series E preferred stock of Telecom, the note
was canceled, and Telecom became the owner of the one share of ART Series A
Redeemable Preferred Stock.
F-39
<PAGE>
ADVANCED RADIO TELECOM CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
8. COMMITMENTS:
EQUIPMENT PURCHASE AGREEMENT
On August 11, 1995, Telecom entered into an agreement to purchase wireless
transmission equipment from a vendor. Under the terms of the agreement, Telecom
is obligated to purchase a specified number of wireless transmission units
between August 11, 1995 and December 31, 1998, subject to termination upon 90
days advance notice by either party. Telecom's initial non-cancelable purchase
order amounts to $13,260,000. Through December 31, 1995, Telecom has purchased
and paid for $522,812 of equipment under this contract. In addition, Telecom has
made a $280,000 deposit under this agreement which is to be applied against
future purchases after Telecom has purchased a specified amount of equipment,
which is expected to occur in 1996.
Telecom currently purchases the majority of its wireless transmission
equipment from this vendor. Any reduction or interruption in supply from this
vendor could have a material adverse effect on Telecom until alternative supply
sources are established. Telecom does not manufacture, nor does it have the
capability to manufacture, any of the wireless transmission equipment necessary
to provide its services. Although there are a limited number of other
manufacturers who have, or are developing, equipment that would meet Telecom's
requirements, there can be no assurance that such equipment would be available
to Telecom on comparable terms or on terms more favorable to those included in
its current arrangements. Moreover, a change in vendors could cause a delay in
Telecom's ability to provide its services, which would affect future operating
results adversely.
SERVICES AGREEMENTS
Under the Services Agreement, Telecom has agreed to construct, operate and
manage the FCC licenses and related telecommunications systems that are owned by
ART or for which ART has existing services agreements. Under the Services
Agreement, Telecom will incur all costs and expenses related to construction,
operation and management of the systems. As compensation, Telecom will receive
all revenues generated by the systems after deducting certain related direct
expenses, less 25% which is to be paid to ART.
Telecom, through its Services Agreement with ART, has two other exclusive
services agreements, one with ART West, a joint venture in which ART has a 50%
ownership interest, and one with DCT Communications, Inc. ("DCT"). The terms of
these two services agreements are substantially identical to the terms in the
Services Agreement between ART and Telecom, except that the services agreements
are for five years and compensation to the Company is based on all revenues
generated by the systems after deducting certain related direct expenses, less
45% which is paid to ART West and DCT. There have been no services provided
under these agreements through December 31, 1995. One of the officers of Telecom
is the President and a shareholder of ART's joint venture partner in ART West.
On April 24, 1996, Telecom entered into a services agreement with TeleCom
One on terms substantially identical to the terms of the Services Agreement
between ART and Telecom, except that compensation to Telecom is equal to all
revenues generated by the systems, after deducting certain expenses, less 10%
which is paid to TeleCom One.
Under the services agreements described above, title to the system assets
purchased by Telecom and used to provide services in the respective markets
remains with Telecom upon termination of the services agreements.
F-40
<PAGE>
ADVANCED RADIO TELECOM CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
8. COMMITMENTS, CONTINUED:
EMPLOYMENT AND CONSULTING AGREEMENTS
On May 8, 1995, Telecom and ART jointly entered into consulting agreements
with two executive officers of Telecom, effective as of January 1, 1995 and
continuing for a term of three years, with minimum payments aggregating
approximately $170,000 annually. The aggregate expense incurred by Telecom under
these consulting agreements through December 31, 1995 amounted to $166,750.
On December 16, 1995, one of the executive officers of Telecom, previously a
party to one of the consulting agreements described above, entered into a
full-time employment agreement. The employment agreement is for a three-year
term with an annual salary of $250,000 in the first year, $275,000 in the second
year and $300,000 in the third year. In addition, the agreement provides for a
cash bonus of up to $100,000 for each year based upon achievement of specific
performance objectives.
On July 11, 1995, Telecom entered into an employment agreement, as amended
February 2, 1996, with an officer of Telecom. The term of the agreement is for
three years at an annual salary of $160,000 in the first year, $200,000 in the
second year and $240,000 in the third year. Options to purchase shares of common
stock were awarded to this officer equivalent to 2.5% of the outstanding capital
stock of Telecom (see Note 10). The agreement also provides for an engagement
bonus of $17,000 upon execution of the agreement and a cash bonus of up to
$100,000 for each year based upon achievement of specific performance
objectives.
Telecom has entered into employment agreements with other executives that
provide for annual base salaries and cash bonuses based on achievement of
specific performance goals. These contracts may be terminated at any time by
management.
FINANCING AGREEMENT
During 1994, ART entered into an agreement with Southeast Research Partners
("SERP"), a subsidiary of Joesephthal, Lyons & Ross, a Florida broker dealer, to
procure additional financing for ART in exchange for cash and options to
purchase capital stock of ART. Pursuant to a letter agreement dated July 12,
1995, ART and Telecom paid SERP $245,000 and the shareholders of ART granted
SERP options to purchase 313,644 shares of ART Common Stock directly from the
shareholders of ART for an aggregate consideration of approximately $210,000.
As of December 31, 1995, ART and Telecom have accounted for the fee of
$245,000 as part of the financing provided by Landover and, accordingly, $70,000
has been recognized as an offset against the proceeds from the issuance of the
Serial preferred stock of Telecom (see Note 9) and the balance as part of the
deferred financing costs recorded by ART in connection with the issuance of the
Advent Notes (See Note 7).
F-41
<PAGE>
ADVANCED RADIO TELECOM CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
8. COMMITMENTS, CONTINUED:
LEASES
Telecom and ART have entered into operating leases for office space and
antenna sites which expire between 1997 and 2001. Lease expense amounted to
$16,044 for 1995. The costs associated with these leases have been recorded by
Telecom and no amounts have been charged to ART. Future annual minimum lease
payments as of December 31, 1995 are as follows:
<TABLE>
<S> <C>
1996........................................................... $ 363,079
1997........................................................... 352,480
1998........................................................... 302,727
1999........................................................... 297,417
2000 and thereafter............................................ 25,825
----------
$1,341,528
----------
----------
</TABLE>
9. STOCKHOLDERS' DEFICIT:
At December 31, 1995, the Certificate of Incorporation authorized the
issuance of 20,000,000 shares of stock of all classes, divided into (i)
10,000,000 shares of common stock, $0.001 par value per share, of which
7,000,000 shares are designated as Class A common stock and 3,000,000 shares are
designated as Class B common stock and (ii) 10,000,000 shares of preferred
stock, $0.001 par value per share of which 451,513 shares are designated as
Series A preferred stock, 113,663 shares are designated as Series B preferred
stock, 7,297 shares are designated as Series C preferred stock and 61,640 shares
are designated as Series D preferred stock, before giving effect to the 13 for 1
stock split discussed below. Pursuant to the Reorganization (see Note 2), the
Certificate of Incorporation was amended and restated on February 2, 1996 to (i)
convert each share of Class A common stock and Class B common stock into one
share of common stock, par value $0.001 per share, (ii) change the authorized
capital stock of the Corporation to 70,000,000 shares of stock of all classes,
(iii) change the authorized common stock to 60,000,000 shares, (iv) amend the
terms of the preferred stock and each series thereof, (v) provide for two new
series of preferred stock designated as "Series E preferred stock" and "Series F
preferred stock", and (vi) effect a 13 for 1 stock split of each share of common
stock issued and outstanding.
The holders of Class A common stock had anti-dilution protection, but in all
other respects such shares were identical to the Class B common stock. Under the
anti-dilution provisions, additional shares of Class A common stock were issued,
for no consideration, to the holders of the Class A common stock upon the
issuance of serial preferred stock, so that the holders of Class A common stock
maintained their 36% ownership interest through the $7.0 million Landover
Funding Commitment as set forth in the Purchase Agreement.
Under the Purchase Agreement, the individual shareholders of ART were
required to place 5,153,778 shares of Common Stock in ART in escrow (the "Escrow
Shares") to be released upon the completion of the pending EMI Asset acquisition
(see Note 4), Telecom's attainment of specific operating income levels for the
years 1997 through 1999 and the acquisition of interests in a specified number
of FCC license authorizations by April 30, 2000. As a result of the consummation
of the EMI Asset acquisition, in November 1995, 1,873,030 shares of the Escrow
Shares of ART were released. The related compensation of $802,002, based on the
then current fair value of the Escrow Shares, has been recognized as
compensation expense in 1995, the offset of which has been accounted for as an
investment by ART. Pursuant to the February 2, 1996 Reorganization, the Escrow
Shares arrangement was
F-42
<PAGE>
ADVANCED RADIO TELECOM CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
9. STOCKHOLDERS' DEFICIT, CONTINUED:
terminated and all of the remaining Escrow Shares were released to the
stockholders of ART. The related compensation expense of approximately $6.8
million, based upon the fair value of the remaining Escrow Shares will be
recognized in 1996.
Each issuance of serial preferred stock pursuant to the Landover Funding
Commitment is a separate class and, as a class, has a liquidation preference
equal to the aggregate price paid for such class and an ownership interest
designated by Landover at issuance. The ownership interest of each outstanding
class of serial preferred stock was not to be diluted by subsequent issuances of
shares of other classes of serial preferred stock through the satisfaction of
the Landover Funding Commitment. As a result, additional shares of serial
preferred stock were issued to the existing holders upon the issuance of such
other shares so that each outstanding class maintained its designated aggregate
liquidation preference and aggregate ownership interest.
Each share of serial preferred stock outstanding at December 31, 1995 is
convertible into 13 shares of common stock, subject to certain anti-dilution
adjustments. The holders of serial preferred stock have a vote, and receive
dividends or distributions, equivalent to the votes and amounts which would be
obtainable by them upon conversion of their shares into common stock.
In partial satisfaction of the Landover Funding Commitment, during 1995,
Telecom issued 332,091 shares of Series A preferred stock, 82,318 shares of
Series B preferred stock and 5,402 shares of Series C preferred stock to three
separate limited partnerships of which an affiliate of Landover is the general
partner, for aggregate cash consideration of $2.0 million.
On November 9, 1995, Telecom issued 61,640 shares of Series D preferred
stock for cash of $2.0 million. The Series D preferred stock purchase agreement
provided that in the event that Telecom and ART on a combined basis, did not
achieve an equity valuation of $225.0 million, as defined, on or before November
1, 1997, the holders of the Series D preferred stock had the option to purchase
additional shares of serial preferred stock for $0.001 per share up to a maximum
of 1.33% of the then outstanding capital stock of Telecom. The Series D
preferred stock purchase agreement was amended February 2, 1996 whereby the
option to purchase additional serial preferred stock was replaced with an option
to purchase 400,634 shares of Telecom common stock directly from Landover for
$0.001 per share in the event Telecom does not attain certain equity valuation
objectives.
On November 13, 1995, the Advent Group executed a securities purchase
agreement with ART and Telecom. As a result of the exchange agreement dated
February 2, 1996, Advent received 232,826 shares of Series E preferred stock of
Telecom (see Note 7).
The serial preferred stock transactions described above satisfied the
Landover Funding Commitment. As a result, the anti-dilution protection for the
Class A common stock and serial preferred stock terminated. As the actual cash
proceeds received were in excess of Landover's $7.0 million commitment, on
November 13, 1995, Telecom used the proceeds from the sale of Series D preferred
stock to redeem 807,924 shares of Class B common stock held by Landover.
The Series E and F preferred stock (see Note 14) are senior in liquidation
preference to the Series A, B, C and D preferred stock. The Series D preferred
stock is senior in liquidation preference to the Series A, B and C preferred
stock. At any time on or after November 13, 2000, the Series E and F preferred
stock may be redeemed at the option of the holders of such stock at a price
equal to the liquidation amount plus all accrued and unpaid dividends.
F-43
<PAGE>
ADVANCED RADIO TELECOM CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
10. STOCK OPTION PLANS:
On July 22, 1995, Telecom adopted the 1995 Stock Option Plan (the "Plan")
that provides for option grants to employees, directors and independent
consultants of Telecom. Telecom has reserved 2,500,000 shares of common stock
for issuance under the Plan. Options granted to employees may be designated as
incentive stock options ("ISO's") or non-qualified stock options ("NQSO's"), as
defined by the Internal Revenue Service. Options granted to independent
consultants and other non-employees may only be designated NQSO's.
The exercise price of options granted under the Plan may not be less than
100% of the fair market value of the common stock on the grant date. Generally,
options will be exercisable for a term that will not exceed ten years from the
date of grant.
Under the Plan, options to purchase an aggregate of 817,232 and 235,000
shares of common stock were granted to employees of Telecom on July 22, 1995 and
December 29, 1995, respectively, at an option price of $.5907 and $1.652 per
share, respectively. The difference between the exercise price of the options
issued at $.5907 and the deemed fair value of common stock of $1.20 per share as
determined on the measurement date, is recognized as compensation expense over
the respective vesting period. The options vest at various dates during a 5-year
period. At December 31, 1995, 361,785 options were vested and Telecom has
recognized compensation expense of $287,603 during 1995. At December 31, 1995,
unearned stock option compensation expense amounted to $210,339. There were no
options exercised or canceled during 1995.
On February 15, 1996, options to purchase an aggregate of 145,000 shares of
common stock were granted to employees of Telecom under the Plan at an option
price of $3.94 per share.
On April 24, 1996, Telecom adopted the 1996 Non-Employee Directors Automatic
Stock Option Plan (the "Directors Plan"), subject to shareholder approval, which
provides for the automatic grant of stock options to non-employee directors to
purchase up to an aggregate of 200,000 shares. Under the Directors Plan, options
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
an initial public offering, and in the future each newly elected non-employee
director on the date of his or her first appointment or election to the Board of
Directors will receive an automatic grant of options to acquire 7,000 shares of
common stock.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation". This Statement encourages, but does not require, accounting for
stock compensation awards granted to employees based on their fair value at the
date the awards are granted. Companies may elect to continue to apply current
accounting requirements for employee stock compensation awards, which generally
will result in no compensation cost for most fixed stock option plans, such as
Telecom's Plan. The expense measurement provisions of the Statement apply to all
equity instruments issued for goods and services provided by persons other than
employees. All companies are required to comply with the disclosure requirements
of the Statement. Telecom expects to continue accounting for employee stock
compensation awards using current accounting requirements.
11. INCOME TAXES:
As of December 31, 1995, Telecom has net operating loss carryforwards of
approximately $1.9 million to offset future taxable income for Federal income
tax purposes which will expire in 2010. Deferred tax assets of approximately
$741,000, principally comprised of such net operating tax loss carry-forwards
and temporary differences arising from compensation expense related to the stock
option plans have been offset in full by a valuation allowance.
F-44
<PAGE>
ADVANCED RADIO TELECOM CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
12. RELATED PARTY TRANSACTIONS:
On May 8, 1995, Telecom and ART entered into a consulting agreement with
Landover as a strategic and financial consultant. Telecom paid Landover $70,000
for services under this agreement during 1995. The consulting agreement was
terminated on November 13, 1995.
On November 13, 1995, Telecom and ART entered into a management consulting
agreement with Landover to provide strategic planning, corporate development and
general management. Under the agreement, Telecom will pay Landover $35,000 per
month for an initial one year term, renewable by Telecom and ART for two
additional one year terms. The aggregate expense under this agreement during
1995 amounted to $70,000, which amount is payable as of December 31, 1995. The
agreement also provides that in the event Landover arranges financing,
acquisitions or certain other transactions for Telecom, it will be paid a fee by
Telecom in accordance with industry standards.
Pursuant to the Purchase Agreement, Telecom and ART paid Landover $391,750
for expenses in connection with the Landover Funding Commitment, of which
$141,750 has been charged to paid-in capital by Telecom and $250,000 has been
capitalized as deferred financing costs by ART.
An executive and shareholder of ART is a principal in a law firm that
regularly provides legal services to Telecom. During the period from March 28,
1995 through December 31, 1995, Telecom incurred $237,538 for such services.
Telecom has funded certain expenses and investments of ART, including ART's
investment in ART West and payments of financing and other operating costs. The
amounts funded by Telecom to date totalling $805,803, offset by accrued interest
of $67,123 related to the note payable to ART (see Note 7) have been included in
the amount due from ART.
13. FAIR VALUES OF FINANCIAL INSTRUMENTS:
The carrying amount and fair values of Telecom's financial instruments at
December 31, 1995 were as follows:
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
------------- -------------
<S> <C> <C>
Cash and cash equivalents................................................. $ 627,585 $ 627,585
Long-term notes payable................................................... 6,500,000 6,500,000
</TABLE>
Cash and cash equivalents: The carrying amount reported in the balance sheet
approximates fair value.
Long-term notes payable: The carrying amount approximates fair value based
upon interest rates that are currently available to Telecom for issuance of debt
with similar terms and maturity.
14. SUBSEQUENT EVENTS:
- -- AMERITECH FINANCING
On February 2, 1996, Telecom sold 48,893 shares of Series F preferred stock
for an aggregate purchase price of $2.5 million to Ameritech Development
Corporation ("Ameritech"). In addition, Telecom entered into a strategic
distribution agreement with Ameritech Corp., the parent of Ameritech, and, as
partial consideration, granted warrants to Ameritech to purchase up to 877,136
shares of common stock from Telecom at a price of $0.01 per share, exercisable
on February 2, 1996 through February 2, 2006. The Series F preferred stock and
warrants are collectively referred to as the Ameritech Securities. The strategic
distribution agreement provides for Ameritech to be the principal distributor of
Telecom's services within five midwestern states. Telecom incurred fees of
$150,000 in connection with this transaction.
F-45
<PAGE>
ADVANCED RADIO TELECOM CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
14. SUBSEQUENT EVENTS, CONTINUED:
Under the terms of the securities purchase agreement with Ameritech,
Ameritech is entitled to a put option to require Telecom to repurchase the
Ameritech Securities if the Department of Justice finds that this investment is
in violation of restrictions under the Modification of Final Judgement in the
United States vs. AT&T Civil Action 82-0192 ("MFJ"). Telecom would be required
to repurchase the Ameritech Securities at a purchase price equal to the fair
market value on the date it is determined that the investment is in violation of
the MFJ.
- -- BRIDGE FINANCING
On March 8, 1996, Telecom issued in a private placement of $5.0 million of
two year, 10% notes (the "Bridge Notes") and five year warrants to purchase up
to an aggregate of 1,100,000 shares of common stock at a price of $6.25 per
share (the "Bridge Warrants") to certain holders of serial preferred stock. The
Bridge Warrants are exercisable on March 8, 1996 through March 8, 2001.
- -- EQUIPMENT FINANCING
On April 24, 1996, the Board of Directors approved the adoption of
resolutions necessary to complete a $2,445,000 equipment financing for the
purchase of wireless transmission equipment.
- -- RESEARCH AND DEVELOPMENT ARRANGEMENTS
On January 26, 1996, Telecom entered into a preliminary agreement to invest
from $700,000 to $1.0 million in an entity in which an executive of Telecom is a
director and a shareholder. The preliminary agreement provides for the entity to
perform research and development of wireless transmission equipment in which
Telecom will receive a right of first refusal on production capacity and a
license fee in exchange for its investment.
On March 13, 1996, Telecom issued a letter of intent to a third party to
provide Telecom with specific technology consulting in connection with the
development of wireless transmission equipment. The aggregate amount to be paid
pursuant to the letter of intent totals $90,000. The letter of intent was
executed in connection with an agreement currently under negotiations for the
development and manufacture of wireless transmission equipment.
- -- SOFTWARE LICENSE AGREEMENT
On March 29, 1996, Telecom entered into a software license agreement (the
"Software License Agreement"). The terms of the Software License Agreement
provide for licensed software and hardware for Telecom's network management and
maintenance support services. The Software License Agreement provides for an
initial software license fee of approximately $2,000,000 and an annual
maintenance support fee of approximately $300,000 per year. An initial payment
of $250,000 for the software license fee was payable upon execution of the
agreement with the balance payable in monthly installments of principal and
interest commencing January 1, 1997.
- -- DCT PRELIMINARY AGREEMENT
On April 25, 1996, Telecom and ART entered into a preliminary agreement with
DCT (the "DCT Preliminary Agreement") to acquire DCT's interest in certain FCC
authorizations and licenses in exchange for $3.6 million in cash. The DCT
Preliminary Agreement is subject to the completion of a definitive purchase
agreement and services agreement (see Note 8). The definitive purchase agreement
will supersede and replace all other existing agreements between Telecom, ART,
ART's shareholders and DCT. The definitive purchase agreement must be signed by
June 28, 1996 and the closing of the transaction is subject to FCC approval.
F-46
<PAGE>
ADVANCED RADIO TELECOM CORP.
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED INTERIM CONDENSED BALANCE SHEET
MARCH 31, 1996
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents................................................... $ 3,018,191
Due from ART................................................................ 498,100
Other current assets........................................................ 61,226
------------
Total current assets...................................................... 3,577,517
Property and equipment, net................................................... 6,379,603
FCC licenses.................................................................. 4,226,821
Equipment and other deposits.................................................. 344,417
Investment in ART............................................................. 44,930
Deferred financing costs...................................................... 681,692
------------
Total assets............................................................ $ 15,254,980
------------
------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities.................................... $ 4,211,017
------------
Total current liabilities............................................... 4,211,017
Bridge Notes.................................................................. 3,983,082
Note payable to EMI........................................................... 1,500,000
------------
Total liabilities....................................................... 9,694,099
------------
Commitments and contingencies
Stockholders' equity:
Serial preferred stock, $.001 par value, 920,951 shares issued and
outstanding................................................................ 921
Class A common stock, $.001 par value, 18,114,135 shares issued and
outstanding................................................................ 18,114
Additional paid-in capital.................................................. 19,189,302
Deficit accumulated during the development stage............................ (13,647,456)
------------
Total stockholders' equity.............................................. 5,560,881
------------
Total liabilities and stockholders' equity............................ $ 15,254,980
------------
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-47
<PAGE>
ADVANCED RADIO TELECOM CORP.
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED INTERIM CONDENSED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
Operating revenue............................................................. $ 9,620
<S> <C>
-----------
Expenses:
General and administrative.................................................. 8,889,364
Market development.......................................................... 1,150,063
Research and development.................................................... 419,418
Depreciation and amortization............................................... 86,684
Interest expense, net....................................................... 130,474
-----------
Total expenses............................................................ 10,676,003
-----------
Net loss................................................................ $10,666,383
-----------
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-48
<PAGE>
ADVANCED RADIO TELECOM CORP.
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED INTERIM CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE THREE MONTHS ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
PREFERRED STOCK
COMMON ---------------------------------------------------------------------------------------
SHARES STOCK SERIES A SERIES B SERIES C SERIES D SERIES E SERIES F TOTAL
- ------------------------- ---------- ----------- ----------- ----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995.................... 15,291,211 334,943 86,507 5,402 61,640 488,492
Issuance of Series E
preferred stock......... 232,826 232,826
Shares issued to reflect
anti-dilution
adjustments............. 2,822,924 120,607 28,172 1,961 150,740
Issuance of Series F
preferred stock......... 48,893 48,893
---------- ----------- ----------- ----- ----------- ----------- ----------- ---------
Balance of March 31,
1996.................... 18,114,135 455,550 114,679 7,363 61,640 232,826 48,893 920,951
---------- ----------- ----------- ----- ----------- ----------- ----------- ---------
---------- ----------- ----------- ----- ----------- ----------- ----------- ---------
<CAPTION>
PAR VALUE
---------------------------------------------------------------------------------------------------
PREFERRED STOCK
COMMON ---------------------------------------------------------------------------------------
AMOUNTS STOCK SERIES A SERIES B SERIES C SERIES D SERIES E SERIES F TOTAL
- ------------------------- ---------- ----------- ----------- ----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995.................... $ 15,291 $ 335 $ 86 $ 5 $ 62 $ 488
Issuance of Series E
preferred stock......... $ 233 233
Shares issued to reflect
anti-dilution
adjustments............. 2,823 121 28 2 151
Issuance of Series F
preferred stock and
warrants in exchange for
cash and the Strategic
Distribution Agreement
net of expenses of
$150,000................ $ 49 49
Value ascribed to the
Bridge Warrants.........
Investment by ART as a
result of the release of
escrow shares...........
Accrued stock option
compensation............
Net loss.................
---------- ----------- ----------- ----- ----------- ----------- ----------- ---------
Balance at March 31,
1996.................... $ 18,114 $ 456 $ 114 $ 7 $ 62 $ 233 $ 49 $ 921
---------- ----------- ----------- ----- ----------- ----------- ----------- ---------
---------- ----------- ----------- ----- ----------- ----------- ----------- ---------
<CAPTION>
SHARES
- -------------------------
<S> <C> <C> <C>
Balance at December 31,
1995....................
Issuance of Series E
preferred stock.........
Shares issued to reflect
anti-dilution
adjustments.............
Issuance of Series F
preferred stock.........
Balance of March 31,
1996....................
ADDITIONAL
PAID-IN ACCUMULATED
AMOUNTS CAPITAL DEFICIT TOTAL
- ------------------------- ----------- ------------- -----------
<S> <C> <C> <C>
Balance at December 31,
1995.................... $ 2,845,372 $(2,981,073) $ (119,922)
Issuance of Series E
preferred stock......... 4,672,953 4,673,186
Shares issued to reflect
anti-dilution
adjustments............. (2,974)
Issuance of Series F
preferred stock and
warrants in exchange for
cash and the Strategic
Distribution Agreement
net of expenses of
$150,000................ 3,402,951 3,403,000
Value ascribed to the
Bridge Warrants......... 1,050,000 1,050,000
Investment by ART as a
result of the release of
escrow shares........... 6,795,514 6,795,514
Accrued stock option
compensation............ 425,486 425,486
Net loss................. (10,666,383) (10,666,383)
----------- ------------- -----------
Balance at March 31,
1996.................... $19,189,302 $(13,647,456) $ 5,560,881
----------- ------------- -----------
----------- ------------- -----------
</TABLE>
The accompanying notes are an integral part of the financial statements
F-49
<PAGE>
ADVANCED RADIO TELECOM CORP.
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED INTERIM CONDENSED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
Cash flows from operating activities:
<S> <C>
Net loss.................................................................... $(10,666,383)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization............................................. 86,684
Non-cash interest expense................................................. 34,726
Non-cash compensation expenses............................................ 7,221,000
Non-cash market development expense....................................... 1,053,000
Changes in operating assets and liabilities:
Deposits................................................................ (8,901)
Accounts payable and accrued liabilities................................ 881,492
Other current assets.................................................... (60,405)
------------
Net cash used in operating activities................................. (1,458,787)
------------
Cash flows from investing activities:
Additions to property and equipment......................................... (3,050,607)
------------
Net cash used in investing activities................................. (3,050,607)
------------
Cash flows from financing activities:
Proceeds from issuance of serial preferred stock............................ 2,500,000
Preferred stock issuance costs.............................................. (150,000)
Proceeds from issuance of Bridge Notes and Bridge Warrants.................. 5,000,000
Payments of ART deferred finance costs...................................... (175,000)
Additions to deferred financing costs....................................... (275,000)
------------
Net cash provided by financing activities............................. 6,900,000
------------
Net increase in cash and cash equivalents........................... $ 2,390,606
Cash and cash equivalents, beginning of period...................... 627,585
------------
Cash and cash equivalents, end of period............................ $ 3,018,191
------------
------------
Supplemental cash flow information:
Non-cash financing and investing activities:
Additions to property and equipment....................................... $ 2,477,264
Value ascribed to the Ameritech Strategic Distribution Agreement reflected
as paid-in capital....................................................... 1,053,000
Accrued deferred financing costs.......................................... 85,338
Exchange of Advent Notes and ART Notes for Series E preferred stock, net
of deferred financing costs.............................................. 4,673,186
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-50
<PAGE>
ADVANCED RADIO TELECOM CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS
1. THE COMPANY AND BASIS OF PRESENTATION:
THE COMPANY
Advanced Radio Telecom Corp. ("Telecom"), formerly named Advanced Radio
Technology Ltd., was incorporated in Delaware as a subsidiary of Advanced Radio
Technologies Corporation ("ART") on March 28, 1995, to develop, market and
deliver broadband telecommunication and information services throughout the
United States.
BASIS OF PRESENTATION
The condensed financial statements included herein have been prepared by
Telecom. The foregoing statements contain all adjustments (consisting only of
normal recurring adjustments) which are, in the opinion of management, necessary
to present fairly the financial position of Telecom as of March 31, 1996 and the
results of its operations and its cash flows for the three months ended March
31, 1996.
Certain information and footnote disclosures normally included in financial
statements have been condensed or omitted pursuant to the rules and regulations
of the Securities and Exchange Commission. These condensed financial statements
should be read in conjunction with Telecom's audited financial statements and
notes thereto included elsewhere herein.
The financial statements have been prepared on the going concern basis of
accounting, which contemplates realization of assets and liquidation of
liabilities in the ordinary course of business. Telecom has limited financial
resources, has incurred operating losses since inception and does not expect to
generate material operating revenues until the commencement of its commercial
services, which is anticipated to occur in fiscal 1996. Telecom estimates that
revenues in 1996 will not be sufficient to fund its initial operating expenses
and other working capital needs, including consulting, service and purchase
commitments. Telecom's funding of its initial operating expenses, working
capital needs and contractual commitments is dependent upon its ability to raise
additional financing. Telecom and ART have engaged various investment bankers to
assist it in raising financing through a public equity and debt offering. There
can be no assurance that Telecom will be successful in its effort to raise
additional financing through this public offering or, if available, that Telecom
will be able to obtain it on acceptable terms. These conditions raise
substantial doubt about Telecom's ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the
outcome of these uncertainties.
2. REORGANIZATION AND PENDING MERGER WITH ART:
On February 2, 1996, Telecom, ART and their respective shareholders agreed
to an amendment and restatement of the Stockholders' Agreement providing for (i)
termination effective on the closing of a public share offering; (ii) amendment
and restatement of the Certificate of Incorporation and reorganization of the
capital structure of Telecom; (iii) the exchange of the Advent Notes and one
share of ART Series A Redeemable Preferred Stock for Series E preferred stock of
Telecom; (iv) revision of provisions for election of directors; (v) amendment
and restatement of Telecom's registration rights agreements; (vi) release of
shares escrowed in connection with the original Stockholders' Agreement; and
(vii) approval of a definitive agreement to merge ART and Telecom (the
"Reorganization").
The definitive merger agreement, as entered into on February 2, 1996 and
subsequently restated and amended on June 26, 1996, (the "Merger Agreement")
provides for the merger of a newly-formed wholly owned subsidiary of ART
("Merger Sub") into Telecom (the "Merger") subject to certain conditions,
including the receipt of FCC approval. Upon the Merger, each outstanding share
of Telecom's serial preferred stock will be converted into 13 shares of
Telecom's common stock and each outstanding
F-51
<PAGE>
ADVANCED RADIO TELECOM CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS, CONTINUTED
2. REORGANIZATION AND PENDING MERGER WITH ART: CONTINUED:
share of common stock of Telecom will be exchanged for the right to receive an
equal number of shares of Common Stock of ART. As a result, Telecom will become
a wholly owned subsidiary of ART. The Merger Agreement provides that if the
Merger is not consummated by May 13, 1997, the shares of Telecom's common stock
owned by ART will be surrendered to Telecom for nominal consideration, and the
Services Agreement is to be revised to, among other revisions, extend the term
to 40 years and provide for a proportionate participation by ART's stockholders
in any dividends paid by Telecom or the proceeds from any sale of Telecom. The
Merger Agreement also provides for the assignment of Telecom's interests in all
of its agreements, including the various services agreements, employment
agreements, equipment purchase agreements and purchase option agreements, to
ART. Further, upon the Merger, the holders of warrants to purchase an aggregate
of 2,302,136 shares of Telecom common stock will be entitled to purchase an
equivalent number of shares of ART Common Stock on the same terms. Employee
stock options to purchase 1,664,732 shares of Telecom's common stock will be
converted into similar stock options of ART.
3. NET LOSS PER SHARE:
Net loss per share of $0.59 is computed based on the loss for the three
months ended March 31, 1996 divided by the weighted average number of shares of
common stock outstanding of 18,114,135.
4. AMERITECH FINANCING:
On February 2, 1996, Telecom sold 48,893 shares of Series F preferred stock
for an aggregate purchase price of $2.5 million to Ameritech Development
Corporation ("Ameritech"). In addition, Telecom entered into a strategic
distribution agreement with Ameritech Corp., the parent of Ameritech, and, as
partial consideration, granted warrants to Ameritech to purchase up to 877,136
shares of common stock from Telecom at a price of $0.01 per share, exercisable
on February 2, 1996 through February 2, 2006. Telecom has recorded the value of
$1,053,000 ascribed to the strategic distribution agreement as market
development expense in the first quarter of 1996. Telecom incurred fees of
$150,000 in connection with this transaction.
5. NOTE PAYABLE TO ART:
In connection with the Reorganization on February 2, 1996, ART, Telecom and
Advent entered into an exchange agreement under which the Advent Notes,
including accrued interest, and the one share of ART's Series A Redeemable
Preferred Stock held by Advent were exchanged for 232,826 shares of Series E
preferred stock of Telecom, the notes payable by ART to Advent and by Telecom to
ART were canceled, the related interest forgiven, and Telecom became the owner
of the one share of ART Series A Redeemable Preferred Stock.
6. COMMITMENTS:
DCT PRELIMINARY AGREEMENT
On April 26, 1996, Telecom and ART entered into a preliminary agreement with
DCT (the "DCT Preliminary Agreement") to acquire DCT's interest in certain FCC
authorizations and licenses in exchange for $3.6 million in cash. The DCT
Preliminary Agreement is subject to the completion of a definitive purchase
agreement and services agreement. The definitive purchase agreement will
supersede and replace all other existing agreements between Telecom, ART, ART's
shareholders and DCT. The definitive purchase agreement must be signed by June
28, 1996 and the closing of the transaction is subject to FCC approval.
F-52
<PAGE>
ADVANCED RADIO TELECOM CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS, CONTINUTED
7. FINANCINGS:
BRIDGE FINANCING
On March 8, 1996, Telecom issued in a private placement $5,000,000 of two
year, 10% notes (the "Bridge Notes") and five year warrants to purchase up to an
aggregate of 1,100,000 shares of common stock at a price of $6.25 per share (the
"Bridge Warrants") to certain holders of serial preferred stock. The Bridge
Warrants are exercisable on March 8, 1996 through March 8, 2001.
EQUIPMENT FINANCING
On April 29, 1996, Telecom completed a $2,445,000 equipment financing for
the purchase of wireless transmission equipment. Telecom issued a $2,445,000
promissary note, payable in 24 monthly installments of $92,694 with a final
payment of $642,305 due April 29, 1998. In connection with the equipment
financing, Telecom issued five year warrants to purchase up to an aggregate of
325,000 shares of common stock of Telecom. Telecom paid $225,000 in fees to
stockholders of Telecom to guarantee the equipment financing.
8. ESCROW SHARES:
Pursuant to the February 2, 1996 Reorganization, the terms of the Escrow
Shares arrangement were terminated and all of the remaining Escrow Shares were
released to the stockholders of ART. The related compensation expense of
$6,795,514, based upon the then estimated fair value of the Escrow Shares was
recognized, the offset of which was accounted for as an investment in Telecom by
ART.
9. COMMCOCCC ASSET ACQUISITION
During July 1996, ART entered into an agreement with CommcoCCC, Inc.
("CommcoCCC") to acquire CommcoCCC's interests in certain 38 GHz FCC
authorizations (the "CommcoCCC Assets") in exchange for 16.5 million shares of
ART Common Stock. The acquisition of the CommcoCCC Assets is subject to various
conditions including (i) minimum population coverage of the authorizations of
ART and CommcoCCC, (ii) receipt of final FCC and other approvals, (iii) receipt
by CommcoCCC of an opinion as to the tax-free nature of the transaction (iv) the
accuracy of representations and warranties except for breaches that do not have
in the aggregate a material adverse effect, (v) pending or threatened material
litigation, (vi) consummation of public equity and debt offerings on terms
reasonably satisfactory to CommcoCCC and (vii) other customary closing
conditions. Pending the completion of the acquisition, ART has agreed to
construct, manage and operate the CommcoCCC Assets.
At the closing of the acquisition, ART will give a stockholder ("Commco
LLC") of CommcoCCC an option (the "Option") to purchase FCC authorizations in
specified market areas in which ART will have more than one authorization. The
Option is exercisable only in the event that the CommcoCCC Acquisition is
consummated and Commco LLC receives authorizations pursuant to pending
applications covering a minimum specified population and expires nine months
after the consummation of the Common Stock Offering. The price of authorizations
to be purchased under the Option is based upon a formula that considers the
market price of ART Common Stock on the date of exercise.
In connection with the agreement to acquire the CommcoCCC Assets, certain
stockholders of CommcoCCC loaned ART $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 ART Common Stock
at a price of $15 per share. The CommcoCCC Notes are collateralized by all of
the assets of ART and, if not paid in full when due, the unpaid balance is
convertible into ART Common Stock, at the option of each holder, stipulated per
share prices based upon the timing of exercise.
F-53
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES OTHER THAN THE SHARES OF COMMON STOCK TO WHICH IT RELATES OR AN OFFER
TO, OR A SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
------------------------
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
PROSPECTUS SUMMARY............................. 3
RISK FACTORS................................... 9
THE COMPANY.................................... 21
USE OF PROCEEDS................................ 22
DIVIDEND POLICY................................ 22
CAPITALIZATION................................. 23
DILUTION....................................... 24
SELECTED HISTORICAL AND PRO FORMA FINANCIAL
DATA.......................................... 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.................................... 28
BUSINESS....................................... 34
MANAGEMENT..................................... 59
PRINCIPAL STOCKHOLDERS......................... 71
CERTAIN TRANSACTIONS........................... 73
DESCRIPTION OF CAPITAL STOCK................... 78
SHARES ELIGIBLE FOR FUTURE SALE................ 80
DESCRIPTION OF CERTAIN INDEBTEDNESS............ 82
UNDERWRITING................................... 84
LEGAL MATTERS.................................. 85
EXPERTS........................................ 85
AVAILABLE INFORMATION.......................... 85
GLOSSARY....................................... 87
INDEX TO FINANCIAL STATEMENTS.................. F-1
</TABLE>
------------------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
7,500,000 SHARES
[LOGO]
COMMON STOCK
----------------
PROSPECTUS
----------------
MONTGOMERY SECURITIES
MERRILL LYNCH & CO.
DEUTSCHE MORGAN GRENFELL
, 1996
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, not including the
Representative's non-accountable expense allowance. Except for the SEC
registration fee, the NASD filing fee and the Nasdaq listing fee, all of the
amounts in the table below are estimated.
<TABLE>
<CAPTION>
Securities and Exchange Commission registration fee................... $ 26,767
<S> <C> <C>
NASD filing fee.......................................................
Nasdaq listing fee.................................................... 50,000
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 Underwriting Agreement filed as part of Exhibit 1-1 hereto.
For information regarding the Registrant's undertaking to submit to
adjudication the issue of indemnification for violation of the Act, see Item 17
hereof.
The Registrant's Certificate of Incorporation provides that every director,
officer or agent of the Company shall be entitled to be indemnified out of the
assets of the Company against all losses or liabilities which he or she may
sustain or incur in or about the execution of the duties of his or her office or
otherwise in relation thereto, including any liability incurred by him or her in
defending any proceedings, whether civil or criminal, in which judgment is given
in his or her favor or in which he or she is acquitted, and no director or other
officer shall be liable for any loss, damage or misfortune which may happen to
or be incurred by the Company in the execution of the duties of his or her
office or in relation thereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
TELECOM CLASS A AND B COMMON STOCK PRIVATE PLACEMENT
In April 1995, the Company and Landover Holdings Corporation ("LHC")
subscribed 340,000 shares of Telecom Class A common stock and 640,000 shares of
Telecom Class B common stock, respectively, for $0.001 per share, which, after
giving effect to anti-dilution adjustments and the February 1996 Reorganization,
currently are equivalent upon conversion prior to the 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>
<C> <S> <C>
1-1 Underwriting Agreement.**
2-1 (a) Amended and Restated Certificate of Incorporation and Bylaws of
Registrant.**
(b) Amendment to Amended and Restated Certificate of Incorporation.**
(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.**
4-1 Specimen of Common Stock Certificate.(3)
4-2 (a) Indenture.(3)
(b) Specimen of Senior Discount Note. (See Exhibit 4-2(a)).(3)
4-3 Form of Lock-Up Agreement.**
4-4 (a) Form of Warrant Agreement.(2)
(b) Specimen of Warrant Certificate. (See Exhibit 4-3(a)).(2)
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.
(b) Form of Trustee Indemnification Agreement.
(c) Voting Agreement.
(d) Confidentiality Agreement.
10-1 Employment and Consulting Agreements.
(a) Vernon L. Fotheringham, dated December 16, 1995.**
(b) Steven D. Comrie, dated February 2, 1996.**
(c) W. Theodore Pierson, Jr., dated May 8, 1995 and effective January 1, 1995.**
(d) I. Don Brown, dated February 16, 1996.**
(e) Charles Menatti, dated March 8, 1996.**
(f) James D. Miller, dated February 1, 1996.**
(g) Thomas A. Grina, dated April 26, 1996.(1)
10-2 (a) Second Amended and Restated Certificate of Incorporation and By-laws of
Telecom (filed as Exhibit 2-1 to the Registration Statement on Form S-1 of the
Company dated May 2, 1996).**
(b) Certificate of Incorporation of ART Merger Corporation (to become the
Certificate of Incorporation of Telecom upon the completion of the Merger).**
10-3 Form of Director Indemnification Agreement.**
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S> <C>
10-4 (a) Registrant's Equity Incentive Plan, as amended.**
(b) Form of Stock Option Agreement.
10-5 (a) Registrant's 1996 Non-Employee Directors Automatic Stock Option Plan.**
(b) Form of Non-Employee Directors Stock Option Agreement.**
10-6 Stock Option Agreements.
(a) Comrie Non-Qualified Stock Option Agreement.**
(b) Comrie Incentive Stock Option Agreement.**
10-7 Management Consulting Agreement with Landover Holdings Corporation, dated
November 13, 1995.**
10-8 (a)ART West Joint Venture Agreement dated April 4, 1995, with Extended
Communications, Inc.**
(b)Put/Call Agreement dated October 1, 1994, with Extended Communications,
Inc.**
(c)Services Agreement dated October 1, 1994, with Extended Communications,
Inc.**
(d)Amendment dated April 4, 1995 to the Put/Call Agreement dated October 1,
1994, with Extended Communications, Inc.**
(e)Asset Purchase Agreement dated June 24, 1996 with Extended Communications,
Inc.**
(f) Management Agreement dated June 1, 1996 with ART West Partnership.**
10-9 (a)Put/Call Agreement dated September 1, 1994 with DCT Communications, Inc.**
(b)Services Agreement dated September 1, 1994 with DCT Communications, Inc.**
(c)Term Sheet dated April 26, 1996 with DCT.**
(d) Purchase Agreement with DCT dated July 1, 1996.**
(e) Amendment to Services Agreement dated June 1996 with DCT.**
10-10 (a)Asset Purchase Agreement dated April 4, 1995 with EMI Communications
Corporation.**
(b)$1,500,000 Nonnegotiable and Nontransferable Promissory Note.**
(c)Maintenance Agreement dated November 14, 1995 with EMI Communications
Corporation.**
(d)Agreement dated November 14, 1995 with EMI Communications Corporations.**
10-11 38 GHz Radio Links Purchase Agreement dated August 11, 1995 with P-Com, Inc.+
10-12 (a)Agreement dated May 25, 1995 with Telecom One.+**
(b) Services Agreement dated April 24, 1996 with Telecom One.**
(c) Asset Purchase Agreement and Management Agreement with Telecom One dated
June 27, 1996.**
10-13 Agreement dated April 25, 1996 with GTE.**
10-14 Software License Agreement dated March 29, 1996 with GTE.**
10-15 Agreement dated July 12, 1995 with Southeast Research Partners, Inc.**
10-16 Agreement dated March 1, 1995 with High Sky Limited Partnership, High Sky II
Limited Partnership, Vernon L. Fotheringham, W. Theodore Pierson, Jr., and F.
Thomas Tuttle.**
10-17 Stock Purchase Agreement dated May 8, 1995 with Vernon L. Fotheringham, W.
Theodore Pierson, Jr., High Sky Limited Partnership, High Sky II Limited
Partnership, and Extended Communications, Inc.**
10-18 (a)Purchase Agreement dated April 21, 1995 with Landover Holdings Corporation.**
(b)Letter Agreement dated May 8, 1995 with the Demetrees, Telecom and Landover
Holdings Corporation.**
(c)Letter Agreement dated November 13, 1995 with Telecom, E2-2 Holdings, L.P.
and the Demetrees.**
10-19 Restated and Amended Stockholders' Agreement dated February 2, 1996 with Telecom
and the stockholders of each of Telecom and the Company.**
10-20 Second Restated and Amended Registration Rights Agreement dated July 3, 1996
with Telecom and the stockholders of each of Telecom and the Company.**
10-21 Services Agreement dated May 8, 1995 with Telecom.**
</TABLE>
II-5
<PAGE>
<TABLE>
<C> <S> <C>
10-22 Option Agreement dated February 2, 1996 with Telecom.**
10-23 (a)Securities Purchase Agreement dated November 13, 1995 with Telecom, Vernon
Fotheringham, W. Theodore Pierson, Jr., the stockholders of Telecom named
therein and the Advent Partnerships.**
(b)Exchange Agreement dated February 2, 1996 with Telecom and the Advent
Partnerships.**
10-24 (a)Securities Purchase Agreement dated February 2, 1996 with Telecom and
Ameritech Development Corporation ("Ameritech"), including letter of
intent.**
(b)Warrant issued on February 2, 1996 to Ameritech.**
(c)Put/Call Agreement dated February 2, 1996 with Ameritech.**
10-25 Strategic Distribution Agreement dated April 29, 1996 with Ameritech.**
10-26 Restated and Amended Merger Agreement and Plan of Reorganization dated June 26,
1996 between the Company and Telecom.**
10-27 (a)$2,445,000 Promissory Note in favor of CRA, Inc. ("CRA").**
(b)Security Agreement with CRA (including UCC-1 Financing Statement).**
(c)Indemnity Agreement.**
(d) Form of Indemnity Warrant.**
10-28 Memorandum of Terms of Development and Procurement Agreement with American
Wireless with Extension Agreement dated April 25, 1996.**
10-29 (a)Purchase Agreement dated April 26, 1996 with Harris Corporation Farinon
Division ("Harris") (confidential treatment requested for certain terms).(1)
(b)PCS Marketing Agreement dated April 26, 1996 with Harris (confidential
treatment requested for certain terms).(1)
10-30 Form of Subscription Agreement dated March 8, 1996, including Forms of Bridge
Note and Bridge Warrant.**
10-31 (a) Asset Acquisition Agreement and Plan of Reorganization dated July 3, 1996
with CommcoCCC, Inc.**
(b) Form of Note issued to Commco, L.L.C.**
(c) Form of Note issued to Columbia Capital Corporation.**
(d) Form of Warrant issued to Commco, L.L.C.**
(e) Form of Warrant issued to Columbia Capital Corporation.**
(f) Option Agreement dated July 3, 1996 with Commco, L.L.C.**
(g) Security Agreement dated June 27, 1996 with Columbia Capital Corporation.**
(h) Form of Noncompetition Agreement with CommcoCCC.**
(i) CommcoCCC Management Agreement dated July 3, 1996.**
(j) Right of First Offer Agreement dated July 3, 1996.**
(k) Engagement Letter with Montgomery Securities dated May 23, 1996.**
10-32 Letter of Intent dated April 29, 1996 with Helioss Communications Inc.**
10-33 Letter of Intent dated March 26, 1996 with Advantage Telecom, Inc.
10-34 Consulting Agreement dated March 1, 1996 with Trond Johannesen.
11 Computation of Pro Forma Net Loss Per Share of Common Stock.**
12 Computation of Ratio of Earnings to Fixed Charges.(1)
21 Subsidiaries of the Registrant.**
23(a) Consent of the Registrant's Independent Accountants.
23(b) Consent of the Registrant's Counsel.*
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
15, 1996 (SEC Reg. No. 333-03735) ("Unit Registration Statement").
(2) Filed with Amendment No. 1 to Unit Registration Statement dated July 3,
1996.
(3) Filed with Amendment No. 2 to Unit Registration Statement.
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 , 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 Officer and , 1996
Vernon L. Fotheringham Director
/s/ W. THEODORE PIERSON, JR.*
------------------------------------------- Executive Vice President, General Counsel , 1996
W. Theodore Pierson, Jr. and Director
/s/ MATTHEW C. GOVE*
------------------------------------------- Director , 1996
Matthew C. Gove
/s/ THOMAS A. GRINA
------------------------------------------- Executive Vice President and Chief , 1996
Thomas A. Grina Financial Officer
/s/ THOMAS A. GRINA
-------------------------------------------
* By Thomas A. Grina, attorney-in-fact
</TABLE>
II-8
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION PAGE
- ---------- ---------------------------------------------------------------------------------------- ---------
<C> <S> <C>
1-1 Underwriting Agreement.**
2-1 (a) Amended and Restated Certificate of Incorporation and Bylaws of Registrant.**
(b) Amendment to Amended and Restated Certificate of Incorporation.**
(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.**
4-1 Specimen of Common Stock Certificate.
4-2 (a) Indenture.(3)
(b) Specimen of Senior Discount Note. (See Exhibit 4-2(a)).(3)
4-3 Form of Lock-Up Agreement.**
4-4 (a) Form of Warrant Agreement.(2)
(b) Specimen of Warrant Certificate. (See Exhibit 4-3(a)).(2)
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.
(b) Form of Trustee Indemnification Agreement.
(c) Voting Agreement.
(d) Confidentiality Agreement.
10-1 Employment and Consulting Agreements.
(a) Vernon L. Fotheringham, dated December 16, 1995.**
(b) Steven D. Comrie, dated February 2, 1996.**
(c) W. Theodore Pierson, Jr., dated May 8, 1995 and effective January 1, 1995.**
(d) I. Don Brown, dated February 16, 1996.**
(e) Charles Menatti, dated March 8, 1996.**
(f) James D. Miller, dated February 1, 1996.**
(g) Thomas A. Grina, dated April 26, 1996.(1)
10-2 (a) Second Amended and Restated Certificate of Incorporation and By-laws of Telecom
(filed as Exhibit 2-1 to the Registration Statement on Form S-1 of the Company dated
May 2, 1996).**
(b) Certificate of Incorporation of ART Merger Corporation (to become the Certificate of
Incorporation of Telecom upon the completion of the Merger).**
10-3 Form of Director Indemnification Agreement.**
10-4 (a) Registrant's Equity Incentive Plan, as amended.**
(b) Form of Stock Option Agreement.
10-5 (a) Registrant's 1996 Non-Employee Directors Automatic Stock Option Plan.**
(b) Form of Non-Employee Directors Stock Option Agreement.**
10-6 Stock Option Agreements.
(a) Comrie Non-Qualified Stock Option Agreement.**
(b) Comrie Incentive Stock Option Agreement.**
10-7 Management Consulting Agreement with Landover Holdings Corporation, dated November 13,
1995.**
10-8 (a)ART West Joint Venture Agreement dated April 4, 1995, with Extended Communications,
Inc.**
(b)Put/Call Agreement dated October 1, 1994, with Extended Communications, Inc.**
(c)Services Agreement dated October 1, 1994, with Extended Communications, Inc.**
(d)Amendment dated April 4, 1995 to the Put/Call Agreement dated October 1, 1994, with
Extended Communications, Inc.**
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION PAGE
- ---------- ---------------------------------------------------------------------------------------- ---------
(e)Asset Purchase Agreement dated June 24, 1996 with Extended Communications, Inc.**
<C> <S> <C>
(f) Management Agreement dated June 1, 1996 with ART West Partnership.**
10-9 (a)Put/Call Agreement dated September 1, 1994 with DCT Communications, Inc.**
(b)Services Agreement dated September 1, 1994 with DCT Communications, Inc.**
(c)Term Sheet dated April 26, 1996 with DCT.**
(d) Purchase Agreement with DCT dated July 1, 1996.**
(e) Amendment to Services Agreement dated June 1996 with DCT.**
10-10 (a)Asset Purchase Agreement dated April 4, 1995 with EMI Communications Corporation.**
(b)$1,500,000 Nonnegotiable and Nontransferable Promissory Note.**
(c)Maintenance Agreement dated November 14, 1995 with EMI Communications Corporation.**
(d)Agreement dated November 14, 1995 with EMI Communications Corporations.**
10-11 38 GHz Radio Links Purchase Agreement dated August 11, 1995 with P-Com, Inc.+
10-12 (a)Agreement dated May 25, 1995 with Telecom One.+**
(b) Services Agreement dated April 24, 1996 with Telecom One.**
(c) Asset Purchase Agreement and Management Agreement with Telecom One dated June 27,
1996.**
10-13 Agreement dated April 25, 1996 with GTE.**
10-14 Software License Agreement dated March 29, 1996 with GTE.**
10-15 Agreement dated July 12, 1995 with Southeast Research Partners, Inc.**
10-16 Agreement dated March 1, 1995 with High Sky Limited Partnership, High Sky II Limited
Partnership, Vernon L. Fotheringham, W. Theodore Pierson, Jr., and F. Thomas Tuttle.**
10-17 Stock Purchase Agreement dated May 8, 1995 with Vernon L. Fotheringham, W. Theodore
Pierson, Jr., High Sky Limited Partnership, High Sky II Limited Partnership, and
Extended Communications, Inc.**
10-18 (a)Purchase Agreement dated April 21, 1995 with Landover Holdings Corporation.**
(b)Letter Agreement dated May 8, 1995 with the Demetrees, Telecom and Landover Holdings
Corporation.**
(c)Letter Agreement dated November 13, 1995 with Telecom, E2-2 Holdings, L.P. and the
Demetrees.**
10-19 Restated and Amended Stockholders' Agreement dated February 2, 1996 with Telecom and the
stockholders of each of Telecom and the Company.**
10-20 Second Restated and Amended Registration Rights Agreement dated July 3, 1996 with
Telecom and the stockholders of each of Telecom and the Company.**
10-21 Services Agreement dated May 8, 1995 with Telecom.**
10-22 Option Agreement dated February 2, 1996 with Telecom.**
10-23 (a)Securities Purchase Agreement dated November 13, 1995 with Telecom, Vernon
Fotheringham, W. Theodore Pierson, Jr., the stockholders of Telecom named therein and
the Advent Partnerships.**
(b)Exchange Agreement dated February 2, 1996 with Telecom and the Advent Partnerships.**
10-24 (a)Securities Purchase Agreement dated February 2, 1996 with Telecom and Ameritech
Development Corporation ("Ameritech"), including letter of intent.**
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION PAGE
- ---------- ---------------------------------------------------------------------------------------- ---------
(b)Warrant issued on February 2, 1996 to Ameritech.**
<C> <S> <C>
(c)Put/Call Agreement dated February 2, 1996 with Ameritech.**
10-25 Strategic Distribution Agreement dated April 29, 1996 with Ameritech.**
10-26 Restated and Amended Merger Agreement and Plan of Reorganization dated June 26, 1996
between the Company and Telecom.**
10-27 (a)$2,445,000 Promissory Note in favor of CRA, Inc. ("CRA").**
(b)Security Agreement with CRA (including UCC-1 Financing Statement).**
(c)Indemnity Agreement.**
(d) Form of Indemnity Warrant.**
10-28 Memorandum of Terms of Development and Procurement Agreement with American Wireless with
Extension Agreement dated April 25, 1996.
10-29 (a)Purchase Agreement dated April 26, 1996 with Harris Corporation Farinon Division
("Harris") (confidential treatment requested for certain terms).
(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.**
10-31 (a) Asset Acquisition Agreement and Plan of Reorganization dated July 3, 1996 with
CommcoCCC, Inc.**
(b) Form of Note issued to Commco, L.L.C.**
(c) Form of Note issued to Columbia Capital Corporation.**
(d) Form of Warrant issued to Commco, L.L.C.**
(e) Form of Warrant issued to Columbia Capital Corporation.**
(f) Option Agreement dated July 3, 1996 with Commco, L.L.C.**
(g) Security Agreement dated June 27, 1996 with Columbia Capital Corporation.**
(h) Form of Noncompetition Agreement with CommcoCCC.**
(i) CommcoCCC Management Agreement dated July 3, 1996.**
(j) Right of First Offer Agreement dated July 3, 1996.**
(k) Engagement Letter with Montgomery Securities dated May 23, 1996.**
10-32 Letter of Intent dated April 29, 1996 with Helioss Communications Inc.**
10-33 Letter of Intent dated March 26, 1996 with Advantage Telecom, Inc.
10-34 Consulting Agreement dated March 1, 1996 with Trond Johannesen.
11 Computation of Pro Forma Net Loss Per Share of Common Stock.**
12 Computation of Ratio of Earnings to Fixed Charges.(1)
21 Subsidiaries of the Registrant.**
23(a) Consent of the Registrant's Independent Accountants.
23(b) Consent of the Registrant's Counsel.*
25 Form T-1 Statement of Eligibility of The Bank of New York under the Trust Indenture Act
of 1939.(3)
</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
15, 1996 (SEC Reg. No. 333-03735) ("Unit Registration Statement").
(2) Filed with Amendment No. 1 to Unit Registration Statement.
(3) Filed with Amendment No. 2 to Unit Registration Statement.
<PAGE>
[LOGO]
NUMBER ADVANCED RADIO TELECOM -TM- SHARES
ART
ADVANCED RADIO TELECOM CORP.
COMMON STOCK SEE REVERSE FOR CERTAIN DEFINITIONS
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
CUSIP 007540 10 1
This Certifies that
is the owner of
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, $.001 PAR VALUE PER SHARE,
OF
- ------------------------- ADVANCED RADIO TELECOM CORP. -------------------------
transferable on the books of the Corporation by the holder hereof in person
or by duly authorized attorney upon surrender of this certificate properly
endorsed. This certificate is not valid until countersigned by the Transfer
Agent and registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
/s/
CHAIRMAN [SEAL] SECRETARY
COUNTERSIGNED AND REGISTERED
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
Jersey City, NJ
TRANSFER AGENT AND REGISTRAR,
BY
AUTHORIZED OFFICER
<PAGE>
ADVANCED RADIO TELECOM CORP.
The Corporation shall furnish without charge to each stockholder who so
requests a statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock of the
Corporation or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights. Any such requests may be
addressed to the Corporation or its Transfer Agent.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
<TABLE>
<CAPTION>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian
TEN ENT - as tenants by the ------------ ------------
entireties (Cust) (Minor)
JT TEN - as joint tenants under Uniform Gifts to Minors
with right of Act
survivorship and ------------------------------
and not as tenants UNIF TRF MIN ACT - Custodian (until age )
in common ------ -----
(Cust)
under Uniform Transfers
---------
(Minor)
to Minors Act
------------------
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list
FOR VALUE RECEIVED, _______________________Hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
/ /
<TABLE>
<CAPTION>
<S> <C>
- --------------------------------------------------------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Shares
- --------------------------------------------------------------------------------------------------------------------------
of the common stock represented by the within Certificate, and do hereby irrevocably constitute and appoint
Attorney
- ------------------------------------------------------------------------------------------------------------------------
to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises.
Dated
------------------------------
X
----------------------------------------------------------------------
X
----------------------------------------------------------------------
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER
Signature(s) Guaranteed
By
-----------------------------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM) PURSUANT
TO S.E.C. RULE 17 Ad-15.
</TABLE>
<PAGE>
VOTING TRUST AGREEMENT AND IRREVOCABLE PROXY
--------------------------------------------
AGREEMENT, made this day of July, 1996, among Landover Holdings
Corp. ("LHC"), Kimberly Zimmerman ("KZ") and Zachary Tyler Zimmerman Trust (the
"Z Trust"), each a stockholder of Advanced Radio Technologies Corporation (the
"Company") or Advanced Radio Telecom Corp. ("Telecom"), each a corporation
organized and existing under the laws of the State of Delaware, and Laurence S.
Zimmerman ("Zimmerman"), who controls LHC, and Vernon L. Fotheringham, Andrew I.
Fillat and Mark C. Demetree, who are hereinafter called the Trustees.
WHEREAS, the Company has agreed to a merger of its subsidiary (the
"Merger") with Telecom, subject only to approval by the Federal Communications
Commissions ("FCC"); and
WHEREAS, the Company will change its name to Advanced Radio Telecom
Corp. after the Merger; and
WHEREAS, the Company is preparing to make an underwritten initial
public offering (the "IPO") of its Common Stock, par value $0.001 per share (the
"Common Stock") and, in connection therewith, the Company and LHC deem it to be
in the best interests of the Company and its stockholders that the Company
obtain a listing of the Common Stock on the Nasdaq National Market ("Nasdaq") in
order to improve the liquidity and marketability of the Common Stock; and
WHEREAS, after giving effect to the Merger, LHC owns 8,068,581 shares,
KZ owns 100,000 shares and the Z Trust owns 100,000 shares (collectively, the
"Current Shares") of the Common Stock including (i) 7,954,250 shares of Common
Stock issuable upon consummation of the Merger in exchange for shares of Telecom
Common Stock (the "ART Shares") and (ii) 37,500 shares of Common Stock issuable
upon exercise of warrants, but (iii) not including 294,487 shares, 1,375,699
shares, 5,276,440 shares and 95,719 shares of Common Stock, issuable upon
consummation of the Merger, held by E1 Holdings, L.P., E2 Holdings, L.P., E2-2
Holdings, L.P., respectively, each a limited partnership which is controlled by
LHC but which will dissolve on consummation of the Merger; and
WHEREAS, in order to assist the Company to obtain such listing, LHC,
KZ and Z Trust have agreed to enter into this Agreement and deposit (i) the
Current Shares, (ii) any other shares of Common Stock that may hereafter be
acquired or beneficially owned by LHC or its affiliates, including without
limitation any shares of Common Stock issuable upon execution of warrants, and
(iii) any rights, warrants or options to purchase, or other securities
convertible into, Common Stock, (collectively, the "LHC Securities") into the
trust created hereby; and
WHEREAS, in order for the Trustees to act hereunder the Company has
agreed to indemnify the Trustees for any costs relating to their services
hereunder; and
<PAGE>
WHEREAS, 400,634 of the Current Shares, issuable upon consummation of
the Merger, (the "Option Shares") are held by Pierson & Burnett L.L.P. (the
"Escrow Agent") pursuant to an escrow agreement (the "Escrow Agreement") subject
to an option agreement, each dated February 2, 1996 among LHC, the holders of
Series D Preferred Stock of the Company, and, in the case of the Escrow
Agreement, the Escrow Agent; and
WHEREAS, in the interests of all the stockholders of the Company, the
parties hereto are desirous of creating a trust;
NOW THEREFORE the parties hereby agree as follows:
1. (a) LHC shall forthwith, and from time to time in the
future if LHC acquires additional LHC Securities, indorse in blank and assign
and deliver to the Trustees all certificates for the LHC Securities (other than
the Option Shares) and shall do all things necessary for the transfer of the LHC
Securities (other than the Option Shares) to the Trustees on the books of the
Corporation.
(b) LHC shall use its best efforts to cause the Escrow
Agreement to be amended to provide that any Option Shares that may be otherwise
released to LHC under the Escrow Agreement shall be assigned and delivered to
the Trustees, indorsed in blank, as LHC Securities subject to this Voting Trust
Agreement and Irrevocable Proxy.
2. (a) The Trustees shall hold the LHC Securities so
transferred to them in trust hereunder for the benefit of LHC, under the terms
and conditions set forth herein.
(b) Notwithstanding any provision hereof, LHC shall have
the right to sell, assign, transfer or pledge any or all of the LHC Securities
to third parties and the Trustees shall use their reasonable efforts to cause
any LHC Securities so sold, assigned, transferred or hypothecated to be
transferred promptly to the purchaser, assignee, transferee or pledgee thereof.
LHC Securities sold, assigned, transferred or hypothecated to an affiliate of
LHC shall remain in trust hereunder subject to the terms of this Agreement. LHC
Securities sold or transferred to third parties not affiliated with LHC shall be
released from the trust upon such sale or transfer. A third party shall be
deemed "affiliated" if such third party is controlled by, controls or under
common control with LHC, Zimmerman or a member of the immediate family of
Zimmerman or has made substantial business investments of any nature in any
entity with LHC, Zimmerman or a member of the immediate family of Zimmerman.
The term "substantial business investments" refers to investments by a third
party comprising more than 5% of the equity or debt of a company, partnership or
joint venture in which LHC, Zimmerman or an affiliate of LHC or Zimmerman has an
investment of at least 5%.
3. The Trustees shall surrender to the proper officers of the
Company for cancellation all certificates of stock which shall be assigned and
delivered to them as hereinbefore provided,
-2-
<PAGE>
and in their stead shall procure new certificates to be issued to them as
Trustees under this Agreement.
4. (a) The Trustees shall have only the powers set forth in
this Agreement.
(b) With respect to all LHC Securities held in trust by the
Trustees hereunder, LHC shall retain the entire economic and beneficial
ownership rights therein, including without limitation the right to receive
dividends and distributions on the LHC Securities and the right to direct the
Trustees in any order whatsoever to sell, assign, transfer, encumber or grant
any option therein to or in favor of any person other than LHC or an affiliate
of LHC or agree to do any such thing, except that the Trustees shall have the
exclusive and absolute right in respect of such LHC Securities to vote, assent
or consent the LHC Securities at all times during the term of this Agreement,
including without limitation the right to vote at any election of directors and
in favor of or in opposition to any resolution, any dissolution, liquidation,
merger or consolidation of the Company, any sale of all or substantially all the
Company's assets, any issuance or authorization of securities, or any action of
any character whatsoever which may be presented at any meeting or require the
consent of stockholders of the Company. In exercising the Trustees' powers and
duties hereunder, the Trustees shall at all times vote, assent or consent in
respect of any action as follows: (i) if the matter concerned is the election
of directors, then the Trustees shall vote, consent or assent the whole number
of shares held by the trust created hereunder for each director by multiplying
the number of votes held by the trust (including cumulative votes, if
applicable) by a fraction, the numerator of which is the number of votes cast by
stockholders other than the trust or LHC (the "Nonaffiliated Votes") for the
director and the denominator of which is the number of Nonaffiliated Votes cast
for all directors who have been nominated and are participating in the election
of directors; (ii) where the matter under Delaware law or the Certificate of
Incorporation or the Bylaws of the Company requires at least an absolute
majority of all outstanding shares of common stock of the Company in order to be
effected, then the Trustees shall vote, assent or consent all of the LHC
Securities in favor of or in opposition to such matter as the majority of all
Nonaffiliated Votes are cast; and (iii) on all other matters, the Trustees shall
at all times vote, assent or consent all of the LHC Securities in the identical
proportions in favor of or in opposition to such matter as Nonaffiliated Votes
are cast. If any calculation of votes under the preceding sentence would
require a fractional vote, the Trustees shall vote the next lower number of
whole shares. The Trustees shall use all reasonable commercial efforts to
ensure, with respect to the LHC Securities held in trust by the Trustees
hereunder, that the LHC Securities are counted as being present for the purposes
of any quorum required for stockholder action of the Company and to vote, assent
or consent as set forth above.
-3-
<PAGE>
(c) The Trustees may vote, assent or consent with respect
to all the LHC Securities held hereunder in person or by such person or persons
as it may from time to time select as their proxy provided that the Trustees
shall at all times do so in conformity with the provisions of Section 4(b)
hereof.
(d) The Trustees shall have no authority to sell or
otherwise dispose of or to pledge, encumber or hypothecate, any of the stock
deposited pursuant to the provisions of this Agreement, unless directed to do so
by LHC as provided in Section 2(b) above.
5. The Trustees shall not be liable for any vote cast, or
consent given by them, or for any other action hereunder taken or omitted by
them hereunder, in good faith, or in the absence of gross negligence or willful
misconduct. The Trustees shall not be liable in acting on any notice, request,
consent, certificate, instruction, or other paper or document or signature
reasonably believed to be genuine and to have been signed by the proper party.
The Trustees may consult with legal counsel (reasonably competent for the
purpose) and any act or omission undertaken by the Trustees in good faith in
accordance with the opinion of such legal counsel shall not result in any
liability of the Trustees.
6. The Trustees shall collect and receive all dividends that
may accrue upon the shares of stock subject to this trust, and shall distribute
the same to LHC, except that dividends payable in stock of the Company shall be
held in trust as additional LHC Securities hereunder.
7. In the event of any Trustee ceasing to serve as a director
of the Company, dying or resigning or refusing or becoming unable to act (any of
which is deemed incapacity), the surviving or other Trustees or Trustee shall
appoint a Trustee or Trustees from among the directors of the Company to fill
the vacancy or vacancies, and any person so appointed shall thereupon be vested
with all the duties, powers, and authority of a Trustee hereunder as if
originally named herein. No successor Trustee shall be liable for actions or
omissions of the Trustees or any other successor Trustee.
8. This Agreement and the trust created herein shall be
effective upon completion of the Merger and shall terminate (a) if the IPO fails
to close by September 1, 1996 or (b) upon the earlier to occur of (i) the death
of Laurence S. Zimmerman ("Zimmerman"), (ii) the later of August 31, 2006 or the
cash repayment in full of the Company's Senior Discount Notes due 2006,
(iii) the sale of all the LHC shares and (iv) prior to August 31, 2006 in the
event that a business combination occurs in which (A) the Senior Discount Notes
are repaid in full in cash, (B) holders of ART Common Stock receive common
equity securities in the new company representing less than 50% of the voting
power of the new company, (C) less than half of the directors of the new company
on a going-forward basis are former ART directors, and (D) LHC's equity
represents less than 5% of the voting power of the new company. However,
notwithstanding any of the foregoing, this Agreement shall not
-4-
<PAGE>
terminate if its continued existence were required by a third party regulatory
agency, for example, as a condition to continued listing of the Company's (or
any acquiring company's) equity securities on the Nasdaq National Market System
or other principal trading market for such equity securities. Upon the
termination of this Agreement the Trustees shall assign and transfer to LHC or
its designee(s) all the LHC Securities remaining in trust hereunder.
9. The Company and its stockholders are hereby expressly made
third party beneficiaries of this Agreement, and accordingly this Agreement may
not be amended without the prior written consent of the Company, acting by
unanimous vote of its Board of Directors, and approval of the Company's
stockholders acting by a two thirds vote.
10. The Trustees are expressly authorized to incur and pay such
reasonable expenses and charges, to employ and pay such agents, attorneys and
counsel, and to incur and pay such other charges and expenses as the Trustees
may deem reasonably necessary and proper for administering this Agreement. The
Company, a party to this Agreement solely for purposes of this Section 10 agrees
to reimburse the Trustees for any such expenses and charges.
11. (a) All of the covenants and agreements contained in this
Agreement shall be binding upon, and inure to the benefit of, the respective
parties and their successors, assigns, heirs, executors, administrators and
other legal representatives, as the case may be.
(b) This Agreement, and the rights of the parties hereto,
shall be governed by and construed in accordance with the laws of the State of
Delaware.
(c) This Agreement may be executed in one or more
counterparts, each of which will be deemed an original but all of which together
shall constitute one and the same instrument.
(d) If any provision of this Agreement shall be declared
void or unenforceable by any court or administrative board of competent
jurisdiction, such provision shall be deemed to have been severed from the
remainder of the Agreement and this Agreement shall continue in all respects to
be valid and enforceable.
(e) Whenever the context of this Agreement shall so
require, the use of the singular number shall include the plural and the use of
the gender shall include all genders.
-5-
<PAGE>
IN WITNESS WHEREOF, the subscribers have hereunto set their hands and
seals, and set opposite their respective signatures the number of shares held by
them respectively, and the Trustees, in token of their acceptance of the trust
hereby created, have hereunto set their hands and seals.
TRUSTEES: ______________________________
Vernon L. Fotheringham
______________________________
Andrew I. Fillat
______________________________
Mark C. Demetree
LHC: LANDOVER HOLDINGS CORPORATION
By:___________________________
Laurence S. Zimmerman
KZ: ______________________________
Kimberly Zimmmerman
Z Trust: ZACHARY TYLER ZIMMERMAN TRUST
By:___________________________
Kimberly Zimmerman, Trustee
THE COMPANY (a party to this
Agreement solely for purposes
of Section 10 hereof): ADVANCED RADIO TECHNOLOGIES
CORPORATION
By:___________________________
-6-
<PAGE>
TRUSTEE INDEMNIFICATION AGREEMENT
This Agreement is made as of the ____ day of ________, 1996 by and between
Advanced Radio Telecom Corp., a Delaware corporation (the "Corporation"), and
, (the "Indemnitee").
The Indemnitee has in the past, is currently, and may in the future serve
as a director of the Corporation and has served, is serving or may serve at the
request of the Corporation as a trustee under a certain Voting Trust Agreement
and Irrevocable Proxy, dated , 1996 (the "Trust Agreement") between Landover
Holdings Corporation and the trustees named therein.
The Certificate of Incorporation of the Corporation provides for the
indemnification of the officers and directors of the Corporation to the fullest
extent authorized by law, including Section 145(f) of the General Corporation
Law of the State of Delaware, as the same exists or may hereafter be amended or
supplemented (the "Delaware Corporation Law"). Section 145(f) of the Delaware
Corporation Law specifically provides that the indemnification provisions
contained therein are not exclusive, and thereby contemplates that contracts may
be entered into between the Corporation and the members of its Board of
Directors with respect to indemnification of such directors.
The Indemnitee has indicated his concern that the indemnities available
under the Corporation's Certificate of Incorporation may not be adequate to
protect him against the risks associated with his service to under the Trust
Agreement, and the Indemnitee may not be willing to serve or to continue to
serve as a trustee thereunder unless the Corporation is otherwise able to
indemnify the Indemnitee.
In order to induce the Indemnitee to agree to continue to serve as a
trustee under the Trust Agreement and in consideration of the Indemnitee's
continued service after the date hereof, the parties hereby agree as follows:
1. If the Indemnitee was or is made a party or is threatened to be made
a party or is involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (the "proceeding"), by reason of the
fact that he or a person for whom he is the legal representative is or was a
trustee under the Trust Agreement, whether the basis of such proceeding is an
alleged action in an official capacity as a director or as such trustee, the
Corporation shall indemnify and hold harmless the Indemnitee to the fullest
extent authorized by the Delaware General Corporation Law, as the same exists or
may hereafter be amended, against all costs, expenses, liabilities, judgments
and losses (including attorneys' fees, judgments, fines, excise taxes or
penalties under the Employee Retirement Income Security Act of 1974, as amended)
and amounts paid or to be paid in settlement of any proceeding, reasonably
incurred or suffered by
<PAGE>
the Indemnitee in connection therewith.
2. The Corporation shall (within 15 days of written request therefor by
the Indemnitee) pay to the Indemnitee all costs and expenses (including, but not
limited to, attorneys', accountants', investment or other advisor and expert
witness fees) incurred by the Indemnitee or reasonably anticipated to be
incurred by the Indemnitee in defending any such proceeding in advance of its
final disposition; PROVIDED, HOWEVER, that the payment of such expenses in
advance of the final disposition of such proceeding shall be made only if the
request therefor by the Indemnitee is accompanied by a written undertaking,
signed by him, in favor of the Corporation to repay all amounts so advanced if
it should be ultimately determined by a court of competent jurisdiction that the
Indemnitee is not entitled to be indemnified under Section 145 of the Delaware
General Corporation Law.
3. If the Corporation does not respond to a written claim for any
payment (including advancement of expenses) under this Agreement within fifteen
days of having received such a claim, it shall be deemed to have waived any
right to refuse to pay such claim under this Agreement. In addition, if a claim
under this Agreement is not paid by the Corporation, or on its behalf, within
thirty days after a written claim has been received by the Corporation, the
claimant may at any time thereafter bring suit against the Corporation and the
Corporation shall have the burden of proving that the Indemnitee is not entitled
to payment under this Agreement. If successful in whole or in part, the
claimant shall be entitled to be paid also all expenses (including attorneys'
fees and expenses) of prosecuting such claim together with interest at the rate
of 12% per annum from the date the expenses were paid by the Indemnitee.
4. In the event of payment to the Indemnitee under this Agreement, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of the Indemnitee (and his executors, administrators, and
heirs), who shall execute all documents and take all actions reasonably
requested by the Corporation to implement such right of subrogation.
5. The Corporation shall not be liable under this Agreement to make any
payment in satisfaction of adjudged liabilities assessed against the Indemnitee:
(a) for which payment is actually made to the Indemnitee under a
valid and collectible insurance policy maintained by the Corporation,
except in respect of any excess beyond the amount of payment under such
insurance;
(b) based upon liability for a claim arising from a final
adjudication by a court of competent jurisdiction that the Indemnitee is
liable to the Corporation; provided that if and to the extent that the
Court of Chancery of the State of Delaware or the court in which such
action or suit giving rise
-2-
<PAGE>
to such adjudication of liability was brought shall determine upon
application that, despite the adjudication of liability but in view of
all the circumstances of the case, the Indemnitee is fairly and
reasonably entitled to indemnity for such expenses as such court shall
deem proper, the Corporation shall indemnify the Indemnitee for such
expenses;
(c) based upon or attributable to the Indemnitee or any member of
his immediate family having been finally adjudged to have gained in fact
any personal profit or advantage to which he was not legally entitled;
(d) for an accounting for profits made from the purchase or sale
by the Indemnitee of securities of the Corporation within the meaning of
Section 16(b) of the Securities Exchange Act of 1934 and amendments
thereto or similar provisions of any state statutory law or common law;
(e) on account of the Indemnitee's conduct which is finally
adjudged to have been knowingly fraudulent, deliberately dishonest or
willful misconduct; or
(f) for which indemnification under this Agreement is determined
by a final adjudication of a court of competent jurisdiction to be
unlawful and violative of public policy.
6. Within a reasonable time after receipt by the Indemnitee of notice
of the commencement of any proceeding, the Indemnitee will, if a claim in
respect thereof is to be made against the Corporation under this Agreement,
notify the Corporation of the commencement thereof; but the omission so to
notify the Corporation will not relieve the Corporation from any liability which
it may have to the Indemnitee otherwise than under this Agreement. With respect
to any such action, suit or proceeding as to which the Indemnitee notifies the
corporation of the commencement thereof;
(a) the Corporation will be entitled to participate therein at its
own expense;
(b) Except as otherwise provided below, to the extent that it may
wish, the Corporation jointly with any other indemnifying party similarly
notified will be entitled to assume the defense thereof, with counsel
satisfactory to the Indemnitee. After notice from the Corporation to the
Indemnitee of its election so to assume the defense thereof, the
Corporation will not be liable to the Indemnitee under this Agreement for
any legal or other expenses subsequently incurred by the Indemnitee in
connection with the defense thereof other than reasonable costs of
investigation or as otherwise provided below. The Indemnitee shall have
the right to employ his counsel in such action, suit or proceeding, but
the fees and expenses of such counsel incurred after notice from the
corporation of its assumption for the defense thereof shall be at the
expense of the Indemnitee unless (i) the
-3-
<PAGE>
employment of counsel by the Indemnitee has been authorized by the
Corporation, (ii) the Indemnitee shall have concluded, in his sole
discretion, that there may be a conflict of interest between the
Corporation and the Indemnitee in the conduct of the defense of such
action or (iii) the Corporation shall not in fact employed counsel to
assume the defense of such action, in each of which cases the fees and
expenses of counsel shall be at the expense of the corporation. The
Corporation shall not be entitled to assume the defense of any action,
suit or proceeding brought by or on behalf of the Corporation or as to
which the Indemnitee shall have made the conclusion provided for in
(ii) above; and
(c) the Corporation shall not be liable to indemnify the
Indemnitee under this Agreement for any amounts paid in settlement of any
action or claim effected without its written consent. The Corporation
shall not settle any action or claim without the Indemnitee's written
consent. Neither the Corporation nor the Indemnitee shall unreasonably
withhold its or his consent to any proposed settlement.
7. All agreements and obligations of the Corporation contained herein
shall continue during the period the Indemnitee is serving in any of the
capacities referred to in Section 1 hereof and shall continue thereafter so long
as the Indemnitee or his executors, administrators, or heirs could be subject to
any possible claim or threatened, pending or completed proceeding by reason of
the fact that the Indemnitee was serving in any of such capacities.
8. (a) Any notice or other communication under this Agreement shall
be in writing and shall be deemed given when delivered personally or mailed by
certified mail, return receipt requested, to the parties as follows:
IF TO THE CORPORATION:
Advanced Radio Telecom Corp.
500 108th Avenue NE
Suite 2600
Bellevue, Washington 98004
WITH A COPY TO:
Hahn & Hessen LLP
350 Fifth Avenue
New York, New York 10118
Attn: James Kardon
-4-
<PAGE>
IF TO THE INDEMNITEE:
__________________________
c/o Advanced Radio Telecom Corp.
500 108th Avenue NE
Suite 2600
Bellevue, Washington 98004
or to such other address or person as any party hereto may specify by notice to
the other.
(b) The waiver by any party and the breach of any of the
provisions of this Agreement shall not operate or be construed as a waiver of
any subsequent breach hereof.
(c) This Agreement shall be binding upon and inure to the benefit
of the parties and their respective successors, assigns, legal representatives,
executors, administrators and heirs.
(d) This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Delaware without regard to
conflict of law provisions.
(e) Each of the parties hereto submits to the jurisdiction of a
United States District Court of the Southern District of New York or, if such
Court lacks subject matter jurisdiction, to the jurisdiction of the Chancery
Court of the State of Delaware with respect to any disputes, directly or
indirectly, to any matter of interpretation of this Agreement or the respective
rights or obligations of each of the parties hereto (whether or not any such
party is otherwise subject to the jurisdiction or venue of either such Court).
Each of the parties specifically waives any objection which it may otherwise
have to the jurisdiction or venue of any such Courts and acknowledges that
service of process may be made by mailing a copy thereof in accordance with the
provisions of subsection (a) above.
(f) Each of the provisions of this Agreement is a separate and
distinct agreement and independent of all others, so that if any provision
hereof shall be held to be invalid or unenforceable for any reason, such
invalidity or enforceability shall not affect the validity or enforceability of
any other provisions hereof. This Agreement is being entered into pursuant to
Section 145(f) of the Delaware the Corporation Law and as such is intended to be
supplemental to any other rights to indemnification available to the Indemnitee
and is not intended to be restricted by the provisions of clauses (a) and (b) of
such Section 145. Nothing herein shall be deemed to diminish or otherwise
restrict the Indemnitee's right to indemnification under any provision of the
Certificate of Incorporation or By-laws of the Corporation.
-5-
<PAGE>
(g) No amendment, modification, termination or cancellation of
this Agreement shall be effective unless in writing and signed by both parties
hereto.
9. The Indemnitee agrees that he will reimburse the Corporation for all
reasonable expenses paid by the Corporation in defending any civil or criminal
action, suit or proceeding against him in the event and only to the extent that
it shall ultimately be determined by a court of competent jurisdiction or in
arbitration between the Corporation and the Indemnitee in accordance with rules
of the American Arbitration Association that he was not entitled to be
indemnified by the Corporation for such expenses under the provisions of the
Delaware the Corporation Law, this Agreement or otherwise at the time the
expenses were advanced.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and
as of the day and year first above written.
ADVANCED RADIO TELECOM CORP.
By:
-----------------------------
Title:
-----------------------------
-6-
<PAGE>
VOTING AGREEMENT
This Voting Agreement (the "Agreement") is made as of the ____ day of
July, 1996 by and between Landover Holdings Corp. ("LHC") and Advanced Radio
Technologies Corporation, a Delaware corporation (the "Company").
RECITALS
WHEREAS, the Company has agreed to a merger of its subsidiary (the
"Merger") with Advanced Radio Telecom Corp. ("Telecom"), subject only to
approval by the Federal Communications Commissions ("FCC"); and
WHEREAS, the Company will change its name to Advanced Radio Telecom
Corp. after the Merger; and
WHEREAS, the Company is preparing to make an underwritten initial
public offering (the "IPO") of its Common Stock, par value $0.001 per share (the
"Common Stock") and, in connection therewith, the Company and LHC deem it to be
in the best interests of the Company and its stockholders that the Company
obtain a listing of the Common Stock on the Nasdaq National Market ("Nasdaq") in
order to improve the liquidity and marketability of the Common Stock; and
WHEREAS, LHC is controlled by Laurence S. Zimmerman ("Zimmerman"); and
WHEREAS, after giving effect to the Merger, LHC owns 8,068,581 shares
and affiliates of LHC, including the wife and a family trust of Zimmerman (the
"LHC Affiliates"), own 200,000 shares (collectively, the "Current Shares"), of
the Common Stock, including (i) 7,954,250 shares of Common Stock issuable upon
consummation of the Merger in exchange for shares of Telecom Common Stock (the
"ART Shares") and (ii) 37,500 shares of Common Stock issuable upon exercise of
warrants, but (iii) not including 294,487 shares, 1,375,699 shares, 5,276,440
shares and 95,719 shares of Common Stock, issuable upon consummation of the
Merger, held by E1 Holdings, L.P., E2 Holdings, L.P., E2-2 Holdings, L.P.,
respectively, each a limited partnership which is controlled by LHC but which
will dissolve on consummation of the Merger; and
WHEREAS, in order to assist the Company to obtain such listing and for
other consideration, LHC has agreed to enter into, and to cause the LHC
Affiliates to enter into, a Voting Trust Agreement and Irrevocable Proxy (the
"Voting Trust and Proxy"), dated the date hereof, with Mark C. Demetree, Andrew
I. Fillat, and Vernon L. Fotheringham (the "Trustees") and deposit (i) the
Current Shares, (ii)any other shares of Common Stock that may hereafter be
acquired or beneficially owned by LHC, including without limitation any shares
of Common Stock issuable upon exercise of warrants, and (iii) any rights,
warrants or options to purchase, or other securities convertible into, Common
Stock
<PAGE>
(collectively, the "LHC Securities") into the trust created thereby; and
WHEREAS, the Voting Trust and Proxy provides that the Trustees shall
vote the LHC Securities in the manner specified therein; and
WHEREAS, in order for the Trustees to act hereunder the Company has
agreed to indemnify the Trustees for any costs relating to their services
hereunder; and
WHEREAS, 400,634 of the Current Shares, issuable upon consummation of
the Merger, (the Option Securities") are held by Pierson & Burnett, L.L.P. (the
"Escrow Agent") pursuant to an escrow agreement (the "Escrow Agreement") subject
to an option agreement, each dated February 2, 1996 among LHC, the holders of
Series D Preferred Stock of the Company, and, in the case of the Escrow
Agreement, the Escrow Agent;
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, LHC and the Company hereby agree as follows:
1. EFFECTIVENESS. This Agreement and the Voting Trust and Proxy
shall become effective upon the effective date of registration statement for the
IPO.
2. EXECUTION OF VOTING TRUST AND PROXY. LHC hereby agrees that in
the event the Voting Trust and Proxy terminates by reason of the incapacity (as
defined therein) of each Trustee, LHC will execute a voting trust and
irrevocable proxy, substantially in the form and with the effect of the Voting
Trust and Proxy, appointing another person or entity reasonably acceptable to
the Board of Directors of the Company to act in the same capacity as the
Trustees under the Voting Trust and Proxy.
3. TERMINATION OF AGREEMENT. Notwithstanding the provisions of
paragraph 2 above, this Agreement shall terminate (a) if the IPO fails to close
by September 1, 1996 or (b) upon the earlier to occur of (i) the death of
Zimmerman), (ii) the later of August 31, 2006 or the cash repayment in full of
the Company's Senior Discount Notes due 2006 (the "Senior Discount Notes"),
(iii) the sale or transfer to third parties not affiliated with LHC of all the
LHC Securities and (iv) prior to August 31, 2006 in the event that a business
combination occurs in which (A) the Senior Discount Notes are repaid in full in
cash, (B) holders of ART Common Stock receive common equity securities in the
new company representing less than 50% of the voting power of the new company,
(C) less than half of the directors of the new company on a going-forward basis
are former ART directors, and (D) LHC's equity represents less than 5% of the
voting power of the new company. However, notwithstanding any of the foregoing,
this Agreement shall not terminate if its continued existence is required by a
third party regulatory agency, for example, as a condition to continued listing
of the
-2-
<PAGE>
Company's (or any acquiring company's) equity securities on the Nasdaq National
Market System or other principal trading market for such equity securities.
4. REPRESENTATIONS OF LHC. LHC hereby represents and warrants to
the Company that LHC (a) owns and has the right to vote the LHC Securities
(except that the ART Shares can be voted prior to the Merger only on Telecom
matters), (b) has full power to enter into this Agreement and (c) will not take
any action inconsistent with the purposes and provisions of this Agreement.
5. SALE OF LHC SECURITIES. No provision of this Agreement or the
Voting Trust and Irrevocable Proxy shall in any way limit right or ability of
LHC or the LHC Affiliates to sell, transfer, assign or pledge any or all of the
LHC Securities to a third party; except that LHC, the LHC Affiliates and
Zimmerman will enter into any lock-up agreements requested by the underwriters
of the IPO and entered into by other principal stockholders of the Company; and
provided that LHC Securities sold, assigned, transferred or hypothecated to an
affiliate of LHC shall remain in trust under the terms of the Voting Trust and
Irrevocable Proxy. LHC Securities sold or transferred to third parties not
affiliated with LHC shall be released from the trust under such sale or
transfer. For purposes of this Agreement, a third party shall be deemed
"affiliated" if such third party is controlled by, controls or under common
control with LHC, Zimmerman or a member of the immediate family of Zimmerman or
has made substantial investments of any nature with LHC, Zimmerman or any member
of the immediate family of Zimmerman. The term "substantial business
investments" refers to investments by a third party comprising more than 5% of
the equity or debt of a company, partnership or joint venture in which LHC,
Zimmerman or an affiliate of LHC or Zimmerman has an investment of at least 5%.
6. IRREVOCABLE PROXY. LHC hereby notifies the Company that it has
granted to the Trustees an irrevocable proxy pursuant to the provisions of the
Delaware General Corporation Law to vote, or to execute and deliver written
consents or otherwise act with respect to, all LHC Securities as fully, to the
same extent and with the same effect as the undersigned might or could do under
any applicable laws or regulations governing the rights and powers of
stockholders of a Delaware corporation. LHC hereby affirms that this proxy is
given as a condition of this Agreement and to improve the liquidity and
marketability of the Common Stock and as such is coupled with an interest and is
irrevocable. It is further understood by LHC that this proxy may be exercised
by the Trustees for the period set forth in paragraph 3 above unless sooner
terminated in accordance with the provisions of the Agreement and the Voting
Trust and Proxy.
7. TERMINATION OF MANAGEMENT CONSULTING AGREEMENT. The Management
Consulting Agreement, dated as of November 13, 1996, between the Company and LHC
shall terminate upon consummation of the IPO, and LHC shall receive at the
closing of
-3-
<PAGE>
the IPO all amounts otherwise due through November 13, 1996 at the rate of
$35,000 per month as provided in such agreement.
8. CONFIDENTIALITY. The Company, acting by a majority of its
directors, may from time to time, in its discretion, invite Zimmerman to attend
meetings of the Board of Directors; provided that Zimmerman enters into the
Confidentiality Agreement in the form attached hereto as Exhibit A as such
agreement may be amended from time to time in accordance with its terms (the
"Confidentiality Agreement"). LHC hereby guarantees Zimmerman's performance
under the Confidentiality Agreement.
9. THE TRUSTEES. The Trustees are expressly authorized to incur and
pay such reasonable expenses and charges, to employ and pay such agents,
attorneys and counsel, and to incur and pay such other charges and expenses as
the Trustees may deem reasonably necessary and proper for administering this
Agreement. The Company agrees to reimburse the Trustees for any such expense and
charges.
10. ENFORCEABILITY; VALIDITY. LHC expressly agrees that this
Agreement shall be specifically enforceable in any court of competent
jurisdiction in accordance with its terms.
11. GENERAL PROVISIONS.
(a) Except as provided in paragraph 3 above, all of the
covenants and agreements contained in this Agreement shall be binding upon, and
inure to the benefit of, the respective parties and their successors, assigns,
heirs, executors, administrators and other legal representatives, as the case
may be.
(b) This Agreement, and the rights of the parties hereto, shall
be governed by and construed in accordance with the laws of the state of
Delaware.
(c) This Agreement may be executed in one or more counterparts,
each of which will be deemed an original but all of which together shall
constitute one and the same instrument.
(d) If any provision of this Agreement shall be declared void or
unenforceable by any court or administrative board of competent jurisdiction,
such provision shall be deemed to have been severed from the remainder of the
Agreement and this Agreement shall continue in all respects to be valid and
enforceable.
(e) Whenever the context of this Agreement shall so require, the
use of the singular number shall include the plural and the use of any gender
shall include all genders.
(f) The Company and its stockholders are hereby expressly made
third party beneficiaries of this Agreement, and
-4-
<PAGE>
accordingly this Agreement may not be amended without the prior written consent
of the company, acting by unanimous vote of its Board of Directors, and approval
of the Company's stockholders acting by a two thirds vote.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
LANDOVER HOLDINGS CORP. ADVANCED RADIO TECHNOLOGIES
CORPORATION
By:_______________________ By:_________________________
Laurence S. Zimmerman, Name:
President Title:
758790
-5-
<PAGE>
CONFIDENTIALITY AGREEMENT
-------------------------
AGREEMENT entered into as of _____________, 1996 by and between
Laurence S. Zimmerman ("Zimmerman"), residing at 11 East 68th Street, New York,
New York 10021, and Advanced Radio Telecom Corp. and Advanced Radio Technologies
Corporation (collectively, the "Company"), located at 500 108th Ave., N.E.,
Suite 2600, Bellevue, Washington 98004.
WHEREAS, the Company by action of a majority of its directors in their
sole discretion may from time to time invite Zimmerman as an observer to
meetings of its Board of Directors and provide to him information concerning the
Company; and
WHEREAS, in connection therewith, the Company may, in its sole
discretion, disclose to Zimmerman and his affiliates, consultants, attorneys
and advisors (collectively, "Representatives") certain material confidential
information relating to the Company's business, performance and prospects,
including, without limitation, the Company's books and records, the Company's
trade secrets, the Company's operational practices, the identity of the
Company's customers, the Company's plans and information concerning potential
and actual acquisitions, dispositions and business combinations, the identity of
the Company's affiliates, any of the Company's customers confidential
information, the identity of the Company's suppliers and prospective suppliers,
the identity of the Company's creditors and financial backers, the Company's
know how, the Company's designs, the Company's inventions, the Company's
methods, the Company's processes, the Company's techniques and skills (whether
devised, developed or used by or for the Company), the Company's estimating and
costing procedures and the cost and gross prices charged by the Company for its
products and services, the prices or other consideration charged to or required
of the Company by any of its suppliers or potential suppliers and the Company's
sales and promotional policies (hereinafter referred to collectively as
"Confidential Information"); and
WHEREAS, the Company has adopted a policy concerning insider trading
in the form attached hereto as Appendix 1 (as amended by the Company in its
discretion from time to time and provided promptly in writing to Zimmerman, the
"Insider Trading Policy");
NOW, THEREFORE, the parties hereto agree as follows:
1. Zimmerman (i) shall not disclose Confidential Information (ii)
shall keep such information confidential and (iii) shall not use Confidential
Information for any purpose that reduces the benefits the Company may derive
from that information; provided, however, that Zimmerman may disclose
information contained in the Confidential Information to Representatives;
provided further that such Representatives will be informed by Zimmerman of this
Agreement and any such Representative (other than counsel) will agree in writing
to treat any such Confidential Information in accordance with the
<PAGE>
terms and conditions of this Agreement, including without limitation complying
with the Insider Trading Policy. Nothing in this Agreement shall impinge on or
restrict Zimmerman's ability to consult with counsel. Notwithstanding any other
provisions of this Agreement, this Agreement shall not operate to preclude
Zimmerman or his Representatives from disclosing any of the Confidential
Information or any information relating to their opinion, judgment or
recommendations concerning the Company developed after receipt of the
Confidential Information, if Zimmerman or his Representatives are compelled (by
deposition, interrogatory, request for documents, subpoena, civil investigatory
demand or similar process) to do so. Zimmerman hereby agrees to notify the
Company promptly if he or his Representatives are compelled to disclose
information in such circumstances, so that the Company may seek a protective
order or other appropriate remedy. The Company hereby agrees to pay in full,
and to advance payment for, any expenses, including legal fees, relating to
steps taken by the Company or taken by Zimmerman or his Representatives at the
request of the Company to seek a protective order or other remedy.
2. If at any time the Company shall so request, Zimmerman will
promptly deliver to the Company all written Confidential Information and will
cause all copies thereof to be returned or destroyed. Zimmerman will confirm
such return or destruction in writing to the Company.
3. The term "Confidential Information" does not include information
which:
(i) is in or subsequently comes into the public domain
other than as a result of a disclosure by Zimmerman or the
Representatives in breach of this Agreement; or
(ii) is otherwise legally acquired by Zimmerman from a
third party not in breach of any confidentiality obligation to
the Company; or
(iii) is disclosed by the Company to Zimmerman, his
Representatives or to any third party on a non-confidential
basis; or
(iv) is brought to the Company by Zimmerman or his
Representatives; or
(v) is not information which would generally be
expected to be Confidential Information and has not been
expressly identified to Zimmerman or his Representatives by one
of the Company's directors, or officers, representatives or
agents as "Confidential Information".
For purposes of clause (v) above, the following are among the information
generally expected to be Confidential Information:
- 2 -
<PAGE>
financial reports, projections, business plans or acquisition plans.
4. Zimmerman agrees that, during times when he is in possession of
Confidential Information, he is subject to and will comply with all the terms of
the Insider Trading Policy. The Company agrees to give Zimmerman notice of all
actions and determinations by the Company pursuant to the Insider Trading
Policy.
5. Zimmerman shall indemnify and hold the Company harmless from and
against any and all losses, liabilities, damages, deficiencies, costs or
expenses resulting from (a) the breach by Zimmerman of this Agreement, (b) the
disclosure by any Representative (whether or not intentional, negligent or
otherwise) of any Confidential Information disclosed to the Representative
directly or indirectly by Zimmerman, (c) the use by Zimmerman or his
Representatives of the Confidential Information for any purpose that reduces the
benefits the Company may derive from that information and (d) any and all
actions, suits, proceedings, claims, remands, assessments, judgments, costs and
expenses (including attorneys' fees) incident to any of the matters set forth in
this Section 5, including those incurred in connection with actions brought to
recover from Zimmerman pursuant to this Section 5. However, Zimmerman shall not
be required to indemnify or hold harmless the Company against any or all losses,
liabilities, damages, deficiencies, costs or expenses resulting from the gross
negligence or willful misconduct of the Company or any of its directors,
officers or employees.
6. Except for the obligations set forth in Section 7 below, all
obligations hereunder shall expire on the second anniversary of the last date on
which Zimmerman attends a Board meeting of the Company or receives Confidential
Information from the Company.
7. Zimmerman agrees that he will not, and will use his best efforts
to ensure that persons employed or retained as consultants by him or members of
his immediate family will not, serve as directors, officers, employees or
consultants of ART during the term of the Voting Agreement, dated the date
hereof, between the Company and Landover Holdings Corporation. The Company and
its stockholders are hereby expressly made third party beneficiaries of this
Agreement, and accordingly, this Section 7 may not be amended without the prior
written consent of the Company, acting by unanimous vote of its Board of
Directors, and approval of the Company's stockholders acting by a two thirds
vote.
8. Nothing in this Agreement shall operate to preclude or restrict
Zimmerman or his Representatives from providing to third parties information
(other than Confidential Information), including but not limited to investment,
acquisition or merger opportunities, that Zimmerman or his Representatives also
have provided to the Company.
- 3 -
<PAGE>
9. This Agreement sets forth the entire understanding of the parties
with respect to the subject matter hereof and supersedes and replaces all prior
discussions, writings or understandings between the parties on such matter.
10. Zimmerman recognizes that a breach of this Agreement may cause
irreparable harm to the Company and accordingly, without limiting any other
remedies available in equity or at law, agrees to the granting of injunctive
relief to prevent a breach or the continuing breach of this Agreement.
11. (a) All of the covenants and agreements contained in this
Agreement shall be binding upon, and inure to the benefit of, the respective
parties and their successors, assigns, heirs, executors, administrators and
other legal representatives, as the case may be.
(b) This Agreement, and the rights of the parties hereto,
shall be governed by and construed in accordance with the laws of the State of
Delaware.
(c) This Agreement may be executed in one or more
counterparts, each of which will be deemed an original but all of which together
shall constitute one and the same instrument.
(d) If any provision of this Agreement shall be declared void
or unenforceable by any court or administrative board of competent jurisdiction,
such provision shall be deemed to have been severed from the remainder of the
Agreement and this Agreement shall continue in all respects to be valid and
enforceable.
(e) Whenever the context of this Agreement shall so require,
the use of the singular number shall include the plural and the use of the
gender shall include all genders.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
ADVANCED RADIO TELECOM CORP.
By:___________________________
Title:
ADVANCED RADIO TECHNOLOGIES
CORPORATION
By:___________________________
Title:
______________________________
Laurence S. Zimmerman
- 4 -
<PAGE>
ADVANCED RADIO TELECOM CORP.
STOCK OPTION AGREEMENT
THIS AGREEMENT, made and entered into as of the ______ day of __________
199_ between ADVANCED RADIO TELECOM CORP., a Delaware corporation (herein
called the "Corporation"), and _________________, (herein called the
"Optionee").
WITNESSETH:
WHEREAS, under the terms and conditions hereinafter stated, the
Corporation hereby grants to the Optionee on the date hereof (the "Date of
Grant") pursuant to the Corporation's Restated Equity Incentive Plan (as
amended from time to time, the "Plan") an option (the "Option") to purchase
_________ shares of the Corporation's common stock, $.001 par value per
share ("Common Stock") at an exercise price of $_____ per share, subject to
adjustment as provided in the Plan (the "option price").
NOW, THEREFORE, the Corporation and the Optionee agree as follows:
1. DEFINITIONS. All capitalized terms not otherwise defined herein have
the meanings given to them in the Plan.
2. TERM. The term of the Option shall commence on ______________, 199_
and shall terminate at 5:00 P.M., P.S.T., on _______________ ("Expiration
Date").
3. EXERCISE. The Option may be exercised in whole or in part in
accordance with the following schedule: up to __________ shares upon and
after the Date of Grant, and up to an additional __________ shares upon and
after the first, second, third and fourth anniversary of the Date of Grant,
for an aggregate of ____________ shares. The method for exercise described in
this Paragraph shall be the sole method of such exercise. The Optionee may
exercise the Options by delivery to the Corporation of written notice
accompanied by payment of the option price as provided in the Plan. The
Option shall be considered exercised on the date the notice and payment are
delivered to the President of the Corporation or deposited in the mail, as
the case may be.
4. TRANSFERABILITY OF OPTIONS. The Option shall not be transferable by
the Optionee other than by will or under the laws of descent and
distribution. The Option shall be exercisable during the lifetime of the
Optionee only by the Optionee, the Optionee's guardian or the Optionee's
legal representative.
5. TERMINATION OF AFFILIATION. If Optionee cease to be an employee of
the Corporation while an Option remains outstanding and unexercised, then the
Option term shall terminate and the Option shall cease to be outstanding in
accordance with the Plan. In no event, however, may any Option be exercised
after the Expiration Date of such Option.
<PAGE>
6. REQUIREMENTS OF LAW. The Corporation shall not be required to sell
or issue Common Stock under the Option if the issuance of such Common Stock
would constitute a violation by the Optionee or the Corporation of any
provisions of any state or federal law, rule or regulation. In addition, in
connection with the Securities Act of 1933 (as now in effect or hereafter
amended), upon exercise of the Option, the Corporation shall not be required
to issue such Common Stock unless the Corporation has received evidence
satisfactory to it to the effect that the Optionee will not transfer such
shares except pursuant to a registration statement in effect under such Act,
or unless an opinion of counsel to the Corporation has been received by the
Corporation to the effect that such registration is not required. Any
determination in this connection by the Corporation shall be final, binding
and conclusive. In the event the shares issuable on exercise of the Option
are not registered under the Securities Act of
1933, the Corporation may imprint the following legend or any other legend
which counsel for the Corporation considers necessary or advisable to comply
with the Securities Act of 1933:
"The shares of stock represented by this certificate have not
been registered under the Securities Act of 1933 or under the
securities laws of any state and may not be sold or transferred except
upon such registration or upon receipt by the Corporation of an
opinion of counsel satisfactory to the Corporation, in form and
substance satisfactory to the Corporation, that registration is not
required for such sale or transfer."
The Corporation may, but shall in no event be obligated to, register
any securities covered hereby pursuant to the Securities Act of 1933 (as now
in effect or as hereafter amended); and in the event any shares are so
registered the Corporation may remove any legend on certificates representing
such shares. The Corporation shall not be obligated to take any other
affirmative action in order to cause the exercise of the Option or the
issuance of shares pursuant thereto to comply with any state or federal law,
rule or regulation.
7. NO RIGHTS AS STOCKHOLDER. Except as otherwise provided in the Plan,
the Optionee shall have no rights as a stockholder with respect to Common
Stock covered by the Option until the date of issuance to the Optionee of a
stock certificate for such Common Stock.
8. EMPLOYMENT OBLIGATION. The granting of the Option shall not impose
upon the Corporation any obligation to employ or become affiliated with or
continue to employ or be affiliated with the Optionee. The right of the
Corporation to terminate the employment of or its affiliation with the
Optionee or any other person shall not be diminished or affected by reason of
the fact that the Option has been granted to the Optionee.
-2-
<PAGE>
9. WITHHOLDING AND REPORTING. The Corporation's obligation to deliver
shares of Common Stock or to make any payment upon the exercise of the Option
shall be subject to applicable federal, state and local tax withholding and
reporting requirements.
10. SUBJECT TO PLAN. The Option is subject to all the terms,
conditions, limitations and restrictions contained in the Plan, as amended
from time to time, which shall be controlling in the event of any conflicting
or inconsistent provisions.
12. INTERPRETATION OF AGREEMENT; GOVERNING LAW. The Option granted
pursuant hereto is intended to be an "incentive stock option" within the
meaning of the Internal Revenue Code of 1986, as amended. This Agreement
shall be construed and enforced in accordance with, and governed by, the laws
of the State of Washington.
ADVANCED RADIO TELECOM CORP.
By: ______________________________
Name: ______________________________
Title: ______________________________
The optionee hereby acknowledges that he has received and reviewed a
copy of the Plan and accepts and agrees to be bound by all terms and
conditions hereof and thereof.
___________________________________
Date: _____________________
<PAGE>
[LOGO] AGREEMENT BETWEEN PARTIES
A.R.T. LIMITED & P-COM, INC.
THE AGREEMENT
AGREEMENT BETWEEN THE PARTIES SECTION 1
- --------------------------------------------------------------------------------
SECTION 1
AGREEMENT BETWEEN THE PARTIES
- -------------------------------------------------------------------------------
AUG 7, 1995 Page 1
<PAGE>
[LOGO] AGREEMENT BETWEEN PARTIES
A.R.T. LIMITED & P-COM, INC.
THE AGREEMENT
AGREEMENT BETWEEN THE PARTIES SECTION 1
- --------------------------------------------------------------------------------
1.0 GENERAL
As used herein, the term "Seller" shall refer to P-Com, Inc. (hereinafter
P-Com) and the term "Buyer" shall refer to Advanced Radio Technology
Limited (hereinafter ART). The terms and conditions of sale contained
herein constitute a legal and binding agreement ("Agreement") between
the parties and apply to all of Buyer's purchase orders. If any provision
of this Agreement is held to be invalid or unenforceable, in whole or in
part, the remaining provisions shall be enforceable, in whole or in part,
the remaining provisions shall be enforceable to the maximum extent
possible under law.
2.0 TERM OF AGREEMENT/TERMINATION
The effective date of this agreement is the date of the execution of
the agreement and will expire on December 31, 1998.
3.0 TERMS
Invoices shall be due and payable within thirty (30) days (Net 30)
from the date of invoice. All Payments shall be made in U.S. dollars.
4.0 BASIS OF PRICING
By executing this agreement, Buyer agrees to purchase and P-Com agrees
to sell, in accordance with this proposal, seven thousand five hundred
(7,500) radio links between the date of execution of this agreement and
December 31, 1998, and take shipment of those systems in that time
frame. Applicable pricing will be per Schedule A.
ART will accept shipment of a minimum of three hundred (300) links for
shipment prior to June 30, 1996 and submit payment in accordance with
the terms of the Agreement.
Buyer agrees to accept shipment as per the shipment schedule (See
Schedule D) and appropriate release notices delivered by Buyer.
- -------------------------------------------------------------------------------
AUG 7, 1995 Page 2
<PAGE>
[LOGO] AGREEMENT BETWEEN PARTIES
A.R.T. LIMITED & P-COM, INC.
THE AGREEMENT
AGREEMENT BETWEEN THE PARTIES SECTION 1
- --------------------------------------------------------------------------------
Pricing is quoted as "fixed" prices based on the quantity of radio
equipment actually purchased by Buyer. Pricing is not inclusive of
freight, nor any applicable taxes.
5.0 SPARES
Seller agrees to provide, at no additional charge during the warranty
period, emergency spares replacement to Buyer such that P-Com will ship
a replacement ODU and/or IDU, within two (2) business days of receiving
notice from Buyer, to replace a unit that failed in the field. Buyer
will be required to ship the failed unit to P-Com within 15 days
otherwise P-Com will bill Buyer for the replacement unit. (Note, See
Article 11 for responsibility of freight costs.)
6.0 DOCUMENTATION
P-Com will supply up to 10 Operations and Maintenance Manuals per
licensed geographic area of Buyer's operations when each area begins
service/operations and orders a minimum of 10 links, at no additional
cost. No additional Operation and Maintenance Manuals or documentation
is understood to be required.
7.0 SHIPMENT
Subsequent to the shipment of the initial One hundred & Fifty (150)
links before December 31, 1995, P-Com will commit to ship on a weekly
basis beginning in 1996, given that the shipment schedule (Schedule D)
for a particular month is agreed upon at least 90 days prior to the
month in which shipments are expected to begin (eg., January 1, 1996 for
April 1996 shipments).
P-Com is willing to vary the weekly shipments to ART in any given
month with reasonable notice (i.e., 30 days) in order to cooperate
with ART in satisfying its customers. P-Com is willing to adjust the
scheduled monthly shipments given 90 days advance notice (eg., January
1, 1996 for April, 1996 shipments) for a change in shipments of up to
plus or minus 10%. Changes in shipments of greater than plus or minus
10% minus 30% will require 120 days notice. Changes in shipments of
- -------------------------------------------------------------------------------
AUG 7, 1995 Page 3
<PAGE>
[LOGO] AGREEMENT BETWEEN PARTIES
A.R.T. LIMITED & P-COM, INC.
THE AGREEMENT
AGREEMENT BETWEEN THE PARTIES SECTION 1
- --------------------------------------------------------------------------------
greater than plus or minus 30% will require 150 days notice, subject
to mutual agreement of the parties.
8.0 WARRANTY
P-Com will extend our normal warranty from 12 months to a warranty
period or of 24 months from date of shipment to Buyer, provided Buyer
accepts shipment of 300 links by June 30, 1996 and an additional 600
links by December 31, 1996. Seller will provide additional warranty
coverage for an additional charge of three per cent (3%) of the cost of
the equipment for each additional 12 months of coverage desired, up to a
maximum of 3 additional years. Buyer is to notify, and pay, P-Com 12
months in advance should they elect to purchase the extended warranty.
Buyer has Until December 31, 1996 an option to purchase extended
warranty for equipment purchased prior to that time. For equipment
purchased after December 31, 1996. Buyer must purchase the extended
warranty at the same time purchase order is placed. Terms of the said
extended warranty will be per Article 11. Limited warranty.
9.0 PRICING COMMITMENT
Seller shall not sell equipment to any North American customer, or to
any customer for the intended usage in North America, unless such
customer is purchasing greater aggregate quantities under similar terms
and conditions, under similar product configurations as the equipment
included in this proposal, unless also notifying Buyer in writing of the
improved terms and conditions and offering said improved terms and
conditions to Buyer. This Article will be applicable once ART purchases
a minimum of 2,500 links within a 12 month period.
- -------------------------------------------------------------------------------
AUG 7, 1995 Page 4
<PAGE>
[LOGO] AGREEMENT BETWEEN PARTIES
A.R.T. LIMITED & P-COM, INC.
The Agreement
Agreement Between the Parties SECTION 1
- ------------------------------------------------------------------------------
10.0 TERMINATION
Either party may, by ninety (90) days prior written notice to the other
party, terminate this Agreement. In the event Buyer terminates the
agreement, Buyer agrees to take delivery and pay for all units in
Schedule D for the 90 days following the notice of termination. In the
event the Seller terminates the agreement, the Buyer has the option to
place additional purchase orders at the prices set forth in Schedule A
for all units in Schedule D during the 120 day period following the
effective date of the termination. Upon termination, Schedules A & D
related to price and delivery would be subject to change. All other
applicable provisions of the Agreement will remain in force.
11.0 LIMITED WARRANTY
Seller warrants to BUYER or the actual purchaser of the equipment, in
the event the equipment is re-sold by the BUYER, that the products will
be substantially free from defects in material and workmanship for
twenty-four (24) months after delivery to Buyer, and will comply with
the performance specifications referred to in Schedule F hereto.
Products purchased from Seller which do not comply with the warranty
and are returned to the Seller during such period will be repaired or
replaced at Seller's option, at no cost to Buyer. During the warranty
period, the Seller and Buyer pay for freight one direction. Should the
field failures exceed 1.5% of the accumulative purchased amount of IDUs &
ODUs the Seller shall pay inbound and outbound freight for those
returned and repaired items. For out of warranty repairs Buyer shall pay
all inbound and outbound freight charges and all costs of repair or
replacement. Buyer may return faulty products after having been issued
by Seller a Return Material Authorization (RMA). Seller will not
unreasonably withhold issuance of RMA. The RMA number will be issued
after Buyer's consultation with Seller. Items returned to Seller must
be shipped in the original container or equivalent packaging to insure
against damage in transit. The above warranty does not extend to any
Product that is modified or altered, is not maintained in accordance
with Seller's reasonable maintenance recommendations, is operated in a
manner other than that specified by Seller, or is subjected to
- ------------------------------------------------------------------------------
Aug. 7, 1995 Page 5
<PAGE>
[LOGO] AGREEMENT BETWEEN PARTIES
A.R.T. LIMITED & P-COM, INC.
The Agreement
Agreement Between the Parties SECTION 1
- ------------------------------------------------------------------------------
abuse, misuse, accident, disaster, alterations, neglect or other
improper treatment. Seller and Buyer will make good faith
determinations as to the exercise of any cause of alleged defect.
Buyer's sole remedy with respect to any warranty or defect is stated
above. Seller neither assumes nor authorizes any other person to assume
for Seller any other liability in connection with the sale of products
under this Agreement.
12.0 LIMITATION OF LIABILITY
NOTWITHSTANDING ANYTHING ELSE IN THIS AGREEMENT OR OTHERWISE, SELLER
WILL NOT BE LIABLE UNDER ANY PROVISION OF THIS AGREEMENT OR UNDER ANY
CONTRACT, NEGLIGENCE, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE
THEORY (A) FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES, OR (B) FOR COST
OF PROCUREMENT OF SUBSTITUTE GOODS, TECHNOLOGY OR SERVICES.
13.0 DEFAULT AND CANCELLATION
If Buyer becomes bankrupt or insolvent, or files or has filed against
it any petition in bankruptcy, or makes an arrangement for the benefit
of its creditors, or suffers a receiver or similar party to be
appointed, or fails to make payment for goods received or fails to
fulfill purchase commitments, the Seller shall be entitled to cancel
this Agreement without judicial intervention or declaration of default
of Buyer and without prejudice to any right or remedy which shall have
accrued or shall thereafter accrue to Seller. Either Party shall have
45 days after written notice to correct any identified defaults.
14.0 MODIFICATION/WAIVER
No addition to, deletion from, or modification of any of the provisions
of this Agreement shall be binding upon the Parties unless acknowledged
in writing and accepted by the Party to be bound.
15.0 NOTICES
- ------------------------------------------------------------------------------
Aug. 7, 1995 Page 6
<PAGE>
[LOGO] AGREEMENT BETWEEN PARTIES
A.R.T. LIMITED & P-COM, INC.
The Agreement
Agreement Between the Parties SECTION 1
- ------------------------------------------------------------------------------
Any notice contemplated by or made pursuant to this Agreement shall be
in writing and shall be deemed delivered on the date of delivery if
delivered personally or by facsimile, or five (5) days after mailing if
placed in the U.S. mail, postage prepaid, registered or certified mail,
return receipt requested, addressed to Buyer or Seller (as the case may
be) at the address shown on the reverse side hereof, or such other
address as shall be designated by at least ten (10) days prior written
notice.
16.0 GOVERNING LAW
This contract shall be governed by Delaware law as applied to contracts
entered into by Delaware residents within the state of Delaware and to
be performed within the state of Delaware without regard to applicable
principles of conflict of laws.
17.0 REVENUE SHARING
Once ART purchases link 300, P-Com agrees to partially finance
additional equipment in the form of a subsidy in return for receiving a
share of the revenue on the equipment shipped from link 301 forward,
subject to the provisions of schedule L.
18.0 EXHIBITS
The exhibits listed herein are made part of this agreement.
Schedule A Pricing
Schedule B Standard Configuration
Schedule C Auxiliary Equipment Pricing
Schedule D Delivery
Schedule E Ship in Place Criteria
Schedule F Radio Technical Information
Schedule G NMS Programs
Schedule H Standards
Schedule J Quality
Schedule K Training
Schedule L Revenue Sharing
- ------------------------------------------------------------------------------
Aug. 7, 1995 Page 7
<PAGE>
[LOGO] AGREEMENT BETWEEN PARTIES
A.R.T. LIMITED & P-COM, INC.
The Agreement
Agreement Between the Parties SECTION 1
- ------------------------------------------------------------------------------
SIGNATORY PAGE
IN WITNESS WHEREOF, the parties hereto have executed this legally binding
Agreement.
Per this Agreement, the initial order is for 900 links, non-cancelable, to be
purchased and delivered per Schedule A and Schedule D. The initial order will
take the form of a Master Purchase Order with a value of $13,260,000 to be
provided to P-Com upon execution of this Agreement.
P-COM, INC. ADVANCED RADIO TECHNOLOGY CORPORATION
/s/ PIER ANTONIUCCI 8/11/95 /s/ STEVEN D. COMRIE 8/11/95
- ------------------------------------- --------------------------------------
Signature Date Signature Date
PIER ANTONIUCCI STEVEN D. COMRIE
- ------------------------------------- --------------------------------------
EXECUTIVE V.P. PRESIDENT
- ------------------------------------- --------------------------------------
3175 S. Winchester Boulevard 1200 19th Street
Campbell, CA 95008 Suite 560
Washington, D.C. 20036
- ------------------------------------------------------------------------------
Aug. 7, 1995 Page 8
<PAGE>
[LOGO] AGREEMENT BETWEEN PARTIES
A.R.T. LIMITED & P-COM, INC.
The Agreement
Terms and Conditions SECTION 2
- ------------------------------------------------------------------------------
SECTION 2
TERMS and CONDITIONS
- ------------------------------------------------------------------------------
Aug. 7, 1995 Page 1
<PAGE>
[LOGO] AGREEMENT BETWEEN PARTIES
A.R.T. LIMITED & P-COM, INC.
The Agreement
Terms and Conditions SECTION 2
- ------------------------------------------------------------------------------
1. ASSIGNMENT: This Agreement shall accrue to the benefit of and be binding
upon the parties hereto, any purchaser and any successor entity into which
any such person shall have been merged or consolidated or to which any such
person shall have sold or transferred all or substantially all its assets.
Buyer may assign its rights and/or obligations under this Agreement to one or
more Buyer Affiliates, provided such Buyer Affiliates agree to be bound by
all of the terms and conditions hereof. This Agreement shall not otherwise be
assigned by either party without the prior written consent of the other
party. The parties agree that any consent to a requested assignment shall not
be unreasonably withheld. Should Buyer assign this Agreement to any entity or
person, Seller may request commercially reasonable assurance of payment by
the assignee, prior to any shipment thereto. Should Buyer assign this
Agreement to any Buyer's Customer, Buyer agrees and understands that pricing
contained herein shall not transfer. Buyer agrees not to assign this
Agreement to any entity which is not credit worthy or to an established
competitor of Seller (i.e. a supplier of radio equipment for use in the 23
GHz and higher spectrum). For purposes of this Agreement, purchase orders by
Buyer's affiliates shall be deemed to be a purchase orders of Buyer for
purposes of Schedule B, and Buyer affiliates shall be entitled to the rights
of Buyer here under with respect to purchases made pursuant to such purchase
orders.
2. MANUFACTURED SPECIFICATIONS: Seller shall manufacture equipment proposed
herein to the agreed upon Specifications and shall notify Buyer in the event
any future changes in component parts or design have a material impact on the
agreed upon Specifications. Seller agrees to provide one hundred and twenty
(120) days advance notice to Buyer of any such changes. Seller agrees to make
any reasonable changes and modifications in the equipment if requested by
Buyer at a price to be mutually agreed upon at that time.
3. CONFORMITY WITH LAW: Seller is a commercial manufacturer/supplier and
complies with all applicable Federal and State laws.
4. NEW FEATURES AND/OR EQUIPMENT: Seller agrees to make new Equipment,
features, functions, and capabilities available to the Buyer at then
reasonable prices and on reasonable terms to be mutually agreed upon. Seller
agrees that future equipment will be compatible with equipment purchased
hereunder on a like-for-like basis. Hot-standby equipment will not be covered
under this provision.
- ------------------------------------------------------------------------------
AUG. 7, 1995 Page 2
<PAGE>
[LOGO] AGREEMENT BETWEEN PARTIES
A.R.T. LIMITED & P-COM, INC.
The Agreement
Terms and Conditions SECTION 2
- ------------------------------------------------------------------------------
5. BANKRUPTCY: In the event of Seller's bankruptcy or otherwise ceasing to
do business, Seller agrees to permit Buyer to have Seller's subcontractors
manufacture the Equipment provided by this Agreement. Seller agrees to make
best efforts to ensure that Buyer obtains Seller's pricing from
subcontractors and has access to and the right to use Seller's source codes
software, engineering designs and specifications as well as technical
information for use by Buyer only in connection with the manufacture, testing
and use of the Equipment. Seller and Buyer will reach mutual agreement with
respect to escrow arrangements to insure Buyer's access to source codes and
software in such event.
6. INDEMNIFICATION: Seller will indemnify Buyer and hold Buyer harmless
from and against any liability, damage, loss, expense, claim or judgment
arising from injury to any person or damage to any property however caused,
whether by Seller's sole or concurrent negligence or otherwise, arising from
the sale, resale, repair, replacement or use of any products shipped pursuant
to any order resulting from this Agreement up to a maximum of three million
dollars ($3 M) per occurrence. Seller further agrees to indemnify and hold
Buyer harmless from any and all expenses, losses, royalties, and damages
including court costs and attorney's fees resulting from the bringing of such
suit or proceedings including settlement or decree of judgment entered
therein, unless it arises from an action by Buyer.
Seller will indemnify and hold Buyer harmless from and against any liability,
damage, loss, expense, including reasonable attorney fees, claim or judgment
arising from or brought against Buyer or its agents or vendors for alleged
patent, trademark or copyright infringement, as well as for alleged unfair
competition resulting from similarity in design or appearance of Equipment
provided per this Agreement up to a maximum of three million dollars ($3M)
per occurrence. The Seller may be represented by and actively participate
through its own counsel in any such suit or proceedings.
7. EQUIPMENT AND FACTORY INSPECTION: Seller agrees to permit Buyer, and
Buyer's Affiliates, Major Customers, Financing/Leasing Sources, the
opportunity to inspect the Equipment as it is built and the Seller's premises
and the premises of the Seller's contractors, to ensure that adequate quality
control is provided by the Seller. Buyer must provide Seller with no less
than ten (10) business days advance notice of all visits. Seller will
coordinate all visits with Seller's contractors. All visits will be made
during regular business hours. At Buyer's request Buyer shall be entitled to
inspect equipment prior to shipment;
- ------------------------------------------------------------------------------
AUG. 7, 1995 Page 3
<PAGE>
[LOGO] AGREEMENT BETWEEN PARTIES
A.R.T. LIMITED & P-COM, INC.
The Agreement
Terms and Conditions SECTION 2
- ------------------------------------------------------------------------------
provided, however, that Buyer's inspection shall be made within a reasonable
period to enable Seller to satisfy scheduled shipment date.
8. LIABILITY INSURANCE: Seller agrees to maintain adequate product
liability, employee related and business insurance with reputable insurance
companies. Seller shall agree to list Buyer as an additional insured under
Seller's liability insurance policies during the term hereof and for two
years thereafter.
9. PRODUCT CERTIFICATION: Seller agrees to obtain and maintain the
applicable and necessary safety and FCC certifications for usage of the
Equipment to be provided per this Agreement.
10. EQUIPMENT NAME: Buyer must receive prior approval from Seller before
attaching, affixing, or placing any Buyer name or insignia onto Seller's
Equipment. Such approval shall not be unreasonably withheld. In no event will
Seller's name (P-Com, Inc.) and or logo be removed from the Equipment.
11. PARTS AND REPLACEMENT: Seller agrees to maintain a satisfactory parts
and replacement inventory for five (5) years after shipment of Equipment.
Seller agrees to provide repair and return services and have in place a
procedure for such services.
12. CONTRACT TERMS: Seller is a commercial supplier and recognizes standard
commercial contract terms and conditions. Seller will reasonably cooperate
with and assist Buyer in connection with satisfying contract terms of Buyer's
customers.
13. GRATUITIES: Seller and Buyer shall agree that no gratuities or similar
payments have been made or received in connection with this Agreement.
14. WORK STOPPAGE: Seller agrees to notify Buyer of any potential work
stoppages or any other event which could impact product flow to Buyer.
- ------------------------------------------------------------------------------
AUG. 7, 1995 Page 4
<PAGE>
[LOGO] AGREEMENT BETWEEN PARTIES
A.R.T. LIMITED & P-COM, INC.
The Agreement
Terms and Conditions SECTION 2
- -------------------------------------------------------------------------------
15. SHIPPING, TITLE, TAXES: Shipping terms are F.O.B. Factory, title and risk
to pass only upon shipment to Buyer. Seller to invoice Buyer upon shipment of
Equipment. Buyer shall pay all freight charges, applicable state and federal
sales and excise taxes. Buyer shall designate the manner of shipping. Seller
shall arrange and coordinate shipments. The Buyer agrees to provide a
California resale certificate or appropriate document if it is determined
taxes are not applicable.
16. SUBCONTRACT MANUFACTURING: Seller may freely select its subcontractors
subject only to the subcontractor meeting the requirements of the Seller.
Seller shall notify Buyer of a significant change of subcontractor.
17. TECHNICAL SUPPORT: Seller agrees to provide telephone technical
assistance to Buyer 24 hours a day at no charge for the first one hundred
(100) hours should Buyer purchase a minimum of nine hundred (900) links
during the first 18 months of the Agreement. Subsequent technical assistance
will be provided at a rate of seventy dollars ($70) per hour with a one (1) hour
minimum. Seller's personnel agree to follow Buyer's and Buyer's customer's
plant rules given that Seller has been advised in advance of the rules.
18. ENGLISH LANGUAGE: Seller agrees to provide all shipping and technical
materials in connection with this Agreement in English.
19. PACKAGING: Seller agrees to cooperate with Buyer to ensure that the
Equipment is packaged appropriately for handling by one individual and in a
method that avoids breakage. Seller reserves the right to charge Buyer for
additional labor and/or materials required beyond Seller's standard
procedures.
20. MATERIAL OWNERSHIP: Seller shall own all specifications, drawings and
technical material prepared by it. Buyer shall own all specifications,
drawings and technical material prepared by it.
21. LIENS: Seller shall provide and ship all Equipment free of all liens and
encumbrances of any nature.
22. INVOICES: Seller shall prepare separate invoices for each shipment of
Equipment. Invoices shall be issued to Buyer promptly upon shipment.
- -------------------------------------------------------------------------------
AUG 7, 1995 Page 5
<PAGE>
[LOGO] AGREEMENT BETWEEN PARTIES
A.R.T. LIMITED & P-COM, INC.
The Agreement
Terms and Conditions SECTION 2
- -------------------------------------------------------------------------------
23. DISCLOSURES: Any disclosures concerning this Agreement shall require the
mutual consent of the Seller and Buyer, except as may be required to comply
with securities laws and in connection with relevant government agency
communications. Notwithstanding the foregoing, either party shall be entitled
to disclose this agreement and the terms hereof to its financing sources.
24. NETWORK MANAGEMENT SYSTEM: Seller is developing (and will continue to
develop) a Network Management System based on the Hewlett Packard Open View
Architecture for use as an operating system for the Equipment ("Seller's
NMS") which it anticipates will be completed on or before December 31, 1995.
Seller's NMS shall perform to the specification referred to on Schedule I.
Seller agrees to license Seller's NMS to Buyer at commercially reasonable
rates reflecting the cost of its development, such rates to be mutually
agreed upon between the parties. Seller agrees to work cooperatively with the
Buyer in interfacing the Seller's NMS with the Network Management System
utilized or developed by Buyer for use in operating the Equipment provided,
however, that Seller shall be entitled to charge Buyer for such service at
the rate of seventy ($70) dollars for each hour of time spent by Seller's
technical staff in connection therewith.
- -------------------------------------------------------------------------------
AUG 7, 1995 Page 6
<PAGE>
[LOGO] AGREEMENT BETWEEN PARTIES
A.R.T. LIMITED & P-COM, INC.
REF: US-PCN-296
REV. 4
EXHIBITS
Pricing SCHEDULE A
- -------------------------------------------------------------------------------
SCHEDULE A
RADIO PRICING
- -------------------------------------------------------------------------------
AUG 7, 1995 Page 1
<PAGE>
[LOGO] AGREEMENT BETWEEN PARTIES
A.R.T. LIMITED & P-COM, INC.
REF: US-PCN-296
REV. 4
EXHIBITS
Pricing SCHEDULE A
- -------------------------------------------------------------------------------
389 GHZ RADIO EQUIPMENT
The proposed non-protected radio equipment is the Tel-Link 38. The link
pricing listed below consists of two ODU's and two IDU's which allow for 4T1
radio capacity including two 1' antenna's. Link Manager Port. and NMS
service channel. Equipment operates at -48VDC. The Belden 9913 coaxial cable
used to interconnect the ODU and IDU is not included.
TABLE 1
CUMULATIVE QUANTITY LEVEL LINK LIST PRICE ART LINK PRICE % DISC.
- ------------------------- --------------- -------------- -------
[CONFIDENTIAL]
Upon execution of this Agreement Buyer agrees to provide a master purchase
order reflecting the initial 900 links being purchased. The first 50 links
are to be shipped on or before September 31, 1995, at the initial link price
of [CONFIDENTIAL]. The next 100 links are to be shipped on or before December
31, 1995, at the initial link price of [CONFIDENTIAL] Links 151-300 will ship
on or before June 30, 1996, at the initial link price of [CONFIDENTIAL] Links
301-900 will be billed per Schedule A and shipped in accordance with Buyer
shipping notices, but in no event later than December 31, 1996, and as
indicated in Schedule D. The balance of the purchases are to take place
pursuant to purchase orders of Buyer and shipping instructions issued by
Buyer in accordance with the Agreement.
Buyer agrees to provide an [CONFIDENTIAL] of [CONFIDENTIAL] of [CONFIDENTIAL]
Buyer will pay invoices in full upon receipt in accordance with the
Agreement. [CONFIDENTIAL]
- -------------------------------------------------------------------------------
AUG 7, 1995 Page 2
<PAGE>
[LOGO] Agreement Between Parties
A.R.T. LIMITED & P-Com, Inc.
REF: US-PCN-296 REV.4
EXHIBITS
Pricing Schedule A
- --------------------------------------------------------------------------------
In addition, once ART purchases link [CONFIDENTIAL] to be
settled as follows:
During the course of the purchase of links [CONFIDENTIAL]
These pricing levels are valid for all purchase orders released to P-Com through
December 31, 1998. In the event ART does not take delivery of 900 links by
December 31, 1996 and does not issue a master purchase order prior to December
31, 1996 for an additional 2,500 links with scheduled delivery during 1997 per
Schedule D, P-Com has the right to terminate the Agreement and receive all
outstanding moneys due within thirty (30) days thereafter. Further, in the
event ART does not issue purchase orders, purchase and take delivery of a
minimum of 2500 additional links in each of calendar years 1998 and 1999, then
P-Com has the right to terminate the Agreement and receive all outstanding
moneys due within thirty (3) days thereafter. In the event P-Com terminates the
Agreement as indicated above, all scheduled delivery commitments, against
outstanding purchase orders would be fulfilled by P-Com and accepted by ART.
As noted above, ART will accept shipment of one hundred fifty (150) links for
shipment prior to December 31, 1995, and submit payment in accordance with the
terms of the Agreement.
Seller agrees to ship in accordance with the purchase orders and shipping
instructions delivered by Buyer, provided no purchase order shall contain any
provisions that contradict or supersede the provisions set forth in the
Agreement between the Parties.
Pricing is quoted as "fixed" prices based on the quantity of radio equipment
actually purchased by Buyer. Pricing is not inclusive of freight, nor any
applicable taxes.
- --------------------------------------------------------------------------------
Aug 7, 1995 Page 3
<PAGE>
[LOGO] Agreement Between Parties
A.R.T. LIMITED & P-Com, Inc.
REF: US-PCN-296 REV.1
EXHIBITS
Pricing Appendix 1
- --------------------------------------------------------------------------------
APPENDIX 1
PRICING
- --------------------------------------------------------------------------------
Aug 7, 1995 Page 1
<PAGE>
[LOGO] Agreement Between Parties
A.R.T. LIMITED & P-Com, Inc.
REF: US-PCN-296 REV.1
EXHIBITS
Pricing Appendix 1
- --------------------------------------------------------------------------------
38 GHz Radio Equipment
The proposed non-protected radio equipment is the Tel-Link 38. The link pricing
listed below consists of two ODU's and two IDU's which allow BT1 and DS3 radio
capacity, as applicable, also includes two 1' antenna's. Link Manager Port, and
NMS service channel. Equipment operates at -48VDC. The Belden 9913 coaxial
cable used to interconnect the ODU and IDU is not included.
Table 2
- --------------------------------------------------------------------------------
BT1 Non-Protected
- --------------------------------------------------------------------------------
Cumulative Link ART
Quantity Level List Price List Price % Disc.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[CONFIDENTIAL]
Table 3
- --------------------------------------------------------------------------------
1DS3 Non-Protected
- --------------------------------------------------------------------------------
Cumulative Link ART
Quantity Level List Price List Price % Disc.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[CONFIDENTIAL]
- --------------------------------------------------------------------------------
Aug 7, 1995 Page 2
<PAGE>
[LOGO] Agreement Between Parties
A.R.T. LIMITED & P-Com, Inc.
REF: US-PCN-296 REV.1
EXHIBITS
Pricing Appendix 1
- --------------------------------------------------------------------------------
Once the Buyer issues the Seller a purchase order in accordance with the
agreement inclusive of 8DS1 and/or DS3 radio links, [CONFIDENTIAL]. All 4DS1
radio links will carry the [CONFIDENTIAL]; all 8DS1 radio links will carry the
[CONFIDENTIAL] and all 1DS3 radio links will carry the [CONFIDENTIAL].
[CONFIDENTIAL]
Table 4
- --------------------------------------------------------------------------------
Links purchased / Debit calculation
- --------------------------------------------------------------------------------
Link Version Basic Factor Actual
Credit / Debit Credit / Debit
4DS1
8DS1 [CONFIDENTIAL]
1DS3
- --------------------------------------------------------------------------------
Aug 7 Page 3
<PAGE>
[LOGO] AGREEMENT BETWEEN PARTIES
A.R.T. LIMITED & P-COM, INC
REF: US-PCN-296
EXHIBITS
Equipment Configuration SCHEDULE B
- -------------------------------------------------------------------------------
SCHEDULE B
STANDARD CONFIGURATION
- -------------------------------------------------------------------------------
Aug 7, 1995 Page 1
<PAGE>
[LOGO] AGREEMENT BETWEEN PARTIES
A.R.T. LIMITED & P-COM, INC
REF: US-PCN-296
EXHIBITS
Equipment Configuration SCHEDULE B
- -------------------------------------------------------------------------------
The Tel-Link Series Radio terminal (38 GHz), as described in the P-Com
Applications Handbook and as proposed to ART, is equipped with the following
capabilities:
4DS1 TERMINAL
- 38 GHz ODU equipped for 4T1's
- Basic IDU equipped with 4T1's (without Keypad)
- 2 FSK Modulation
- -48v Power Input
- Link Manager Port
- DB25 100 Ohm Connector for T1 Connectivity
- Alarm Relays
- NMS Service Channel
- Front Only Connectors (No connectors on the back)
- 30cm antenna
8 DS1 TERMINAL
- 38 GHz ODU equipped for 8T1's
- Basic IDU equipped with 8T1's (without Keypad)
- 4 FSK Modulation
- -48v Power Input
- Link Manager Port
- DB25 100 Ohm Connector for T1 Connectivity
- Alarm Relays
- NMS Service Channel
- Front Only Connectors (No connectors on the back)
- 30cm antenna
1 DS3 TERMINAL
- 38 GHz ODU equipped for (1) DS3
- Basic IDU equipped with (1) DS3 (without Keypad)
- 4 FSK Modulation
- -48v Power Input
- Link Manager Port
- 75 Ohm BNC Connector for DS3 Connectivity
- Alarm Relays
- NMS Service Channel
- Front Only Connectors (No connectors on the back)
- 30cm antenna
The optional equipment available with the Tel-Link Series Radio equipment is
detailed in Schedule C.
- -------------------------------------------------------------------------------
Aug 7, 1995 Page 2
<PAGE>
[LOGO] AGREEMENT BETWEEN PARTIES
A.R.T. LIMITED & P-COM, INC
REF: US-PCN-296 Rev. 1
EXHIBITS
Equipment Options SCHEDULE C
- -------------------------------------------------------------------------------
SCHEDULE C
AUXILIARY EQUIPMENT PRICING
- -------------------------------------------------------------------------------
Aug 7, 1995 Page 1
<PAGE>
[LOGO] AGREEMENT BETWEEN PARTIES
A.R.T. LIMITED & P-COM, INC
REF: US-PCN-296 Rev. 1
EXHIBITS
Equipment Options SCHEDULE C
- -------------------------------------------------------------------------------
The pricing offered for the standard configuration is based upon a
streamlined platform that does not accommodate all options. Group 1, lists
the options that will require the use of the Enhanced IDU which is also
listed in Group 1. Group 2 items can be used directly with the standard radio
package. Group 3 lists specialty items that can be provided but that will
require special clarification.
EQUIPMENT LIST PRICE ART PRICE % DISC.*
- --------------------------------------- ---------- --------- --------
GROUP 1
Enhanced IDU (additional price)
Data Service Channel (per radio)
FEC (per radio)
Point to Point Orderwire (per radio)
Protection Kit:
MHSB Protection Kit #1 (per terminal) [CONFIDENTIAL]
Two Antenna Application
MHSB Protection Kit #2 (per terminal)
Single Antenna Application
GROUP 2
2' Antenna (per radio)
Remote Mounting Kit (per radio)
Link Manager Software:
GROUP 3
Network Management Software: To be determined, based upon
ART's requirements
- -------------------------------------------------------------------------------
Aug 7, 1995 Page 2
<PAGE>
[LOGO] AGREEMENT BETWEEN PARTIES
A.R.T. LIMITED & P-COM, INC
REF: US-PCN-296 REV.2
EXHIBITS
Delivery Schedule SCHEDULE D
- --------------------------------------------------------------------------------
SCHEDULE D
EQUIPMENT DELIVERY
- --------------------------------------------------------------------------------
Aug 7, 1995 Page 1
<PAGE>
[LOGO] AGREEMENT BETWEEN PARTIES
A.R.T. LIMITED & P-COM, INC
REF: US-PCN-296 REV.2
EXHIBITS
Delivery Schedule SCHEDULE D
- --------------------------------------------------------------------------------
Following is the shipment schedule for P-Com Tel-Link 38 radio equipment to ART,
subject to the provisions of Article 7 of Section 1.
SHIPMENT DATE QUANTITY OF RADIO LINKS
On or Before September 31, 1995 50, plus
On or Before December 31, 1995 100
SHIPMENT DATES CALENDAR YEAR 1996 QUANTITY OF RADIO LINKS
January 25
February 25
March 25
April 25
May 25
June 25
July 50
August 75
September 100
October 100
November 125
December 150
ANNUALIZED FOR 1995/1996 900
CALENDAR YEAR 1997
January 250
February 250
March 250
April 250
May 250
June 250
July, 1997 360 per month
through December 1998
- --------------------------------------------------------------------------------
Aug 7, 1995 Page 2
<PAGE>
[LOGO] AGREEMENT BETWEEN PARTIES
A.R.T. LIMITED & P-COM, INC
REF: US-PCN-296
EXHIBITS
Ship in Place Criteria SCHEDULE E
- --------------------------------------------------------------------------------
SCHEDULE E
SHIP IN PLACE CRITERIA
- --------------------------------------------------------------------------------
Aug 7, 1995 Page 1
<PAGE>
[LOGO] AGREEMENT BETWEEN PARTIES
A.R.T. LIMITED & P-COM, INC
REF: US-PCN-296
EXHIBITS
Ship in Place Criteria SCHEDULE E
- --------------------------------------------------------------------------------
For cases where Seller has received purchase orders with agreed scheduled
delivery dates from Buyer but has not received "SHIP TO" instructions, Seller
will "ship-in-place" as of the last day of the month for which shipment was
scheduled.
In such cases, the following criteria shall apply:
1. The Buyer will be invoiced against the purchase order and Buyer
shall pay in accordance with the invoice.
2. The Seller will transfer the equipment to a bonded storage
facility, and title to the goods shall pass to the Buyer.
3. A ship-in-place fully satisfies the contract commitment for
delivery.
4. Buyer will be invoiced at the Sellers cost, which shall not exceed
commercially reasonable storage fees and insurance costs, and said
amount will be added to the freight bill.
Upon receipt of ship to instructions, Seller agrees, as agent for the Buyer, to
arrange shipment thereof in accordance with the provisions of Article 15 of
Terms and Conditions (Section 2).
- --------------------------------------------------------------------------------
Aug 7, 1995 Page 2
<PAGE>
Agreement Between Parties
[P-COM LOGO] A.R.T. LIMITED & P-Com, Inc
REF: US-PCN-296
EXHIBITS
Technical Specification SCHEDULE F
- --------------------------------------------------------------------------------
SCHEDULE F
RADIO TECHNICAL INFORMATION
Set forth herein are the typical performance specifications of the Tel-Link 38,
referred to in Article 11 of the Agreement prepared with respect to the
Agreement.
- --------------------------------------------------------------------------------
Aug 7, 1995 Page 1
<PAGE>
1.0 TECHNICAL INFORMATION
1.1 INTERFACES
P-Com is continuously evolving new products and features. Please note
the following:
AVAILABLE INTERFACES ARE:
1E1, 2E1 and 4E1
1DS1 and 4DS1
3x64 kb/s
FUTURE INTERFACES MAY INCLUDE:
8DS1 and 16DS1
34 Mb/s & 45 Mb/s
10Mb E-Net
1.2 RADIO SPECIFICATIONS
In addition to the radio specifications listed below, refer to the
product data sheets in the appendix. The following specifications
relate to the Tel-Link Series 38GHz radio.
A) Frequency Response:
38.6 GHz to 40.0 GHz
B) Output power and adjustments:
Typical: +17 dBm
Output power is software controlled and is adjusted locally from
the radio control panel on the IDU. Adjustments can also be made
remotely by computer. Transmitter power can be software
controlled over a range of 25 dB down from maximum output power.
C) Modulation Technique:
P-Com employs 2-FSK modulation.
- --------------------------------------------------------------------------------
Aug 7, 1995 Page 2
<PAGE>
D) Interface Line Code:
AMI or B8ZS, field selectable.
E) Radiation pattern and dispersion:
Seller to provide as requested.
F) BER back to back:
10(-11) or better.
G) BER at -30 dBm RCL, -50 dBm RCL, -60 dBm RCL:
will be 10(-11) or better.
BER applies to all RCLs listed above.
H) Receiver type and sensitivity:
Type: Dual conversion.
Sensitivity:
BER 10(-6) -78 dBm
BER 10(-3) -81 dBm
I) Transmitter type
Type: 2-FSK modulated IDU and Upconverted
ODU.
Typical Stability: PLUS OR MINUS 0.0005%
J) Noise characteristics:
Receiver: 13 dB
K) Tuning range and steps:
Range: 350 MHz
Steps: 5 MHz
- --------------------------------------------------------------------------------
Aug 7, 1995 Page 3
<PAGE>
L) Channel bandwidth and spacing:
Bandwidth: 1DS1, 5 MHz, 4DS1, 15 MHz
Spacing: 700 MHz
M) DS1, CEPT1 and 2 masks:
Fully compliant with CCITT G.703.
N) Antenna Characteristics:
Antennas are FCC Category A rated.
O) Co-channel and multi path rejection:
Co-channel is 21 dB for one decade BER degradation referenced to
1x10(-6) BER. This applies to all data rates.
Due to the narrow beamwidth and short path application of 38GHz,
multipath perturbations are not a concern.
1.3 ANTENNA CHARACTERISTICS
A) Wind resistance and survivability:
Windloading for both the 1-foot and 2-foot antennas is:
Operational: 112 mph
Survival: 157 mph
B) Echo return loss:
Return loss if 10 dB.
C) Range using 1ft and 2ft antennae:
The propagation range of 38 GHz frequencies is controlled by the
instantaneous rain rate. Typically, path lengths are 5 to 7
kilometers or less.
D) Insertion loss (nominal):
- --------------------------------------------------------------------------------
Aug 7, 1995 Page 4
<PAGE>
[LOGO] AGREEMENT BETWEEN PARTIES
A.R.T. LIMITED & P-COM, INC
REF: US-PCN-296
EXHIBITS
Technical Specification Schedule F
- --------------------------------------------------------------------------------
P-Com's patented antenna flange design eliminates losses in
the connection between the ODU and the antenna. A direct
coupling is made between the ODU and the antenna eliminating
the need for waveguide, connectors or flex-twist.
E) Vertical and horizontal polarizations (field):
P-Com mounts are designed to allow for both vertical and
horizontal polarity orientation. In addition, the ODU and
antenna can be oriented for either right-hand or left-hand
mounting. All orientations are selected in the field.
F) Mounts (i.e. customization available):
The P-Com mount will accommodate 1.75" to 4.5" O.D. pipe
mounts, left- and right-hand orientation, and vertical or
horizontal polarization. The ODU can also be mounted
remotely from the antenna using the optional P-Com Remote
Installation Kit.
If ART has additional mounting requirements, P-Com will
gladly discuss any customized requirements and work with ART
to meet those requirements.
G) Gain Rx + Tx:
The antenna gain is:
12": 37.5 dBi
24": 44.0 dBi
1.4. PERFORMANCE CHARACTERISTICS:
MTBF - Engineering objective:
An MTBF of 10 years or greater is expected through prediction
calculations. The predictions are based on accurate types and
quantities of parts, failure rates for actual stress levels,
circuit redundancies, cycling effects and environment.
- --------------------------------------------------------------------------------
Aug 7, 1995 Page 5
<PAGE>
[LOGO] AGREEMENT BETWEEN PARTIES
A.R.T. LIMITED & P-COM, INC
REF: US-PCN-296
EXHIBITS
Technical Specification Schedule F
- --------------------------------------------------------------------------------
In addition to MTBF, MTTR is also a critical consideration. P-
Com's MTTR, once a technician has arrived at site, is typically 20 minutes or
less.
1.5 MECHANICAL:
A) Dimensions of both antenna and indoor unit:
Outdoor Unit(ODU): 10" dia., 8" depth
Antenna, 1 foot: 12' dia., 4" depth
Indoor Unit (IDU): 3.5" x 19" x 10.5"
B) Weight of both units:
Outdoor Unit(ODU): 10 lbs.
Indoor Unit(IDU): 8 lbs.
C) Type cable, fire retardant, Teflon available:
Type: RG8, Beldon 9913 recommended.
Only one cable is required.
Various cable coatings are available to
accommodate installation requirements to meet
building codes. The cable is not provided with the
radio equipment.
D) RF connection at antenna:
N-type female connector on the ODU. Requires N-type
male connector for cable.
E) Shipping weight and container size:
IDU: 17.5 lb; 10.5" x 18" x 24.5"
ODU: 19.0 lb; 16.5" x 15.5" x 16.5"
Antenna (12") 17.5 lb; 28.0" x 18.0" x 12.0"
Antenna (24") 40.0 lb; 29.0" x 29.0" x 16.0"
F) Connection at customer interface:
DS1: DB25, 100 ohm balanced
E1: BNC, 75 ohm unbalanced; or,
- --------------------------------------------------------------------------------
Aug 7, 1995 Page 6
<PAGE>
[LOGO] AGREEMENT BETWEEN PARTIES
A.R.T. LIMITED & P-COM, INC
REF: US-PCN-296
EXHIBITS
Technical Specification Schedule F
- --------------------------------------------------------------------------------
DB25, 120 ohm balanced
G) Maximum distance between antenna unit and interface
module. System is self equalizing.
Maximum distance: 1000 feet
H) Equalization at digital interface. Self equalization.
The radio is equipped with an LBO that is software
controlled and field adjustable via a laptop computer
equipped with P-Com Link Manager software.
1.6 ENVIRONMENTALIST:
A) Heat dissipation:
ODU: Typical 23 Watts (78.64 Btu/hr)
Maximum 30 Watts (102.56 Btu/hr)
IDU & ODU System:
4DS1: Typical 40 Watts (136.77 Btu/hr)
The low power consumption of the radio equipment
equates to a low heat dissipation.
B) Maximum and minimum ambient temperatures for antenna
unit and digital unit.
Outdoor Unit: -30 DEG.C to +60 DEG.C
Indoor Unit: -10 DEG.C to +55 DEG.C
C) Maximum and minimum relative humidity for both units.
Outdoor Unit: Up to 100% (all weather operation)
Indoor Unit: 95% at +55 Deg.C
D) EMR rating:
P-Com's radio equipment has been designed and tested to the
highest and most stringent of international EMC/EMI
- --------------------------------------------------------------------------------
Aug 7, 1995 Page 7
<PAGE>
[LOGO] AGREEMENT BETWEEN PARTIES
A.R.T. LIMITED & P-COM, INC
REF: US-PCN-296
EXHIBITS
Technical Specification Schedule F
- --------------------------------------------------------------------------------
standards. Both the IDU and ODU are sealed enclosures
providing maximum EMC screening protection. The use of
double-screened coaxial cable between the "N" type connector
terminations ensures maximum EMC performance.
There are no oscillators in the IDU or ODU operating in the
1.8 GHz frequency range and there are no receive IF
frequencies operating in the 1.8 GHz frequency range.
Therefore, the equipment will perform to full specification
and will not have any adverse affect on co-located 1.8 GHz
PCN equipment.
The following tests were conducted and passed:
Conducted emissions: 150kHz - 30 MHz, average peak.
Radiated emissions: 30 MHz - 1 GHz, 3m and 10m ranges.
Test Categories and standards included:
CATEGORY STANDARD
-------- --------
Emissions (conducted) CISPR-22
Emissions (radiated) EN55022 DIN VDE 0876
Immunity (conducted) IEC 801-4
Immunity (radiated) IEC 801-3
E) Engineered effect of ESD practical experience.
The equipment has been designed to the highest and most
stringent of international ESD standards, IED 801-2
(equivalent to EN 55101-2).
The P-Com equipment consists of sealed and shielded units
that protect it from ESD. There is no requirement for
opening these units for maintenance or repair.
P-Com's radio equipment is installed in Cellular, PCN and
Telco environments. No problems have been reported.
- --------------------------------------------------------------------------------
Aug 7, 1995 Page 8
<PAGE>
[LOGO] AGREEMENT BETWEEN PARTIES
REF: US-PCN-296 A.R.T. LIMITED & P-Com, Inc
EXHIBITS
Technical Specification SCHEDULE F
- --------------------------------------------------------------------------------
1.7 POWER:
A) Range of voltage input:
-48VDC Range -38.4 to -62.4VDC
B) Power consumption:
Typical (Non-protected) 4DS1:40W
C) Ripple tolerance:
50mV p-p
D) Surge tolerance and protection:
Compliant with ETSI pr ETS 300.132
- --------------------------------------------------------------------------------
Aug 7, 1995 Page 9
<PAGE>
[LOGO] AGREEMENT BETWEEN PARTIES
REF: US-PCN-296 A.R.T. LIMITED & P-Com, Inc
EXHIBITS
Network Management SCHEDULE G
- --------------------------------------------------------------------------------
SCHEDULE G
NETWORK MANAGEMENT
- --------------------------------------------------------------------------------
Aug 7, 1995 Page 1
<PAGE>
[LOGO] AGREEMENT BETWEEN PARTIES
REF: US-PCN-296 A.R.T. LIMITED & P-Com, Inc
EXHIBITS
Network Management SCHEDULE G
- --------------------------------------------------------------------------------
P-COM'S NETWORK MANAGEMENT SYSTEM SUPPORT
GENERAL
P-Com's Network Management System (NMS) provides the customer with a modem
efficient and open way to monitor and control P-Com's radio systems.
The radios on the network (or clusters of radios) are daisy-chained or
otherwise interconnected in order to create one network. Connections between
radios can be accomplished directly or through secondary data lines. P-Com's
approach to Network Management provides a very open approach to creating
different topologies to support any possible scenario. The following
description will include the standard NMS support inside the radio, the Link
Manager, and the Extended Link Manager. P-Com's Network Mediator, P-Com's
Network card, Network Supervisor, and a complete Network Management System
are projects currently planned but may or may not be under current
development.
RADIO SUPPORT
The network is developed based on the advanced monitor and control features that
are part of the radio. Some of these features are:
- IDU and ODU alarms internally monitored and serialized
- Four way bridge for star and daisy chain configuration.
- Physically connected with RS-232/422 asynchronous up to 9600 baud
protocols.
- Object oriented P-Com protocol that allows access to local and remote
sites.
- Up to 8 external alarms can be monitored
- 5 relay contacts that can be configured to close on any radio event.
- Full radio configuration, diagnostics and link performance (G.821)
supported through the network.
- Error detection protocol and error recovery.
- Multiple radio architecture capable of monitoring up to 4095
terminals.
- Optional NMS card for special applications.
- --------------------------------------------------------------------------------
Aug 7, 1995 Page 2
<PAGE>
[LOGO] AGREEMENT BETWEEN PARTIES
REF: US-PCN-296 A.R.T. LIMITED & P-Com, Inc
EXHIBITS
Network Management SCHEDULE G
- --------------------------------------------------------------------------------
LINK MANAGER
The Link Manager is a PC program running under Microsoft Windows. The Link
Manager controls a single link (local and remote). Link Manager is connected to
the radio using the standard computer port either directly or through a modem.
See Addendum A for additional details. The Link Manager provides the following
functionality:
- PC based application running Microsoft Windows using menus and action
buttons.
- Fully controls the radio link (unprotected or protected).
- Link Set-up (frequency, power, bit rate, ID...)
- Link Alarm Display (current, history)
- Lines Status (alarms, enable...)
- Loop back Diagnostics Support
- Relay Configuration Set-up
- Inventory Display (serial numbers, versions)
EXTENDED LINK MANAGER
Extended Link Manager (ELM) is based on the same Link Manager technology, but
connects to the radios via the NMS port. ELM allows the user to select which
radio is addressed at any time. The connection can be accomplished either
directly or via a modem.
- --------------------------------------------------------------------------------
Aug 7, 1995 Page 3
<PAGE>
[LOGO] AGREEMENT BETWEEN PARTIES
REF: US-PCN-296 A.R.T. LIMITED & P-Com, Inc
EXHIBITS
Network Management SCHEDULE G
- --------------------------------------------------------------------------------
OPTIONAL P-COM NMS PROGRAMS
NETWORK MEDIATOR
The Network Mediator is an external unit that can be installed next to a radio
or a cluster of radios at a hub. The Network Mediator serves as a translator
between P-Com's protocol and the controlled radios. The main characteristics of
the mediator are:
- Physically self contained in a 1U shelf with its own power supply
- Able to communicate and monitor multiple daisy chained radios
- Able to communicate via Ethernet using SNMP to a higher NMS.
- Supports automatic polling of all the controlled radios.
- Able to store 24 hours of polled information.
- Able to send commands received on the Ethernet to the selected radio.
NETWORK CARD
The network card is an add on to the radio that allows the radio to communicate
with the network management system directly over Ethernet using SNMP. The card
is installed inside the radio and maintains the SNMP agent for the radio. This
card can be used with other customized protocols.
NETWORK SUPERVISION SYSTEM
The network Supervision System is based on HP OpenView software running on a PC
with Windows. This system can monitor multiple P-Com radios daisy chained using
the NMS radio provisions. The radios could be at one site, or separated as
long, as the NMS service channel is extended. The main characteristics of the
Network Supervision System are:
- PC-Based running Microsoft Windows.
- Multi-Level network map with zooming.
- Network graphical alarm summary, allows status check based on colors.
- Network logging of events and display filters allowing examination of
alarm history.
- --------------------------------------------------------------------------------
Aug 7, 1995 Page 4
<PAGE>
[LOGO] AGREEMENT BETWEEN PARTIES
REF: US-PCN-296 A.R.T. LIMITED & P-Com, Inc
EXHIBITS
Network Management SCHEDULE G
- --------------------------------------------------------------------------------
OPTIONAL P-COM NMS PROGRAMS
NETWORK MANAGEMENT SYSTEM
The Network Management System is based on HP OpenView. It is the same as the
Supervision System but also includes full control of the radio using an embedded
Link Manager element that can be launched on the NMS platform.
If the radios are connected using the Network Mediator, the radios can be polled
and managed by any standard SNMP Network Management System (such as HP
OpenView).
NETWORK MANAGEMENT SUMMARY
As you can see, P-Com has several network management options, and we are
prepared to work with ART to determine what option(s) will meet ART's
requirements. P-Com can also modify its protocol to operate with existing
network management systems.
P-Com's approach is to be flexible and accommodating to insure that the
end-users receive the network management features and interface capabilities
desired to operate and maintain their networks.
It is recommended that P-Com and ART meet to discuss in detail ART's
requirements and how P-Com can accommodate them.
- --------------------------------------------------------------------------------
Aug 7, 1995 Page 5
<PAGE>
[LOGO] AGREEMENT BETWEEN PARTIES
REF: US-PCN-296 A.R.T. LIMITED & P-Com, Inc
EXHIBITS
Technical Specification SCHEDULE H
- --------------------------------------------------------------------------------
SCHEDULE H
STANDARDS & PRODUCT TYPE ACCEPTANCE
- --------------------------------------------------------------------------------
Aug 7, 1995 Page 1
<PAGE>
[LOGO] AGREEMENT BETWEEN PARTIES
REF: US-PCN-296 A.R.T. LIMITED & P-Com, Inc
EXHIBITS
Technical Specification SCHEDULE H
- --------------------------------------------------------------------------------
P-Com meets or exceeds the following standards. P-Com employs the
leading industry standards in the design and manufacture of the
Tel-Link Series radios. P-Com's equipment has also been tested
and certified by regulatory agencies in the United Kingdom, Italy
and Germany.
Following is a partial list of the standards employed:
FCC Part 21, 94,15 IEC 801-3, 801-4
AT&T TA 34, Pub 43802 CCIR Rec. 749
DTI MPT 1414 CCITT G.703, 823, 824, 842
ETSI pr ETS 300 197 BS 3192
BAPT 211 ZV 12/38GHz CISPR-22
IEC 950, 65, 215 EN 55022 DIN VDE 0876
P-Com is approved by certification testing labs in the U.K. (DTI)
and in Germany (BZT), as well as being homologated or approved for
service in the following countries:
APPROVED PENDING
-------- -------
United States (FCC) Hungary
Mexico France
Germany Belgium
United Kingdom Spain
Australia Portugal
Czechoslovakia
Greece
Italy
Slovakia
And in adhering to the worldwide demand for quality design and
manufacturing processes, P-Com is ISO-9001 certified.
After an extensive technical evaluation and quality audit, P-Com
has finalized approval as an OEM supplier to:
AT&T,
Siemens, and
Harris Corporation, Farinon Division
- --------------------------------------------------------------------------------
Aug 7, 1995 Page 2
<PAGE>
[logo] AGREEMENT BETWEEN PARTIES
A.R.T. LIMITED & P-COM, INC
REF: US-PCN-296
EXHIBITS
QUALITY AND PRODUCT APPROVAL SCHEDULE J
________________________________________________________________________________
SCHEDULE J
QUALITY
________________________________________________________________________________
Aug 7, 1995 Page 1
<PAGE>
[logo]
QUALITY ASSURANCE
MANUAL
[PICTURE] [PICTURE]
RESEARCH AND DEVELOPMENT CUSTOMER SERVICE
QUALITY
SYSTEM
[PICTURE] [PICTURE]
MANUFACTURING & TEST SALES & MARKETING
<PAGE>
[logo] QUALITY ASSURANCE MANUAL No: 03.70.001
Rev: E
Date: 3-94
Page: 1 of 18
________________________________________________________________________________
QUALITY ASSURANCE MANUAL
COPY CONTROL NO._____
/ / UNCONTROLLED COPY
This QUALITY ASSURANCE MANUAL addresses the requirements of ISO 9001-1987 (BS
5750: Part 1. EN29001-1987) and is the property of P-Com. Inc., and must be
returned upon request.
This manual describes in outline form the organization and the quality related
systems within the Company, and is intended to assist the recipient in
understanding how the Company's Quality System works.
The Quality System outlined is enforced by seperate QUALITY ASSURANCE
PROCEDURES that are considered confidential and may not be distributed outside
the Company.
This manual in whole or part may not be copied without the written permission
of the President of the Company.
P-Com, Inc.
3175 S. Winchester Boulevard
Campbell, CA 95008
U.S.A.
<PAGE>
[logo] QUALITY ASSURANCE MANUAL No: 03.70.001
Rev: E
Date: 3-94
Page: 2 of 18
________________________________________________________________________________
TABLE OF CONTENTS
ISO 9001 CROSS REFERENCE TABLE................................................3
ISO 9001 CROSS REFERENCE......................................................3
1.0 QUALITY POLICY STATEMENT..................................................4
2.0 APPLICABLE DOCUMENTS......................................................5
3.0 GLOSSARY..................................................................5
4.0 CORPORATE PROFILE.........................................................6
5.0 ORGANIZATION..............................................................7
6.0 MANAGEMENT RESPONSIBILITY.................................................8
7.0 QUALITY SYSTEM............................................................10
8.0 PROCEDURE SUMMARY.........................................................11
LOCATION MAP..................................................................17
RECORD OF REVISIONS...........................................................18
<PAGE>
[LOGO]
QUALITY ASSURANCE MANUAL
NO: 03.70.001
REV: E
DATE: 3-94
PAGE: 3 OF 18
- --------------------------------------------------------------------------------
ISO 9001 CROSS REFERENCE
- --------------------------------------------------------------------------------
ISO 9001 QAM
PARA REQUIREMENTS PARA PAGE QAP #
- --------------------------------------------------------------------------------
4.1.1 Quality Policy 1.0 4
- --------------------------------------------------------------------------------
4.1.2.1 Responsibility and Authority 5.0 7
- --------------------------------------------------------------------------------
4.1.2.3 Management Representative 6.0 8
- --------------------------------------------------------------------------------
4.1.3 Management Review 8.1 11 03.70.002
- --------------------------------------------------------------------------------
4.2 Quality System 7.0 10
- --------------------------------------------------------------------------------
4.3 Contract Review 8.2 11 03.70.003
- --------------------------------------------------------------------------------
4.4.1 Design Control 8.3 11 03.70.004
- --------------------------------------------------------------------------------
4.4.5 Design Verification 8.3.5 12 03.70.004
- --------------------------------------------------------------------------------
4.4.6 Design Changes 8.3.6 12 03.70.004
- --------------------------------------------------------------------------------
4.5 Document Control 8.4 12 03.70.005
- --------------------------------------------------------------------------------
4.6 Purchasing 8.5 13 03.70.006
- --------------------------------------------------------------------------------
4.7 Purchaser Supplied Product 8.6 13 03.70.007
- --------------------------------------------------------------------------------
4.8 Product Identification and
Traceability 8.7 13 03.70.008
- --------------------------------------------------------------------------------
4.9 Process Control 8.8 14 03.70.009
- --------------------------------------------------------------------------------
4.10 Inspection and Testing 8.9 14 03.70.010
- --------------------------------------------------------------------------------
4.11 Inspection, Measuring and
Test Equipment 8.10 14 03.70.011
- --------------------------------------------------------------------------------
4.12 Inspection and Test Status 8.11 15 03.70.012
- --------------------------------------------------------------------------------
4.13 Control of Non-Conforming Material 8.12 15 03.70.013
- --------------------------------------------------------------------------------
4.13.1 Non-conformance Review and
Disposition 8.12.1 15 03.70.013
- --------------------------------------------------------------------------------
4.14 Corrective Action 8.13 15 03.70.014
- --------------------------------------------------------------------------------
4.15.1 Handling, Storage, Packaging and
Delivery 8.14 15 03.70.015
- --------------------------------------------------------------------------------
4.16 Quality Records 8.15 16 03.70.016
- --------------------------------------------------------------------------------
4.17 Internal Quality Audits 8.16 16 03.70.017
- --------------------------------------------------------------------------------
4.18 Training 8.17 16 03.70.018
- --------------------------------------------------------------------------------
4.19 Servicing 8.18 16
- --------------------------------------------------------------------------------
4.20 Statistical Techniques 8.19 16 03.70.019
- --------------------------------------------------------------------------------
<PAGE>
[LOGO]
QUALITY ASSURANCE MANUAL
NO: 03.70.001
REV: E
DATE: 3-94
PAGE: 4 OF 18
- --------------------------------------------------------------------------------
1.0 QUALITY POLICY STATEMENT
It is the policy of P-Com, Inc., to provide the customer with products that
conform to all aspects of generally accepted industrial standards and
specified contract requirements.
Quality is of vital importance to the Company and we totally commit to a
Quality Assurance Management System that conforms to the requirements of
ISO 9001:1987.
All employees are responsible for quality, and are responsible for
achieving the specified levels of quality at all stages of work that have
an effect on the final quality of the product supplied.
We undertake, by practical example and training, to ensure that each
employee has a proper understanding of the quality function and it's direct
relevance and significant contribution to our success.
1.1 MANAGEMENT CERTIFICATION
I hereby certify that this QUALITY ASSURANCE MANUAL accurately describes
the Quality Assurance Management System in use within P-Com. Inc., and
encompasses the requirements of ISO 9001:1987.
President and CEO /s/ George P. Roberts Date: 3/31/94
--------------------------- ------------
George P. Roberts
<PAGE>
[LOGO]
QUALITY ASSURANCE MANUAL
NO: 03.70.001
REV: E
DATE: 3-94
PAGE: 5 OF 18
- --------------------------------------------------------------------------------
1.2 COMPANY CONTACTS
All questions concerning P-Com's commitment to the contents of this QUALITY
ASSURANCE MANUAL may be directed to either George Roberts, President and
CEO, or Kenneth Bean, Quality Assurance Manager, by the following methods:
Tel: 408-866-3666
Fax: 408-866-3655
Mail: P-Com, Inc.
3175 S. Winchester Boulevard
Campbell, CA 95008
U.S.A.
2.0 APPLICABLE DOCUMENTS
ISO 9001: 1987 Quality Systems
BS 5750 Part 1: 1987 Quality Systems
EN 29001: 1987 Quality Systems
ANSI/ASQC Q91 Quality Sytems
QAP 03.70.002 Management Review - QAP 4.1
QAP 03.70.003 Contract Review - QAP 4.3
QAP 03.70.004 Design Control - QAP 4.4
QAP 03.70.005 Document Control - QAP 4.5
QAP 03.70.006 Purchasing - QAP 4.6
QAP 03.70.007 Purchaser Supplied Product - QAP 4.7
QAP 03.70.008 Product I.D. and Traceability - QAP 4.8
QAP 03.70.009 Process Control - QAP 4.9
QAP 03.70.010 Inspection and Testing - QAP 4.10
QAP 03.70.011 Inspection, Measuring and Test Equipment - QAP 4.11
QAP 03.70.012 Inspection and Test Status - QAP 4.12
QAP 03.70.013 Control of Non-conforming Product - QAP 4.13
QAP 03.70.014 Corrective Action - QAP 4.14
QAP 03.70.015 Handling, Storage, Packaging and Delivery - QAP 4.15
QAP 03.70.016 Quality Records - QAP 4.16
QAP 03.70.017 Internal Quality Audits - QAP 4.17
QAP 03.70.018 Training - QAP 4.18
QAP 03.70.019 Statistical Techniques - QAP 4.20
3.0 GLOSSARY
QUALITY: The totality of features and characteristics of the product that
bear on its ability to satisfy stated or implied needs.
QUALITY ASSURANCE MANAGEMENT SYSTEM: All the planned and systematic actions
necessary to provide adequate confidence in the product to satisfy given
requirements for quality.
<PAGE>
[LOGO]
QUALITY ASSURANCE MANUAL
NO: 03.70.001
REV: E
DATE: 3-94
PAGE: 6 OF 18
- --------------------------------------------------------------------------------
4.0 CORPORATE PROFILE
P-Com Inc. was founded in August 1991, for the express purpose of
developing, manufacturing and marketing millimeter wave radio products for
the telecommunications industry. These prducts meet a critical need for
high quality, cost effective, digital transmission in short distance
applications. In general, the P-Com management team is dedicated to
removing the gap that exists between the products that arre currently
available and the needs of the market.
P-Com millimeter wave radio products meet the crucial requirement of
minimizing the customer's "cost of ownership". The design philosophy that
governs all P-Com product development decisions is one that results in a
product that is low in cost, high in reliability and simple to install and
maintain. Given the competitive nature of the telecommunications service
industry, these attributes play a key role in the successful and profitable
operation of a customer's telecommunications network.
4.1 COMPANY MISSION
To design, develop and manufacture high quality radio transmission products
for the worldwide wireless telecommunications market.
[GRAPHIC OF WORLD MAP]
<PAGE>
[LOGO]
QUALITY ASSURANCE MANUAL
No: 03.70.001
Rev: E
Date: 3-94
Page: 7 of 18
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
5.0 ORGANIZATION
The Company organization and lines of authority are detailed in Figure 1.
<S> <C> <C> <C> <C> <C> <C>
-------------
BOARD OF
DIRECTORS
-------------
/
/
------------- ----------------
PRESIDENT &
CEO ------ ADMINISTRATIVE
------------- ----------------
/
------------------------------------------------------------------------------------------------------------------
/ / / / / /
--------- ----------- ---------- --------- --------- ------------
MARKETING ENGINEERING OPERATIONS QUALITY FINANCE CTD
& SALES VP VP ASSURANCE VP EXECUTIVE VP
SENIOR VP MANAGER
--------- ----------- ---------- --------- --------- ------------
/ / / / / /Business
/ / / / /Controller/Development
/ / / / /----------/-----------
/ / / / / /Advance
/ / / / /Accounting/Development
/ / / / /----------/-----------
/ / / / /Human
/ / / / /Resources
/ / / / /----------
/ / / / /Facilities
/ / / / /----------
/ / / /
/ / / --------------------------
--------- ----------------------------------- ---------------------------------------------- /
/ / / / / / / / / / / /
- --------- -------- ---------- ----------- --------- ----------- ---------- ---------- --------- -------- ------------- -------
MARKETING SALES ?????? SYSTEMS MICROWAVE MECHANICAL PROGRAM PRODUCTION MATERIALS CUSTOMER MANUFACTURING QUALITY
MANAGER DIRECTOR PROCESSING ENGINEERING DIRECTOR ENGINEERING MANAGEMENT MANAGER MANAGER SERVICE ENGINEERING ENGINEER-
DIRECTOR SUPERVISOR MANAGER ING
- --------- -------- ---------- ----------- --------- ----------- ---------- ---------- --------- -------- ---------- -------
/MARKETING /APPLICATION / / / /MECHANICAL /NEW PRODUCT / /PURCH- /RETURN &/ TEST /
/SUPPORT /ENGINEERING /SOFTWARE /???? /???? /DESIGN /INTRODUCTION/ASSEMBLY /ASING /REPAIR /ENGINEERING /INSPECTION
- ---------- /----------- /-------- /------- /--------- /---------- ----------- /-------- /------ /------- /----------- /----------
/SALES /HARDWARE /SYSTEM /???? /PCB /TEST /INVEN- /SYSTEM /PRODUCT
/SUPPORT / /DESIGN / /DESIGN / /TORY /CONFIG- /ENGINEERING
/ / / / / / /CONTROL /URATION /
/---------- /-------- /------- /--------- /---------- /---------/------- /--------/-----------
/???? /RADIO /DRAFTING /SYSTEM /RECIEVING /PRODUCT
/DESIGN /DESIGN / /INTEGRA- /AND /ENGINEERING
/ / / /TION /SHIPPING /
/--------/--------- /---------- /-------- /-------- /-----------
/COMOPONENT
/ENGINEERING
/-----------
/DOCUMENT
/CONTROL
/
/-----------
/????
/
/------------
Figure 1
</TABLE>
<PAGE>
[LOGO] COM QUALITY ASSURANCE MANUAL NO: 03.70.001
REV: E
DATE: 3-94
PAGE: 8 OF 16
- --------------------------------------------------------------------------------
6.0 MANAGEMENT RESPONSIBILITY
The Company's organization is designed to provide effective direction,
communication and management to meet the requirements defined in the
Quality Policy Statement.
6.1 PRESIDENT AND CHIEF EXECUTIVE OFFICER (CEO)
The President and CEO holds responsibility within the Company to
formulate, in association with the key Executives, overall Company
policy. He is responsible for the development and implementation of
strategies for the control of all aspects of the business through
designated Company personnel. The President shall be deputized Quality
Assurance Manager in his absence.
6.2 EXECUTIVE VICE PRESIDENT AND CHIEF TECHNICAL OFFICER (CTO)
Reporting to the President of the Company, the Executive Vice-President
has overall responsibility for the introduction of advanced technologies
into the product, business development and strategic business alliance
activities.
6.3 QUALITY ASSURANCE MANAGER
The Quality Assurance Manager is the management representative reporting
to the President and is responsible for ensuring full implementation and
maintenance of the ISO 9001 quality system and the internal auditing
required to verify its effectiveness. In addition to these
responsibilities, he has issuing and revision control of the Company's
Quality Assurance Manual and related Quality Assurance Procedures
(QAP's).
6.3.1 SENIOR QUALITY ENGINEER
The Senior Quality Engineer reporting to the Quality Assurance Manager
develops and initiates standards and methods for inspection, testing, and
evaluation of materials and products. The Senior Quality Engineer also
directs Inspectors engaged in product inspection and tabulating data
concerning materials product, or process quality and reliability. In
addition, duties include maintaining the procedures for disposition of
non-conforming materials and product in conjunction with appropriate
corrective action follow-up.
6.4 VICE PRESIDENT (V.P.), OPERATIONS
Reporting to the President of the Company, the Operations V.P. is
responsible for organizing and introducing the product manufacturing
strategy and manufacturing control systems combined with providing
services and facilities for the Company's operation.
6.4.1 PROGRAM MANGER
Reporting to the Operations V.P. the Program Manager is responsible for
providing technical support for other Company functions and creating a
MASTER DESIGN SCHEDULE to satisfy the MARKET REQUIREMENTS SPECIFICATION
and the business objectives as defined by senior management. The
Program Manager also identifies critical issues and expediting
improvements through staff meetings and design reviews with
consideration to estimated parts and labor costs.
<PAGE>
[LOGO] COM QUALITY ASSURANCE MANUAL NO: 03.70.001
REV: E
DATE: 3-94
PAGE: 9 OF 16
- --------------------------------------------------------------------------------
6.4.2 PRODUCTION MANAGER
Reporting to the Operations V.P. the Production Manager prepares
operational schedules and coordinates manufacturing activities to ensure
production and quality of products. Other responsibilities include
planning production operations, establishing priorities and sequences
for manufacturing products.
6.4.3 MATERIALS MANAGER
Reporting to the Operations V.P. the Materials Manager is responsible
for directing and coordinating the purchasing and distribution of
components for the design and manufacture of products, capital
equipment, and liaison with arranging contracts with suppliers and
sub-contractors.
6.5 SENIOR VICE PRESIDENT (VP), MARKETING & SALES
Reporting to the President of the Company, the Marketing V.P. is
responsible for developing the customer base and obtaining sales orders
through marketing and sales strategy action plans. Other
responsibilities include communicating the Company's corporate image in
the market place while defining the market requirements for use by
design engineering. He also provides technical publications, operations
manuals, training materials and seminars for existing or potential
customers.
6.5.1 MARKETING MANAGER
Reporting to the Marketing & Sales V.P., the Product Marketing Manager
is responsible for: a) product definition to Engineering based upon
customer inputs, competitive research. Industry standards and cost
targets, b) corporate and product promotional literature, trade shows,
public relations, customer demonstrations/presentations and sales
support (assistance in proposal generation).
6.5.2 DIRECTOR OF SALES
Reporting to the Marketing & Sales V.P., the Director of Sales is
responsible for expanding the customer base, developing the Marketing
Plan, obtaining sales orders, and meeting the revenue objectives of the
corporation. Other responsibilities include ensuring customer
satisfaction, relaying customer requests for product improvement and
customer support functions of the corporation. The Director of Sales
acts as a liaison between the customer and the corporation.
6.6 VICE PRESIDENT (V.P.), FINANCE/CONTROLLER
Reporting to the President of the Company, the Finance V.P. is
responsible for preparation of the Company's assets. Other
responsibilities include management of Human Resources and
Administrative functions.
6.7 VICE PRESIDENT (V.P.), ENGINEERING
Reporting to the President, the Engineering V.P. is responsible for
planning, budgeting, and managing the technical resources for the
Company. Responsibilities also include technical direction for the
Company, and organizing the engineering team to insure the technical
integrity of products developed and that the requirements as defined by
Marketing are satisfied.
6.7.1 DIRECTOR, MICROWAVE ENGINEERING
Reporting to the Engineering V.P., the Microwave Engineering Director is
responsible for managing a team of design engineers, technicians and
consultants that provide all the microwave circuit designs and
associated system interfaces including all the required documentation
and control procedures.
<PAGE>
[LOGO] COM QUALITY ASSURANCE MANUAL NO: 03.70.001
REV: E
DATE: 3-94
PAGE: 10 OF 16
- --------------------------------------------------------------------------------
6.7.2 DIRECTOR, SIGNAL PROCESSING (SP) ENGINEERING
Reporting to the Engineering V.P., the SP Engineering Director is
responsible for managing a team of design engineers, technicians and
consultants that provide all the SP electronic circuit designs and
associated system interfaces including all the required documentation and
control procedures.
7.0 QUALITY SYSTEM
The Quality System within the Company is based on a four tier
documentation system composed of the following:
* Level 1, Quality Assurance Manual
* Level 2, Quality Assurance Procedures (QAP's)
* Level 3, Company Standards and Procedures
* Level 4, Industrial Standards and Database
7.1 LEVEL 1
The QUALITY ASSURANCE MANUAL describes in outline form the Management's
organization and the quality related systems in operation within the
Company to meet the requirements of ISO 9001: 1987. It assists the
customer in making as assessment of our ability to meet the specified
quality assurance requirements.
7.2 LEVEL 2
The systems outlined in the QUALITY ASSURANCE MANUAL are enforced by
separate QUALITY ASSURANCE PROCEDURES (QAP'S) which describe the
operational procedures of the related systems and define the responsible
personnel and the objective evidence generated for substantiation.
The QAP's are confidential to the Company and not for general
distribution. However, at the discretion of the Company President, they
may be made available for review by the customer.
7.3 LEVEL 3
The QAP's are supported by a number of related non-product design
documents such as COMPANY STANDARDS AND PROCEDURES that contain detail
describing the administrative system, such as how to conduct a Design
Review meeting.
Separate from Company Standards and Procedures are the product design
documents describing tasks or work instructions that are in direct
support of the product, such as a Test Procedure.
Both non-product design and product design documents are confidential to
the Company and are not for general distribution. However, at the
discretion of the Company President, they may be made available for
review by the customer.
7.4 LEVEL 4
Level four documents are industrial engineering standards, design rules
or Customer documents that form reference materials as a database
supporting Internal COMPANY STANDARDS AND PROCEDURES.
<PAGE>
[logo] QUALITY ASSURANCE MANUAL NO: 03.70.001
REV: E
DATE:3-94
PAGE: 11 OF 18
- --------------------------------------------------------------------------------
8.0 PROCEDURE SUMMARY
- -------------------------
This following sections give a brief overview of each QAP that
describes in detail the operational procedures of the related systems in
support of ISO 9001 : 1987. Next to each QAP title the corresponding
document number is given in parenthesis as applicable.
8.1 MANAGEMENT REVIEW - QAP 4.1 (03.70.002)
It is company policy that the Quality System is reviewed by the
President every six months. The meeting is chaired by the Presidents,
and attended by the Vice Presidents, the Quality Assurance
Manager, and any other personnel deemed necessary.
The agenda includes a review of actions taken from previous meetings,
results of Internal Quality Audits, Non-conformance Reports, customer
complaints and overall effectiveness of the Quality System.
The minutes of the meeting and relevant documentation are retained by
the Quality Assurance Manager.
8.2 CONTRACT REVIEW - QAP 4.3 (03.70.003)
It is the policy of P-Com to document all inquiries, quotations,
contracts, bid proposals, purchase orders and associated area.
This documentation is reviewed to establish that requirements can be
achieved and that all contracts and specifications are adequately
defined. Deviations are resolved with the customer before processing
and amendments to requirements are documented.
8.3 DESIGN CONTROL - QAP 4.4 (03.70.004)
8.3.1 GENERAL
P-Com has established STANDARDS AND PROCEDURES for control and
verification of the product design to ensure that all specified
contract requirements are satisfied.
8.3.2 DESIGN AND DEVELOPMENT PLANNING
The MARKETING REQUIREMENT SPECIFICATION is used by the Program Manager
to create a MASTER DESIGN SCHEDULE for the design project. Additional
planning schedules are produced containing planning information for
engineers and personnel from other functions. These are regularly
reviewed, documented and the information circulated to all appropriate
groups within the company.
QUALITY PLANS are written describing how the quality requirements of
contract are achieved.
The Engineering V.P. has overall responsibility for the product design
function and assigns design and verification activities to the
Engineering Directors. The design resources consist of teams of
specialist engineers and technicians with the necessary capital
equipment.
8.3.3 DESIGN INPUT
The MARKETING REQUIREMENT SPECIFICATION and the specific customer
contracts are the source documents for the design input requirements.
Technical engineering specifications are developed for the procuct
and for defined subdivisions of the product. Detail requirements
are refined during the design process.
<PAGE>
[logo] QUALITY ASSURANCE MANUAL NO: 03.70.001
REV: E
DATE: 3-94
PAGE: 12 of 18
________________________________________________________________________________
8.3.3 CON'T
This Product Design Specification defines the functionality of the
product system and identifies the regulatory, customer specific,
marketing, product safety, and engineering requirements.
8.3.4 DESIGN OUTPUT
During the design process acceptance criteria are established for all
appropriate product systems and sub-systems.
Design calculations, system analysis, drawings, process instructions,
test procedures, specifications, user manuals, etc., are generated as
design outputs.
8.3.5 DESIGN VERIFICATION
Design reviews are regularly held to control all aspects of the design
process and are part of the MASTER DESIGN SCHEDULE.
Verification that the design meets the specified contract requirements
is conducted at various levels of product system. Testing against
defined acceptance criteria and qualification programs are carried out.
8.3.6 DESIGN CHANGES
P-Com has STANDARDS AND PROCEDURES for the documentation and recording
of design changes. The engineering Change Order (ECO) system provides
the method to evaluate, approve, and incorporate design changes into
product documentation.
8.3.7 Product Release
P-Com has Standards and Procedures defining the requirements for a
uniform method of releasing a product and its technical documentaion
manufacturing. The system also provides the method of controlling
documentation during the engineering development cycle and construcion
of breadboard and/or prototype product.
8.4 DOCUMENT CONTROL -QAP 4.6 (03.70.005)
8.4.1 Document Approval and Issue
P-Com operated Standards and procedures for the registration, issue of
all product design documents and non product documents including the
Quality Manual, Quality Assurance Procedures, Company Standards,
Procedures and database.
The Document Control department ensures that only the applicable issues
of documents are used and obsolete documents are removed.
8.4.2 Document Change and Modification
Company Standards and Procedures provide for the initiation,
evaluation, approval and implementation of all documentation changes.
The Document Control department maintains a log of all proposed and
approved ECO's for product design documents. Approval Sheets for
changes of non product design documents are alos maintained within
Document Control.
<PAGE>
[logo] QUALITY ASSURANCE MANUAL No: 03.70.001
Rev: E
Date: 3-94
Page: 13 of 18
________________________________________________________________________________
8.5 PURCHASING - QAP 4.6 (.03.70.005)
8.5.1 General
All purchasing resisted activities are conducted under controlled
conditions which provide for objective assessment of all suppliers and
ensure that purchasing information is correct before release to the
supplier.
8.6.2 Assessment of Suppliers/Subcontractors
It is Company policy that, wherever possible, purchased material and
subcontracted service are obtained from a company approved source.
The Company maintains lists of approved sources and carries out
supplier/sub-contractor evaluations to ensure conformance with
requirements. Products pruchased from non-approved sources are
identified to the cutomer.
8.5.3 Purchasing Date
All purchasing documents clearly describe the material and sub-
contractor services ordered. Purchase orders are reviewed and approved
before release.
8.5.4 Verification of Purchased Product/Service
When contractually specified by the customer. Quality Assurance
requirements may be verified at P-Com by the customer. It is
Company policy to provide for and assist those customers who require
such verification.
8.6 PURCHASER SUPPLIED PRODUCT - QAP 4.7 (03.70.007)
Purchaser Supplied product in this type of industry is typically
equipment and/or documentation supplied to P-Com for design and
production related work. The Marketing Manager is responsible for the
care and control of documentation and the Quality Assurance Manager
is responsible for equipment.
8.7 PRODUCT IDENTIFICATION AND TRACEABILITY -QAP 4.8 (03.70.008)
Components, printed circuit assemblies (PCA's), modules, and top
assemblies used to produce the product shall be assigned unique part
numbers. All of these shall be physically marked with their
corresponding part numbers and revision where practical using a
permnent method. In the case of purchased off the shelf components
and size limitations, the storage or handling container shall be
marked with the corresponding part number and revision.
PCA's, modules, and top assemblies used to produce the product are
assigned and indelibly marked with serial numbers. Records of the
serial numbers used for the final product assembly are maintained.
Components are excluded from individual serail number assignments
except when deemed necessary by the Design department for critical
applications requiring source lot traceability. These components are
identified on pruchase documentation such as Source Control Drawings
and Specification Control Documents, drawings/schematics, and Bills of
Material.
<PAGE>
[logo] QUALITY ASSURANCE MANUAL No: 03.70.001
Rev: E
Date: 14 of 18
________________________________________________________________________________
8.8 PROCESS CONTROL - QAP 4.9 (03.70.009)
General
The company ensures that the procedures that control the planning
and operation of the manufacturing process are implemented. This is
accomplished through documented work instructions and appropriate
equipment for process, assembly and test.
8.8.1 Special Processes
There are no special processes
8.9 INSPECTION AND TESTING - QAP 4.10 (03.70.10)
8.9.1 Receiving Inspection and Testing
All incoming materials are checked for compliance with the purchase
order detail. Any damaged or incorrect materials are identified,
segregated and processed using formal control procedures incoming
material released for urgent purposed is identified and recorded in
accordance with formal positive recall procedures.
8.9.2 In-process Inspection and Testing
At defined states of the process and assembly operation, the product
is identified, inspected and tested to establish conformance to
documented specified requirements.
8.9.3 Final Inspection and Test Records
All inspection records are retained for manufactured products
indicating acceptance to defined criteria.
8.10 INSPECTION, MEASURING AND TEST EQUIPMENT - QAP 4.11 (03.70.011)
The Company operates a system for ensuring that inspection, measuring
and test equipment used to determine the conformance of product to
contract specified requirements are periodically calibrated serviced
and adjusted to maintain the accuracy to required limits.
Calibration system and records maintained in compliance to applicable
national standards.
<PAGE>
[LOGO] QUALITY ASSURANCE MANUAL No: 03.70.001
Rev: E
Date: 3-94
Page: 15 of 18
- -------------------------------------------------------------------------------
8.11 INSPECTION AND TEST STATUS - QAP 4.12 (03.70.012)
The inspection and test status of product during the process and
assembly stages of the operation is identified by unique routing card.
A unique routing card is provided for each defined module, subassembly
or product recording its progress through the manufacturing process
and its conformance to inspection and tests performed.
The Quality Assurance Manager is responsible for the release of
conforming product.
8.12 CONTROL OF NON-CONFORMING PRODUCT - QAP 4.13 (03.70.013)
Incoming material, work in progress, and finished product that does
not conform to specified requirements is prevented from inadvertent
use by identification, segregation and disposition in accordance with
documented procedures.
8.12.1 NON-CONFORMANCE REVIEW AND DISPOSITION
In the documented procedures, the Quality Engineer is responsible for
the review of NON-CONFORMANCE REPORTS with other members of the
Company Material Review Board to determine the appropriate disposition
of non-conforming material and product.
A DEVIATION AUTHORIZATION may be requested from the customer for non-
conforming product that is proposed for use or repair.
8.13 CORRECTIVE ACTION - QAP 4.14 (03.70.014)
The Company maintains documented procedures for the investigation and
analysis of the cause for non-conforming material and product
resulting in corrective actions to prevent recurrence.
8.14 HANDLING, STORAGE, PACKAGING AND DELIVERY - QAP 4.15 (03.70.015)
8.14.1 GENERAL
Procedures for handling, storage, packaging and delivery of material,
work in process and finished product are maintained by the Company.
SPECIAL COMPANY STANDARDS AND PROCEDURES establish the minimum
requirements for electrostatic discharge control where sensitive
electronic parts, assemblies or products are manufactured, assembled,
tested, serviced, handled, packaged or stored.
8.14.2 HANDLING
The Company handles all materials in such a manner as to prevent
damage, deterioration or loss.
8.14.3 STORAGE
Secure storage areas are provided and COMPANY STANDARDS AND PROCEDURES
control the receipt and issuing of materials.
Lists of materials requiring special storage conditions, or having a
limited shelf life are maintained and controls applied to conform with
requirements. The materials requiring special storage conditions are
maintained in the appropriate environment and materials having limited
shelf life are discarded in an approved manner when shelf life has
expired. MATERIAL SAFETY DATA SHEET regulations are applied for
storage and handling of material. Lists of such materials are
maintained.
<PAGE>
[LOGO] QUALITY ASSURANCE MANUAL No: 03.70.001
Rev: E
Date: 3-94
Page: 16 of 18
- -------------------------------------------------------------------------------
8.14.4 PACKAGING
COMPANY STANDARDS AND PROCEDURES control the marking and packaging
of the product to ensure conformance to specified contract
requirements.
8.14.5 DELIVERY
After final inspection and test, documented procedures provide for the
protection of the product in stores and during delivery to the
customer.
Delivery documentation is provided and instructions are carried out in
accordance with specified contract requirements.
8.15 QUALITY RECORDS - QAP 4.16 (03.70.016)
The quality records identified in the QUALITY ASSURANCE PROCEDURES are
filed and maintained by the applicable department and are under the
jurisdiction of the Quality Assurance Manager for demonstration of the
Quality System effectiveness.
The records are retained for a minimum of five years or for a period
specified by customer contract.
8.16 INTERNAL QUALITY AUDITS - QAP 4.17 (03.70.017)
All quality activities are subject to a planned and documented audit
to verify compliance with the defined Quality System.
Audits are conducted at predetermined intervals and are carried out by
trained personnel under the control of the Quality Assurance Manager.
The results of these audits are recorded and used to improve the
effectiveness of the Quality System.
8.17 TRAINING - QAP 4.18 (03.70.018)
The Company maintains procedures for identifying the training needs of
all employees in performing assigned tasks and in increasing their
quality awareness.
Training records are held for each employee registering their
education, experience and training requirements.
8.18 SERVICING
The design philosophy of products manufactured by the Company
precludes the need for regular maintenance. Servicing procedures are
therefore not required.
8.19 STATISTICAL TECHNIQUES - QAP 4.20 (03.70.019)
The Company promotes the use of statistical tools and techniques in a
systematic way to continually reduce variation in processes, products,
and incoming materials. The Quality Assurance Manager is the
Statistical Coordinator for the Company.
<PAGE>
[LOGO] QUALITY ASSURANCE MANUAL No: 03.70.001
Rev: E
Date: 3-94
Page: 17 of 18
- -------------------------------------------------------------------------------
[MAP OF P-COM, INC. HEADQUARTERS]
<PAGE>
[LOGO] QUALITY ASSURANCE MANUAL No: 03.70.001
Rev: E
Date: 3-94
Page: 18 of 18
- -------------------------------------------------------------------------------
RECORD OF REVISIONS
- --------------------------------------------------------------------------------
REVISION DESCRIPTION DATE APPROVED
BY
- --------------------------------------------------------------------------------
1 Initial draft 10-12-92 KB
- --------------------------------------------------------------------------------
2 Adds expanded Procedure Summary pages 8 11-06-92 KB
through 14.
- --------------------------------------------------------------------------------
3 Introduced modified front sheet, organization 12-17-92 KB
chart, management responsibilities and
procedure summary.
- --------------------------------------------------------------------------------
A Formal Release 01-08-93 K Bean
- --------------------------------------------------------------------------------
B Update 5.0, 6.0 10-20-93 K Bean
- --------------------------------------------------------------------------------
C Add ISO cross reference table and rewrite 11-18-93 K Bean
para. 8.19
- --------------------------------------------------------------------------------
D Add QAP 4.20 to Applicable Documents 11-29-93 K Bean
- --------------------------------------------------------------------------------
E Correct address page 1 & para 1.2. Update 03-21-94 K Bean
Location Map page 17.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
STANDARD/PROCEDURE APPROVAL
Standard/Procedure Number 03.70.001 Revision E Date 03-14-94
---------------- ---------- ----------------
Standard/Procedure Title Quality Assurance Manual
--------------------------------------------------------
As a minimum, the originator and the Director of the department issuing the
Standard/Procedure are the required approvals. For Company Standards, the
President must also approve.
Approvals:
/s/ 3-14-94 /s/ 3/21/94
- ---------------------- ----------------------
QA Manager Date President Date
<PAGE>
[LOGO] AGREEMENT BETWEEN PARTIES
A.R.T. LIMITED & P-COM, INC.
REF: US-PCN-296 REV 1
EXHIBITS
Training SCHEDULE K
- --------------------------------------------------------------------------------
The P-Com Tel-Link Series radio is designed for ease of installation,
operation, and maintenance, and as a result, minimal training is
required. P-Com's training consists of a two day course covering
installation, operations and maintenance for up to a maximum of 10
students per course to be held in P-Com's facilities. The training
cost will be waived for the first four (4) classes in the event that
ART has purchased a minimum of 900 links and placed purchase orders
for 2,500 additional links for delivery by December 30, 1996. For
subsequent years, P-Com will continue to provide four (4) training
classes per year free of charge should ART purchase a minimum of 2,500
links in each of the subsequent calendar years. Buyer will be
retroactively charged $7,500 per training session performed in the
event a minimum of 2,500 links are not purchased within a calendar
year.
Training classes will be scheduled at a mutually agreeable time and
conducted at Seller's facilities. Seller agrees to provide applicable
and necessary training materials.
- --------------------------------------------------------------------------------
Aug 7, 1996 Page 2
<PAGE>
[LOGO] AGREEMENT BETWEEN PARTIES
A.R.T. LIMITED & P-COM, INC.
REF: US-PCN-296
EXHIBITS
Revenue Sharing SCHEDULE L
- --------------------------------------------------------------------------------
SCHEDULE L
REVENUE SHARING
- --------------------------------------------------------------------------------
Aug 7, 1995 Page 1
<PAGE>
[LOGO] AGREEMENT BETWEEN PARTIES
A.R.T. LIMITED & P-COM, INC.
REF: US-PCN-296
EXHIBITS
Revenue Sharing SCHEDULE L
- --------------------------------------------------------------------------------
Following is the schedule for P-Com's equipment subsidy position and payment
schedule required by P-Com:
CUMULATIVE SCHEDULE EQUIPMENT P-COM
CITY LEVEL "A" PRICE CASH PRICE SUBSIDY MONTHLY ROYALTY
- ---------------- --------- ---------- --------- ---------------
0% of Revenue
20% of Revenue
20% of Revenue
[CONFIDENTIAL] 20% of Revenue
20% of Revenue
20% of Revenue
20% of Revenue
20% of Revenue
Beginning with the shipment of link 301 P-Com will subsidize 20% of the
equipment cost (per Schedule A) and in return will receive 20% of the monthly
revenue generated from the link. If the link is put in service generating $500
or more in monthly T1 revenue. P-Com is to be paid the full price as indicated
in Schedule A and still receive 20% of the revenue generated from the link.
All other aspects of the Agreement stay the same with the exception of the
[CONFIDENTIAL]. That is, the cumulative pricing schedule which allows
for [CONFIDENTIAL] provision remain in the Agreement. [CONFIDENTIAL]
- --------------------------------------------------------------------------------
Aug 7, 1995 Page 2
<PAGE>
Amendment to Exhibit 10-11
FIRST AMENDMENT TO AGREEMENT BETWEEN THE PARTIES
THIS FIRST AMENDMENT TO AGREEMENT BETWEEN THE PARTIES (this "Amendment") is
entered into as of the 19th day of July, 1996 by and between P-Com, Inc. ("P-
Com") and Advanced Radio Technology Limited ("ART"), with reference to the
following facts:
A. P-Com and Art entered into that certain Agreement Between the Parties
dated as of August 11, 1995 (the "Purchase Agreement") for the purchase of radio
links.
B. P-Com and Art desire to amend the Agreement to clarify the original
intent of the parties with respect to revenue sharing and other items set forth
herein.
NOW, THEREFORE, in consideration of the above recitals and for other
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by all parties, the parties agree to amend the Purchase Agreement
as follows:
1. All capitalized terms used herein shall have the same meanings as are
set forth in the Purchase Agreement, unless otherwise indicated.
2. Paragraph 17.0 of Section 1 of the Purchase Agreement is hereby
deleted in its entirety and inserted in its place is the following:
"REVENUE SHARING: In the event ART purchase 300 links, ART, in its
sole discretion may agree to select the financing option presented on
Schedule "L" attached hereto."
3. The second sentence of the first full paragraph of Schedule L,
commencing with: "If the Link is put in service generating..." is hereby deleted
in its entirety.
4. The following is hereby inserted after the word "concept" at the end
of the first sentence of the second full paragraph of Schedule L:
"set forth in Schedule A of this Agreement.:
5. the signature block for ART set forth on the Signatory Page is hereby
amended to read "Advanced Radio Technology, Ltd."
6. P-Com hereby acknowledges, and consents to, the future assignment by
ART of its rights, interests and obligations under the Purchase Agreement to
Advanced Radio Technologies Corporation pursuant to a merger transaction
involving ART.
<PAGE>
7. The Purchase Agreement is modified, amended and supplemented only to
the extent set forth herein, and as so modified, amended and supplemented, shall
remain in full force and effect between ART, or its successor or assign, and P-
Com. In the event of any conflict between the provision of this Amendment and
those of the Purchase Agreement, the terms of this Amendment shall prevail.
8. This Amendment may be executed in several counterparts, each or which
shall be deemed to be an original, and all of which together shall be deemed to
be one and the same instrument when each party has signed one such counterpart.
IN WITNESS WHEREOF, P-Com and ART have executed this Amendment as of the
date first above written.
P-COM: ART:
P-Com, Inc. Advanced Radio Telecom Corp.
(f/k/a Advanced Radio
Technology, Ltd.)
By:___________________________
Name:_________________________ By:___________________________
Title:________________________ Name:_________________________
Title:________________________
Advanced Radio Technologies
Corporation
By:___________________________
Name:_________________________
Title:________________________
<PAGE>
MEMORANDUM OF TERMS
RE
DEVELOPMENT AND PROCUREMENT AGREEMENT BETWEEN ART AND AMERICAN WIRELESS FOR
THE DEVELOPMENT OF LOW COST, HIGH CAPACITY 38 GHZ RECEIVER PROTOTYPES. THIS
AGREEMENT INITIATES THE FIRST STEP IN THE DEVELOPMENT OF A METROPOLITAN AREA
NETWORK SYSTEM FOR MILLIMETER WAVE SPECTRUM. THIS OFFER REMAINS OPEN UNTIL
JANUARY 31, 1996.
This Memorandum of Terms is between American Wireless Corporation ("AWC")
located at 3650 131st Ave. SE. Ste. 630 Bellevue, WA (phone 206-0603-9955)
and ART Corporation ("ART") at 500 105th Ave. NE ste. 2600, Bellevue, WA
98004.
WHEREAS ART has acquired authorizations at 38GHz in metropolitan markets
in the U.S.; and
WHEREAS ART intends to develop and operate high data rate wireless
networks using the 38GHz licensed spectrum; and
WHEREAS AWC intends to develop low cost 38 GHz digital radio technology,
an air interface which includes defining a network access protocol, and
the system components to provide integration between the public and private
networks.
WHEREAS ART is desirous of demonstrating as soon as possible a 38 GHz
network using AWC's low cost, high capacity digital radio equipment and air
interface; and
WHEREAS BOTH PARTIES intend to establish defacto industry standards
which are fundamental to the formation of millimeter wave broad band
metropolitan networks.
NOW THEREFORE the parties hereto agree as follows:
1.0 PRODUCTS
This agreement covers the development of receive-only, indoor and outdoor
digital radios for Metropolitan Area Applications. The preliminary specific
product requirements are included in Appendix 1. The product requirements
may be altered from time to time by AWC: provided that
1
<PAGE>
AWC shall consult on such alterations with ART and shall exercise its
best efforts to accommodate ARTs desires and needs.
The parties also agree that, if mutually agreed upon, products in
addition to the 38GHz receive-only product may be added to this agreement.
This agreement establishes the procurements and royalty rights granted
to ART for the investment in prototype radio development.
2.0 PRODUCT OWNERSHIP
American Wireless will own exclusively all inventions and intellectual
property created under this agreement (the Technology), subject to the
licensing arrangements set forth in section 7, and provided that AWC shall
pay to ART during the term of this agreement, in consideration for ART's
sponsorship and funding of the development of the product, a royalty on all
sales in the U.S. of the product equal to 1.5% of the gross sales price,
which payment shall be credited against ART's purchases form AWC so long
as ART continues to purchase products. Total Royalty payments shall not
exceed the total dollar amount of development funding under section 3.0
actually paid by ART multiplied by a factor of 1.429.
3.0 DEVELOPMENT FUNDING
In consideration of AWC developing such products, and for the
consideration set forth in section 4, ART will fund $700,000 dollars in ten
(10) monthly payments of $70,000 subject to the demonstration schedule
stated in Appendix 2. The first payment will occur upon the signature of
this agreement. The following nine payments will occur on the first Tuesday
of the month following in which this agreement is signed.
Should, at any time it become apparent that the development project will
not be completed on schedule and on or under budget, the parties may elect,
through mutual agreement, to revise the budget and schedule, in which case
ART shall fund the program on a fully burdened development cost basis not
to exceed a total program investment of $1,000,000. In such event, if the
parties are unable to agree on a revised budget and schedule, either party
may terminate pursuant to section 8.0.
2
<PAGE>
4.0 PROCUREMENT RIGHTS
4.1 Provided that ART places the order set forth in section 5.2. ART
will be granted exclusive rights to procure the subject product as
outlined in appendix 1, that is marketed or sold for operation in U.S.
markets owned or licensed by ART or where ART is operating or has executed
an agreement to operate for a period of 18 months from the date of the
first order.
4.2 In addition to the exclusive procurement rights in section 4.1. ART
shall have the right of first offer ("RFO") to purchase all of the subject
product that is manufactured for sale in the U.S. during the Term of this
agreement at the lower of the Target Price or the most favorable pricing to
any other customer of AWC. The RFO shall be exercised by ART within 30 days
following certification of AWC as to the number and type of product units
to be manufactured in the ninety day period that commences ninety days
from the date of certification. ART shall also have the right of first
offer to purchase follow-on or derivative 38GHz products, based on the
Technology developed by AWC during the Term of this agreement. Pricing
for such follow-on products will be defined under a separate agreement.
5.0 PURCHASE OPTION
5.1 In consideration of the development funding, ART will receive the
option to place an order covering first deliveries of the production
product described in Appendix 1 at a price equal to AWC's fully burdened
cost-to-manufacture (not including non-recurring development costs) for the
first 300 units. The target price for additional units shall be $1500. Both
parties agree that, following completion of ART's purchase pursuant to
section 5.3., the product price shall be established to be equivalent to
market-based competitive prices for comparable products.
5.2 To insure exclusivity, ART will place an order of not less than 300
units within 30 days after completion of the demonstration as defined by
Appendix 1 and listed as a major milestone in Appendix 2 and will place
total orders as described in paragraph 5.3 by the last business day of each
quarter.
5.3 Order minimums will be $500,000 for Q1: $1,000,000 for Q2: $1,500,000
for Q3; and $2,000,000 for Q4.
3
<PAGE>
5.4 Both parties agree to negotiate in good faith to provide a staged
procurement agreement for additional units of the subject receiver, subject
to section 4.2, and for future components of the Metropolitan Area System
developed by AWC.
6.0 MANUFACTURING
6.1 AWC retains all manufacturing rights, subject to section 7.0.
7.0 DEFAULT
7.1 Should AWC not complete the development and successful demonstration
of products as described in Appendix 1 and in accordance with each of the
milestones in Appendix 2, as revised in accordance with section 3, AWC
will have nine (9) months to cure the default condition. Following the nine
month cure period, if AWC remains in default, ART will be granted one of
the following options:
OPTION A:
(1) AWC will refund ART the amount paid since the last successful
milestone over the following eight quarters and (2) will grant ART a
royalty-free license to use, manufacture or distribute the product based on
the Technology developed through the last completed milestone, including
all firmware and software for the term of this agreement.
OPTION B:
AWC will grant ART a 10% equity interest in AWC on a fully diluted basis,
assuming ART will commit to fund completion of the development in return
for an additional equity interest based upon the percentage relationship
between the additional funds from ART necessary to completion and the
fair market value ("FMV") of AWC at the time of the first investment of
such additional funds, which FMV is conclusively deemed to be $10 million.
8.0 TERMINATION
8.1 The relationship of the parties with regard to this agreement would
be terminable: (a) under the conditions described in section 3.0 (with
regards to termination; (b) under the conditions described in section 7.0,
where AWC remains in default after the nine month cure period. In such an
event, AWC will grant ART a royalty-free license to use, manufacture or
distribute the product based on the Technology developed through the last
completed milestone, including all firmware and software for the term
4
<PAGE>
ART/AWC HEADS OF AGREEMENT 1/24/96
of this agreement. In any event, all inventions and intellectual property
developed under this agreement shall remain the sole property of AWC.
9.0 TERM
9.1 The parties agreements shall be become effective on the date upon which
a definitive agreement is executed and shall terminate on its fourth
anniversary. The parties shall negotiate a definitive agreement within
thirty days of the date of this MOT to replace the MOT. The MOT shall
become null and void on the thirtieth day.
10.0 ENTIRE AGREEMENT / MODIFICATION. This agreement constitutes the entire
agreement between the parties hereto and supersedes all prior representations,
agreements, understandings and arrangements, oral or written, between the
parties hereto with respect to the subject matter hereof. This Agreement may
not be modified except by a writing that expressly refers to this Agreement and
is executed by all parties hereto.
IN WITNESS WHEREOF, the parties have duly executed this Agreement on the date
first written below.
Advance Radio Technologies Corp American Wireless Corporation
By: /s/ STEVEN D. COMRIE By: /s/ ROBERT B. FOSTER
-------------------------------- --------------------------------
Title: President Title: President & CEO
----------------------------- -----------------------------
Date: 1/29/96 Date: 1/26/96
------------------------------ ------------------------------
<PAGE>
ART/AWC HEADS OF AGREEMENT 1/24/96
APPENDIX 1. PRODUCT DESCRIPTION (INSERT 38 GHz DEVELOPMENT PLAN)
<PAGE>
ART/AWC HEADS OF AGREEMENT 1/24/96
APPENDIX 2. MILESTONE SCHEDULE
MONTH ACTIVITY/MILESTONE
5 Demonstration of 1.7 GHz IF converter for Indoor Radio
6 Demonstration of millimeter wave VCO and PLL Synthesizer for
Outdoor Radio 1.7 GHz IF converter for Outdoor Radio
7 Demonstration of either the QPSK or QAM modem at bit rates
exceeding 30 Mbps
9 Demonstration of either the Ethernet LAN or ATM application using
either the Indoor or Outdoor Radio
<PAGE>
[ADVANCED RADIO TELECOM LETTERHEAD]
April 25, 1996
AGREEMENT EXTENSION
Signature below by an authorized representative confirms agreement to extend the
existing Memorandum of Terms executed between American Wireless Corporation and
Advanced Radio Telecom Corporation until June 20, 1996. Both parties agree to
finalize a definitive agreement prior to June 20, 1996.
Advanced Radio Telecom Corporation American Wireless Corporation
/s/ CHRISTOPHER B. VILLANI /s/ ROBERT FOSTER
- ------------------------------ ------------------------------
Christopher B. Villani Robert Foster
<PAGE>
HARRIS CORPORATION
FARINON DIVISION
PURCHASE AGREEMENT
This Agreement is entered into this 26th day of April, 1996, by and between
Advanced Radio Telecom Corporation, a Delaware corporation with offices located
at 500 108th Avenue NE, Suite 2600, Bellevue, WA 98006 ("ART" or "Customer"),
and Harris Corporation, Farinon Division, a Delaware corporation, with offices
located at 330 Twin Dolphin Drive, Redwood Shores, CA 94065 ("Harris").
Whereas, Customer desires to purchase microwave transmission equipment, software
and services ("Products"), and
Whereas, Harris is willing to sell such Products to Customer upon the terms and
conditions as set forth herein and the various annexes attached hereto and
incorporated into this document,
Now, Therefore, in consideration of the mutual covenants set forth below, ART
and Harris, intending to be legally bound, hereby agree as follows:
1. EFFECTIVE DATE; RELATED PCS MARKETING AGREEMENT; FINANCING COMMITMENT.
The Effective Date of this Agreement shall be the date of execution by the
parties, provided, however, that the rights and obligations of the parties
hereunder shall not become effective unless and until the parties have executed
a definitive marketing agreement ("PCS Marketing Agreement") for 38 GHz services
as contemplated by Version 5 of a Letter of Intent executed by ART and Harris
and dated February 22, 1996.
2. SCOPE
Harris will furnish Products for Customer in accordance with the individual
Purchase Orders issued by Customer from time to time during the Term of this
Agreement based upon the prices provided in Annex A hereto. The Products will
be provided in conformity with the terms, conditions, specifications and other
requirements of this Agreement and each Purchase Order will be governed by the
terms and conditions stated herein.
3. PRICES/TAXES
All prices are exclusive of shipping and insurance charges which shall be billed
separately. All prices are exclusive of all sales, use, excise, and other
taxes, duties or charges. Unless evidence of tax exempt status is provided by
Customer, Customer shall pay, or upon receipt of invoice from Harris, shall
reimburse Harris for all such taxes or charges levied or imposed on Customer, or
required to be collected by Harris, resulting from this transaction or any part
thereof.
All prices are FOB Harris' Factory. Unless instructed otherwise, Harris will
arrange for insurance and standard commercial shipping, the costs of which will
be invoiced to the Customer.
1
<PAGE>
Responsibilities regarding the export of items delivered under this Agreement
are detailed in ARTICLE 8. Prior to delivery, Harris reserves the right to make
substitutions, modifications and improvements to the equipment and/or software
ordered, provided that such substitutions, modifications or improvements shall
not materially affect performance in the application originally agreed to with
Customer.
4. PURCHASE FORECAST GOALS.
ART shall provide Harris with MicroStar and MicroStar Plus purchase forecasts,
which shall serve as a baseline to establish pricing levels outlined in Annex A.
ART's initial forecast is attached hereto as ANNEX B. Unless otherwise agreed
by the parties, future forecasts shall be provided by ART on a quarterly basis.
5. PAYMENT/FINANCING
Payment terms shall be determined on a per order basis and are subject to credit
review by Harris.
Late payments shall result in the assessment of a late charge equal to one and
one-half (1 1/2%) percent per month on any outstanding balance, or the maximum
amount of interest chargeable by law, whichever is less.
Customer shall remain liable for all payments regardless of the method of
payment or financing of this Agreement, unless otherwise agreed to in writing by
Harris.
Customer's payment obligations are particular hereto, and Customer has no right
of set-off against other Purchase Orders or other transactions between the
parties.
6. WARRANTIES AND LICENSE
a) EQUIPMENT WARRANTY
Refer to Annex C for terms and conditions related to customer service and
equipment warranty:
Harris warrants that each product of its own manufacture shall, at the time of
delivery and for a period of twenty-four (24) months thereafter, be free from
defects in materials and workmanship and to conform to Harris' published
specifications. Such warranty shall not include any consumable components to
which a specific manufacturer's guarantee applies. If any Harris product shall
prove to be defective in materials or workmanship under normal intended usage,
operation and maintenance during the applicable warranty period as determined by
Harris after examination of the product claimed to be defective, then Harris
shall repair, replace or refund the purchase price of, at Harris' sole option,
such defective product, in accordance with procedures specified below, at its
own expense, exclusive, however, of the cost of labor by the Customer's own
employees, agents or contractors in identifying, removing or replacing the
defective part(s) of the product. Replacement products may be new, refurbished
or remanufactured. Returned replaced products shall become the property of
Harris. Replacement products shall be warranted for the balance of the
unexpired portion of the returned products warranty.
In composite equipment assemblies and systems, which include equipment of such
other than Harris manufacture, Harris' responsibility under this warranty
provision for the non-Harris manufactured portion of the equipment shall be
limited to the other equipment manufacturer's standard warranty. Provided,
however, that if the other manufacturer's standard warranty period
2
<PAGE>
is of a shorter duration than the warranty period applicable to Harris'
manufactured equipment, then Harris shall extend additional coverage to such
other equipment manufacturer's warranty equal to the differential in time
between the expiration of the other manufacturer's warranty and the duration of
Harris' manufactured equipment warranty applicable to such order. Harris shall
repair, replace or refund the purchase price of, at Harris' sole option, such
other manufacturer's defective part(s) within sixty (60) days after receipt of
such parts by Harris in accordance with the below specified procedures, at
Harris' own expense, exclusive, however, of cost of labor by the Customer's own
employees, agents or contractors in identifying, removing or replacing the
defective part(s) of the product.
A written authorization to return products to Harris under this warranty must be
obtained from a Harris representative prior to making shipment to Harris' plant,
and all returns shall be shipped freight prepaid. Collect shipments will not be
accepted, but Harris will prepay return freight charges on repaired and replaced
products found to be actually defective.
The warranty provided herein does not cover damage, defects, malfunctions or
service failures caused by:
(1) Customer's failure to follow Harris' environmental, installation, operation
or maintenance specifications or instructions;
(2) Modifications, alterations or repairs made other than by Harris;
(3) Customer's mishandling, abuse, misuse, negligence, or improper storage,
servicing or operation of the Equipment (including without limitation use with
incompatible equipment); or
(4) Power failures, surges, fire, flood, accident, actions of third parties or
other like events outside Harris' control. Repairs necessitated during the
warranty period by any of the foregoing causes may be made by Harris, and the
Customer shall pay Harris' standard charges for time and materials, together
with all shipping and handling charges arising from such repairs.
b) SOFTWARE WARRANTY AND LICENSE
(1) LICENSE. Harris grants to Customer a non-exclusive, non-transferable
license to use the software and related documentation ("Software") provided
hereunder. The Software may include software and documentation that are owned
by third parties and distributed by Harris under license from the owner. If
Customer is a reseller of the software purchased under this agreement, this
license is assignable only to Customer's customer, subject to Harris' written
authorization and only if the end customer is bound in writing to the Terms and
Conditions of this license. Customer shall retain a copy of such end Customer
Agreement for Harris' inspection.
(2) COPIES. Customer shall not make any copies of the Software, except
for a single archival copy solely for internal purposes.
(3) CONFIDENTIALITY. Customer shall maintain the confidentiality of the
Software and shall not sub-license, sell, rent, disclose, make available, or
otherwise communicate the Software to any other person, or use the Software
except as expressly authorized in writing by Harris.
(4) TITLE. The Software and all copies thereof will at all times remain
the sole and exclusive property of Harris or its licensor, as applicable, and
Customer shall obtain no title to the Software.
(5) COPYRIGHT. Customer shall reproduce all copyright notices and any
other
3
<PAGE>
proprietary legends on any copy of the Software made by Customer.
(6) ALTERATION. Customer shall not modify, disassemble, or decompile the
Software.
(7) MEDIA. If Customer sells or otherwise disposes of Customer owned
media on which the software is fixed, such media must be erased before any sale
or disposal.
(8) WARRANTY. Harris does not warrant that the operation of the Software
will be error free. Harris will use reasonable efforts to correct any defects
reported to Harris in writing within twenty-four (24) months of the date of
shipment, exclusive of defects caused by physical defects in Software disks due
to mishandling, operator error or interfacing other systems not approved by
Harris.
c) LIMITATIONS
LIABILITY OF HARRIS FOR BREACH OF ANY AND ALL WARRANTIES HEREUNDER IS EXPRESSLY
LIMITED TO THE REPAIR, REPLACEMENT OR REFUND OF THE PURCHASE PRICE OF DEFECTIVE
PRODUCTS AS SET FORTH IN THIS SECTION, AND IN NO EVENT SHALL HARRIS BE LIABLE
FOR SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES BY REASON OF ANY BREACH OF
WARRANTY OR DEFECT IN MATERIALS OR WORKMANSHIP. HARRIS SHALL NOT BE RESPONSIBLE
FOR REPAIR, REPLACEMENT, REFUND OF PURCHASE PRICE OF PRODUCTS WHICH HAVE BEEN
SUBJECTED TO NEGLECT, ACCIDENT OR IMPROPER USE, OR WHICH HAVE BEEN ALTERED BY
OTHER THAN AUTHORIZED HARRIS PERSONNEL. THE FOREGOING WARRANTIES ARE IN LIEU OF
ALL OTHER WARRANTIES WHETHER ORAL, WRITTEN, EXPRESSED, IMPLIED, OR STATUTORY.
IN PARTICULAR, THE IMPLIED WARRANTIES OF FITNESS FOR PARTICULAR PURPOSE AND
MERCHANTABILITY ARE HEREBY DISCLAIMED AND SHALL NOT BE APPLICABLE EITHER FROM
HARRIS OR ANY OTHER EQUIPMENT OR SOFTWARE MANUFACTURER, HARRIS' WARRANTY
OBLIGATIONS AND CUSTOMER'S REMEDIES THEREUNDER ARE SOLELY AND EXCLUSIVELY AS
STATED HEREIN. IN NO CASE SHALL HARRIS BE LIABLE FOR INDIRECT KINDS OF DAMAGES,
INCLUDING BUT NOT LIMITED TO SPECIAL, INCIDENTAL, AND CONSEQUENTIAL DAMAGES, OR
LOSS OF CAPITAL, REVENUE, OR PROFITS. IN NO EVENT SHALL HARRIS' LIABILITY TO
CUSTOMER, OR ANY PARTY CLAIMING THROUGH CUSTOMER, BE IN EXCESS OF THE ACTUAL
SALES PRICE PAID BY CUSTOMER FOR ANY ITEMS SUPPLIED HEREUNDER.
7. TITLE AND RISK OF LOSS
Risk of loss for all Equipment sold under this Agreement shall pass to Customer
at time of delivery as defined herein. Customer grants to Harris a security
interest in the Equipment covered by this Agreement in the amount of the unpaid
balance of the purchase price until payment in full of the purchase price at
which time title in the Equipment will pass in accordance with the terms and
conditions set forth herein. A financing statement may be filed with the
appropriate public authorities and Customer agrees to sign any such financing
statements or other documents tendered to it by Harris from time to time to
protect Harris' security interest.
8. EXPORT AND RE-EXPORT RESTRICTIONS
Performance and delivery of the equipment, documents, services and Software sold
or delivered hereunder are subject to export control laws and regulations of the
United States and/or Canada, as applicable, and conditioned upon receipt of
required U.S. and/or Canadian Government licenses and approvals by Harris.
Customers shall not export products or technical data delivered hereunder from
the United States or Canada without complying with regulations of the Bureau of
Export Administration of the United States Department of Commerce and/or the
Export Controls Division of the Canadian Department of Foreign Affairs and
International Trade, as applicable. Customers shall not re-export the products
and technical data delivered hereunder from the country of delivery or to any
facility engaged in the design, development, stockpiling,
4
<PAGE>
manufacturing or use of missile, chemical or biological weapons without fully
complying with the regulations of the above United States and/or Canadian
government agencies.
9. EXCUSABLE DELAY
Harris shall be excused from performance under the Purchase Order and not be
liable to Customer for delay in performance attributable in whole or in part to
any cause beyond its reasonable control, including but not limited to, actions
or inactions of government whether in its sovereign or contractual capacity,
judicial action, war, civil disturbance, insurrection, sabotage, act of a public
enemy, labor difficulties or disputes, failure or delay in delivery by Harris'
suppliers or subcontractors, transportation difficulties, shortage of energy,
materials, labor or equipment, accident, fire, flood, storm or
other act of God, or Customer's fault or negligence.
In the event of an excusable delay, Harris shall make reasonable efforts to
notify Customer of the nature and extent of such a delay and Harris (i) will be
entitled to a schedule extension on at least a day-for-day basis, (ii) in the
event of Customer's fault or negligence, will be also entitled to an equitable
adjustment in the price of this contract. Notwithstanding any other term
contained herein. In the event an excusable delay occurs and continues for a
period of ninety (90) days or longer, ART shall have the right to immediately
terminate this Agreement or any Purchase Order given pursuant to the Agreement
without further liability to Harris.
10. TERM AND TERMINATION
This Agreement shall continue in effect for one (1) year from the date hereof at
which time it will terminate, unless terminated earlier pursuant to this Article
12. Renewal is subject to mutual written agreement signed by both parties.
Cancellation of any Purchase Order hereunder will be accepted only upon the
specific written approval of Harris and is subject to standard Harris
cancellation charges of 25% if cancellations is received 30 days after receipt
of order from ART, provided however, that ART may cancel any Purchase Order
without the approval of Harris and without incurring cancellation charges if the
delivery of Products under such Purchase Order is delayed, or expected to be
delayed, by ninety (90) days or more from the original delivery date.
In the event that Customer shall become liquidated, dissolved, bankrupt or
insolvent, or shall take any action to be so declared, or shall suffer any such
action brought by another, Harris shall have the right to terminate this
Agreement and all Purchase Orders immediately and may stop shipment of any
Products in transit.
Either party may terminate this Agreement immediately upon notice in writing to
the other party:
a) if the other party shall breach any provision of this Agreement in any
material respect and such breach remains unremedied thirty (30) days after
notice thereof from the non-breaching party;
b) in the event that the other party breaches any material term, condition
or covenant of the PCS Marketing Agreement referenced in Section 1 above and the
other party fails to cure any default or breach within thirty (30) days of
receipt of written notice of such breach from the non-breaching party; or
c) in the event that the other party has caused the PCS Marketing
Agreement referenced in Section 1 above to be terminated.
5
<PAGE>
The right of termination provided herein is absolute and neither party
shall be liable to the other for damages or otherwise by reason of such
termination.
11. INFRINGEMENT INDEMNIFICATION
Customer agrees to promptly notify Harris in writing of any notice, suit, or
any action against Customer based upon a claim that the Product infringes a
U.S. patent, copyright, trademark, or trade secret of a third party. Harris
will defend at its expense any such action, except as excluded below, and
shall have full control of such defense including all appeals and
negotiations, and will pay all settlement costs, or damages awarded against
Customer, but Harris shall not be liable to Customer for special, incidental,
indirect or consequential damages. In the event of such notice, suit or
action, Harris will at its expense procure for the Customer the right to
continue using the product, or modify the Product to render such
non-infringing, or accept return and replace such with substantially
equivalent non-infringing equipment, or accept return of the Product and
refund or credit to Customer the amount of the original purchase price, less
a reasonable charge for depreciation and damage.
The preceding agreements by Harris in this section shall not apply to any
Product or portion thereof manufactured to specifications furnished by or on
behalf of Customer, or to any infringement arising out of the use of the Product
in combination with other equipment or software not furnished by Harris, or to
use in a manner not normally intended, or to any patent, copyright, trademark or
trade secret in which Customer, or subsidiary or affiliate thereof, has a direct
or indirect interest, or if customer has not provided Harris with prompt notice,
authority, information and assistance necessary to defend the action. The
foregoing states the entire liability of Harris for patent, copyright, trademark
and trade secret infringements by the Product or portion thereof.
The rights and obligations of the parties under this Section shall survive
termination of this Agreement.
12. TECHNICAL DATA AND INVENTION
Unless specifically agreed to by Harris and identified and priced in this
contract as a separate item or items to be delivered by Harris (and in that
event, except to the extent so identified and priced), the sale of goods
hereunder confers on Customer no right in, license under, access to, or
entitlement of any kind to any of Harris' technical data including but not
limited to design, process technology, softare and drawings, or to Harris'
inventions (whether or not patentable) irrespective of whether any such
technical data or invention or any portion thereof arose out of work
performed under or in the course of this contract, and irrespective of
whether Customer has paid or is obligated to pay Harris for any part of the
design and/or development of the goods.
Harris shall not be obliged to safeguard or hold confidential any data whether
technical or otherwise, furnished by Customer for Harris' performance of this
contract unless (and only to the event that) Customer and Harris have entered
into a separate written confidential agreement.
Customer shall not violate Harris' copyright of documents or software or
disclose Harris' confidential or proprietary data to others without Harris
written permission.
13. ASSIGNMENT
Neither party may assign this agreement in whole or in part without the prior
written consent signed by an officer of the other party. Such consent shall not
be unreasonably withheld.
6
<PAGE>
14. GOVERNING LAW, VENUE, AND JURISDICTION
This Agreement will be governed by and construed in accordance with the laws of
the State of California. The parties agree that any action to enforce any
provision of this Agreement or arising out of or based upon this Agreement or
the business relationship between Harris and Customer will be brought in a local
or Federal court of competent jurisdiction in the State of California.
15. ENFORCEABILITY
If any provision of this Agreement shall be held to be invalid, illegal or
unenforceable, the validity, legality or enforceability of the remaining
provisions shall in no way be affected or impaired.
16. NOTICES
All notices shall be in writing and shall be delivered or sent by registered,
certified or express mail, return receipt requested, to the addresses indicated
in this Agreement or to such other addresses as the parties shall specify by
giving notice pursuant hereto. A copy of all notices shall be sent to Harris
Corporation, Farinon Division, 330 Twin Dolphin Drive, Redwood Shores, CA 94065.
Attention: Manager of Contracts, and to W. Theodore Pierson, Jr. Executive Vice
President and General Counsel, 1667 K Street, NW, Suite 801 Washington, DC
20006.
17. INDEMNIFICATION
a) INDEMNIFICATION OF ART BY HARRIS
Harris shall indemnify ART against, and hold ART harmless from all liabilities,
demands, claims, damages, losses, demands, costs, judgments and expenses
(including reasonable attorneys' fees) arising out of or in connection with
arising out of or relating to the installation, operation, or use of the
Products for personal injury or damage to tangible property, caused by the
negligent acts or omissions of Harris or Harris's employees, agents or invitees.
In no event shall ART's employees, agents or invitees be deemed to be employees,
agents or invitees of Harris.
b) INDEMNIFICATION OF HARRIS BY ART
ART shall indemnify Harris against, and hold Harris harmless from all
liabilities, demands, claims, damages, losses, demands, costs, judgments and
expenses (including reasonable attorneys' fees) to the extent they arise out of
or are in connection with or relate to the installation, operation, or use of
the Products for personal injury or damage to tangible property, caused by the
negligent acts or omissions of ART or ART's employees, agents or invitees. In
no event shall Harris's employees, agents or invitees be deemed to be employees,
agents or invitees of ART.
c) DUTY TO NOTIFY AND ASSIST
If any claim arises to which the provisions of this Section may be applicable,
the party against whom such claim is made shall notify the other party
immediately upon learning of the claim. If it appears that the other party may
be obligated to provide indemnification as a result of such claim, the other
party, in its discretion, may settle or compromise the claim
7
<PAGE>
or retain counsel of its own choosing and control and prosecute the defense
against such claim. In no event shall the party against whom the claim is
asserted have the right to pay, settle or compromise such claim without the
prior written consent of the party who may be obligated to indemnify under this
Section and the parties hereto agree that they will not unreasonably withhold
consent to such consent to payment, settlement or compromise. The party against
whom the claim is asserted shall provide the other party such assistance as may
be reasonable in the defense and disposition of such claim.
The rights and obligations of the parties under this Section shall survive
termination of this Agreement.
18. LIMITATION OF LIABILITY
NOTWITHSTANDING ANY OTHER PROVISIONS OF THIS CONTRACT, UNDER NO CIRCUMSTANCES
SHALL HARRIS BE LIABLE TO CUSTOMER OR ANY THIRD PARTY CLAIMING UNDER CUSTOMER
FOR SPECIAL, INCIDENTAL, INDIRECT OR CONSEQUENTIAL DAMAGES, AS A RESULT OF A
BREACH OF ANY PROVISION OF THIS CONTRACT.
19. ENTIRE AGREEMENT
This Agreement supersedes all previous communications, transactions, and
understandings, whether oral, or written, and constitutes the sole and entire
agreement between the parties pertaining to the subject matter hereof. No
modification or deletion of, or addition to these items shall be binding on
either party unless made in writing and signed by a duly authorized
representative of both parties.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their duly authorized representatives as of the day and year first stated
above.
ADVANCED RADIO TELECOM CORPORATION
BY: /s/ Charles P. Menatti
--------------------------------
NAME: Charles P. Menatti
------------------------------
TITLE: V.P. Bus. Dev.
- -----------------------------------
HARRIS CORPORATION
FARINON DIVISION
BY: /s/ J. Michael Slattery
--------------------------------
NAME: J. Michael Slattery
------------------------------
TITLE: Division Controller
------------------------------
8
<PAGE>
ANNEX A
PRICING
<PAGE>
Page 1
ANNEX A
-------
Pricing
-------
38 GHz 8T1 products
-------------------
1.0 MicroStar 8T1.
--------------
1.1 Pricing by annual purchased quantities.
---------------------------------------
Prices for MicroStar 38, non-protected links, equipped with 8T1,
integrated antenna and pole mounting gear. The radios have built-in access
ports for NMS, CIT and east & west connections. Product documentation is
included. Prices are in US $ and are exclusive of sales taxes.
The following table shows the gradual discounts related to annual volume
purchased. The prices are for 38 GHz 8T1 links.
Annual Price Price
Qty
Serial MicroStar 8T1 MicroStar 8T1
Links Link Link
With 12" ant. With 24" ant.
[CONFIDENTIAL]
1.2 Pricing methodology
Pricing outlined in 1.1 are serial based for volumes achieve over a period
of one year.
<PAGE>
Annex A
Page 2
ANNEX A
-------
Pricing
-------
38 GHz 8T1 products
-------------------
1.3 Options
-------
1.31 Craft Interface Tool software.
------------------------------
A multi-Site lisence will be provided to ART at [CONFIDENTIAL]. Harris will
support ART on this product. ART installation technicians will get their
support through ART as opposed to direct support from Harris.
1.32 Antenna alignment tool kit.
---------------------------
The antenna alignment tool kit consist of a removable Azimuth & Elevation
adjustment mechanism. Harris will supply ART with [CONFIDENTIAL] for every
[CONFIDENTIAL] purchased under this agreement up to a maximum of
[CONFIDENTIAL] kits after which each kits will be sold at [CONFIDENTIAL].
Any extra kits can be purchased at [CONFIDENTIAL] at any time.
1.4 Delivery
--------
Delivery of MicroStar radios will begin no later than June 30, 1996.
1.5 Extended Warranty
-----------------
Annual Repair Service Program (per link) ............ [CONFIDENTIAL]
<PAGE>
Annex A
Page 3
ANNEX A
-------
Pricing
-------
38 GHz DS3 products
-------------------
2.0 MicroStar Plus (DS3)
--------------------
2.1 Pricing by annual purchased quantities
--------------------------------------
Prices for MicroStar Plus 38, DS3, non-protected link equipped with
Integrated 9" CTS antenna and pole mounting gear. The radios have built-in
access ports for NMS, CIT and east & West connections. MicroStar Plus
provides a clear DS3 interface. For T1 interfaces an external multiplexer
is required. Product documentation is included. Prices are in US $ and
are exclusive of sales taxes.
Annual Prices Prices
Qty MicroStar Plus MicroStar Plus
DS3 DS3
Serial with 9" CTS with 11" CTS
antenna antenna
Links Per link Per link
[CONFIDENTIAL]
2.2 Pricing methodology
Pricing outlined in 2.1 are serial based for volumes achieve over a period
of one year.
<PAGE>
Annex A
Page 4
ANNEX A
PRICING
38 GHz, DS3 PRODUCTS
2.3 OPTIONS
2.31 CRAFT INTERFACE TOOL SOFTWARE
A multi-Site lisence will be provided to ART at [CONFIDENTIAL]. Harris will
support ART on this product. AT installation technicians will get their
support through ART as opposed to direct support from Harris.
2.4 DELIVERY
Delivery of the MicroStar Plus DS3 will begin no later than Jan. 15, 1997
2.5 EXTENDED WARRANTY
Annual Repair Service Program (per link) ......... $ [CONFIDENTIAL]
<PAGE>
ANNEX B
MINIMUM PURCHASE GOALS
FOR YEAR 1 OF THIS AGREEMENT
QUARTERLY FORECAST
- --------------------------------------------------------------------------------
MONTH MICROSTAR 38 GHz, 8T1 MICROSTAR 38 GHz, DS3
1996/1997 LINKS LINKS
- --------------------------------------------------------------------------------
Q1 50
- --------------------------------------------------------------------------------
Q2 50
- --------------------------------------------------------------------------------
Q3 50 140
- --------------------------------------------------------------------------------
Q4 50 135
- --------------------------------------------------------------------------------
Total for 12 month period 200 275
- --------------------------------------------------------------------------------
<PAGE>
ANNEX C
CUSTOMER SUPPORT
<PAGE>
CUSTOMER SUPPORT [HARRIS FARINON DIVISION LOGO]
- --------------------------------------------------------------------------------
THE FOREGOING WARRANTIES ARE IN LIEU OF ALL OTHER WARRANTIES WHETHER ORAL,
WRITTEN, EXPRESSED, IMPLIED, OR STATUTORY. IN PARTICULAR, THE IMPLIED
WARRANTIES OF FITNESS FOR PARTICULAR PURPOSE AND MERCHANTABILITY ARE HEREBY
DISCLAIMED AND SHALL NOT BE APPLICABLE EITHER FROM HARRIS FARINON OR ANY OTHER
EQUIPMENT MANUFACTURER. HARRIS FARINON'S WARRANTY OBLIGATIONS AND BUYER'S
REMEDIES THEREUNDER ARE SOLELY AND EXCLUSIVELY AS STATED HEREIN. IN NO CASE
SHALL HARRIS FARINON BE LIABLE FOR INDIRECT KINDS OF DAMAGES, INCLUDING BUT NOT
LIMITED TO SPECIAL, INCIDENTAL, AND CONSEQUENTIAL DAMAGES, OR LOSS OF CAPITAL,
REVENUE, OR PROFITS. IN NO EVENT SHALL HARRIS FARINON'S LIABILITY TO BUYER, OR
ANY PARTY CLAIMING THROUGH BUYER, BE IN EXCESS OF THE ACTUAL SALES PRICE PAID BY
BUYER FOR ANY ITEMS SUPPLIED HEREUNDER.
REPAIR & EXCHANGE WARRANTY
Harris Farinon's warranty policy is as follows:
Repair Warranty 90 days
Exchange Warranty 90 days
and/or the remainder of the original product warranty period, whichever is
greater.
SERVICES OFFERED
Technical assistance from highly qualified Product Support engineers to resolve
technical questions/problems on the phone.
Field Service support to resolve equipment problems on site by highly
professional Field Service engineers.
Repair of equipment at our Repair & Return facilities in a timely and cost-
effective manner.
24-Hour emergency telephone support by highly qualified Product Support
engineers for traffic affecting or traffic threatening problems.
24-Hour emergency shipment of replacement parts on selected items to minimize
downtime.
PRODUCT TRAINING BY HIGHLY QUALIFIED INSTRUCTORS THAT MAXIMIZES PRODUCT
PERFORMANCE AND MINIMIZES MAINTENANCE COSTS.
<PAGE>
[HARRIS FARINON DIVISION LOGO] HARRIS
FARINON DIVISION
CUSTOMER SUPPORT
- ----------------------------------------------------------------------------
CUSTOMER RESOURCE CENTER
Our Customer Resource Center (CRC) is staffed with factory trained and highly
qualified Product Support engineers whose task is to provide telephone
support to resolve complex customer equipment problems quickly and accurately
in a customer oriented manner. Customers who completed product training given
by Harris Farinon and are equipped with proper test equipment and spare parts
will experience quick resolution of their equipment problems. CALL CRC AND
SELECT 1 WHEN PROMPTED.
24-HOUR TECHNICAL ASSISTANCE
Technical support is available 24 hours per day, seven days a week. Product
Support Engineers are available in the USA from 6:30am to 5pm PST, Monday
through Friday, and 7:30am to 5:00pm EST in Canada. At all other times, our
Product Support Engineers will return your call within 30 minutes whenever
you have traffic affecting or traffic threatening situations. In the USA,
call us at 1-800-227-8332 (415-594-3800) or fax to 415-594-3659. In Canada,
call 1-800-465-4654 (514-421-8333) or fax to 514-421-3555. Please provide us
with the following information when you call us.
1. Your name, company and telephone number.
2. Equipment type and Sales Order # or FWL # found at the bottom of the rack.
3. Detailed description of the problem.
REPAIR AND RETURN
Harris Farinon repairs all its manufactured products as well as coordinates
repairs on vendor items which are part of its systems. The standard repair
turn around time for current production models is 5 working days upon receipt
of the defective parts.
Repair charges and turn around time for OEM (vendor) items are set by Harris
Farinon suppliers. Our close working relationships with our suppliers assure
us of the best repair prices and turn around time. CALL 1-800-227-8332, AND
SELECT 2 WHEN PROMPTED (210-561-7420) OR FAX REQUEST TO 210-561-7421 OR FOR
CANADA CALL 1-800-465-4654 AND SELECT 2 WHEN PROMPTED (514-421-8333) OR FAX
REQUEST TO 514-421-3555.
17
<PAGE>
[HARRIS FARINON DIVISION LOGO] HARRIS
FARINON DIVISION
CUSTOMER SUPPORT
- ----------------------------------------------------------------------------
RETURN MATERIAL AUTHORIZATION
Before sending in your equipment for repair, please call us at 1-800-227-8332
and select 2 when prompted for a Return Material Authorization (RMA) first or
FAX your request to 210-561-7421 or for Quebec province call 1-800-465-4654
and select 2 or FAX your request to 514-421-3555. This will ensure that the
repairs will be done in a timely manner and eliminate any delays due to
incomplete information. Please provide us with the following information when
you call us.
1. Your name, company and telephone number.
2. Equipment type, part number, serial # and FWL number found at the bottom
of the rack
3. Detailed description of the problem.
4. Purchase order number.
5. Billing and shipping addresses.
6. Any special return packing or shipping instructions.
7. Customs clearance information if from overseas.
MODULE EXCHANGE
You may prefer to receive a replacement unit before you send your defective
unit to us. Harris Farinon maintains an inventory of many different modules
that can be shipped to you within 24 hours. Harris maintains product
inventory so it can provide module exchange within 24 Hrs.
Emergency exchange is available with a 24 hour turn-around for current
production models. Emergency exchanges are billed at actual exchange prices
(zero for warranty units) plus $[CONFIDENTIAL] per unit regardless of warranty
status. [CONFIDENTIAL]
All exchanged units must be returned to us within 20 calendar days (DOMESTIC) /
45 calendar days (INTERNATIONAL) from date of shipment to avoid getting
invoiced for the difference between the exchange price and the list price.
The returned unit must match the product specification of the advance
exchange unit like for like. CALL 1-800-227-8332, AND SELECT 2 WHEN PROMPTED
(210-561-7420) OR FAX REQUEST TO 210-561-7421 OR FOR CANADA CALL
1-800-475-4654 AND SELECT 2 WHEN PROMPTED (514-421-8333) OR FAX REQUEST TO
514-421-3555.
18
<PAGE>
[HARRIS FARINON DIVISION LOGO] HARRIS
FARINON DIVISION
CUSTOMER SUPPORT
- ----------------------------------------------------------------------------
RESTOCKING CHARGE
An incremental charge, calculated as a percentage of the current list price,
is invoiced as per the following table for exchanged units returned later
than the 20 calendar days (DOMESTIC) / 45 calendar days (INT'L) from date of
shipment:
------------------------------------------------------------------
1- 45 days overdue 15% charge
46-120 days overdue 45% charge
> 120 days overdue No returns accepted. Invoice
difference between the exchange
price and the list price.
--------------------------------------------------------------------
EMERGENCY REPAIR
Emergency repair is available with a 24 hour turn around time for products
that are of current production. Emergency repairs are billed at actual repair
price (zero for warranty units) plus $[CONFIDENTIAL] per unit regardless of
warranty status. Our normal shipping time is 4:00 PM unless special shipping
instructions are requested. [CONFIDENTIAL]
EQUIPMENT DAMAGED DURING SHIPMENT
PLEASE CHECK FOR SHIPPING DAMAGE WHEN YOUR EQUIPMENT IS RECEIVED.
Inspect all cartons at the time of delivery. Visible damage should be brought
to the attention of the carrier at once. In the event of concealed damage,
keep the shipping container, packing material and equipment intact. It is
your responsibility to file any claims for damage or loss with the carrier.
After the carrier has inspected the damaged material, contact Harris' Repair
Administration Department to obtain a return authorization, then return the
damaged equipment to Harris. Once repair costs including any and all
associated freight costs have been established, you will be advised and these
charges may be included in your claim. Harris will make every effort to
expedite replacement of damaged goods that are the result of shipping damage.
19
<PAGE>
[HARRIS FARINON DIVISION LOGO] HARRIS
FARINON DIVISION
CUSTOMER SUPPORT
- ----------------------------------------------------------------------------
EVALUATION FEE
There is a $[CONFIDENTIAL] evaluation charge per unit if no problem is found
and no repair is required. The evaluation fee will not be applied for
warranty repairs.
NON-REPAIRABLE UNITS
Equipment which has been damaged due to customer negligence or which has
parts removed will be repaired at prevailing flat repair fee or on a time and
material basis whichever is higher regardless of the warranty status. Any
equipment that is determined non-repairable will be returned to the customer.
A $[CONFIDENTIAL] evaluation fee will be assessed. This fee will be credited
if the customer purchase a replacement unit within 30 days.
RETURN FLIGHT
Harris Farinon prepays standard return freight back to our customers. Return
freight back to customers on billable repairs is invoiced to the customers. A
$[CONFIDENTIAL] handling charge is added in excess of freight charges for
international shipments.
In-coming shipments should be sent DDU (delivered duty unpaid). Outgoing
shipments will be sent EXW (EX Works). Service Center locations.
Customers are responsible for clearance and insurance of goods (except
USA/Canada custom clearance).
The customer pays for shipping units to Harris Farinon for both warranty and
out-of warranty repairs. Harris does not accept inbound shipments that are
C.O.D. Special shipping requests may be subject to additional charge.
PLEASE MAKE SURE TO PACK THE UNIT IN SUCH A WAY AS TO PREVENT ELECTROSTATIC
DISCHARGE AND PHYSICAL DAMAGE IN TRANSIT.
20
<PAGE>
[HARRIS FARINON DIVISION LOGO]
CUSTOMER SUPPORT
ON-SITE FIELD SERVICE REPAIR
Harris Farinon factory trained Field Service engineers are available to
perform on-site repairs on an as needed basis when telephone assistance can
not be effectively rendered. The rate is $[CONFIDENTIAL] per hour portal to
portal plus actual travel expenses with 20% mark-up (airline tickets, rental
car, meals, lodging, etc.). Field service request during weekends and
holidays will be billed at $[CONFIDENTIAL] per hour portal to portal. All
request for on-site assistance should be made to Customer Resource Center.
Call the Customer Resource Center nearest you.
CUSTOMER TRAINING
Harris Farinon offers courses in microwave, lightwave and multiplex system
operation designed to maximize product performance and minimize maintenance
costs. Regular classes are held in our Redwood Shores, CA and
Dollard-des-Ormteaux, Canada facilities. Special classes can be held at
customer sites. Training is available for standard products. All other
training requirements must be quoted by the Customer Training Department.
PRICES
Regular Scheduled Class at Harris
Special Class at Harris
Special Class at Customer Site (USA) [CONFIDENTIAL]
Special Class at Customer Site
(International)
*Farscan classes for six students maximum
ANNUAL REPAIR SERVICE PROGRAM (ARSP)
Our ARSP service will assure you that all your repairs will be covered for a
minimal fee paid up front. Repairs will be processed immediately and
unexpected large repair expenses will be avoided. Only Harris Farinon
manufactured units are covered by the Annual Repair Service Program and the
antenna system as well as OEM equipment like the channel banks are excluded.
This warranty extension excludes any units deemed "irreparable" due to misuse
or abuse of the units. Equipment must be in good operating condition prior to
purchasing an annual repair service.
21
<PAGE>
CUSTOMER SUPPORT [HARRIS FARINON DIVISION LOGO]
SERVICE LOCATIONS
Our customer service representatives will ask you to ship your defective
units after the RMA is given to you in one of the following locations:
Harris Farinon Division Harris Farinon Division
330 Twin Dolphin Drive 5727 Farinon Drive
Redwood Shores, CA 94065-1421, USA San Antonio, TX 78249, USA
Phone: 1-800-227-8332 or 415-594-3800 Phone: 1-800-227-8332 or
210-561-7420
Fax: 415-594-3621 Fax: 210-561-7421
Harris Farinon Canada
3 Hotel-de-Ville
Dollard-des-Ormeaux, Quebec
Canada H9B 3G4
Phone: 1-800-465-4654 or 514-421-8333
Fax: 514-421-3555
Telex: 05-821893
22
<PAGE>
[HARRIS FARINON DIVISION LOGO]
HARRIS FARINON DIVISION & ADVANCED RADIO TELECOM
AGREEMENT ON
PUBLICITY
Pursuant to the PCS Marketing Agreement and Purchase Agreement between
Advanced Radio Telecom Corporation and Harris Corporation, Farinon Division,
signed on April 26, 1996; both parties agree that each party shall consult
with the other before issuing any press release or otherwise making any
statements to third parties with respect to the above agreements or the
transactions and relationships contemplated in these agreements and shall not
issue any press release or make any such statements prior to obtaining the
written consent of the other party, which consent shall not be unreasonably
withheld.
ADVANCED RADIO TELECOM CORPORATION
BY: /s/ Charles Menath
-------------------------------
NAME: Charles Menath
-----------------------------
TITLE: V.P. Bus. Development
----------------------------
HARRIS CORPORATION, FARINON DIVISION
BY: /s/ J. Michael Slattery
-------------------------------
NAME: J. Michael Slattery
----------------------------
TITLE: Division Controller
----------------------------
<PAGE>
CS MARKETING AGREEMENT
THIS PCS MARKETING AGREEMENT ("Agreement") is entered into as of the 26th day
of April, 1996 by and between Advanced Radio Telecom Corporation, a Delaware
corporation with offices located at 500 108th Avenue NE, Suite 2600,
Bellevue, WA 98006 ("ART") and Harris Corporation. Farinon Division, a
Delaware corporation, with offices located at 330 Twin Dolphin Drive, Redwood
Shores, CA 94065 ("Harris").
WHEREAS ART and Harris wish to develop new business opportunities in the
emerging Personal Communications Services ("PCS") marketplace for the
provision of both 38 GHz services and equipment; and
WHEREAS ART has acquired authorizations at 38GHz in certain markets in the
United States; and
WHEREAS Harris desires to include ART's 38GHz services Right-of-Use of its 38
GHz frequencies and associated coordination services as well as installation
and network monitoring, field services in conjunction with its sales of 38GHz
equipment to the PCS marketplace;
WHEREAS Harris desires, as a secondary approach to direct sales of its
microwave radio to promote ART's leased services to the PCS market.
NOW THEREFORE, in consideration of the premises and the mutual
representations, warranties, covenants and agreements hereinafter set forth.
ART and Harris, intending to be legally bound, hereby agree as follows:
1.0 EFFECTIVE DATE: RELATED SUPPLY AGREEMENT. The Effective Date of this
Agreement shall be the date of execution by the parties provided, however,
that the rights and obligations of the parties hereunder shall not become
effective unless and until the parties have executed a definitive supply
agreement ("Purchase Agreement") for 38 GHz equipment as contemplated by
Version 2 of a Letter of Intent executed by ART and Harris and dated February
22, 1996.
2.0 TERM OF AGREEMENT, RENEWAL AND TERMINATION. Subject to the
provisions of Section 1.0 hereof, the term of this Agreement begins on the
Effective Date and shall continue in effect for one (1) year from the
Effective Date ("Initial Term"). The Agreement shall automatically renew
after the Initial Term for successive periods of one (1) year (each
successive period a "Renewal Term") unless one of the parties gives written
notice not to renew no later than sixty (60) days prior to the scheduled date
of expiration of the Initial Term or any subsequent Renewal Term. The parties
acknowledge and agree that failure of either party to give notice of
termination shall give rise to a conclusive presumption that the Agreement is
to be renewed pursuant to this Section 2.0. A party may terminate this
agreement:
(a) upon notice in writing delivered to the other party, in the event
that the other party breaches any material term, condition or covenant hereof
if the other party fails to cure any default or breach within thirty (30)
days of receipt of written notice of such breach from the non-breaching party;
<PAGE>
(b) upon notice in writing delivered to the other party, in the event
that the other party breaches any material term, condition or covenant of the
Purchase Agreement referenced in Section 1.0 above and the other party fails
to cure any default or breach within thirty (30) days of receipt of written
notice of such breach from the non-breaching party; or
(c) upon notice in writing delivered to the other party in the event that
the other party has caused the Purchase Agreement referenced in Section 1.0
above to be terminated; or
(d) at any time by providing ninety (90) days written notice to the other
party.
2.1 PROVISIONS OF TERMINATION FOR OPERATING FREQUENCIES: in the event of
termination of this agreement under the terms and conditions outlined in
section 2.0 all Right of Use of ART's frequencies purchased from Harris prior
the effective date of the termination shall remain in effect for the time
period agreed in section 3.0. Harris agrees, for the remaining period that
the Right of Use is in effect, to pay to ART the annual coordination fees
specified in section 5.2.
3.0 RIGHTS GRANTED TO HARRIS. During the Initial Term and any Renewal Term of
this Agreement and subject to the terms and conditions of this Agreement, ART
hereby grants to Harris a non-transferable non-exclusive right to use ("Right
of Use") 38 GHz authorizations which ART owns or otherwise controls for a
period not exceeding 10 years (as shown in Exhibit A attached hereto). Not
withstanding the forgoing Harris may transfers to the PCS End User the rights
contained in this paragraph provided that the PCS End User agrees in writing
to the terms and conditions of this agreement that are applicable to it. The
Right of Use granted to Harris hereunder shall be limited to Harris's 38 GHz
equipment sales to the PCS market. Harris covenants and agrees that, during
the term of this Agreement, it will not offer or promote alternate 38 GHz T1
leased services from any other provider of 38 GHz service to any PCS accounts
identified in Exhibit B hereto. In consideration for the grant of the Right
of Use, Harris shall pay ART the fees identified in Section 5.1 hereof.
3.1 COVENANT WITH RESPECT TO RIGHT OF USE. ART covenants and agrees to
take all necessary action to comply with FCC rules and regulations governing
the Right of Use granted to Harris hereunder. ART shall be responsible for
resolving all regulatory and channel conflict issues concerning the Right of
Use.
4.0 SERVICES PROVIDED BY ART.
4.1 FREQUENCY COORDINATION. In addition to the Rights of Use granted to
Harris under Section 3.0 hereof, ART shall also provide Harris with channel
conflict assessment services ("Frequency Coordination") for links sold by
Harris to the PCS market. Harris shall notify ART at least 15 working days
prior to each shipment made under this agreement, and ART shall be solely
responsible for Frequency Coordination and provide to Harris the frequency
assignment within 5 business days of Harris notification to ART, including
the assignment of the frequency to be used by the end-user and avoidance of
channel conflicts. In consideration for these services, Harris shall pay ART
the fees identified in Section 5.2 hereof.
4.2 INSTALLATION AND NETWORKING MONITORING, FIELD SERVICE/RESTORAL. In
addition to the Rights of Use granted to Harris under Section 3.0 hereof, ART
shall also provide Harris installation and network monitoring field
service/restoral services as defined in Exhibit E and Exhibit F, respectively
hereto. In connection with the provision of such network monitoring, field
service/ restoral and installation services. Harris shall provide ART with
installation and workmanship standards training, as identified in Exhibit D
hereto, at no charge to ART.
2
<PAGE>
4.3 LIMITED WARRANTY: ART warrants that the installation, Network
Monitoring and Field Service/Restoral services to be provided by ART pursuant
to this Agreement will be performed in a good and substantial workmanlike
manner in accordance with the performance requirements hereunder, generally
prescribed industry standards and when applicable, in accordance with
manufacturers instructions and specifications. The warranty granted under
Section 4.3 with respect to ART's Installation services shall be for a period
of one (1) year from the date of Installation of any equipment.
4.4 LIMITATION OF LIABILITY: OTHER THAN AS SET FORTH IN SECTION 4.3
HEREIN. ART MAKES NO WARRANTIES OF ANY KIND WITH RESPECT TO THIS AGREEMENT
WHETHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO IMPLIED WARRANTIES
OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR CONFORMITY TO ANY
REPRESENTATION OR DESCRIPTION, EXCEPT FOR CREDITS FOR OUTAGES AS DESCRIBED IN
SECTION 11, ART SHALL NOT BE LIABLE FOR ANY CLAIM OF ANY KIND. INCLUDING, BUT
NOT LIMITED TO ACTIONS, DAMAGES, DEMANDS JUDGMENTS, LOSSES, COSTS, EXPENSES,
LIABILITIES, AND LOSS OF MONIES ARISING OUT OF THIS AGREEMENT OR THE
PERFORMANCE THEREOF, WHETHER BASED ON CONTRACT, WARRANTY, TORT INCLUDING
NEGLIGENCE, MISTAKE, ERROR, MISCONDUCT, INTERRUPTION, DELAY, DEFECT OR
OTHERWISE OF ART, ITS EMPLOYEES, AGENTS, CONTRACTORS, OR SUB-CONTRACTORS, OR
AFFILIATED COMPANIES, INCLUDING BUT NOT LIMITED TO SPECIAL INCIDENTAL,
CONSEQUENTIAL, INDIRECT, EXEMPLARY OR PUNITIVE DAMAGES, LOSS OF REVENUE OR
PROFIT, LOSS OF USE OF ANY PROPERTY, COST OF SUBSTITUTE PERFORMANCE,
EQUIPMENT OR SERVICES, COST OF CAPITAL DOWNTIME COSTS AND CLAIMS OF THE
CUSTOMER FOR DAMAGES.
4.5 EFFECT OF TARIFFS: SERVICES SHALL BE PROVIDED BY ART TO HARRIS
PURSUANT TO THE TERMS AND CONDITIONS SET FORTH HEREIN, AND IN THE APPLICABLE
TARIFFS ON FILE WITH THE FEDERAL COMMUNICATIONS COMMISSION AND RELEVANT STATE
UTILITY COMMISSIONS. THE TERMS AND CONDITIONS OF THOSE TARIFFS, AS AMENDED
FROM TIME TO TIME, CONTROL THE PARTIES OBLIGATIONS NOTWITHSTANDING ANYTHING
TO THE CONTRARY HEREIN.
5.0 FEES.
5.1 INITIAL RIGHT OF USE FEE. Harris shall pay ART the following fee for
every link sold with ART's 38 GHz frequency channels. Such fees shall be due
and payable to ART within thirty (30) days of the date of receipt of invoice.
TABLE 1
ANNUAL QUANTITY PURCHASED RIGHT OF USE FEE
LICENSES-LINKS PER LINK
- ------------------------- -----------------
[CONFIDENTIAL]
3
<PAGE>
5.2 FREQUENCY COORDINATION FEE. Harris shall pay ART an annual fee of
($[CONFIDENTIAL]) per link sold pursuant to this Agreement in consideration
for ART's provision of Frequency Coordination services to PCS service
providers who have purchased links from Harris. Such fees shall be due and
payable to ART within thirty (30) days of the beginning of each service year
applicable to each link. In order to facilitate the administration of the
annual fees, on large accounts a specific annual service date for all links
within their networks can be negotiated.
5.3 INSTALLATION FEES: Harris shall pay ART the fees identified in table
2 for each installation (as defined in the Exhibit E). ART shall bill Harris
promptly following completion of an Installation, and such fees shall be due
and payable to ART within 30 days of receipt of invoice.
5.4 NETWORK MONITORING AND FIELD SERVICE/RESTORAL FEE: Fees for Network
Monitoring services are identified in Table 3. Harris shall pay ART the fees
identified in table 3 for each link (as defined in the Exhibit F), shall be
billed to Harris on a monthly basis and are due and payable to ART within
thirty (30) days of receipt of invoice. Cancellation fee of Network
Monitoring services shall be payment up to the next anniversary date of this
agreement, due thirty (30) days after such anniversary date. Field
Service/Restoral will be based on links performance. A rate of $[CONFIDENTIAL]
Man Day plus materials will charged for Field Services/Restoral services.
Minimum charge of one (1) "Man Day) should Field service/Restoral be
requested.
5.4 LIMITATIONS ON ART'S OBLIGATION TO MAINTAIN AND RESTORE. ART's
obligations exclude each of the following: (i) Service, maintenance or
restoral that would be unsafe or impractical because of alterations to the
Equipment not approved by ART, or its connection to equipment or devices not
furnished or approved by ART or which connection would for any reason render
Service impossible; (ii) Service, maintenance or restoral involving Equipment
located in an unsafe or hazardous environment; (iii) Service that cannot be
restored because of elements external to the Equipment and not under the
control of ART, including, but not limited to, adverse environmental
conditions or inadequate power that are not within the manufacturer's or
ART's specifications; (iv) maintenance or restoral resulting from any
accident, neglect, alterations, improper use or misuse of the Equipment by
personnel not under the control of ART; (v) maintenance or restoral in
connection with relocation of any of the Equipment not approved by ART, and
(vi) the inability of ART to access the premises of Harris or the Customer in
order to perform maintenance and repair due to limitations or restrictions
imposed by Harris or the Customer.
TABLE 2-INSTALLATION FEE
ANNUAL QUANTITY INSTALLATION FEE
INSTALLED LINKS PER LINK
- ------------------------- -----------------
[CONFIDENTIAL]
4
<PAGE>
TABLE 3-MONTHLY NETWORK MONITORING FEE
ANNUAL QUANTITY FEE PER LINK
INSTALLED LINKS PER MONTH
- ------------------------- -----------------
[CONFIDENTIAL]
5.5 PAYMENT TERMS. All payments due to ART hereunder shall be sent to
ART's Bellevue office or to the address identified on the applicable invoice.
In addition to any other remedies available to it. ART may impose, without
further notice to Harris, a late payment charge of one and one-half percent
(1.5%) per month (but not in excess of the lawful maximum) on any past due
amounts. Harris also agrees that it shall pay all costs, including reasonable
attorneys' fees, expended in collecting past due amounts.
6.0 BETA TRIALS. ART shall provide Harris Rights of Use and Frequency
Coordination Services for a period of sixty (60) days without any obligation
of Harris to pay a Rights of Use fee for the frequency channels solely for
the purpose of conducting two (2) BETA trials, with each trial consisting of
one Harris client and one link. The specific location of these trials shall
be subject to the mutual agreement of ART and Harris. All costs associated
with installation including but not limited to, site specific equipment and
materials and field service during the BETA trial period shall be borne by
Harris. ART shall bear its own personnel and travel-related costs associated
with the site survey and installation in connection with the two BETA trials.
7.0 SALES FORECAST: Harris shall provide ART with 38 GHz radio link sales
forecasts, which shall serve as a basis to establish pricing levels outlined
in section 5.1. Harris' initial forecast is attached hereto as Exhibit C
Unless otherwise agreed by the parties, future forecasts shall be provided by
Harris on a quarterly basis.
8.0 RELATIONSHIP OF THE PARTIES: NO AGENCY OR PARTNERSHIP. Each party is an
independent business entity and will perform its obligations hereunder as an
independent contractor. It is agreed and understood that neither party is an
agent, employee or legal representative of the other, and has no authority to
bind the other in any way. Nothing in this Agreement shall be deemed to
constitute ART and Harris as partners, joint ventures, or otherwise
associated in or with the business of the other, and neither party shall be
liable for the debts, accounts, obligations or other liabilities of the other
party, its agents or employees. Neither party is authorized to incur debts or
other obligations of any kind on the part of or as agent for the other except
as may be specifically authorized herein.
9.0 INTELLECTUAL PROPERTY. Except as may be expressly authorized by this
Agreement or by separate written agreement between the parties, nothing
herein shall grant either party a license to use the trademarks, service
marks or trade names of the other party, its affiliates and/or suppliers or
licensers. All intellectual property shall remain the exclusive property of
the party owning or controlling such intellectual property.
5
<PAGE>
10.0 CONFIDENTIALLY AND NON-DISCLOSURE. In connection with this Agreement,
each party may disclose or otherwise make available certain data or
information to the other party, which data or information the disclosing
party considers to be confidential and proprietary. As used herein,
""Confidential Information,'' means any non-public information, including
customer and vendor lists, business plans and proposals, financial
information, marketing information, problem solving methods, implementation
steps, know-how, technology, trade secrets and drawings and renderings
related to each party's ongoing and proposed businesses, products and
services (including installation and training services) which is being
provided or which has been provided to the receiving party by the disclosing
party, or which is obtained by the receiving party from its meetings and
contacts with the disclosing party, or any information derived by receiving
party from information so provided or obtained. Confidential Information
includes all written or electronically recorded materials identified and
marked as confidential or proprietary or which on their face appear to be
confidential or proprietary, and oral disclosures of Confidential Information
by the
disclosing party which are identified as confidential or proprietary at the
time of such oral disclosure. Confidential Information does not include any
of the following: (a) information that is in or becomes part of the public
domain without violation of this Agreement by the receiving party; (b)
information that was known to or in the possession of the receiving party on
a non-confidential basis prior to the disclosure thereof to the receiving
party by the disclosing party; (c) information that was developed
independently by the receiving party's employees, which employees have had no
access to the Confidential Information; (d) information that is disclosed to
the receiving party by a third party under no obligation of confidentiality
to the disclosing party and without violation of this Agreement by the
receiving party; or, (e) is authorized by the disclosing party in writing for
disclosure or release by the receiving party. The parties agree: (a) to treat
and keep as confidential and proprietary all Confidential Information
disclosed by the other party; (b) to advise each employee to whom any
Confidential Information is to be made available of the confidential nature
of such Confidential Information and of the terms of this Agreement; (c) to
promptly return to the disclosing party (or its designees), upon the
disclosing party's request, all Confidential Information and all copies
thereof. The receiving party shall have discharged its obligation to
safeguard the Confidential Information received hereunder only if it has
exercised the same degree of care as it uses to protect its own proprietary
information of like importance.
11.0 INDEMNIFICATION.
11.1 INDEMNIFICATION OF ART BY HARRIS. Harris shall indemnify ART
against, and hold ART harmless from all liabilities, demands, claims,
damages, losses, demands, costs, judgments and expenses (including reasonable
attorneys' fees) arising out of or in connection with this Agreement for
personal injury or damage to tangible property, or in connection with the use
or exercise by Harris of the Right of Use, caused by the negligent acts or
willful omissions of Harris or Harris's employees, agents or invitees. In no
event shall ART's employees, agents or invitees be deemed to be employees,
agents or invitees of Harris.
11.2 INDEMNIFICATION OF HARRIS BY ART. ART shall indemnify Harris against
and hold Harris harmless from all liabilities, demands, claims, damages,
losses, demands, costs, judgments and expenses (including reasonable
attorneys' fees) arising out of or in connection with this Agreement for
personal injury or damage to tangible property, or in connection with the use
or exercise by Harris of the Right of Use, caused by the negligent acts or
willful omissions of ART or ART's employees, agents or invitees. In no event
shall Harris's employees, agents or invitees be deemed to be employees,
agents or invitees of ART.
6
<PAGE>
11.3 DUTY TO NOTIFY AND ASSIST. If any claim arises to which the
provisions of this Section may be applicable, the party against whom such
claim is made shall notify the other party immediately upon learning of the
claim. If it appears that the other party may be obligated to provide
indemnification as a result of such claim, the other party, in its
discretion, may settle or compromise the claim or retain counsel of its own
choosing and control and prosecute the defense against such claim. In no
event shall the party against whom the claim is asserted have the right to
pay, settle or compromise such claim without the prior written consent of the
party who may be obligated to indemnify under this Section, and the parties
hereto agree that they will not unreasonably withhold consent to such consent
to payment, settlement or compromise. The party against whom the claim is
asserted shall provide the other party such assistance as may be reasonable
in the defense and disposition of such claim.
NOTICES. All notices, demands or other communications which are required or
may be given under this Agreement shall be given or made in writing, and
shall be delivered personally or by overnight air courier or first class
certified or registered mail, return receipt requested and postage prepaid to
the persons and addresses listed below, or to such other persons and/or
address as the party to whom notice is to be given has furnished to the other
party. Each such notice, demand or other communication shall, simultaneously
with its being delivered to the courier or messenger for delivery or placed
in the mail, be sent by facsimile or comparable electronic means. All notices
and other communications hereunder shall be deemed to have been given: (a) on
the date of delivery if personally delivered or, if not delivered on a
business day, the first business day thereafter; (b) on the first business
day after the date sent if sent by overnight air courier; or (c) on the fifth
business day after the date sent if sent by mail.
If to ART: If to Harris:
Steven D. Comne Don Fenn
President Contracts Manager
500-108th Ave NE, Ste 2600 330 Twin Dolphin Drive
Bellevue, WA 98004 Redwood Shores, CA 94065
206-688-8700 415-594-3000
Copy to:
W. Theodore Pierson, Jr.
Executive Vice President and General Counsel
1667 K Street, NW, Ste 801
Washington, DC 20006
202-466-5278
13.0 SURVIVAL. It is expressly agreed that the provisions of Sections 5, 10,
11, 12, 17 and 18 shall survive any termination of this Agreement and shall
be and remain valid, binding and enforceable after any such termination
according to their terms.
14.0 ASSIGNMENT; BINDING EFFECT. Neither party shall assign or transfer any
of its rights or obligations hereunder without the prior written consent of
the other party hereto. Any attempted assignment without written consent will
be void. This Agreement shall inure to the benefit of and shall be binding
upon the successors and assigns of the parties.
15.0 SEVERABILITY. If any portion of this Agreement is held to be invalid by
a court of competent jurisdiction, that provision shall become ineffective
and unenforceable. The parties agree that such invalidity shall not affect
the validity of the remaining portions of this Agreement, and further agree
to substitute for the invalid provision a valid provision that most closely
approximates the effect and intent of the invalid provision.
7
<PAGE>
16.0 FORCE MAJEURE: NEITHER PARTY SHALL BE LIABLE FOR DELAYS IN PERFORMANCE
OR FAILURE TO PERFORM. THIS AGREEMENT OR ANY OBLIGATIONS HEREUNDER, WHICH ARE
ATTRIBUTABLE TO CAUSES BEYOND ITS REASONABLE CONTROL, INCLUDING BUT NOT
LIMITED TO FIRE, FLOOD, EPIDEMIC, EARTHQUAKE, ENVIRONMENTAL DAMAGE, ACT OF
GOD, LIGHTNING, PUBLIC POWER FAILURE OR SURGE, EXPLOSION, STRIKE OR OTHER
LABOR DISPUTE, RIOT OR CIVIL DISTURBANCE, WAR OR ARMED CONFLICT, OR OTHER
GOVERNMENTAL ORDER OR REGULATION, OR ORDER OF ANY COURT OF COMPETENT
JURISDICTION, OR ANY OTHER SIMILAR OCCURRENCE NOT WITHIN ITS CONTROL.
17.0 GOVERNING LAW. The parties agree that this Agreement shall be
interpreted and construed both as to performance and validity in accordance
with and governed by the laws of the domestic laws of the State of Washington
even if its choice of law provisions are in conflict with this requirement.
18.0 DISPUTE RESOLUTION; ARBITRATION. The parties agree that all disputes,
claims or controversies between them arising out of or relating to this
Agreement, and only if good faith attempt at resolution between parties
fails, shall be settled by arbitration in accordance with the rules of the
American Arbitration Association. Decisions of the arbitration panel shall be
based upon Washington State law, and the site of such arbitration shall be in
King County, Washington. The arbitration panel shall consist of three
arbitrators, one arbitrator to be selected by each party and the third
arbitrator to be selected by the other two arbitrators. Any decision rendered
by the arbitration panel pursuant to this provision shall be concurred in by
a majority of the members of the panel. Judgment may be entered by any court
of competent jurisdiction. Arbitration pursuant to this section shall be the
exclusive means of resolving any dispute, claim or controversy arising
hereunder. Each party shall bear its own costs, including attorneys' fees, in
connection with any proceeding brought under this Section.
19.0 REGULATORY APPROVAL. The rights and obligations of the parties hereunder
are subject to any regulatory approvals which may be required, and this
Agreement may be terminated by either party if any governmental or regulatory
agency imposes rules or regulations affecting the relationship between the
parties in a material way.
20.0 WAIVER OF BREACH. The failure to enforce or to require the performance
at any time of any of the provisions of this Agreement by a party shall not
be construed to be a waiver of any other provisions by that party, and shall
not affect either the validity of this Agreement or any part hereof or the
right of any party thereafter to enforce each and every provision of this
Agreement.
21.0 EXECUTION IN COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall, when executed, be deemed to be an
original, but all of which together shall constitute one and the same
instrument.
22.0 PUBLICITY. Each party shall consult with the other before issuing any
press release or otherwise making any statements to third parties with
respect to this Agreement or the transactions and relationships contemplated
hereby and shall not issue any press release or make any such statements
prior to obtaining the written consent of the other party, which consent
shall not be unreasonably withheld.
23.0 SECTION HEADINGS. The section and sub-section headings contained herein
are for reference purposes only and shall not affect in any way the meaning
or interpretation of any provision of this Agreement.
8
<PAGE>
24.0 AUTHORITY. Each party represents and warrants that it has full power and
authority to enter into and perform under this Agreement and that its
delivery of this Agreement has been duly authorized by all necessary
corporate or other action and that the person signing the Agreement on its
behalf is duly authorized to do so. Each party further acknowledges that it
has read and understands this Agreement and agrees to be bound by all of its
terms, conditions and provisions.
25.0 ENTIRE AGREEMENT; MODIFICATION. This Agreement and all Exhibits,
Appendices and Attachments hereto constitutes the entire agreement between
the parties and supersedes all prior representations, agreements,
understandings and arrangements, oral or written, between the parties with
respect to the subject matter hereof. All Recitals, Background and Statements
of Purpose are expressly excluded from this Agreement. This Agreement
allocates the risks of loss among the parties, which allocation is reflected
in the charges and terms and conditions set forth herein. This Agreement may
not be released, discharged, amended or modified in any way except by a
writing that expressly refers to this Agreement and is executed by all
parties hereto IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the date first above written.
Advance Radio Telecom Corporation Harris Corporation
By: /s/ Charles Menath By: /s/ J. Michael Slattery
-------------------------- ---------------------------
Print Print
Name: Charles Menath Name: J. Michael Slattery
------------------------ -------------------------
Title: V.P. Bus. Development Title: Division Controller
----------------------- ------------------------
9
<PAGE>
PCS MARKETING AGREEMENT
BETWEEN ART AND HARRIS
LIST OF EXHIBITS
Exhibit A List of Authorizations under ART's Control at 38 GHz.
Exhibit B List of Harris PCS Target Accounts.
Exhibit C Harris Sales Forecast.
Exhibit D Outline of Harris Training on Installation and Workmanship
Standards.
Exhibit E Definition of ART's Installation Services, Procedures and Schedule.
Exhibit F Definition of ART's Network Monitoring Services and Procedures.
10
<PAGE>
Exhibit A
LIST OF AUTHORIZATION UNDER ART'S CONTROL AT 38GHZ
MARKET CHANNELS
------ --------
1 Albany 13 NY
2 Albany 1,14 NY
3 Albuquerque 2 NM
4 Allentown 1,14 PA
5 Altoona 1,14 PA
6 Anchorage 2 AK
7 Altanta 1 GA
8 Austin 2 TX
9 Baltimore 6 MD
10 Baltimore 1,14 MD
11 Baton Rouge 2 LA
12 Billings 1 MT
13 Binghamton 1,14 NY
14 Birmingham 4 AL
15 Boston (No.) 1,14 MA
16 Boston (So.) 1,14 MA
17 Bridgeport 1,14 NH
18 Buffalo 10 NY
19 Buffalo 1,14 NY
20 Canton 2 OH
21 Charleston 4 SC
22 Charleston 1 WV
23 Chicago 1 IL
24 Cincinnati 6 OH
25 Cleveland 1 OH
26 Columbus 6 OH
27 Corning 1,14 NY
28 Dallas 1 TX
29 Dayton 6 OH
30 Denver 1 CO
31 Des Moines 5 IA
32 Eugene 3 OR
33 Eureka 4 CA
34 Fairbanks 4 AK
35 Grand Rapids 7 MI
36 Greensboro 14 NC
37 Harris 1,14 PA
38 Hartford 2 CT
39 Hartford 1,14 CT
11
<PAGE>
EXHIBIT A
Page 2
40 Honolulu 4 HI
41 Houston 1 TX
42 Huntington 2 WV
43 Indianapolis 2 IN
44 Jackson 4 MS
45 Jackson 14 MS
46 Juneau 6 AK
47 Kansas City 1 MO
48 Kingston 1,14 NY
49 Knoxville 8 TN
50 Las Vegas 4 NV
51 Lincoln 4 NE
52 Lorain 1 OH
53 Louisville 6 KY
54 Madison 2 WI
55 Memphis 2 TN
56 Miami 1 FL
57 Minneapolis 6 MN
58 Mobile 8 AL
59 Nashville 12 TN
60 New Orleans 1 LA
61 New York - Long Island 1,14 NY
62 New York (Manhattan) 13 NY
63 New York (North) 1,14 NY
64 New York (South) 1,14 NY
65 Newark North 1,14 NJ
66 Newark South 1,14 NJ
67 Norfolk 4 VA
68 Oklahoma City 1 OK
69 Ogden 4 UT
70 Pensacola 3 FL
71 Philadelphia 1,14 PA
72 Phoenix 1 AZ
73 Pittsburgh 1,14 PA
74 Portland 2 OR
75 Providence 1,14 RI
76 Reno 1 NV
77 Richmond 4 VA
78 Rochester 2 NY
79 Rochester 1,14 NY
12
<PAGE>
EXHIBIT A
Page 3
80 Sacramento 9 CA
81 Salt Lake City 1 UT
82 San Antonio 11 TX
83 San Diego 5 CA
84 San Jose 9 CA
85 Scranton 3 PA
86 Scranton 1,14 PA
87 Seattle 1 WA
88 Shreveport 1 LA
89 Spokane 4 WA
90 Springfield 1,14 MA
91 St. Louis 1 MO
92 Stamford 1,14 CT
93 Syracuse 1,14 NY
94 Tacoma 1 WA
95 Trenton 1,14 NJ
96 Tucson 1 AZ
97 Utica-Rome 1,14 NY
98 Washington 6 DC
99 Washington 1,14 DC
100 White 1,14 NY
101 Wichita 3 KS
102 Wilmington 3 DE
103 Wilmington 1,14 DE
104 Worcester 1,14 MA
105 York 1 PA
13
<PAGE>
EXHIBIT B
LIST OF HARRIS PCS TARGET ACCOUNTS
- ----------------------------------
1. [CONFIDENTIAL]
2.
3.
4.
5.
14
<PAGE>
EXHIBIT C
HARRIS SALES FORECAST
---------------------
LINKS
1. [CONFIDENTIAL]
2.
3.
4.
5.
______________________
Total
15
<PAGE>
EXHIBIT D
OUTLINE OF HARRIS TRAINING ON INSTALLATION AND WORKMANSHIP STANDARDS
--------------------------------------------------------------------
COURSE NO: VID-MIC-01
COURSE TITLE: MICROSTAR[cad 176] INSTALLATION, MAINTENANCE AND OPERATION
--------------------------------------------------
AUDIENCE: This course is designed for the technical personnel who have the
responsibility of installing, operating and maintaining the Microstar.
COURSE DESCRIPTION: The course objective is to provide the skills and
knowledge required to perform installation, operation and maintenance of the
equipment so as to achieve a minimum of downtime. You will learn to use the
proper procedures to eliminate equipment damage resulting from incorrect
handling as well as how to relate the comprehensive documentation in the
installation manual to actual equipment installation, operation and
maintenance. You will also be taught how to isolate and replace faulty unit.
Finally, you will learn performance monitoring techniques to maintain an
initial level of system operation.
KEY TOPICS:
/ / General Information
/ / Fannon Publication And Drawing
/ / Basic Digital background
/ / Microstar Typical Application
/ / Signal Flow
/ / System Setup
/ / Operation Fault Isolation
/ / Unit Replacement
/ / Maintenance
MEDIA: TR-MIC-01 is a three volume Video cassette Course, reinforced with
detail product documentation.
Videocassette Vol. 1 Microstar Theory of Operation Duration: 25 min.
Videocassette Vol. 2 Microstar Installation Duration: 20 min.
Videocassette Vol. 3 Microstar Maintenance and Operation Duration: 30 min.
PERQUISITES: Knowledge of the basic Telecommunication System
COURSE OUTLINE: Microstar Installation
16
<PAGE>
EXHIBIT D
Page 2
RELATED COURSES:
-TR-BASDIG Basic Digital Telecommunication
-TR-BASMIC Basic Microwave Installation
-TR-BASMOD Basic Microwave Modulation
-TR-DIG-1 Digital Telecommunication
-TR-Mic-1 Microwave Installation
-TR-MIC-02 Microstar System Design and Technical Support
17
<PAGE>
EXHIBIT D
Page 3
COURSE NO: TR-MIC-02
COURSE TITLE: MICROSTAR SYSTEM DESIGN AND TECHNICAL SUPPORT
---------------------------------------------
AUDIENCE: This course is designed for technical personnel who have the
responsibility of designing Telecommunication System using Microstar and/or
providing technical assistance to personnel installing, operating and
maintaining the Microstar.
COURSE DESCRIPTION: The course objective is to provide the skills and
knowledge required to perform Network and System Design using the Microstar
Radio Path Calculation basics, reliability calculation and Network Management
consideration will be taught so as to achieve cost effective System Design.
You will also learn how the Microstar functions in detail so that you become
a product expert. This will enable you to provide Advanced Technical Support
to installation, operation, and maintenance personnel.
KEY TOPICS:
/ / General Information
/ / Farinon Publication and Drawing
/ / Path Calculation
/ / Microstar Interconnectivity
/ / Theory of Operation
/ / System Installation
/ / Operation
/ / Maintenance
/ / Alarm Synopsis
/ / Diagnostics
/ / Network Management
MEDIA: TR-MIC-02 is a combination of lecture, reinforcement with hands-on
exercises using product documentation.
PREREQUISITES: Knowledge of the basic digital technique and modulation
technique and basic telecommunications background.
Trainees will need basic knowledge of the following subjects:
-Digital Communication Format (North American DS1,2,3 or CEPT E1,2,3)
-Digital Modulation Techniques (QPSK, OQPSK, QPR, QAM, FSK)
-Digital Telecommunications System (Backbone, SPUR, Networking)
18
<PAGE>
EXHIBIT D
Page 4
DURATION: 2 day
COURSE OUTLINE: Microstar System Design and Technical Support
RELATED COURSES
:
-TR-BASDIG Basic Digital Telecommunication
-TR-BASMIC Basic Microwave Installation
-TR-BASMOD Basic Microwave Modulation
-TR-DIG-1 Digital Telecommunications
VID-MIC-1 Microwave Installation
19
<PAGE>
EXHIBIT E
DEFINITION OF ART'S INSTALLATION SERVICES AND PROCEDURES
--------------------------------------------------------
STANDARD INSTALLATION:
"Any installation where both radios are roof mounted, no coning boring
penetrations are necessary, access is unrestricted during normal
business hours, and the installation can be accomplished in one concurrent
eight hour business man day."
TYPICAL STANDARD INSTALLATION EQUIPMENT REQUIRED:
1" antenna
Standard Wall Pipe Mount
ODU
RG8 or RG11 cable (up to 100 feet)
IDU (either wall-mount or rack-mount)
75W Foresight power supply (either wall-mount or rack-mount)
DB-25 10" cable terminated into a wirewrap block
Standard installation parts kit (Miscellaneous hardware, nuts, bolts,
etc.)
NON-STANDARD INSTALLATION:
"Any installation that would require coring, long or difficult cable
runs, tower or rigging crews required to install the ODU, modifications to
mounting structures, restricted or limited access, and/or installation
time beyond a concurrent eight hour business man day."
TYPICAL NON-STANDARD INSTALLATION EQUIPMENT REQUIRED:
2" Antenna
Tripod or special tower mounts
Additional RG8 or RG11 cable beyond 100 feet
Protected power supplies
DB-25 cable terminated into DSX panel
Cabinets or weatherproof enclosures
"Smart" jacks
CSU/DSU
The installation fee as outlined in 5.3 Table 2 is inclusive of up to two (2)
"Man Days" at eight (8) hours per each business day. At Harris' request ART
shall perform Non-Standard installations or should additional days be
required for Standard installations beyond two (2) "Man Days" a rate of
$[CONFIDENTIAL] per man day plus reasonable incremental expenses will apply.
Harris to provide all installation materials required at no-charge to ART
20
<PAGE>
EXHIBIT E
Page 2
INSTALLATION SCHEDULE
---------------------
INSTALLATION MILESTONES:
1. ART receives a request for service (RFS) from Harris. The RFS must
include certain information necessary for the installation process,
including but not limited to a Preliminary Site Survey.
2. Within 3 business days of receiving the RFS, ART will inform Harris
if the RFS is incomplete, noting the additional information ART
requires.
3. Within 10 business days of receiving a completed RFS, ART will
complete a Detailed Site Survey, noting any issues, limitations or
exceptions with respect to the installation.
4. Harris will provide ART with an executed Service Order based on the
Detailed Site Survey provided by ART. In order for the Service Order
to be deemed complete, Harris must provide ART with satisfactory
evidence of the necessary roof rights, including copies of leases,
authorizations, agreements with landlords, and the like where
applicable.
5. ART will complete Standard Installations within 15 business days of
receiving a complete, executed Service Order, or such later date as
may be requested by Harris or its Customer and agreed to in writing
by ART.
6. ART will complete Non-Standard Installations in accordance with a
schedule to be mutually agreed on among ART, Harris and the
Customer.
21
<PAGE>
EXHIBIT F
ART'S DEFINITION OF NETWORK MONITORING SERVICES AND PROCEDURES
--------------------------------------------------------------
NETWORK OPERATIONS CENTER
The NOC operates on a seven (7) day twenty-four (24) hour basis to
monitor all circuits. The NOC provides continuous Supervisory Control and
Data Acquisition (SCADA).
The ART Network Operations Center (NOC) will provide the following services
to ART customers per the fee schedule outlined.
A. Link alarm monitoring via OZBOX dial-up modem or customer call in.
B. Link performance monitoring.
C. Link performance monitoring.
D. Historical link performance data.
E. Remote link diagnosis.
F. Remote link restoral via the Network Monitoring System (NMS). The
NMS is the GET Worldwin system and described below.
G. Restoral of service if an ART Link failure occurs.
H. Initiate dispatch activities, as required.
I. Coordination and testing with associated NOC's if outage occurs but
not due to an ART failure.
Response Times & Procedures.
The operational status of every ART circuit is tracked by a dedicated
OZBOX which continuously monitors the performance of the wireless link.
The OZBOX automatically contacts ART's Network Operations Center when
it detects a problem.
A message is flashed on the Network Operator's screen informing him
of a problem.
0-15 MINUTES:
-------------
The Network Operator then runs diagnostic routines in the OZBOX,
attempting to determine the cause of the malfunction.
(If a customer or user calls into ART's Network Operations Center
with a performance problem, the same procedure is initiated -the
Network Operator connects to the corresponding OZBOX to initiate
diagnostic routines.)
If the problem can be corrected remotely, the Network Operator will
restore service.
If the diagnosis can determine the problem is due to non-ART network
equipment, the Network Operator will notify and coordinate with the
associated NOC which is responsible for the effected equipment. The
ART Network Operations Center will continue to participate in the
testing as appropriate.
22
<PAGE>
EXHIBIT F
Page 2
15-30 MINUTES:
--------------
If the problem requires on-site service, a dispatch will be issued
within 30 minutes of our initial notification of the problem. At
this point the customer is notified, and advised of the planned
solution. An ART Field Service Technician will be dispatched if in
the vicinity and IMMEDIATELY AVAILABLE. Otherwise a GTE Field
Service Technician will be dispatched.
30 MINUTES TO 1 HOUR:
--------------------
The service technician will be on-site within 30 minutes, or have an
ETA of when he will be on site. If the ETA exceeds 30 minutes for
the dispatch, the problem will be escalated within both service
organizations.
1-4 HOURS:
----------
The service technician will perform on-site diagnosis as
appropriate, and swap all ART equipment with new equipment as
required to restore service within 4 hours
WORLDWIN SYSTEM DESCRIPTION
- ---------------------------
The WorldWin products comprise a Service Fulfillment and Integrated Customer
Contact File. Asset Management & Tracking, Network Operations NMS product and
Project /Work Order Management. WorldWin is able to provide the following:
Easily, quickly and with flexibility define services to be delivered
to our customers.
Manage network configuration, including automated provisioning of
customer services.
Monitor and maintain the operational integrity of our customer
circuits, including fault and performance management, trouble
ticketing/repair and work order management.
Perform business support functions such as service order processing
and customer management (billing, call records and sales quotes).
Worldwin will manage the business, services and network from a single
integrated platform ART will deliver services, as well as unparalleled
customer support on demand from any department work station. Simultaneous
transmission of network information - Messages containing information
(typically called Call Detail Record-CDR), performance, fault, alarm, or
provisioning data can be sent in near real-time to other applications, i.e.
"alarm records" to an output file on the NT Corporate Server.
23
<PAGE>
EXHIBIT 10-32
[ADVANTAGE TELECOM, INC. LETTERHEAD]
March 20, 1996
Mr. Vernon L. Fotheringham
CEO
Advanced Radio Telecom Corp.
Bellevue City Center
500 108th, Ave. NE
Suite 2600
Bellevue, Washington
98004
RE: LETTER OF INTENT FOR STRATEGIC VENTURE FOR FIXED TELECOMMUNICATIONS
OPERATIONS IN CANADA.
Dear Vern:
This letter summarizes our recent conversation and constitutes a
Letter of Intent ("LOI") to enter into a binding Definitive Agreement on or
before September 14, 1996. This LOI does not obligate the parties in any
respects other than (i) to negotiate in good faith to reach a Definitive
Agreement and (ii) not to take any action concerning the activities contemplated
herein without the other's concurrence. All obligations under this LOI will
become null and void on the sooner of the execution of a Definitive Agreement
and or September 14, 1996.
Advantage Telecom Inc. ("ATI") is a Canadian corporation, wholly owned
by Canadian citizens and is incorporated in the province of British Columbia
("BC") and with its principal place of business at 1535 Bramble Lane, Coquitlam,
B.C. V3E 2S7. ATI has commenced the process to become authorized as a provider
of 38GHz services throughout Canada. In view of Advanced Radio Telecom's
("ART") expertise in fixed wireless telecommunications in the United States and
its desire to enter the Canadian market, ATI wishes to form a Strategic Venture
with ART, which will be the means by which either party participates in the
provision of broadband fixed wireless or wired telecommunications within Canada.
The initial endeavor of the Strategic Venture shall be obtaining
authorization to provide 38GHz services in all regions of Canada. Subsequently,
depending upon demand, competition and the regulatory climate, the parties
intend to expand their services to encompass other fixed wireless frequencies
and hybrid wired/wireless broadband networks.
As between ATI and ART, ART shall furnish all of the funds needed to
secure the appropriate licenses and commence operations, ART shall hold the
maximum amount of legal and beneficial interests and provide the maximum degree
of services permitted under Canadian law and ART shall operate the systems and
furnish all services to the Strategic Venture upon
Proprietary / Confidential
<PAGE>
reasonable and appropriate terms. ART shall approve in advance all expenditure
and activities to be undertaken by ATI prior to the execution of a Definitive
Agreement.
ATI shall furnish ART with all relevant documents, including its incorporation
papers, and consult with ART no less than weekly concerning all relevant
developments and near term contacts and plans. ATI, with ART's input shall
commence immediately the preparation of a business plan and a five year pro
forma income/expense projection.
If these LOI terms meet with your approval, please so signify by
executing below.
Sincerely,
/s/ MIRIAM D. HAYWARD
Miriam D. Hayward
as President
Advantage Telecom, Inc.
ACCEPTED AGREED: /s/ VERNON L. FOTHERINGHAM
Vernon L. Fotheringham
as CEO Advanced Radio Telecom Corp.
Proprietary / Confidential
<PAGE>
CONSULTING AGREEMENT
This Consulting Agreement (the "Agreement") is made and entered into effective
as of the 1st day of March, 1996, between Advanced Radio Telecom Corporation
(the "Company") and Trnd Johanssen (the "Consultant").
The Company, operating in the Information Technology and Communications
industry, is organized to deliver broadband, wireless services to business,
government and private customers. The company is to date established in the
United States, intending to expand into world markets.
The Consultant has experience in the Information Technology and Communications
Industry. He is an Appointment Representative of Caledonian European
Securities, Ltd., specializing in assisting upstart telecommunications companies
in their financing and strategic partnering activities. The Consultant may act
in this role in parallel with this agreement, as and when agreed between the
Company and Caledonian European Securities, Ltd. The Consultant is the Chairman
and sole shareholder of JEITO A/B, a Norwegian corporation currently applying
for broadband frequency license in Norway.
Now, therefore, in consideration of and for the mutual promises and covenants
contained herein, the parties agree as follows:
1. Purpose. The Company hereby employs Consultant during the term specified
hereinafter to render such consulting services to the Company as described in
Section 3 hereof and such other consulting services as the Company and the
Consultant may from time to time agree ("Consulting Services"), upon the terms
and conditions as set forth herein.
2. Term. This Agreement shall commence as of the effective date of this
Agreement and shall continue for a period of 24 months.
3. Extent of Consulting Services Provided.
(a) During the term of this Agreement, Consultant will provide Company with
Consulting Services with respect to the Company's international expansion,
including, but not limited to the following:
(i) Acquisition of broadband frequency licenses from regulatory entities,
or from entities to whom licenses have already been issued.
(ii) Formation of corporate entities to operate services based on the
acquired licenses.
(iii) Identification of local operating partners for each corporate
entity formed.
<PAGE>
(iv) Identifying and negotiating appropriate arrangements with commercial
or other private capital sources, including conventional sources such as bank
financing or other institutional asset based financing, and private equity or
mixed equity and debt placements.
(b) In connection with rendering its advice hereunder, the Consultant and its
employees and agents shall, to the extent reasonably required in connection with
providing Consulting Services, be given access to the Company's offices,
premises and records.
(c) The Consultant will, with respect to its Consulting Services, provide the
services of personnel with the requisite experience and skill to provide the
Consulting Services required and will furnish to the Company reasonable
information with respect to the identity and qualifications of the personnel
assigned to provide Consulting Services.
(d) Consultant shall be available to provide Consulting Services for not less
than twelve (12) person/days per month during the term of this Agreement
("Minimum Consulting Services").
Consulting beyond twelve days per month will be in the interest of the
Consultant, as a substantial part of his compensation is potentially coming at
the successful completion of the project(s).
(e) The Consultant will provide Consulting Services in a professional manner
and in accordance with the highest professional standards generally applicable
to comparable consulting services. The Company acknowledges, however, that
advice given by the Consultant does not and will not constitute any guarantee or
other assurance as to the ability of the Company to realize the financial or
other objectives in connection with which the advice was given.
(f) The Company acknowledges that the Consultant retains the right to provide
consulting advice to other parties. Except as specifically provided herein with
respect to the confidentiality of proprietary information and non-competition
provision of the Company, nothing herein shall be construed to limit or restrict
the Consultant in conducting such business with respect to others, or in
rendering advice to others or conducting any other business.
(g) Except as disclosed to the Company in writing, the Consultant is not a
member, an affiliate, or an affiliate of a member of:
(i) any institutional lender or investor, including, without limitation,
any commercial, investment or merchant bank, investment fund, leasing company or
other, comparable entity;
(ii) any Information Technology and Communications industry firm;
(iii) any regulatory body or industry association connected with the
Company.
The Consultant will promptly inform the Company in writing of any change in the
information
<PAGE>
set forth in this Section 3(g).
4. Compensation. Company agrees to pay the Consultant for the Minimum
Consulting Services hereunder the sum of six thousand five hundred United States
dollars (USD 6,500) for each month, payable on the 15th day of each month during
the term of this Agreement.
In any new corporation established with the assistance of the consultant, the
Consultant will be assigned 20% of the shares upon formation, and the Company
will be assigned 80%. These shares will be the same class, and carry the same
privileges. In the case of third parties investing in the new corporation(s),
the Consultant and the Company will dilute at the same rate. The Company will
have a right of first refusal to the Consultant's shares, exercisable by notice
of 30 days of "bona fide" offer, except in transfers to wife or immediate family
members, or JEITO A/A (a company wholly owned by the Consultant). In the case
of a share sale in the new corporation by the Company, the Consultant shall have
the right to require that his shares are sold on his behalf by the Company, as
part of the same transaction, and on equal terms as those of the Company.
5. Expenses. Consultant shall be entitled to reimbursement by Company of such
reasonable, accountable out-of-pocket expenses as Consultant may incur in
performing Consulting Services under this Agreement. Company has right to
require receipts for all expenditures. Such reimbursements shall be in addition
to any fees otherwise earned by Consultant hereunder. Any expense in excess of
two hundred fifty United States dollars (USD 250) in any calendar month for
which Consultant shall be entitled to reimbursement hereunder shall be approved
in advance by Company provided, however, that ordinary and necessary travel
expenses of Consultant need not be so approved, provided that travel itinerary
has been approved. The Company shall pay consultant a fixed communications
(telephone, fax, e-mail, Internet, etc.) compensation of USD 1,950 per month,
or the actual itemized amount, whichever is higher. This does not include
communications charges when traveling, which will be compensated in full.
6. Restriction on Use of Proprietary and Certain Other Information.
A. The parties agree to enter into a Confidentiality Agreement as supplied by
the Company or the Consultant on the effective date of this Agreement.
B. The parties agree not to engage in competing activities for fixed wireless
services in the countries named in Appendix A for the period of the Agreement
and 12 months after the termination of the Agreement.
7. Arbitration. Any controversy or claim arising out of or relating to the
compensation to be paid by the Company or the services to be rendered by the
Consultant pursuant to the terms of this Agreement, or otherwise related to the
compliance by either party with its obligations hereunder, shall be settled by
binding arbitration in accordance with the rules of the American Arbitration
Association, any judgment on the award rendered by the arbitrator(s) may be
entered by any court having jurisdiction thereof. Any part of this Agreement
may submit to arbitration any controversy or claim.
<PAGE>
8. Assignment. This Agreement and the rights hereunder may not be assigned by
either party (except by operation of law, or to affiliates (owned or
controlled), parent or subsidiary) without the prior written consent of the
other party, but, subject to the foregoing limitation, this Agreement shall be
binding upon and inure to the benefit of the respective successors, assigns, and
legal representatives of the parties.
9. Notice. Any notice or other communication between the parties hereto shall
be sufficiently given if sent by certified or registered mail, postage prepaid,
with a copy by electronic means, if to the Company addressed to it at
Advanced Radio Telecom Corporation
500 - 108th Avenue, NE, Suite 2600
Bellevue, WA 98004, USA
Att.: Mr. Vernon L. Fotheringham, Chairman and CEO
Tel: 1-206-688-8700
Fax: 1-206-688-0703
or if to the Consultant, addressed to it at
Trend Johannessen
Via Alesandro Volta, 15
1-20121, Milan, Italy
Tel.: 39-2-657-1033
Fax: 39-2-657-0016
or to such other address as shall hereafter be designated in writing by one
party to the other. Such notice or other communication shall be deemed to be
given on the day sent.
10. Captions. The headings of the sections of this Agreement are intended
solely for convenience of reference and are not intended and shall not be deemed
for any purpose whatever to modify or explain or place any construction upon any
of the provisions of this Agreement.
11. Attorneys' Fees. In the event any party shall institute an action to
enforce any rights hereunder, the prevailing party in such action shall be
entitled, in addition to any other relief awarded by the arbitrator(s) or the
Court, to such reasonable arbitration costs and attorney's fees as the
arbitrator(s) or the Court may award.
12. Entire Agreement. This Agreement constitutes the entire Agreement between
the parties hereto pertaining to the subject matter hereof and supersedes all
prior and contemporaneous agreements and understandings of the parties, and
there are no representations, warranties or other agreements between the parties
in connection with the subject matter hereof except as specifically set forth
herein. No supplement, modification, amendment, waiver or termination of this
Agreement shall be binding, unless executed in writing by the parties hereto.
No waiver of any of the provisions of this Agreement shall have deemed or shall
constitute a
<PAGE>
waiver of any provision hereof (whether or not similar), nor shall waiver
constitute a continuing waiver.
13. Severability. In the event that any provision of this Agreement shall be
held to be invalid, illegal, or unenforceable in any circumstances, the
remaining provisions shall nevertheless be construed as if the unenforceable
portion or portions were deleted.
14. Governing Law. The parties hereby agree that this Agreement shall be
governed by the laws of the State of Washington.
In witness whereof, the parties hereto have executed this Agreement this day and
year first above written.
Advanced Radio Telecom Corporation Trend Johannessen
___________________________________ ____________________________
Vernon L. Fotheringham, Chairman/CEO Consultant
Date:______________________________ Date:______________________
<PAGE>
Appendix A
Countries covered by clause 6, Non-corporation
Austria
Belgium
Denmark
Finland
France
Germany
Greece
Italy
Luxembourg
Netherlands
Norway
Portugal
Spain
Sweden
Switzerland
United Kingdom
<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
