<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY , 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ADVANCED RADIO TELECOM CORP.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 4841 52-1933157
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
--------------------------
<TABLE>
<S> <C>
VERNON L. FOTHERINGHAM
CHIEF EXECUTIVE OFFICER
ADVANCED RADIO TELECOM CORP. ADVANCED RADIO TELECOM CORP.
500 108TH AVENUE, N.E., SUITE 2600 500 108TH AVENUE, N.E., SUITE 2600
BELLEVUE, WASHINGTON 98004 BELLEVUE, WASHINGTON 98004
(206) 688-8700 (206) 688-8700
(Address, Including Zip Code, and Telephone (Name, Address, Including Zip Code, and
Number, Including Area Code, of Registrant's Telephone Number, Including Area Code,
Principal Executive Offices) of Agent for Service)
</TABLE>
--------------------------
COPIES TO:
<TABLE>
<S> <C> <C>
JAMES KARDON, ESQ. JOHN D. WATSON, ESQ. W. THEODORE PIERSON, JR., ESQ.
HAHN & HESSEN LLP LATHAM & WATKINS PIERSON, BURNETT & HANLEY LLP
350 FIFTH AVENUE 1001 PENNSYLVANIA AVE., N.W. 1667 K. STREET, N.W., SUITE 801
NEW YORK, NEW YORK 10118 WASHINGTON, D.C. 20004 WASHINGTON, D.C. 20036
(212) 736-1000 (202) 637-2200 (202) 466-3044
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER UNIT (1) PRICE (1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Units (2).............................. Units $ $125,000,000 $43,103
Senior Discount Notes due 2006......... (2) N/A N/A (3)
Warrants to Purchase Common Stock...... (2) N/A N/A (3)
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457 under the Securities Act.
(2) The Units will consist of an aggregate principal amount at maturity of
Senior Discount Notes due 2006 and Warrants to purchase shares of Common
Stock to raise an aggregate of $125,000,000 gross proceeds.
(3) As such securities are to be provided without additional cost to purchasers,
no registration fee is required with respect thereto.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ADVANCED RADIO TELECOM CORP.
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K SHOWING LOCATION
IN PROSPECTUS OF INFORMATION REQUIRED BY ITEMS OF FORM S-1
<TABLE>
<CAPTION>
ITEM AND CAPTION IN FORM S-1 CAPTION IN PROSPECTUS
- ---------------------------------------------------------------- -----------------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus...................... Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus.......................................... Inside Front Cover Page of Prospectus; Outside Back
Cover Page of Prospectus
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges........................... Prospectus Summary; Risk Factors
4. Use of Proceeds...................................... Use of Proceeds
5. Determination of Offering Price...................... Outside Front Cover Page of Prospectus; Risk Factors;
Underwriting
6. Dilution............................................. Not Applicable
7. Selling Security Holders............................. Not Applicable
8. Plan of Distribution................................. Outside Front Cover Page of Prospectus; Underwriting
9. Description of Securities to be Registered........... Outside Front Cover Page of Prospectus; Prospectus
Summary; Description of Units; Description of Notes;
Description of Warrants; Description of Capital
Stock; Certain Federal Income Tax Considerations
10. Interests of Named Experts and Counsel............... Legal Matters; Experts
11. Information with Respect to the Registrant........... Prospectus Summary; Risk Factors; The Company;
Dividend Policy; Capitalization; Selected Historical
Combined and Pro Forma Financial Data; Management's
Discussion and Analysis of Financial Condition and
Results of Operations; Business; Management; Certain
Transactions; Principal Stockholders; Description of
Units; Description of Notes; Description of
Warrants; Description of Capital Stock; Description
of Certain Indebtedness; Financial Statements.
12. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities...................... Not Applicable.
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MAY 14, 1996
PROSPECTUS [LOGO]
$125,000,000 GROSS PROCEEDS
ADVANCED RADIO TELECOM CORP.
UNITS CONSISTING OF
SENIOR DISCOUNT NOTES DUE 2006
AND WARRANTS TO PURCHASE SHARES OF COMMON STOCK
------------------
Advanced Radio Telecom Corp., a Delaware corporation ("ART" or the
"Company"), is hereby offering units (the "Units"), each consisting of
$1,000 principal amount at maturity of Senior Discount Notes due 2006 (the
"Notes") and warrants (the "Warrants") to purchase shares of common
stock, par value $.001 per share (the "Common Stock"), of the Company. The Notes
and the Warrants will not be separable until the earlier of (i) ,
1996 and (ii) such date as the Underwriters (as defined) may, in their
discretion, deem appropriate. Concurrently with the offering of the Units (the
"Unit Offering"), the Company is offering, pursuant to a separate prospectus,
shares of its Common Stock (the "Equity Offering" and, together with the
Unit Offering, the "Offerings"). The Unit Offering is conditioned upon the
consummation of the Equity Offering.
The issue price of the Units will be $ per Unit. The Notes will mature on
, 2006. The issue price of the Notes represents a yield to maturity
of % (computed on a semi-annual bond equivalent basis) calculated from
, 1996. The Notes will accrete at a rate of %, compounded
semiannually, to an aggregate principal amount of $ million by ,
2001. Cash interest will not accrue on the Notes prior to , 2001.
Commencing , 2001, cash interest on the Notes will be payable, at a
rate of % per annum, semiannually in arrears on each and
. See "Description of Notes" and "Certain Federal Income Tax
Considerations."
The Notes will be redeemable at the option of the Company, in whole or in
part, at any time on or after , 2001 at the redemption prices set
forth herein, plus accrued and unpaid interest, if any, to the date of
redemption. In addition, in the event that the Company receives net proceeds
from the sale of its Common Stock in either an Equity Offering (as defined) or
an investment by one or more Strategic Equity Investors (as defined) on or prior
to , 1999, the Company may, at its option, use all or a portion of
any such net proceeds to redeem up to a maximum of 33 1/3% of the initially
outstanding aggregate principal amount at maturity of the Notes at a redemption
price equal to % of the Accreted Value (as defined) of the Notes; PROVIDED
that not less than 66 2/3% of the initially outstanding aggregate principal
amount at maturity of the Notes remain outstanding following such redemption.
See "Description of Notes -- Redemption -- Optional Redemption." Upon the
occurrence of a Change in Control (as defined), the Company is obligated to make
an offer to purchase all outstanding Notes at a price of (i) 101% of the
Accreted Value thereof, if such purchase is prior to , 2001, or (ii)
101% of the principal amount at maturity thereof, plus accrued interest thereon,
if any, to the date of purchase, if such purchase is on or after ,
2001. See "Description of Notes -- Certain Covenants -- Change in Control."
There can be no assurance that the Company will have sufficient funds available
at the time of any Change in Control to purchase all Notes tendered. See "Risk
Factors."
The Notes will represent unsecured senior obligations of the Company, will
rank PARI PASSU in right of payment with all existing and future senior
Indebtedness of the Company and will rank senior in right of payment to all
existing and future subordinated Indebtedness of the Company. At December 31,
1995, on a pro forma basis after giving effect to indebtedness incurred after
December 31, 1995, the Offerings and the application of the net proceeds
therefrom, the aggregate principal amount of senior Indebtedness of the Company
(excluding trade payables, other accrued liabilities and the Notes) was
approximately $4.0 million, which consisted of notes payable arising from the
acquisition of the EMI Assets (as defined) and the Equipment Note (as defined).
The Indenture will limit the ability of the Company and its subsidiaries to
incur additional indebtedness. See "Description of Notes" and "Description of
Certain Indebtedness."
Each Warrant will entitle the holder thereof, subject to certain conditions,
to purchase shares of Common Stock at an exercise price of $ per share,
subject to adjustment under certain circumstances. Upon exercise, the holders of
Warrants would be entitled, in the aggregate, to purchase Common Stock
representing approximately % of the Common Stock on a fully-diluted basis on
the date hereof, after giving effect to the Offerings. The Warrants will be
exercisable at any time on or after , 1996. Unless earlier exercised,
the Warrants will expire on , 2006. See "Description of Warrants."
There is no existing trading market for the Units, the Notes or the Warrants
and the Company does not intend to list the Units, the Notes or the Warrants on
any securities exchange. The Company is applying for quotation of the Common
Stock on the Nasdaq National Market under the symbol "ARTT." See "Risk Factors
- -- Absence of Public Market; Possible Volatility of Stock Price."
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN FACTORS
WHICH SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN EVALUATING AN INVESTMENT
IN THE UNITS.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT PRICE TO UNDERWRITERS' PROCEEDS TO
AT MATURITY OF THE NOTES PUBLIC(1) DISCOUNT(2) COMPANY(1)(3)
<S> <C> <C> <C> <C>
Per Unit..................... 100% % % %
Total........................ $ $ $ $
</TABLE>
(1) Plus accrued original issue discount, if any, on the Notes from ,
1996.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(3) Before deducting expenses payable by the Company estimated at $ .
------------------------------
The Units are being offered by the Underwriters, subject to prior sale,
when, as and if delivered to and accepted by the Underwriters, subject to
approval of certain legal matters by counsel for the Underwriters and certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part. It is expected that
delivery of the Units will be made in New York, New York on or about ,
1996.
------------------------------
MERRILL LYNCH & CO.
MONTGOMERY SECURITIES
SMITH BARNEY INC.
------------------------------
The date of this Prospectus is , 1996.
<PAGE>
[INSIDE FRONT COVER GATE FOLD]
38 GHz TECHNOLOGY PROVIDES SUPERIOR
BANDWIDTH PER CHANNEL WHICH ALLOWS SIGNIFICANTLY
FASTER DATA TRANSFER RATES.
[GRAPHIC DISPLAYING BANDWIDTH PER CHANNEL
OF FREQUENCIES BETWEEN 530 KHz AND 38 GHz.]
<PAGE>
[GRAPHIC DISPLAYING 38 GHz LINKS
BETWEEN METROPOLITAN FIBER RING,
OFF-FIBER NET BUILDINGS AND ON-FIBER NET BUILDINGS.]
IN CONNECTION WITH THE 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.
2
<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 APPROVAL BY THE FCC AND
COMPLETION OF THE PROPOSED MERGER OF ADVANCED RADIO TECHNOLOGIES CORPORATION
("ART CORP.") WITH AND INTO ADVANCED RADIO TELECOM CORP. (THE "MERGER"), (II)
THE CONVERSION OF ALL OUTSTANDING PREFERRED STOCK (AS DEFINED) INTO COMMON STOCK
UPON THE CONSUMMATION OF THE OFFERINGS AND (III) NO EXERCISE OF THE
UNDERWRITERS' OVER-ALLOTMENT OPTION IN THE COMMON STOCK OFFERING. AS USED IN
THIS PROSPECTUS, THE TERMS "ART" OR THE "COMPANY" REFER EITHER TO ADVANCED RADIO
TELECOM CORP. ON A STAND-ALONE BASIS OR ON A COMBINED BASIS WITH ADVANCED RADIO
TECHNOLOGIES CORPORATION ("ART CORP."), 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. The Company believes that it will
derive significant competitive advantages from the widespread geographic
coverage provided by its 108 authorizations granted by the Federal
Communications Commission ("FCC") in 91 U.S. market areas. The Company, which
was one of the FCC's first 38 GHz licensees, owns or manages authorizations in
41 of the top 45 markets and 74 of the top 100 markets. These authorizations
currently cover an aggregate population of approximately 94 million people.
The ability to access and distribute information quickly has become critical
to business and government end users. 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 incumbent local exchange carriers ("LECs"). This
increasing demand, together with changes in the regulatory environment, have
created an opportunity to offer cost effective, high capacity last mile access
using both wireline and wireless solutions.
38 GHZ TECHNOLOGY
ART 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 99.995% availability, with better than a
10-13 bit error rate. This level of performance significantly exceeds that
provided by copper based networks and is a viable alternative to fiber optic
based networks. In addition, the Company believes that ART's last mile solution
is more cost effective than most broadband wireline solutions. The 38 GHz band
provides for the following additional advantages as compared to other spectrum
bands and wireline alternatives:
- HIGH DATA TRANSFER RATES. The total amount of bandwidth for each 38 GHz
channel is 100 MHz which exceeds the bandwidth of any other present
terrestrial wireless channel allotment and supports full broadband
capability. For example, one 38 GHz DS-3 link at 45 Mbps today can transfer
data at a rate which is over 1,500 times the rate of the fastest dial-up
modem currently in use (28.8 Kbps) and over 350 times the rate of the
fastest integrated services digital network ("ISDN") line currently in use
(128 Kbps). In addition to accommodating standard voice and data
requirements, 45 Mbps data transmission rates allow end users to receive
real time, full motion video and 3-D graphics at their workstations and to
utilize highly interactive applications on the Internet and other networks.
3
<PAGE>
- EFFICIENT CHANNEL REUSE. Because 38 GHz radio emissions have a narrow beam
width, a relatively short range and can in many instances 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 each 100 MHz channel
in a given service area can accommodate at least 10,000 DS-3 links, each of
which can carry 672 voice circuits.
- RAPID DEPLOYMENT. 38 GHz technology can be deployed considerably more
rapidly than wireline and other wireless technologies. 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. The time
required to install a 38 GHz link within a licensed footprint is typically
less than 72 hours after obtaining access to customer premises, versus an
estimated three to five months in other microwave frequency bands due to
regulatory delay.
- EASE OF INSTALLATION. The equipment used for 38 GHz service 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.
- EFFICIENT NETWORK DESIGN. The exclusive right to use a particular channel
or channels within a broad geographic area gives the licensee much greater
control over its network design. A 38 GHz licensee can save costs, ensure
interference-free operations and increase quality and reliability by
designing efficient 38 GHz networks in advance of their deployment.
BUSINESS STRATEGY
ART began providing 38 GHz wireless broadband services in the last quarter
of 1995 and has generated only nominal revenues from such services to date. The
Company is seeking to capitalize on the broad geographic scope of its 38 GHz
authorizations to become the premier provider of wireless broadband solutions to
a diverse group of traditional and emerging telecommunications service providers
and end users. The Company plans to implement the following strategic
initiatives to achieve this objective:
- EXPLOIT SPECTRUM POSITION IN KEY MARKETS TO REALIZE VALUE. The Company
currently owns or manages 108 authorizations to construct and operate 38
GHz wireless broadband facilities in 91 market areas, including 74 of the
top 100 U.S. markets. These spectrum assets provide the Company with the
foundation on which to create a large scale commercial system of 38 GHz
wireless broadband operations. The Company is now operating wireless
broadband links in nine cities (Chicago; Boston; Philadelphia; Baltimore;
Pittsburgh; Portland, Oregon; Seattle; Albany; and Bethlehem,
Pennsylvania). The Company plans to continue to build out its
infrastructure and to intensify its marketing effort in its market areas,
thereby realizing the value inherent in its spectrum assets.
- MARKET TO TELECOMMUNICATIONS SERVICE PROVIDERS. 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 capable of
reaching the majority of their customers. 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, or anticipates providing, services
to Ameritech, Bell Atlantic NYNEX Mobile,
4
<PAGE>
UUNet, American Personal Communications, Electric Lightwave, NEXTLINK,
Western Wireless, Chadwick Telephone Co. and CGX Telcom, among others. 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
working on 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.
- 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 market penetration at a lower
cost. Through the Company's internal technology development efforts, as
well as on-going participation in equipment manufacturers' research and
development activities, the Company believes that it will achieve a
competitive advantage through proprietary methods that increase the
capacity and quality of its networks.
- ESTABLISH AND EXPAND KEY STRATEGIC ALLIANCES. The Company has and will
continue to establish key strategic alliances with major service providers,
equipment manufacturers, systems integrators and enhanced service
providers. Ameritech holds a 5.4% beneficial equity interest in the Company
as of April 30, 1996 and recently entered into the Ameritech Strategic
Distribution Agreement. The Company also has agreements with GTE
Corporation ("GTE") for field servicing and network monitoring and is
developing relationships with a number of equipment manufacturers focusing
on 38 GHz technology development, wireless broadband standards and joint
sales efforts. The Company will utilize these strategic alliances to bundle
its services with those of its partners, which the Company expects will
help it to achieve a lower cost of sales and increased market penetration.
5
<PAGE>
THE OFFERING
THE UNITS
<TABLE>
<S> <C>
Gross Proceeds.................... $125,000,000.
Units Offered..................... Units, each consisting of $1,000 principal amount at
maturity of the Company's Senior Discount Notes due 2006
and Warrants (the "Warrants") to purchase shares
of Common Stock of the Company. The Notes and the
Warrants will not be separable until the earlier of (i)
, 1996 and (ii) such date as the Underwriters
may, in their discretion, deem appropriate (the
"Separation Date").
Issue Price....................... $ per Unit.
Use of Proceeds................... To fund capital expenditures, including the purchase of
equipment and the acquisition of certain spectrum
rights, to repay outstanding indebtedness and for
general corporate purposes, including the funding of
operating cash flow shortfalls, technology development
and acquisitions of spectrum rights and, potentially,
related businesses.
THE NOTES
Maturity Date..................... , 2006.
Yield and Interest................ % (computed on a semi-annual bond equivalent basis) cal-
culated from , 1996. The Notes will accrete
at a rate of %, compounded semiannually, to an
aggregate principal amount of $ million by
, 2001. Cash interest will not accrue on the
Notes prior to , 2001. Commencing ,
2001, cash interest on the Notes will be payable, at a
rate of % per annum, semiannually in arrears on each
and . For United States federal
income tax purposes, purchasers of the Notes will be
required to include amounts in gross income in advance
of the receipt of the cash payments to which the income
is attributable. See "Certain Federal Income Tax Consid-
erations."
Mandatory Redemption.............. None.
Optional Redemption............... The Notes will be redeemable at the option of the
Company, in whole or in part, at any time on or after
, 2001 at the redemption prices set forth
herein, plus accrued and unpaid interest, if any, to the
date of redemption. In addition, in the event that the
Company receives net proceeds from the sale of its
Common Stock in either an Equity Offering or an
investment by one or more Strategic Equity Investors on
or prior to , 1999, the Company may, at its
option, use all or a portion of any such net proceeds to
redeem up to a maximum of 33 1/3% of the initially
outstanding aggregate principal amount at maturity of
the Notes at a redemption price equal to % of the
Accreted Value of the Notes; PROVIDED that not less than
66 2/3% of the initially outstanding aggregate prin-
cipal amount at maturity of the Notes remain outstanding
following such redemption. See "Description of Notes --
Redemption -- Optional Redemption."
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
Change in Control................. Upon the occurrence of a Change in Control, the Company
is obligated to make an offer to purchase all
outstanding Notes at a price of (i) 101% of the Accreted
Value thereof, if such purchase is prior to
, 2001, or (ii) 101% of the principal amount
at maturity thereof, plus accrued interest thereon, if
any, to the date of purchase, if such purchase is on or
after , 2001. See "Description of Notes --
Certain Covenants -- Change in Control." There can be no
assurance that the Company will have sufficient funds
available at the time of any Change in Control to
purchase all Notes tendered. See "Risk Factors -- Risk
of Inability to Satisfy Change in Control Offer."
Ranking........................... The Notes will represent unsecured senior obligations of
the Company, will rank PARI PASSU in right of payment
with all existing and future senior Indebtedness of the
Company and will rank senior in right of payment to all
existing and future subordinated Indebtedness of the
Company. At December 31, 1995, on a pro forma basis
after giving effect to indebtedness incurred after
December 31, 1995, the Offerings and the application of
the net proceeds therefrom, the aggregate principal
amount of senior Indebtedness of the Company (excluding
trade payables, other accrued liabilities and the Notes)
was approximately $4.0 million, which consisted of notes
payable arising from the acquisition of the EMI Assets
and the Equipment Note. The Indenture will limit the
ability of the Company and its subsidiaries to incur
additional indebtedness. See "Description of Notes" and
"Description of Certain Indebtedness."
Original Issue Discount........... The Notes are being offered at an original issue
discount for United States federal income tax purposes.
Thus, although cash interest will not be payable on the
Notes prior to , 2001, original issue
discount (I.E., the difference between the principal and
interest payable on the Notes and their issue price)
will accrue from the issue date of the Notes and will be
included as interest income periodically (including for
periods ending prior to , 2001) in a Note-
holder's gross income for United States federal income
tax purposes in advance of receipt of the cash payments
to which the income is attributable. See "Certain
Federal Income Tax Considerations."
Certain Covenants................. The Indenture will contain certain covenants which,
among other things, will restrict the ability of the
Company and its Restricted Subsidiaries (as defined) to
(i) incur indebtedness or issue certain preferred stock,
(ii) pay dividends or make distributions in respect of
the Company's capital stock or make certain other
restricted payments, (iii) create certain liens, (iv)
enter into certain transactions with affiliates or
related persons, (v) conduct certain businesses or (vi)
sell certain assets. In addition, the Indenture will
limit the ability of the Company to consolidate, merge
or sell all or substantially all of its assets. These
covenants are subject to important exceptions and quali-
fications. See "Description of Notes -- Certain
Covenants."
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
THE WARRANTS
Warrants.......................... Warrants which, when exercised, would entitle the
holders thereof to purchase an aggregate of shares
of Common Stock of the Company ("Warrant Shares"),
representing approximately % of the Common Stock of
the Company on a fully diluted basis.
Registration Rights............... The Company has agreed, subject to certain limitations,
that, from days after the date of issuance until the
expiration of all Warrants, it will maintain the
effectiveness of a registration statement with respect
to the issuance of the Warrant Shares upon exercise of
the Warrants.
Separation Date................... The Notes and the Warrants will not be separable until
the earlier of (i) , 1996 and (ii) such date as
the Underwriters may, in their discretion, deem
appropriate.
Exercise.......................... Each Warrant will entitle the holder thereof, subject to
certain conditions, to purchase shares of Common
Stock at an exercise price of $ per share, subject
to adjustment under certain circumstances. The Warrants
will be exercisable at any time on or after
, 1996 and prior to the expiration of the
Warrants, as set forth below. The exercise price and
number of shares of Common Stock issuable upon exercise
of the Warrants will be subject to adjustment from time
to time upon the occurrence of certain changes with re-
spect to the Common Stock, including certain
distributions of shares of Common Stock, issuances of
options or convertible securities, dividends and
distributions and certain changes in options and
convertible securities of the Company. A Warrant does
not entitle the holder thereof to receive any dividends
paid on shares of Common Stock.
Expiration........................ , 2006.
</TABLE>
For additional information concerning the Units, the Notes, the Warrants and
the Common Stock, and the definitions of certain capitalized terms used above,
see "Description of Units," "Description of Notes," "Description of Warrants"
and "Description of Capital Stock."
CONCURRENT OFFERING
Concurrently with the Unit Offering, the Company is offering, pursuant to a
separate prospectus, shares of Common Stock of the Company (the "Common
Stock Offering" and, together with the Unit Offering, the "Offerings"). The Unit
Offering is conditioned upon the consummation of the Common Stock Offering.
RISK FACTORS
An investment in the Units offered hereby involves a high degree of risk.
See "Risk Factors" commencing on page 10 hereof.
8
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA (1)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
---------------------------------------------------
HISTORICAL PRO FORMA
COMBINED (2) PRO FORMA (3) AS ADJUSTED (4)
-------------- ---------------- -----------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenue............................................ $ 5,793 $ 5,793 $
Non-cash compensation expense................................ 1,089,605 287,603
Depreciation and amortization................................ 60,060 191,466
Net loss..................................................... 3,234,843 5,104,952
Pro forma net loss per share of Common Stock (5).............
Weighted average number of shares of Common Stock outstanding
(5).........................................................
OTHER FINANCIAL DATA:
EBITDA (6)................................................... $ (1,936,141) $ (2,187,139) $
Capital expenditures......................................... 3,585,144 3,585,144
<CAPTION>
AS OF DECEMBER 31, 1995
---------------------------------------------------
HISTORICAL PRO FORMA
COMBINED (2) PRO FORMA (3) AS ADJUSTED (4)
-------------- ---------------- -----------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital surplus (deficit)............................ $ (3,008,510) $ 6,577,942 $
Property and equipment, net.................................. 3,581,561 3,581,561
FCC licenses................................................. 4,235,734 4,235,734
Total assets................................................. 9,876,559 19,164,915
Long-term debt, including current portion.................... 6,450,000 7,361,439
Total stockholders' equity (deficit)......................... (312,860) 8,175,439
</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 its predecessor ART Corp. and the notes thereto and
the unaudited pro forma condensed financial statements 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 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 ART Corp.
had been combined and reflect (i) the elimination of transactions and
balances between ART and ART Corp. and (ii) the elimination of ART Corp.'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 January 1,
1995 for the Statement of Operations Data and Other Financial Data and as of
December 31, 1995 for the Balance Sheet Data: (i) the exchange of the
Advent/ART Securities (as defined), including accrued interest, into 232,826
shares of Preferred Stock (which convert into 3,026,738 shares of Common
Stock upon consummation of the Offerings) and related anti-dilution share
adjustments, net of deferred financing costs; (ii) the issuance of 48,893
shares of Preferred Stock (which convert into 635,609 shares of Common Stock
upon consummation of the Offerings) and the Ameritech Warrant (as defined)
to Ameritech in exchange for $2.3 million in cash proceeds and the Ameritech
Strategic Distribution Agreement, after deducting related expenses of
$150,000, and the recognition of a $1.1 million market development expense
for the value ascribed to the Ameritech Strategic Distribution Agreement;
(iii) the receipt of $4.9 million in cash proceeds from the issuance of the
Bridge Notes (as defined) and the Bridge Warrants (as defined) in connection
with the Bridge Financing (as defined), after deducting related expenses of
$50,000; (iv) the receipt of $2.2 million in cash proceeds from the issuance
of the Equipment Note and Indemnity Warrants (as defined) in connection with
the Equipment Financing (as defined), after deducting related fees and
expenses of $225,000; and (v) the effects of the Merger, including the
issuance of Common Stock to ART Corp. stockholders and the cancellation of
all outstanding ART Corp. common stock. The Statement of Operations Data and
Other Financial Data under the caption "Pro Forma" also reflect the reversal
of a non-recurring $802,002 non-cash compensation expense from the release
of Escrow Shares (as defined) in November 1995. The Balance Sheet Data
reflects a non-cash compensation expense of $6.8 million from the release of
Escrow Shares in February 1996. 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 January 1, 1995 for the
Statement of Operations Data and Other Financial Data and as of December 31,
1995 for the Balance Sheet Data: (i) the sale by the Company of shares
of Common Stock offered in the Common Stock Offering based on an assumed
initial public offering price of $ per share and the Units offered in
the Unit Offering, and, in each case, after deducting the estimated
underwriting discount and offering expenses, and (ii) the receipt and
application of the net proceeds therefrom. 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 issuance of potentially dilutive
instruments issued within one year prior to the Offerings at exercise prices
below the assumed initial public offering price and the conversion of all
outstanding shares of Preferred Stock into shares of Common Stock.
(6) EBITDA means loss before interest expense, income tax expense, depreciation
and amortization expense and non-cash compensation 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, 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.
9
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING RISK
FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING AN INVESTMENT IN THE UNITS
OFFERED HEREBY.
BUSINESS AND REGULATORY RISKS
LIMITED OPERATIONS; HISTORY OF NET LOSSES
Although the Company's business commenced in 1993, the Company has generated
only nominal revenues from operations to date. The Company's primary activities
have focused on the acquisition of wireless authorizations, the hiring of
management and other key personnel, the raising of capital, the acquisition of
equipment and the development of its operating systems. The Company currently
provides wireless broadband services on a limited basis in nine 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)
acquire appropriate sites for its operations, (ii) deploy its 38 GHz technology
on a market-by-market basis, (iii) capture and retain an adequate customer base
and (iv) develop its operational and support systems. Given the Company's
limited operating history, there can be no assurance that it will be able to
overcome these barriers, 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, the Company reported a net loss and negative
EBITDA of $3.2 million and $1.9 million, respectively. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations." The
Company expects to incur significant additional expenses and operating losses as
the development and expansion of its wireless broadband business continues.
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. 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 over a sustainable period.
The Company's success in providing wireless broadband services is subject to
certain factors beyond the Company's control. These factors include, without
limitation, changes in general and local economic conditions, availability of
equipment, changes in telecommunications service rates charged by other service
providers, changes in the supply and demand for wireless broadband services,
competition from wireline and wireless operators in the same market area,
changes in the federal and state regulatory 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
10
<PAGE>
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.
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. There can be no assurance that the Company will be able to
compete effectively in any of its market areas. The Company faces significant
competition from other 38 GHz providers and incumbent LECs, such as the Regional
Bell Operating Companies ("RBOCs"). To a lesser extent, the Company may compete
with CAPs, cable television operators, electric utilities, LECs operating
outside their current local service areas and IXCs.
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 certain cases, these service providers hold licenses to operate on other
portions of the 38 GHz band in geographic areas which encompass or overlap the
Company's market areas. In a number of the Company's market areas, at least one
other 38 GHz service provider has 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 five other entities have been granted 38 GHz authorizations
in geographic regions in which the Company plans to operate. Due to the relative
ease and speed of deployment of 38 GHz technology, the Company could face
intense price competition from other 38 GHz service providers. Accordingly,
there can be no assurance that the Company will be able to sustain a profitable
business in the face of prolonged price competition.
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 the lower 16 channels in the 38 GHz spectrum band,
which have not been previously available for commercial use. The grant of
additional licenses 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 the adoption of the NPRM as currently
proposed, additional entities having greater resources than the Company could
acquire licenses 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,
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) establishes 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 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
11
<PAGE>
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. To a lesser degree, 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.
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
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 and IXCs. 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.
A number 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 electromagnetic spectrum (I.E.,
wireless services) and has exclusive jurisdiction over all interstate
telecommunications services that originate in one state and terminate in another
state or foreign country. 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 issuing permits. See
"Business -- Government Regulation."
12
<PAGE>
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. Challenges to its applications for authorizations or its tariffs
by third parties could cause the Company to incur substantial legal and
administrative expenses.
In its provision of local wireless broadband services, the Company currently
is not subject to rate regulation by the FCC, but is subject to minimal
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
licenses. 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 licenses in the 38 GHz band, including a possible
auction of the lower 16 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 16 channels, (iii) licensing frequencies using
predefined geographic service areas, (iv) the imposition of minimum construction
requirements for new authorizations and existing 38 GHz licenses as a condition
to the retention of existing 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 may then be dismissed. Final rules issued in connection with the NPRM
may require that 38 GHz service providers share other unlicensed 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. 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 business of ART West (as defined) and DCT (as
defined) pursuant to service agreements. See "Business -- Agreements Relating to
Licenses and Authorizations." The Company believes that the provisions of these
service agreements and the ART Corp. Service Agreement (as defined) 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 arrangements will, if challenged, be found to
satisfy the Commission's policies or what modifications may need to be made to
satisfy those policies.
RISK OF FORFEITURE, NON-RENEWAL AND FLUCTUATION IN VALUE OF FCC LICENSES
The Company owns or manages 35 licenses and an additional 73 construction
permits granted by the FCC to construct and operate 38 GHz wireless broadband
facilities in 91 market areas. Under current FCC rules, the recipient of an
authorization (initially, a "construction permit") for microwave facilities is
required to complete construction of such facilities within 18 months of the
date of grant of the permit. To satisfy the FCC's current construction
requirements, the permit holder is required to establish at least one
transmission link between two transceivers in each market area for which it
holds a construction permit. Upon completion of construction and filing of
evidence thereof with the FCC, the
13
<PAGE>
permit develops into a license to provide microwave services. In the event that
the recipient fails to comply with the construction deadline, the permit is
subject to forfeiture, absent an extension of the deadline. Of the Company's 108
authorizations, 35 have developed into licenses. Under the terms of its
remaining 73 construction permits, the Company must complete construction of
facilities for approximately 50 construction permits between mid-August and
mid-September 1996. 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 such facilities using the
proceeds of the Offerings within such time limits, there can be no assurance
that it will be able to do so or that the FCC will not impose more stringent
construction requirements with which the Company will be unable to comply. 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."
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 renew all such licenses for a matching ten-year period.
All of the Company's 38 GHz licenses 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 has
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 Company's licenses will be renewed upon
expiration of their initial terms. In the event that the FCC does not renew one
or more of the Company's licenses, the Company's business and results of
operations could be materially adversely affected.
The Company plans to use its licenses to develop wireless broadband systems
in all of its market areas. In addition, a limited secondary market exists for
38 GHz licenses, and the Company may from time to time purchase such licenses.
The value of licenses held or acquired hereafter by the Company will
significantly depend upon the success of the Company's wireless broadband
operations, fluctuations in the level of supply and demand for such licenses and
the telecommunications industry's response to the availability and efficacy of
wireless broadband systems. In addition, federal and state regulations limit the
liquidity of such licenses. Assignments of licenses and changes of control
involving entities holding licenses require prior FCC and state regulatory
approval and are subject to restrictions and limitations on the identity and
status of the assignee or successor. These regulatory restrictions on transfer
of licenses may adversely affect the value of the Company's licenses.
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
14
<PAGE>
intermediate links to overcome obstructions or rain fades 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. 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
local demographic characteristics in each market. Other 38 GHz service providers
may have larger geographic footprints encompassing the Company's market areas or
more bandwidth (I.E., more than one 100 MHz channel) in certain market areas. To
the extent the Company's authorizations do not track the appropriate growth and
development patterns of potential customers within its market areas or other 38
GHz providers have greater geographic coverage or more bandwidth, the Company
may have a competitive disadvantage.
RELIANCE ON EQUIPMENT SUPPLIERS; LACK OF INDUSTRY STANDARDS
The Company currently purchases the majority of its telecommunications
equipment from a single supplier, P-Com, Inc. and recently entered into an
equipment purchase agreement with Harris Corporation, Farinon Division
("Harris"). Any reduction or interruption in supply from either supplier could
have a disruptive effect on the Company until alternative supply sources begin
shipping their products to 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.
DEPENDENCE ON THIRD PARTIES FOR MARKETING AND SERVICE
The Company is largely dependent upon third parties for marketing its
services and maintaining its operational systems. The Company recently entered
into an agreement with Ameritech 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 do so could have an adverse effect on the
Company's development and results of operations.
ACQUISITION OF ADDITIONAL BANDWIDTH IN SELECTED AREAS
The Company believes that it generally owns or manages sufficient 38 GHz
bandwidth to satisfy the anticipated service requirements of its target
customers in the Company's existing 91 market areas. Nevertheless, the Company's
future plans include the acquisition of 38 GHz bandwidth in selected geographic
areas in order to expand and enhance its services by leasing or purchasing
channels from other 38 GHz providers or by applications to the FCC. The Company
believes that these additional
15
<PAGE>
channels will be available by virtue of (i) the obligations of other 38 GHz
service providers as common carriers to make bandwidth available, (ii) the need
of 38 GHz construction permit holders to meet FCC construction requirements, and
(iii) FCC auctions of and other licensing procedures for additional 38 GHz
licenses. However, there can be no assurance that access to additional 38 GHz
licenses will be acquired on favorable terms, if at all.
NEW SERVICES; TECHNOLOGICAL CHANGE
The telecommunications industry has been characterized by rapid
technological advances, changes in end user requirements, frequent new service
introductions and evolving industry standards. 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 or
(iii) the Company's inventory of equipment will not be rendered obsolete.
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.
FINANCIAL RISKS
SIGNIFICANT CAPITAL REQUIREMENTS; UNCERTAINTY OF ADDITIONAL FINANCING
The Company will require substantial investment capital for the continued
development and expansion of its wireless broadband operations, the continued
funding of related operating expenses, and the possible acquisition of
additional licenses, other assets or other businesses. Management anticipates
that, based on its current plan of development, assuming that no material
acquisitions are consummated, the net proceeds of the Offerings and existing
financial resources, after repayment of approximately $5.0 million of existing
indebtedness, will be sufficient to fund the operations of the Company for at
least the next two years. Management believes that the Company's future capital
needs will continue to be significant and that after such period 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 or (iii) the Company completes any material acquisitions, 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.
RANKING; SIGNIFICANT SECURED INDEBTEDNESS
The Notes will represent general unsecured senior obligations of the Company
and will rank senior in right of payment to all existing and future subordinated
indebtedness of the Company. Subject to certain exceptions, the Indenture will
limit the ability of the Company and its subsidiaries to incur
16
<PAGE>
additional indebtedness. However, under the Indenture, the Company will be
permitted to incur senior secured indebtedness under certain circumstances. If
the Company becomes insolvent or is liquidated or if any of its secured
indebtedness is accelerated, the holders of such secured indebtedness would be
entitled to payment in full out of the assets securing such indebtedness prior
to payment to holders of the Notes. If the lenders party to, or the holders of,
any secured indebtedness were to foreclose on the collateral securing the
Company's obligations to them, there can be no assurance that there would be
sufficient assets remaining after payment of all such secured indebtedness to
satisfy the claims of holders of the Notes in full. See "Description of Notes --
Certain Covenants" and "Description of Certain Indebtedness."
HIGH LEVERAGE; ABILITY TO SERVICE INDEBTEDNESS
Following the Offerings, the Company will be highly leveraged and will have
certain restrictions on its operations. As of December 31, 1995, on a pro forma
basis after giving effect to the Offerings as if they had occurred on that date,
the Company would have had approximately $ million of total debt and a
stockholders' equity of approximately $ million. In addition, the
accretion of the principal amount of the Notes over time will result in an
increase in the total indebtedness represented by the Notes of approximately
$ million by , 2001. After giving effect to the Offerings as if
they had occurred on January 1, 1995, the Company's pro forma earnings for the
fiscal year ended December 31, 1995 would have been insufficient to cover fixed
charges by approximately $ .
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 be required to be
dedicated to the payment of principal and 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 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; and (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. 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, the
Indenture limits, but does not prohibit, the incurrence of additional
indebtedness by the Company and its subsidiaries, and the Company may incur
substantial additional indebtedness, which may or may not be secured, during the
next few years to finance the construction of networks, the purchase of
equipment and the introduction of new services. Additional indebtedness of the
Company may rank PARI PASSU in right of payment with the Notes in certain
circumstances. See "Description of Notes -- Certain Covenants." 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.
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
17
<PAGE>
with these various covenants, it could be in default under the Indenture. In the
event of such default, substantially all of the Company's long-term debt could
be declared immediately due and payable. See "Description of Notes -- Certain
Covenants."
ORIGINAL ISSUE DISCOUNT
The Notes will be issued at a substantial original issue discount from their
principal amount at maturity. Consequently, purchasers of Notes will be required
to include amounts in gross income for federal income tax purposes in advance of
receipt of the cash payments to which the income is attributable. In addition, a
portion of the purchase price for each Unit will be allocable to the Warrants
for federal income tax purposes. See "Certain Federal Income Tax Considerations"
for a more detailed discussion of the federal income tax consequences to the
purchasers of the Units resulting from the purchase, ownership or disposition
thereof.
If a bankruptcy case is commenced by or against the Company under Title 11
of the United States Code, as amended (the "Bankruptcy Code") after the issuance
of the Units, the claim of a holder of the Notes with respect to the principal
amount thereof may be limited to an amount equal to the sum of (i) the initial
public offering price of the Notes and (ii) that portion of the original issue
discount that is not deemed to constitute "unmatured interest" for purposes of
the Bankruptcy Code. Any original issue discount that was not accrued as of such
bankruptcy filing would constitute "unmatured interest." A holder of a Note will
not have any claim with respect to that portion of the issue price of a Unit
allocated to the Warrants issued as part of such Unit.
RISK OF INABILITY TO SATISFY CHANGE IN CONTROL OFFER
Upon the occurrence of a Change in Control, the Company will be required to
make an offer to purchase all of the outstanding Notes at a purchase price in
cash equal to (i) 101% of the Accreted Value thereof, in the case of any such
purchase prior to , 2001, or (ii) 101% of the principal amount at maturity
thereof, together with accrued and unpaid interest, if any, to the date of
purchase, in the case of any such purchase on or after , 2001. There can
be no assurance that the Company will have the funds necessary to effect such a
purchase if such an event were to occur. In the event a Change in Control occurs
at a time when the Company is unable to purchase the Notes, the Company could
seek to refinance the Notes. If the Company is unsuccessful in refinancing the
Notes, the Company's failure to purchase tendered Notes would constitute an
Event of Default under the Indenture. See "Description of Notes -- Certain
Covenants -- Change in Control."
LEGAL AND TRADING RISKS
ABSENCE OF PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
There is currently no public market for the Units, the Notes or the
Warrants. The Company does not intend to apply for listing of the Units, the
Notes or the Warrants on any securities exchange or for quotation of the Units,
the Notes or the Warrants on the Nasdaq National Market. The Company has been
advised by the Underwriters that they presently intend to make a market in the
Units, the Notes and the Warrants, as permitted by applicable laws and
regulations, after the consummation of the sale of the Units; however, the
Underwriters are not obligated to do so and any such market- making activity may
be discontinued at any time without notice at the sole discretion of each
Underwriter. Accordingly, there can be no assurance as to whether an active
public market for the Units, the Notes or the Warrants will develop or, if a
public market does develop, as to the liquidity of the trading market for the
Units, the Notes or the Warrants. If an active public market does not develop,
the market price and liquidity for the Units, the Notes or the Warrants may be
adversely affected. See "Underwriting."
Prior to the Offerings, there has been no public market for the Company's
Common Stock. While the Company is applying for quotation of the Common Stock
(including the Warrant Shares) on the Nasdaq National Market, there can be no
assurance that an active public trading market will develop or
18
<PAGE>
be sustained after the Offerings or that the initial public offering price will
correspond to the price at which the Common Stock will trade in the public
market thereafter. The Company believes that factors such as (i) announcements
of developments related to the Company's business, (ii) announcements of new
services by the Company or its competitors, (iii) developments in the Company's
relationships with its suppliers or customers, (iv) fluctuations in the
Company's results of operations, (v) a shortfall in revenues or earnings
compared to analysts' expectations and changes in analysts' recommendations or
projections, (vi) sales of substantial amounts of securities of the Company into
the marketplace, (vii) regulatory developments affecting the telecommunications
industry or 38 GHz services or (viii) general conditions in the
telecommunications industry or the worldwide economy, could cause the price of
the Company's Common Stock to fluctuate, perhaps substantially.
CONTROL BY MANAGEMENT AND PRINCIPAL STOCKHOLDERS
Upon completion of the Offerings, the Company's executive officers,
directors and their affiliates, as a group will beneficially own approximately
% of the Company's outstanding Common Stock ( % if the Underwriters'
over-allotment option is exercised in full). As a result, these stockholders
will have the ability to exercise significant influence over the Company and the
election of its directors, the appointment of new management and the approval of
any action requiring the approval of the holders of the Company's voting stock,
including adopting certain amendments to the Company's certificate of
incorporation and approving mergers or sales of substantially all of the
Company's assets. The directors elected by these stockholders will have the
authority to effect decisions affecting the capital structure of the Company,
including the issuance of additional capital stock, the implementation of stock
repurchase programs and the declaration of dividends. See "Principal
Stockholders."
ABSENCE OF DIVIDENDS ON COMMON STOCK
The Company has not paid and does not anticipate paying any cash dividends
on its Common Stock in the foreseeable future. The Company intends to retain its
earnings, if any, for use in the Company's growth and ongoing operations. In
addition, the terms of the Indenture will restrict the ability of the Company to
pay dividends on the Common Stock. See "Description of Notes -- Certain
Covenants."
ANTITAKEOVER PROVISIONS; POSSIBLE FUTURE ISSUANCES OF PREFERRED STOCK
The Company's Certificate of Incorporation and Bylaws and the provisions of
the Delaware General Corporation Law 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. 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 approximately 9,650,000 shares of Preferred Stock and
to fix the rights, privileges and preferences of such shares without any further
vote or action by the stockholders. However, the terms of the Indenture will
restrict the ability of the Company to issue shares of Preferred Stock. See
"Description of Notes -- Certain Covenants." The rights of the holders of Common
Stock will be subject to, and may be adversely affected by, the rights of the
holders of any Preferred Stock that may be issued in the future. While the
Company has no present intention to issue shares of Preferred Stock, any such
issuance could be used to discourage, delay or make more difficult a change in
control of the Company. See "Description of Capital Stock -- Preferred Stock."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock in the public market
following the Offerings could adversely affect the market price of the Common
Stock. Upon completion of the
19
<PAGE>
Offerings, the Company will have outstanding shares of Common Stock,
assuming no exercise of outstanding options, warrants, rights or other
convertible securities. Beginning March 28, 1997, approximately 8,101,080 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. 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.
Holders of 30,085,783 shares of Common Stock and warrants to purchase 1,425,000
shares of Common Stock have contractual rights to have those shares registered
with the Securities and Exchange Commission for resale to the public.
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 91 market areas 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 Corp."), 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., 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 Corp. and ART on a joint basis. In
April 1995, ART Corp. 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. See
"Business -- Agreements Relating to Licenses and Authorizations -- ART West
Joint Venture" and " -- EMI Acquisition."
To date, ART has operated and managed its business and the business of ART
Corp. (including all FCC licenses and construction permits held by ART Corp.)
pursuant to the ART Corp. Services Agreement (as defined). On February 2, 1996,
ART and ART Corp. entered into the Merger Agreement (as defined), pursuant to
which ART Corp. will merge with and into ART, subject only to FCC approval.
Prior to the receipt of the FCC's approval, ART will continue to manage the
combined businesses of itself and ART Corp. in accordance with the terms of the
ART Corp. Services Agreement. See "Business -- Agreements Relating to Licenses
and Authorizations -- ART Corp. Services Agreement."
DIGIWAVE, ART and ADVANCED RADIO TELECOM are trademarks 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.
USE OF PROCEEDS
The net proceeds to the Company from the Offerings, based on an assumed
initial public offering price of $ per share and after deducting the
estimated underwriting discount and offering expenses, are estimated to be
approximately $ million. Of the net proceeds, approximately $90.0 million is
expected to be used for capital expenditures, including the purchase of
equipment and the acquisition of certain spectrum rights. Approximately $5.0
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. See "Certain Transactions" and "Description of Certain Indebtedness --
Bridge Notes." 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 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 DCT Agreements (as defined), has been reached with
respect to any acquisition.
DIVIDEND POLICY
The Company has not paid and does not anticipate paying any cash dividends
on the Common Stock in the foreseeable future. The Company intends to retain its
earnings, if any, for use in the Company's growth and ongoing operations. In
addition, the terms of the Indenture will restrict the ability of the Company to
pay dividends on the Common Stock. See "Description of Notes -- Certain
Covenants -- Restricted Payments."
21
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1995 (i) on a historical combined basis, giving effect to the
elimination of balances between ART and its predecessor ART Corp. and the
elimination of ART Corp.'s investment in ART, (ii) on a pro forma basis, giving
effect to the Merger and certain other financing transactions occurring
subsequent to December 31, 1995 as specified in Note 1 hereto, and (iii) on a
pro forma as adjusted basis, giving effect to the sale by the Company of
shares of Common Stock offered in the Common Stock Offering based on an
assumed initial public offering price of $ per share and the Units
offered in the Unit Offering, in each case, after deducting the estimated
underwriting discount and offering expenses, the receipt and application of the
net proceeds therefrom, and the conversion of all outstanding shares of
Preferred Stock into shares of Common Stock. See "Use of Proceeds." 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
historical financial statements and unaudited pro forma condensed financial
statements of the Company appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1995
----------------------------------------------------
HISTORICAL PRO FORMA
COMBINED PRO FORMA (1) AS ADJUSTED
-------------- ------------------ ----------------
<S> <C> <C> <C>
Cash and cash equivalents................................... $ 633,654 $ 10,153,654 $
-------------- ------------------ ----------------
-------------- ------------------ ----------------
Long-term debt:
Note payable to EMI....................................... $ 1,500,000 $ 1,500,000
Convertible notes payable................................. 4,950,000 --
Bridge Notes.............................................. -- 3,950,000
Equipment Note............................................ -- 1,911,439
Senior Discount Notes due 2006............................ -- --
-------------- ------------------ ----------------
Total long-term debt.................................... 6,450,000 7,361,439
-------------- ------------------ ----------------
ART Corp. Redeemable Preferred Stock........................ 44,930 --
-------------- ------------------ ----------------
Stockholders' equity (deficit):
Convertible Serial Preferred Stock (2).................... 488 921
ART Corp. common stock (3)................................ 3 --
Common Stock (4).......................................... 15,291 18,114
Additional paid-in capital................................ 3,041,415 19,374,975
Deficit accumulated during the development stage.......... (3,370,057) (11,218,571)
-------------- ------------------ ----------------
Total stockholders' equity (deficit).................... (312,860) 8,175,439
-------------- ------------------ ----------------
Total capitalization.................................. $ 6,182,070 $ 15,536,878 $
-------------- ------------------ ----------------
-------------- ------------------ ----------------
</TABLE>
- ------------------------
(1) Reflects pro forma adjustments for the following transactions as if they
had occurred as of December 31, 1995: (i) the exchange of the Advent/ART
Securities, including accrued interest, into 232,826 shares of Preferred
Stock (which convert into 3,026,738 shares of Common Stock upon
consummation of the Offerings) and the related anti-dilution share
adjustments; (ii) the issuance of 48,893 shares of Preferred Stock (which
convert into 635,609 shares of Common Stock upon consummation of the
Offerings) and the Ameritech Warrant to Ameritech in exchange for $2.3
million in cash proceeds and the Ameritech Strategic Distribution
Agreement, after deducting related expenses of $150,000, and the
recognition of a $1.1 million market development expense for the value
ascribed to the Ameritech Strategic Distribution Agreement; (iii) the
receipt of $4.9 million in cash proceeds from the issuance of the Bridge
Notes and Bridge Warrants in connection with the Bridge Financing, after
deducting related expenses of $50,000; (iv) 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; and (v) the effects of the Merger, including
the issuance of Common Stock to ART Corp. stockholders and the cancellation
of all outstanding ART Corp. common stock. See "Certain Transactions."
(2) Consists of ART Convertible Serial Preferred Stock, $.001 par value per
share: 10,000,000 shares authorized; historical combined -- 334,943 shares
of Series A, 86,507 shares of Series B, 5,402 shares of Series C, 61,640
shares of Series D issued and outstanding; pro forma -- 455,550 shares of
Series A, 114,679 shares of Series B, 7,363 shares of Series C, 61,640
shares of Series D, 232,826 shares of Series E and 48,893 shares of Series
F issued and outstanding (which convert into an aggregate 11,972,363 shares
of Common Stock upon consummation of the Offerings); pro forma as adjusted
-- no shares issued and outstanding.
(3) Consists of ART Corp. common stock, $.01 par value per share: 2,000 shares
authorized; historical combined -- 340 shares 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: 60,000,000 shares
authorized; historical combined -- 15,291,211 shares issued and
outstanding; pro forma -- 18,114,135 shares issued and outstanding; pro
forma as adjusted -- shares issued and outstanding.
22
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
ART
The selected historical financial data below under the captions Statement of
Operations Data, Other Financial Data and Balance Sheet Data present the
financial data of ART as of December 31, 1995 and for the period from March 28,
1995 (date of inception) to December 31, 1995. Such selected financial data were
derived from and should be read in conjunction with the audited financial
statements of ART included elsewhere in this Prospectus.
The unaudited selected historical combined and pro forma financial data
presented below under the captions Statement of Operations Data, Other Financial
Data and Balance Sheet Data for the year ended and as of December 31, 1995 were
derived from the unaudited pro forma condensed financial statements 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
ART Corp., and the notes thereto, and the unaudited pro forma condensed
financial statements, 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 year ended December 31, 1995, nor do they purport to represent
the Company's future financial position and results of operations.
<TABLE>
<CAPTION>
MARCH 28, 1995
(DATE OF
INCEPTION)
TO YEAR ENDED DECEMBER 31, 1995
DECEMBER 31, 1995 ---------------------------------------------------
------------------ HISTORICAL PRO FORMA AS
HISTORICAL COMBINED (1) PRO FORMA (2) ADJUSTED (3)
------------------ -------------- ---------------- -----------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenue...................... $ 5,793 $ 5,793 $ 5,793 $
Non-cash compensation expense.......... 1,089,605 1,089,605 287,603
Depreciation and amortization.......... 5,306 60,060 191,466
Net loss............................... 2,981,073 3,234,843 5,104,952
Pro forma net loss per share of Common
Stock (4).............................
Pro forma weighted average number of
shares of Common Stock outstanding
(4)...................................
OTHER FINANCIAL DATA:
EBITDA (5)............................. $ (1,798,327) $ (1,936,141) $ (2,187,139) $
Capital expenditures................... 3,585,144 3,585,144 3,585,144
Ratio of earnings to fixed charges
(6)................................... -- -- --
<CAPTION>
AS OF DECEMBER 31, 1995
-----------------------------------------------------------------------
HISTORICAL PRO FORMA AS
HISTORICAL COMBINED (1) PRO FORMA (2) ADJUSTED (3)
------------------ -------------- ---------------- -----------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital surplus (deficit)...... $ (2,031,947) $ (3,008,510) $ 6,577,942 $
Property and equipment, net............ 3,579,838 3,581,561 3,581,561
FCC licenses........................... 4,226,821 4,235,734 4,235,734
Total assets........................... 9,830,615 9,876,559 19,164,915
Long-term debt, including current
portion............................... 6,500,000 6,450,000 7,361,439
Redeemable preferred stock............. -- 44,930 --
Deficit accumulated during the
development stage..................... (2,981,073) (3,370,057) (11,218,571)
Total stockholders' equity (deficit)... (119,922) (312,860) 8,175,439
</TABLE>
23
<PAGE>
ART CORP. -- PREDECESSOR
The selected financial data below under the captions Statement of Operations
Data, Other Financial Data and Balance Sheet Data present the financial data of
ART's predecessor ART Corp. for the years ended and as of December 31, 1995 and
1994, for the period from August 23, 1993 (date of inception) to December 31,
1993, and as of December 31, 1993. The selected financial data were derived from
and should be read in conjunction with the audited financial statements of ART
Corp. included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AUGUST 23, 1993
(DATE OF
INCEPTION)
TO YEAR ENDED YEAR ENDED
DECEMBER 31, 1993 DECEMBER 31, 1994 DECEMBER 31, 1995
------------------ ------------------ ------------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenue................................... $ 137,489
Depreciation and amortization....................... $ 688 8,281 $ 54,754
Net loss............................................ 6,594 128,620 1,267,655
Net loss per share of common stock (4).............. 65.94 702.84 4,495.23
Weighted average number of shares of common stock
outstanding (4).................................... 100 183 282
OTHER FINANCIAL DATA:
EBITDA (5).......................................... $ (5,906) $ (115,964) $ (1,151,699)
Capital expenditures................................ -- 5,175 --
Ratio of earnings to fixed charges (6).............. -- -- --
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------------
1993 1994 1995
------------------ ------------------ ------------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital surplus (deficit)................... $ 13,958 $ (76,556) $ (976,563)
Property and equipment, net......................... 3,448 1,723
FCC licenses........................................ 8,913
Total assets........................................ 74,513 42,611 5,784,624
Long-term debt, including current portion........... 4,950,000
Redeemable preferred stock.......................... -- -- 44,930
Deficit accumulated during the development stage.... (6,594) (135,214) (1,402,869)
Total stockholders' equity (deficit)................ 54,542 (39,078) (404,481)
</TABLE>
- ------------------------------
(1) The unaudited selected financial data under the caption "Historical
Combined" are presented as if the historical financial statements of ART
and its predecessor, ART Corp., had been combined and reflects (i) the
elimination of transactions and balances between ART and ART Corp. and (ii)
the elimination of ART Corp.'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 January 1,
1995 for the Statement of Operations Data and Other Financial Data and as
of December 31, 1995 for the Balance Sheet Data: (i) the exchange of the
Advent/ART Securities, including accrued interest, into 232,826 shares of
Preferred Stock (which convert into 3,026,738 shares of Common Stock upon
consummation of the Offerings) and the related anti-dilution share
adjustments, net of deferred financing costs; (ii) the issuance of 48,893
shares of Preferred Stock (which convert into 635,609 shares of Common
Stock upon consummation of the Offerings) and the Ameritech Warrant to
Ameritech in exchange for $2.3 million in cash proceeds and the Ameritech
Strategic Distribution Agreement, after deducting related expenses of
$150,000, and the recognition of a $1.1 million market development expense
for the value ascribed to the Ameritech Strategic Distribution Agreement;
(iii) the receipt of $4.9 million in cash proceeds from the issuance of the
Bridge Notes and the Bridge Warrants in connection with the Bridge
Financing, after deducting related expenses of $50,000; (iv) 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, and (v) the effects of the
Merger, including the issuance of Common Stock to ART Corp. stockholders
and the cancellation of all outstanding ART Corp. common stock. The
Statement of Operations Data and Other Financial Data under the caption
"Pro Forma" also reflect the reversal of a non-recurring $802,002 non-cash
compensation expense from the release of Escrow Shares in November 1995.
The Balance Sheet Data reflects a non-cash compensation expense of $6.8
million from the release of Escrow Shares in February 1996. See "Certain
Transactions."
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<PAGE>
(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 January 1, 1995 for the
Statement of Operations Data and Other Financial Data and as of December
31, 1995 for the Balance Sheet Data: (i) the sale by the Company of
shares of Common Stock offered in the Common Stock Offering based
on an assumed initial public offering price of $ per share and the
Units offered in the Unit Offering, and, in each case, after deducting the
estimated underwriting discount and offering expenses and (ii) the receipt
and application of the net proceeds therefrom. 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 issuance of potentially
dilutive instruments issued within one year prior to the Offerings at
exercise prices below the assumed initial public offering price and the
conversion of all outstanding shares of Preferred Stock into shares of
Common Stock. Net loss per share for ART Corp. is based on the loss for the
period divided by the weighted average number of shares of common stock
outstanding during the period.
(5) EBITDA means loss before interest expense, income tax expense, depreciation
and amortization expense and non-cash compensation 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, as determined in accordance
with generally accepted accounting principles, nor has it been presented as
an alternative to operating income as an indicator of operating performance
and should not be considered as a substitute for measures of performance
prepared in accordance with generally accepted accounting principles.
(6) For the purposes of determining earnings coverage of fixed charges, net
losses include fixed charges representing interest expense on all
indebtedness (including the amortization of deferred debt issuance costs).
For the purposes of the pro forma combined information, fixed charges
include interest expense from the Bridge Financing and the Equipment
Financing (including the amortization of deferred debt issuance costs), and
the reversal of interest expense on the Advent Notes that were converted
into ART Series E Preferred Stock. For the purposes of the pro forma as
adjusted information, fixed charges include interest on the Notes offered
hereby, offset by the reversal of interest expense on the Bridge Notes
which are assumed to be repaid out of the proceeds therefrom. Earnings were
deficient to cover fixed charges by the following amounts for the periods
indicated:
<TABLE>
<S> <C>
ART
March 28, 1995 (date of inception) to December 31, 1995............................. $2,981,073
Year ended December 31, 1995
Historical combined............................................................... 3,234,843
Pro forma......................................................................... 5,104,952
Pro forma as adjusted.............................................................
ART Corp. -- Predecessor
Year ended December 31, 1995...................................................... 1,267,655
Year ended December 31, 1994...................................................... 128,620
August 23, 1993 (date of inception) to December 31, 1993.......................... 6,594
</TABLE>
25
<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 1995 historical combined financial information of Advanced Radio
Telecom Corp. ("ART") and its predecessor, Advanced Radio Technologies
Corporation ("ART Corp."). The 1995 historical combined financial information is
based upon the separate historical financial statements of ART as of December
31, 1995 and for the period from March 28, 1995 (date of inception) to December
31, 1995 and of ART Corp. as of and for the year ended December 31, 1995, all
appearing elsewhere in this Prospectus, after elimination of transactions and
balances between the two entities as well as ART Corp.'s investment in ART. The
pre-1995 historical financial information is based upon the historical financial
statements of ART Corp. appearing elsewhere in the Prospectus.
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 authorizations and licenses, 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
authorizations throughout the United States through the purchase of such rights
held by others and by petitioning the FCC directly. Upon meeting FCC
construction requirements, such authorizations are converted into licenses with
initial terms of six years and are renewable for successive ten-year periods
subject to review by the FCC. 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) acquire appropriate sites for
its operations, (ii) deploy its 38 GHz technology on a market-by-market basis,
(iii) capture and retain an adequate customer base and (iv) successfully develop
and deploy its operational and support systems. 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."
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. 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 net losses and negative operating
cash flow will increase as the Company implements its growth strategy.
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."
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<PAGE>
ACQUISITIONS, BUSINESS DEVELOPMENT AND CAPITAL EXPENDITURES
From inception through December 31, 1995, 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 on property and equipment have
totalled $3.6 million. In addition, the Company has incurred significant other
costs and expenses in the development of these businesses and has recorded
cumulative losses from inception through December 31, 1995 of $3.4 million. The
Company may, when and if the opportunity arises, acquire other spectrum rights
and, potentially, related businesses, invest in the development of new
technologies and expand its wireless broadband services in new market areas.
The recoverability of property and equipment and capitalized FCC
authorizations and 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, technological,
regulatory or other changes.
RESULTS OF OPERATIONS
The Company has generated nominal revenue from operations to date. From
inception through December 31, 1995, the Company has incurred aggregate expenses
of $3.5 million, consisting of compensation and benefits, sales and marketing
expenses, consulting and legal fees, facilities expenses, billing and systems
development costs and net interest expenses building its business infrastructure
and marketing its wireless broadband services. See "Risk Factors -- Limited
Operations; History of Net Losses."
FISCAL 1995 COMPARED TO FISCAL 1994
ART's predecessor, ART Corp. was formed in 1993, and, accordingly, the
Company's historical financial statements for 1994 reflect ART Corp.'s
activities in applying for 38 GHz licenses and building operating systems.
The Company had $137,489 in consulting services income 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. 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 $1.1
million of non-cash compensation expenses associated with employee stock options
($287,603) and an escrow share arrangement ($802,002). The Company expects to
recognize an additional $6.8 million non-cash charge in the first quarter of
1996 in connection with the termination of the escrow share arrangement. General
and administrative expenses, including these non-cash compensation expenses,
increased by $2.7 million to $2.9 million for fiscal 1995, from $261,734, for
1994. Market development expenses increased to $191,693 in 1995 from $0 in 1994.
The Company will recognize a $1.1 million non-cash charge to market development
expense in the first quarter of 1996 related to the Ameritech strategic
distribution agreement. 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations have required substantial capital investment for
the acquisition of FCC licenses and related assets, the purchase of
telecommunications equipment and the development and expansion of the Company's
infrastructure to support anticipated growth. From inception through December
31, 1995, the Company used $1.5 million of cash in its operating activities and
$4.2 million of cash in its investing activities. These cash outflows were
financed primarily through private equity
27
<PAGE>
placements and the issuance of convertible notes payable to the Advent
Partnerships. 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
$76,566 and cash of $5,133 at December 31, 1994. Subsequent to December 31,
1995, the Company raised $2.3 million in cash (net of expenses) in a private
equity placement with Ameritech, $4.9 million in cash (net of expenses) in a
private placement of notes and warrants and $2.2 million in cash (net of
expenses) in the Equipment 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. Property and equipment, net of accumulated
depreciation, comprised $3.6 million of total assets at December 31, 1995. FCC
licenses and the investment in the ART West Joint Venture increased to $4.5
million at December 31, 1995, as compared to $0 at December 31, 1994.
Capital expenditures, including deposits on equipment for fiscal 1994 and
1995, were $5,175 and $3.9 million, respectively. The Company currently
purchases the majority of its wireless transmission equipment from a single
vendor 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. Any reduction or interruption in supply from this vendor could
have a material adverse effect on the Company until alternative supply sources
are established. The Company has entered into a preliminary agreement with an
entity in which an executive of the Company is a director and shareholder to
fund from $700,000 to $1.0 million of research and development costs related to
wireless transmission equipment. The Company will receive a first right of
refusal on production capacity and a license fee in exchange for its funding.
See "Certain Transactions." However, the Company does not currently 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
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. 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 currently expects that in
fiscal 1996 and fiscal 1997, its capital expenditures (including the acquisition
of certain spectrum rights) will be $33.0 million and $57.0 million,
respectively.
The Company expects that it will continue to have substantial capital
requirements in connection with (i) the acquisition of appropriate sites for its
operations, (ii) deployment of its 38 GHz technology on a market-by-market
basis, (iii) capturing and retaining an adequate revenue generating customer
base and (iv) developing and deploying its operational and support systems. The
Company believes it has an opportunity to expand its wireless broadband services
business significantly and that access to capital will enable it to expand more
quickly and effectively.
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 executes the initial phases of 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.
The Company has recently entered into a preliminary agreement with DCT
Communications, Inc. ("DCT") to acquire DCT's interest in certain 38 GHz
licenses in exchange for $3.6 million in cash. The preliminary agreement
contemplates the execution of a definitive purchase agreement, which is
contingent upon the execution of a mutually agreeable services agreement between
the Company and DCT for the operation of those licenses through the closing of
the agreement. The closing of the transaction is subject to FCC approval.
Management anticipates that, based on current plans of development, assuming
that no material acquisitions are consummated, the net proceeds of the Offerings
and, together with existing financial resources and after repayment of
approximately $5.0 million of existing indebtedness, will be sufficient to fund
the operations of the Company for at least the next two years. Management
believes that the
28
<PAGE>
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 or (iii) the Company completes any
material acquisitions, 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 1995 Stock Option 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.
29
<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.
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) 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 end users. 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. Connecticut Research Inc. ("CRI") estimates that in 1994,
CAPs captured approximately $1.3 billion, or 1.3%, of $97.1 billion in revenues
generated by the local exchange market. CRI also projects that, as a result of
increased competition and the growth of enhanced services, CAPs' revenues will
grow in excess 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
30
<PAGE>
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 thirty 100 MHz channels between 37.0 GHz and 40.0 GHz
for wireless broadband transmissions (collectively referred to as "38 GHz"),
which enable the licensee to provide point-to-point services within a specified
geographic footprint 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. EMI Communications Corporation ("EMI") (whose facilities ART
purchased in November 1995) was the first company to undertake commercial
exploitation of 38 GHz services.
The 38 GHz band provides for the following additional advantages as compared
to other spectrum bands and wireline alternatives:
- HIGHER 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 channel 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). The broadband capacity of 38
GHz transmission provides improved speed, clarity and quality in
transmissions, as compared to legacy copper wire networks. In addition to
accommodating standard voice and data requirements, 45 Mbps data
transmission rates allow end users to receive full motion video and 3-D
graphics at their workstations and to utilize highly interactive
applications on the Internet and other networks.
- EFFICIENT CHANNEL REUSE. Because 38 GHz radio emissions have a narrow
beam width, a relatively short range and can in many instances 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, each
100 MHz channel in a given service area can accommodate at least 10,000
DS-3 links, each of which can carry 672 voice circuits.
- RAPID DEPLOYMENT. 38 GHz technology can be deployed considerably more
rapidly than wireline and other wireless technologies. 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
31
<PAGE>
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. The
time required to install a 38 GHz link within a licensed footprint is
typically less than 72 hours after obtaining access to customer premises,
versus an estimated three to five months in other microwave frequency
bands due to regulatory delay.
- 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.
- EFFICIENT NETWORK DESIGN. The exclusive right to use a particular channel
or channels within a broad geographic area gives the licensee much greater
control over its network design. A 38 GHz licensee can save costs, ensure
interference-free operations and increase quality and reliability by
designing efficient 38 GHz networks in advance of their deployment.
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 99.995% availability, with better than a 10-13 bit error
rate. This level of performance significantly exceeds that provided by copper
based networks and is a viable alternative to fiber optic based networks. In
addition, the Company believes that ART's last mile solution is more cost
effective than 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,
efficient channel reuse, rapid deployment, ease of installation and
efficient network design -- are ideal for the provision of last mile
access.
- 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.
- 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.
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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 commercial end-user customers. 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 last quarter
of 1995 and has generated only nominal revenues from such services to date. The
Company is seeking to capitalize on the broad geographic scope of its 38 GHz
authorizations to become the premier provider of wireless broadband solutions to
a diverse group of traditional and emerging telecommunications service providers
and end users. The Company plans to implement the following strategic
initiatives to achieve this objective:
- EXPLOIT SPECTRUM POSITION IN KEY MARKETS TO REALIZE VALUE. The Company
currently owns or manages 108 authorizations to construct and operate 38
GHz wireless broadband facilities in 91 market areas, including 74 of the
top 100 U.S. markets. These spectrum assets provide the Company with the
foundation on which to create a large scale commercial system of 38 GHz
wireless broadband operations. The Company is now operating wireless
broadband links in nine cities (Chicago; Boston; Philadelphia; Baltimore;
Pittsburgh; Portland, Oregon; Seattle; Albany; and Bethlehem,
Pennsylvania). The Company plans to continue to build out its
infrastructure and to intensify its marketing effort in its market areas,
thereby realizing the value inherent in its spectrum assets.
- MARKET TO TELECOMMUNICATIONS SERVICE PROVIDERS. 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 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 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, or anticipates
providing, services to Ameritech, Bell Atlantic NYNEX Mobile, UUNet,
American Personal Communications, Electric Lightwave, NEXTLINK, Western
Wireless, Chadwick Telephone Co. and CGX Telcom, among others. 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
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<PAGE>
38 GHz DS-3 channel 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 working on 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.
- 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 market penetration 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 believes that it will
achieve a competitive advantage through proprietary methods that increase
the capacity and quality of its networks.
- ESTABLISH AND EXPAND KEY STRATEGIC ALLIANCES. The Company has and will
continue to establish key strategic alliances with major service providers,
equipment manufacturers, systems integrators and enhanced service
providers. Ameritech Development Corp. recently acquired a 5.4% beneficial
equity interest in the Company as of April 30, 1996 and recently entered
into the Ameritech Strategic Distribution Agreement. The Company also has
agreements with GTE for field servicing and network monitoring and is
developing relationships with a number of equipment manufacturers focusing
on 38 GHz technology development, wireless broadband standards and joint
sales efforts. The Company will utilize these strategic alliances to bundle
its services with those of its partners, which the Company expects will
help it to achieve a lower cost of sales and increased market penetration.
WIRELESS BROADBAND SERVICES
The Company's wireless broadband links deliver high quality voice and data
transmissions at a level of performance which significantly exceeds that
provided by copper based networks and is a viable alternative to fiber optic
facilities. 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 believes that its wireless broadband
capacity meets or exceeds the anticipated service requirements of the Company's
target customers in its existing 91 market areas.
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 99.995% availability, (v) transmission accuracy engineered
to provide bit error rates of better than 10-13, (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 centers, (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
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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 is in the
process of becoming a qualified vendor to all the major IXCs. The Company
currently provides, or anticipates providing, services to Ameritech, Bell
Atlantic NYNEX Mobile Systems, American Personal Communications, Electric
Lightwave, NEXTLINK, UUNet, Western Wireless, Chadwick Telephone Co. and CGX
Telcom, among others. The Company is now operating wireless broadband links in
nine cities (Chicago; Boston; Philadelphia; Baltimore; Pittsburgh; Portland,
Oregon; Seattle; Albany; and Bethlehem, Pennsylvania).
The Company currently provides, or anticipates providing, wireless broadband
services to the following types of customers, among others:
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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
transmission. 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 would 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 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 DISPLAYING 38 GHz LINK BETWEEN AN
OFF-FIBER NET BUILDING AND AN ON-FIBER NET BUILDING]
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<PAGE>
INTERNET SERVICE PROVIDERS. The expanding demand for Internet access, the
growing importance of audio, video and graphic Internet applications to both
business and consumers and the lack of high capacity access through local
telephone company facilities has created a growing market for ART's wireless
broadband services. The Company offers Internet service providers timely,
reliable and affordable access at the required high speed data rates -- both 45
Mbps and 1.544 Mbps, allowing ISPs to keep pace with their customer growth. The
Company provides wireless broadband links between customers and their ISP
providers and between ISP POPs and the Internet backbone. A single 38 GHz DS-1
circuit linking a corporate user to an ISP's POP is approximately 53 times
faster than a 28.8 Kbps dial-up modem and 12 times faster than the fastest ISDN
connection. Each of the Company's 38 GHz DS-3 links can support 28 DS-1 circuits
per channel or one DS-3 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 and over 350
times the rate of the fastest ISDN lines currently in use.
[GRAPHIC DISPLAYING 38 GHz LINKS
BETWEEN ISP POPS, REMOTE SERVER AND PC LAN]
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<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 DISPLAYING 38 GHz LINKS BETWEEN
MOBILE SWITCHING CENTER, BASE STATION
CONTROLLERS AND BASE STATION/CELL SITES.]
38
<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 DISPLAYING 38 GHz LINKS BETWEEN
AN IXC POP, AN OFF-FIBER NET BUILDING,
AN ON-FIBER NET BUILDING AND A METROPOLITAN FIBER RING.]
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<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 DISPLAYING 38 GHz LINKS BETWEEN
AN ON-FIBER NET BUILDING, AN OFF-FIBER NET BUILDING,
PC LAN, METROPOLITAN FIBER RING AND GEOGRAPHICALLY DISTANT NETWORKS.]
40
<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 DISPLAYING 38 GHz LINKS BETWEEN
WIDE AREA NETWORK VIDEO SERVER, DIGITAL VIDEO HUBS,
DIGITAL EDITING PC LANs AND LIVE ANALOG BROADCASTS.]
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 also markets its 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 sale force with major telecommunications service providers and end users.
The Company currently prices its services on a monthly flat-rate basis. As a
non-dominant carrier, ART does not have to cost-justify its rates to regulatory
bodies and 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 priced at a
modest discount to the prices 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.
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38 GHZ WIRELESS BROADBAND LICENSES AND AUTHORIZATIONS
The Company believes that it derives significant competitive advantages from
the widespread geographic coverage and broadband capacity provided by 108
authorizations granted by the FCC. An authorization is initially considered a
construction permit; once installation requirements have been met, however, the
authorization develops into a license. The Company was granted the first of its
authorizations to construct and operate 38 GHz wireless broadband facilities in
February 1995. The Company currently owns or manages 35 licenses and an
additional 73 authorizations in 91 market areas. The Company owns or manages
authorizations in 41 of the top 45 markets and 74 of the top 100 markets. These
authorizations currently cover an aggregate population of approximately 94
million people.
The Company has authorizations (including licenses and construction permits)
in the 91 market areas listed below. Such market areas are listed in descending
order of size based on the estimated population covered by the Company's
authorization(s) in such area within each such area, and represent channel
capacity of 100 MHz each, unless otherwise indicated:
<TABLE>
<S> <C>
New York, NY (1)(7)
Chicago, IL
Washington, DC (1)/
Baltimore, MD (4)(7)
Miami, FL
Boston, MA (1)(6)
Philadelphia, PA (1)(6)
Atlanta, GA
St. Louis, MO
Minneapolis, MN
San Jose, CA (3)(4)
Norfolk, VA (4)
Portland, OR (1)(3)(4)(6)
Sacramento, CA (4)
Dallas, TX (3)
NY-Long Island, NY (1)(6)
Pittsburgh, PA (1)(6)
Seattle, WA (1)(2)(6)
Houston, TX
Hartford, CT (1)(4)(7)
Columbus, OH (4)
Wilmington, DE (1)(4)(7)
San Diego, CA (2)
Trenton, NJ (1)(6)
Oklahoma City, OK (4)
Grand Rapids, MI (5)
Cleveland, OH
Las Vegas, NV (2)
Dayton, OH (4)
Buffalo, NY (1)(6)
San Antonio, TX
Greensboro, NC (4)
Denver, CO (2)
New Orleans, LA
Honolulu, HI (2)
Providence, RI (1)(6)
Tacoma, WA (3)(4)
Birmingham, AL
Indianapolis, IN
Bridgeport, NH (1)(6)
Salt Lake City, UT (2)
Cincinnati, OH
Albany, NY (1)(7)
Rochester, NY (1)(7)
Knoxville, TN
Phoenix, AZ (2)
Baton Rouge, LA
Albuquerque, NM (2)
Tucson, AZ (3)(4)
Wichita, KS
Austin, TX (4)
Canton, OH
Kansas City, MO
Charleston, SC (4)(6)
Mobile, AL (4)(6)
Des Moines, IA
White Plains, NY (1)(6)
Scranton, PA (1)(7)
Allentown, PA (1)(6)
Louisville, KY
Spokane, WA (2)
Shreveport, LA
Memphis, TN
Springfield, MA (1)(6)
York, PA
Richmond, VA
Syracuse, NY (1)(7)
Madison, WI
Stamford, CT (1)(6)
Pensacola, FL
Ogden, UT
Huntington, WV
Worcester, MA (6)
Harrisburg, PA (6)
Nashville, TN
Jackson, MS
Reno, NV (2)
Eugene, OR (2)
Lorain, OH
Kingston, NY (6)
Charleston, WV
Jackson, MS (5)
Anchorage, AK (2)
Binghamton, NY (6)
Utica-Rome, NY (6)
Billings, MT (2)
Corning, NY (6)
Eureka, CA (2)
Altoona, PA (6)
Fairbanks, AK (2)
Lincoln, NE
Juneau, AK (2)
</TABLE>
- ------------------------------
(1) Indicates two or more authorizations.
(2) Interests in these markets held by ART West, a joint venture in which the
Company has a 50% interest. See "-- Agreements Relating to Licenses and
Authorizations -- ART West Joint Venture" and "Certain Transactions."
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<PAGE>
(3) DCT owns these authorizations subject to the Put/Call Agreement and Service
Agreement with ART Corp. Interests in these markets held by ART West, a
joint venture in which the Company has a 50% interest. See "-- Agreements
Relating to Licenses and Authorizations -- ART West Joint Venture."
(4) DCT owns these authorizations subject to the Put/Call Agreement and Service
Agreement with ART Corp. See "-- Agreements Relating to Licenses and
Authorizations -- DCT System Purchase Agreements."
(5) ART Corp. has the right to acquire 49% of these markets and manage them,
sharing revenue with Telecom One. See "-- Agreements Relating to Licenses
and Authorizations -- Telecom One Services Agreement."
(6) 200 MHz.
(7) 300 MHz.
In addition to the above authorizations, the Company has 75 applications
pending with the FCC for additional authorizations. However, due to the "freeze"
imposed by the NPRM, the Company does not expect that it or any other company
will receive additional authorizations with respect to any pending applications
in the near future. See "Risk Factors -- Government Regulation" and "--
Government Regulation."
The Company has between 100 and 300 MHz of transmission capacity within each
of its market areas. Because 38 GHz paths are very narrow and because 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 the Company's existing 91 market areas.
Consistent with the Company's growth strategy, the Company may seek to obtain
additional capacity by either leasing channels on a common carrier basis from
other 38 GHz licensees, entering into services agreements or acquiring interests
in other 38 GHz licenses. To the extent certain 38 GHz licensees are unable to
satisfy the FCC construction requirements, the Company believes these licenses
will be available for purchase in the secondary market, subject to FCC approval.
Under the terms of its authorizations, the Company must complete
construction of facilities for approximately 50 authorizations between
mid-August and mid-September 1996. The Company has begun installing the minimum
number of links required, and currently expects it will meet the FCC deadline.
However, the FCC may impose more stringent construction requirements which may
jeopardize the status of the Company's authorizations. The Company's licenses
are due to expire in February 2001. The Company believes that, in keeping with
common FCC practices, the licenses will be renewed for successive 10-year
periods upon expiration.
AGREEMENTS RELATING TO LICENSES AND AUTHORIZATIONS
ART CORP. SERVICES AGREEMENT. Under a services agreement, dated May 8,
1995, between ART and ART Corp. (the "ART Corp. Services Agreement"), the
Company agreed to construct, operate and manage all FCC licenses and related
telecommunications systems owned or managed by ART Corp. Under the ART Corp.
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 75% of the net revenues generated by the
systems and ART Corp. receives the remaining 25%. The ART Corp. Services
Agreement expires on the earlier to occur of (i) May 8, 2015 or (ii)
consummation of the Merger. See "-- Proposed Merger."
EMI ACQUISITION. On April 4, 1995, ART Corp. 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 Corp. assigned all of its rights and obligations under the
purchase agreement to ART. The FCC subsequently approved the transfer of the EMI
Assets to ART. ART Corp. has also guaranteed the obligations of ART to EMI under
the EMI Note and has agreed to provide wireless broadband services on behalf of
EMI for a period of one year from the date of the agreement to certain of EMI's
customers. See "Description of Certain Indebtedness -- EMI Note."
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<PAGE>
ART WEST JOINT VENTURE. On April 4, 1995, ART Corp. 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 Corp. and Extended. In
accordance with the terms of the ART West Agreement, ART Corp. and Extended
agreed to transfer to ART West all of their respective interests in all of their
38 GHz authorizations (currently, 22 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. Each
of Extended and ART Corp. owns 50% of ART West. ART Corp. is obligated to bear
all costs and expenses relating to construction, operation and management of the
ART West Markets. As compensation, ART Corp. receives 77.5% of the net revenues
of ART West, with Extended receiving the remaining 22.5%. Pursuant to the terms
of the ART West Agreement, each joint venture partner has the right to
participate in the acquisition by the other partner or any of its affiliates of
5% or greater interest in any 38 GHz authorization or license in any additional
ART West Market. In such case, such authorization or license would be
contributed to ART West. In the event any joint venture partner elects not to
participate in any such acquisition, the other partner has the right to purchase
such authorization or license directly. On October 1, 1994, the Company, ART
Corp. and Extended entered into an agreement (the "ART West Management
Agreement"), pursuant to which the Company agreed to manage the business of ART
West and operate its assets as part of the Company's nationwide system of 38 GHz
assets. Pursuant to the ART West Management Agreement, the Company owns all
equipment, provides all services and is entitled to market and operate the
Company's wireless broadband services in the ART West Markets. See "Certain
Transactions -- ART West Joint Venture."
DCT SYSTEM PURCHASE AGREEMENTS. On September 1, 1994, ART Corp. entered
into an agreement with DCT Communications, Inc. ("DCT"), pursuant to which ART
Corp. obtained an option to purchase certain FCC licenses (the "DCT Systems")
from DCT for $500,000 and shares representing 5% of ART Corp's common stock on a
fully diluted basis as of the date of transfer. The option may be exercised at
any time after December 31, 1995 and expires three years after the date on which
the FCC issues DCT's first license. DCT may at any time require ART Corp. to
purchase the DCT Systems for $50,000 and the reimbursement of certain expenses
related to the acquisition thereof. On September 1, 1994, ART Corp. entered into
an exclusive services agreement with DCT pursuant to which ART Corp. bears the
responsibility for the construction, operation and management of the DCT
Systems. The agreement expires on September 1, 1999. Under the terms of the
services agreement, ART Corp. is obligated to bear all costs and expenses
relating to construction, operation and management of the DCT Systems. As
compensation, ART Corp. is entitled to receive 55% of the net revenues generated
by the DCT Systems, with DCT receiving the remaining 45%.
On April 25, 1996, the Company entered into a preliminary agreement with DCT
pursuant to which the Company agreed to purchase from DCT the 13 authorizations
subject to existing agreements and 3 additional licenses for $3.6 million in
cash, subject to completion of a definitive purchase agreement and a revised
services agreement under which the Company will have responsibility for the
construction, operation and management of the DCT Systems as well as the 3
additional systems. The Company will also have a right of first offer on all
future FCC license grants to DCT. A definitive agreement must be signed by June
28, 1996 and the closing of the transactions is subject to FCC approval. In the
event that the closing takes place more than six months after the execution of
the agreement, DCT will be entitled to receive 15% of the gross revenues
generated by links deployed in the DCT channels until the closing of the
transfer of the FCC licenses.
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 two 38 GHz wireless broadband licenses and
44
<PAGE>
related telecommunications systems owned by Telecom One. 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 gross revenues generated by the
systems and Telecom One receives the remaining 10%.
TELECOM ONE OPTION On May 25, 1995, the Company and Telecom One entered
into an agreement pursuant to which the Company acquired from Telecom One an
option to acquire a 49% interest in two authorizations. The option expires on
May 25, 2000 and the Company has not decided whether or not to exercise this
option.
[LOGO]
STRATEGIC ALLIANCES
AMERITECH STRATEGIC DISTRIBUTION AGREEMENT. On April 29, 1996, the Company
and Ameritech Corp. ("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 will be
the primary provider of the Company's services in the midwest. Ameritech is
targeting certain sales objectives and proposes to commit $7.0 million to
support the 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, GTE will provide 75% of the Company's
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<PAGE>
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 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 $2.0 million and an annual maintenance support fee of
approximately $300,000. In addition, the Company made an initial payment of
$250,000 upon execution of the agreement and is obligated to pay monthly
installments commencing January 1, 1997. After the first year, all fees are
subject to change. 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 a
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 entered into preliminary
understandings with three microwave equipment or technology development
companies for development of advanced 38 GHz radios, highspeed converters and
innovative telecommunications platforms. The Company expects to be able to fund
development of this technology in stages and to obtain rights to license the
specific technology. In addition, the Company has entered into a letter of
intent with American Wireless Corporation ("American Wireless") providing for an
investment by the Company of $700,000 to $1.0 million for research and
development. In consideration of its investment, the Company will have a right
of first refusal on production capacity of the new radios and will receive a
per-unit license fee. See "Certain Transactions -- American Wireless Development
Agreement." Each of these agreements is subject to definitive documentation.
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. There can be no assurance that the Company will be able to
compete effectively in any of its market areas. The Company faces significant
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competition from other 38 GHz providers and incumbent LECs, such as the RBOCs.
To a lesser extent, the Company may compete with CAPs, cable television
operators, electric utilities, LECs operating outside their current local
service areas and IXCs.
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 certain cases, these service providers hold licenses to operate
on other portions of the 38 GHz band in geographic areas which encompass or
overlap the Company's market areas. In a number of the Company's market areas,
at least one other 38 GHz service provider has 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 five other entities have been granted 38 GHz
authorizations in geographic regions in which the Company plans to operate. Due
to the relative ease and speed of deployment of 38 GHz technology, the Company
could face intense price competition from other 38 GHz service providers.
Accordingly, there can be no assurance that the Company will be able to sustain
a profitable business in the face of prolonged price competition.
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 the lower 16 channels in the 38 GHz spectrum band,
which have not been previously available for commercial use. The grant of
additional licenses 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 the adoption of the NPRM as currently
proposed, additional entities having greater resources than the Company could
acquire licenses to provide 38 GHz services.
COMPETITION FROM INCUMBENT LECS. The Company also faces significant
competition from incumbent LECs, irrespective of whether they provide service.
Incumbent LECs have long-standing relationships with their customers, 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) establishes
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 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. To a lesser degree, 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.
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.
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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 and IXCs. 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.
A number 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 originate in
one state and terminate in another state or foreign country. 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 issuing 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 competition. Under current FCC rules, the recipient of a
construction permit (or authorization) for microwave facilities is required to
complete construction of such facilities within 18 months of the date of grant
of the permit. To satisfy the FCC's current construction requirements, the
permit holder is required to establish at least one link between two
transceivers in each market area for which it holds a construction permit. Upon
completion of construction and filing of certification thereof with the FCC, the
permit develops into a
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license to provide microwave services. In the event that the recipient fails to
comply with the construction deadline, the permit is subject to forfeiture,
absent an extension of the deadline. Of the Company's 108 authorizations, 35
have developed into licenses. Under the terms of its remaining 73 construction
permits, the Company must complete construction of facilities for approximately
50 construction permits between mid-August and mid-September 1996. 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
authorization.
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.
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
prohibiting 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
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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.
The Company believes that the Telecommunications Act substantially benefits
its business plans by allowing the Company to provide a much broader array of
services, including switched services and services interconnected to the Public
Switched Telecommunications Network ("PSTN"), in many more states, at a much
earlier time and at a substantially lower cost. The Telecommunications Act
should be of equal, if not greater, benefit to one of the Company's most
important initial customer groups, CAPs. CAPs are promised substantial benefits
under the Telecommunications Act which should significantly improve their
revenues and profits, attracting more CAPs into business and enabling them to
fund expansion. These developments should lead to increased demand for the
Company's services. 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 licenses. 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 licenses in the 38 GHz band, including a
possible auction of the lower 16 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 16 channels, (iii) licensing frequencies using
predefined geographic service areas, (iv) the imposition of minimum construction
requirements for new authorizations and existing 38 GHz licenses as a condition
to the retention of existing 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 may then be dismissed. Final rules issued in connection with the NPRM
may require that 38 GHz service providers share other unlicensed 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. 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 proposes to substantially strengthen the current rules concerning
the steps that a grantee of a 38 GHz authorization, which is in the nature of a
construction permit, must take in order to receive a license. At present, the
holder of a construction permit is only required to certify that it is
operational. Although the FCC has not defined the term "operational," 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.
The Company has supported the concept of stiffer construction requirements and
has proposed a set of construction requirements that would require construction
of long-term revenue-producing links throughout the authorized area, with the
requirements being applicable to each channel and increasing over the first five
years of the license term. None of the other 38 GHz licensees and grantees
supported such strong construction requirements. The Company believes that it
can meet the construction requirements that it has proposed and that it would be
comparatively harder for the other 38 GHz licensees and grantees to satisfy such
requirements. However, there is no assurance that the FCC will adopt the
Company's proposal or that the Company will be able to satisfy whatever proposal
is adopted.
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The NPRM proposes to auction any pending and future 38 GHz applications that
are mutually exclusive. 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 auction pending and future mutually exclusive
38 GHz licenses, 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 required
for calls originating and terminating within a single LATA and intrastate long
distance services, 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.
PROPOSED MERGER
ART and ART Corp. plan to merge, subject only to FCC approval of the Merger.
In the Merger, ART Corp. will merge with and into ART, stockholders of ART Corp.
will receive an aggregate of 10,013,055 shares of Common Stock and the
10,013,055 shares of Common Stock currently held by ART Corp. will be
surrendered to ART. Completion of the Merger is a condition to consummation of
the Offerings.
INTELLECTUAL PROPERTY RIGHTS
The Company has filed for protection for three service marks: DigiWave (the
Company's wireless broadband trademark), 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.
EMPLOYEES
As of May 1, 1996, the Company had a total of 36 employees, including seven
in engineering and field services, 11 in sales and marketing, six in
administration and finance, five in operations and seven 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.
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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 & Hanley. See "Certain
Transactions -- Pierson, Burnett & Hanley Transactions."
LITIGATION
The Company is not a party to any litigation.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The current executive officers and directors of the Company, their ages and
their positions are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------- --- -------------------------------------------------------
<S> <C> <C>
Vernon L. Fotheringham (1)(2)(3)....... 47 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................ 58 Executive Vice President, Secretary and General Counsel
James D. Miller........................ 53 Senior Vice President, Sales and Marketing
Thomas C. Bennett...................... 48 Vice President and General Manager, Northeast Region
Paul Brandenburg....................... 48 Vice President, Engineering and Field Services
I. Don Brown........................... 39 Vice President, Internet Services
Sheila Darling......................... 50 Vice President, Network Operations
Mark T. Marinkovich.................... 31 Vice President and General Manager, Western Region
Charles D. Menatti..................... 42 Vice President, Corporate Development
Richard A. Shields, Jr................. 39 Vice President, Technology
William J. Smilie...................... 52 Vice President and General Manager, Midwest Region
J.C. Demetree, Jr. (3)(4)(5)........... 37 Director
Mark C. Demetree (1)(2)................ 39 Director
Andrew I. Fillat (2)(3)(4)............. 47 Director
Matthew C. Gove (2)(4)(5).............. 31 Director
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
two directors, unaffiliated with the Company's present management, will be
elected to the Board of Directors. See " -- Board Composition."
VERNON L. FOTHERINGHAM has served as Chairman of the Board of Directors,
Chief Executive Officer of the Company and ART Corp. 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 1992, 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.
Over the last ten years, Mr. Fotheringham has advised several businesses in the
telecommunications industry, including American Mobile Satellite Corporation,
ClairCom Communications ("ClairCom"), several international cellular systems
developed by McCaw Cellular Communications, Inc. and the Qualcomm OmniTRACS
network.
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STEVEN D. COMRIE has served as President, Chief Operating Officer and a
director of the Company since July 1995. From 1992 to 1995, Mr. Comrie served as
vice president and general manager of Cypress Broadcasting Inc., a
California-based television subsidiary of Ackerley Communications Inc., a
diversified media company based in Seattle, Washington. From 1987 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,
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 ART Corp. since inception. Mr. Pierson is a partner
of the firm of Pierson, Burnett & Hanley 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.
THOMAS C. BENNETT has served as Vice President and General Manager,
Northeast Region of the Company since February 1996. From July 1994 to January
1996, Mr. Bennett served as the director of PCS development for GTE Worldwide
Telecommunications Services ("GTEW"). Prior to 1994, Mr. Bennett served in
various positions with GTEW.
PAUL BRANDENBURG has served as Vice President, Engineering and Field
Services of the Company since December 1995. From January 1995 to January 1996,
he was an independent consultant in telecommunications technology. From October
1992 to January 1995, Mr. Brandenburg served as vice president and general
manager of ICG Wireless Services, Inc. Prior to October 1992, he served as the
director of business development of TCI.
I. DON BROWN has served as Vice President, Internet Services of the Company
since February 1996. From 1995 to 1996, Mr. Brown acted as a consultant to the
Company and other telecommunications companies. From 1991 to 1995, he served as
executive vice president of USA TODAY Sky Radio.
SHEILA DARLING has been Vice President, Network Operations of the Company
since December 1995. From July 1992 to May 1995, Ms. Darling was associated with
Western Wireless Corporation, where she was responsible for network design,
engineering and interconnect facilities for 20 switches. From December 1992 to
May 1993, Ms. Darling was the senior technical consultant at Digital Systems
International, Inc.
MARK T. MARINKOVICH has served as Vice President and General Manager,
Western Region of the Company since July 1995. Since April 1994, Mr. Marinkovich
has served as president of Extended, the Company's partner in the ART West Joint
Venture. From June 1992 to 1995, Mr. Marinkovich was a telecommunications
consultant with TWG. Prior to 1992, Mr. Marinkovich worked as a certified public
accountant with KPMG Peat Marwick LLP.
CHARLES D. MENATTI has served as Vice President, Corporate Development of
the Company since November 1995. From 1994 to 1995, Mr. Menatti was vice
president for worldwide sales for AccessLine
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Technologies, Inc. From 1993 to 1994, Mr. Menatti was general manager of U.S.
Intelco Networks, Inc. From 1992 to 1993, he served as vice president and
managing director of Atlas Telecom. From 1991 to 1992, he served as vice
president of BellSouth Europe in Brussels, Belgium.
RICHARD A. SHIELDS, JR. has served as Vice President, Technology of the
Company since February 1996. From 1992 to 1996, Mr. Shields served as vice
president for engineering and design for ClairCom. From 1991 to 1992, he was the
director of product development at TWG.
WILLIAM J. SMILIE has served as Vice President and General Manager, Midwest
Region of the Company since April 1996. From 1993 to 1996, Mr. Smilie served as
deputy managing director of NetCom/ Ameritech in Oslo, Norway. Mr. Smilie served
as the director of international wireless for Ameritech from June 1992 to
January 1996, the director of business development for Ameritech Mobile
Communications, Inc. ("AMC") from June 1991 to May 1992 and the director of
marketing for AMC from January 1982 to June 1991.
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 1981 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 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 has also been a director of Safety 1st, Inc.
since 1994 and currently serves as a director of 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.
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. 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."
55
<PAGE>
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 the
Company's Series E and F Preferred Stock respectively, have the right to
designate one member of the Board of Directors of the Company and have
designated Mr. Fillat as a director. Pursuant to the Stockholders Agreement, the
right of the Advent Partnerships to designate a director terminates at such time
as the Advent Partnerships cease to own at least 50% of the aggregate amount of
equity securities of the Company currently owned by them. See "Certain
Transactions -- LHC Purchase Agreement -- Advent Private Placement." The
Stockholders Agreement will terminate upon consummation of the Offerings.
All directors hold office until their successors have been elected and
qualified. Upon consummation of the Offerings, Messrs. J.C. Demetree, Jr., Gove
and Zimmerman will resign as directors and two directors, unaffiliated with the
Company's present management or stockholders, 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). Mr. Comrie and one
of the newly elected independent directors will be elected as Class I directors
for an initial one-year term expiring in 1997. Mr. Fotheringham and one of the
newly elected independent directors 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 1999.
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 1995 Stock
Option 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.
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
56
<PAGE>
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.
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.
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.
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 30,000(3)
W. Theodore Pierson, Jr., Executive Vice President 80,000 -- -- 218,600(1)(4)
James D. Miller, Senior Vice President, Sales and
Marketing (2) -- -- 50,000 --
Charles D. Menatti, Vice President, Corporate
Development (2) 13,381 -- 35,000 800(1)
</TABLE>
- ------------------------------
(1) Automobile reimbursement benefits equal to $9,600 in the case of Messrs.
Fotheringham and Pierson and $800 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 & Hanley, of which Mr. Pierson is a
partner, $209,000 for services rendered to the Company through December 31,
1995.
57
<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
---------------------------------------------------- POTENTIAL REALIZABLE VALUE AT
NUMBER OF PERCENT OF ASSUMED ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE 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 (2) 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
Charles D. Menatti 35,000 3.3% 1.652 12/29/00 -- 9,821
</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.
(2) Mr. Comrie has been granted (i) incentive stock options (the "ISOs")
expiring June 17, 2002 to purchase 151,338 shares of Common Stock at a
price of $0.5907 per share and (ii) non-qualified stock options (the
"NQSOs") expiring on various dates through June 17, 2005 to purchase
605,353 shares of Common Stock at a price of $0.5907 per share. The ISOs
will be fully vested on July 17, 1997. Of the ISOs 115,017 are currently
exercisable, and 36,321 will become exercisable on July 17, 1997. The NQSOs
are subject to vesting over a five-year period. Of the NQSOs, 302,676 are
currently exercisable, and 75,669 will become exercisable on July 17, 1997
and up to an additional 227,007 shares (the "Additional Shares") will
become exercisable on June 17, 2000. The vesting of NQSOs to purchase up to
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.
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 -- --
Charles D. Menatti 7,000 28,000 -- --
</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
1995 STOCK OPTION PLAN. On July 22, 1995, the Company adopted the Company's
1995 Stock Option Plan (as amended, the "1995 Stock Option Plan"). Under the
1995 Stock Option Plan, options to purchase an aggregate of 2,500,000 shares of
Common Stock may be granted from time to time to key employees, officers,
directors, advisors and independent consultants to the Company or to any of its
subsidiaries. Options granted to employees may be designated as incentive stock
options ("ISOs") or non-qualified stock options ("NQSOs"). Options granted to
directors, independent consultants and
58
<PAGE>
other non-employees may only be designated NQSOs. As of the date of this
Prospectus, options to purchase an aggregate of 1,537,232 shares have been
granted to employees of the Company under the 1995 Stock Option Plan.
The 1995 Stock Option Plan is administered by the Option Committee of the
Board of Directors. The Option Committee is generally empowered to interpret the
1995 Stock Option Plan, to prescribe rules and regulations relating thereto, to
determine the terms of the option agreements, to amend them with the consent of
the optionee, to determine the employees to whom options are to be granted, and
to determine the number of shares subject to each option and the exercise price
thereof. The per share exercise price of options granted under the 1995 Stock
Option Plan may not be less than 100.0% of the fair market value per share of
Common Stock on the date the options are granted (110.0% of such fair market
value if the grantee owns more than 10.0% of the combined voting power of all
classes of the Company's stock), provided that for the two years immediately
following the consummation of the Offerings, the option price may not be less
than the greater of the fair market value of the Common Stock on the grant date
or the initial public offering price established by the Common Stock Offering.
Options are exercisable for a term not greater than ten years from the date
of grant (five years from the date of grant of an ISO if the optionee owns more
than 10.0% of the Common Stock of the Company). Options (other than certain
NQSOs designated by the Option Committee or the Board of Directors, including
NQSOs granted to Mr. Comrie) may be exercised only while the original grantee
has a relationship with the Company which confers eligibility to be granted
options, within ninety days after the termination of such relationship with the
Company, or up to one year after death, retirement or permanent disability of
the optionee. In the event of termination for cause (as defined in the 1995
Stock Option Plan), all options granted to that original grantee terminate
immediately. Upon a Change of Control (as defined in the 1995 Stock Option Plan)
all outstanding options become immediately exercisable, without regard to any
vesting period, for the full term of the option. ISOs and NQSOs under the 1995
Stock Option Plan are not transferable other than by will or the laws of descent
and distribution. Options may be exercised during the grantee's lifetime only by
the grantee, his or her guardian or legal representative.
ISOs granted pursuant to the 1995 Stock Option Plan enjoy the attendant tax
benefits provided under Sections 421 and 422 of the Internal Revenue Code of
1986, as amended. Accordingly, the 1995 Stock Plan provides that the aggregate
fair market value (determined at the time an ISO is granted) of the Common Stock
subject to ISOs exercisable for the first time by an employee during any
calendar year (under all plans of the Company and its subsidiaries) may not
exceed $100,000.
The Board may modify, suspend or terminate the 1995 Stock Option Plan;
however, certain material modifications affecting the 1995 Stock Option Plan
must be approved by the stockholders, and any change in the 1995 Stock Option
Plan that may adversely affect a grantee's rights under an option previously
granted under the 1995 Stock Option Plan requires the consent of the grantee.
Mr. Comrie has been granted ISOs expiring June 17, 2002 to purchase 151,338
shares of Common Stock at a price of $0.5907 per share and NQSOs expiring on
various dates through June 17, 2005 to purchase 605,353 shares of Common Stock
at a price of $0.5907 per share. The ISOs will be fully vested on July 17, 1997.
Of the ISOs, 115,017 are currently exercisable, and 36,321 will become
exercisable on July 17, 1997. The NQSOs are subject to vesting over a five year
period. Of the NQSOs, 302,676 are currently exercisable, and 75,669 will become
exercisable on July 17, 1997 and up to an additional 227,007 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 March 26, 2001; however, the vesting of 100,000 of such
59
<PAGE>
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 1995 Stock
Option Plan) and upon other corporate changes described in the agreement
evidencing his options.
Messrs. Miller and Menatti have been granted ISOs expiring December 29, 2000
to purchase an aggregate of 85,000 shares of Common Stock at a price of $1.652
per share. The ISOs vest at a rate of 20.0% on each anniversary of the date of
grant.
Mr. Brown has been granted ISOs and NQSOs expiring February 15, 2001 to
purchase 25,380 and 9,620 shares of Common Stock, respectively at a price of
$3.94 per share. Both the ISOs and the NQSOs vest at a rate of 20.0% on each
anniversary of the date of grant.
THE DIRECTORS PLAN. On April 24, 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
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
Mr. Fotheringham has entered into a three-year employment agreement with the
Company 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 in 1996
is 1,596 equivalent DS-1 links. The goals for subsequent years will be
established each year based on the operating budget approved by the Board of
Directors. The agreement precludes Mr. Fotheringham from competing with the
Company for two years after the cessation of his employment, regardless of the
reason for such cessation.
Mr. Comrie has entered into a three-year employment agreement with the
Company 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 in 1996 is 1,596 equivalent
DS-1 links. The goals for subsequent years will be established each year 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
60
<PAGE>
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 in 1996 is 1,596 equivalent
DS-1 links. The goals for subsequent years will be established each year based
on the operating budget approved by the Board of Directors. The agreement
precludes Mr. Grina from competing with the Company for one year after the
cessation of his employment, regardless of the reason for such cessation. The
agreement may be terminated at any time by either party and provides that, if
the Company terminates Mr. Grina without cause or Mr. Grina's employment is
terminated due to his disability or death, Mr. Grina will be entitled to
continue to receive the full amount of his base salary and any other benefits to
which he would have otherwise been entitled for a period of six months from the
date of such termination. See "-- Stock Option Plans" regarding stock options
granted to Mr. Grina pursuant to his employment agreement.
The Company has also entered into employment agreements with Messrs. Brown,
Menatti and Miller, providing for full time employment at annual base salaries
equal to $125,000, $125,000 and $150,000, respectively. Each of the employment
agreements provides for the payment by the Company of annual bonuses in
designated amounts based upon the achievement of specified performance goals.
All of the agreements have a term of three years. Each agreement precludes the
executive employee 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 certain of the foregoing
executives pursuant to their respective employment agreements. Each employment
agreement may be terminated at any time by the Company or the executive and
provides that, if the Company terminates the executive's employment without
cause or such person's employment is terminated due to his disability or death,
such executive may continue to receive the full amount of their base salary and
any other benefits to which they would have otherwise been entitled for a period
of three months (six months, in the case of Mr. Miller) from the date of such
termination.
Mr. Pierson entered into a three-year consulting agreement with the Company
on July 17, 1995, providing 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 & Hanley Transactions."
61
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information, as of April 22, 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 that the Series A, B, C, D, E and F Preferred Stock have been
converted into Common Stock, the Merger has been completed and the Landover
Partnerships have been dissolved. Prior to the Merger, ART Corp. owns 10,013,055
shares of Common Stock, constituting 33.3% of the Company's outstanding voting
securities prior to the Common Stock Offering and 29.4% after the Common Stock
Offering; these shares will be cancelled on the earlier of (i) completion of the
Merger and (ii) May 13, 1997.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP PRIOR BENEFICIAL OWNERSHIP AFTER
TO OFFERINGS OFFERINGS
--------------------------- -------------------------------
NAME NUMBER PERCENT NUMBER PERCENT
- -------------------------------------------------------------- ------------- ------------ ----------------- ------------
<S> <C> <C> <C> <C>
Vernon L. Fotheringham (1)(2)................................. 3,545,074 11.8% 3,545,074 %
W. Theodore Pierson, Jr. (2)(3)............................... 2,455,401 8.2 2,455,401
High Sky Inc. (2)(4).......................................... 1,748,604 5.8 1,748,604
Landover Holdings Corporation (5)............................. 8,292,019 27.5 8,292,019
Advent International Corporation (6).......................... 3,186,238 10.5 3,186,238
Ameritech Development Corp. (7)............................... 1,677,745 5.4 1,677,745
Steven D. Comrie (8).......................................... 302,676 1.0 302,676 *
J.C. Demetree, Jr. (9)........................................ 1,136,538 3.8 1,136,538
Mark C. Demetree (10)......................................... 1,136,538 3.8 1,143,538(11)
Andrew I. Fillat (6).......................................... 3,186,238 10.5 3,193,238(11)
Matthew C. Gove (12).......................................... 441,753 1.5 441,753
Laurence S. Zimmerman (5)..................................... 8,292,019 27.5 8,292,019
I. Don Brown (13)............................................. 7,000 * 7,000 *
Thomas A. Grina (14).......................................... 100,000 * 100,000 *
Charles D. Menatti (13)....................................... 7,000 * 7,000 *
James D. Miller (15).......................................... 10,000 * 10,000 *
All executive officers and directors as a group 20,620,237 66.7% 10,777,927(16) %
(1)(3)(5)(6)(8)(9)(10)(12)(13)(14)(15).......................
</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 3,545,074 shares of Common Stock issuable upon completion of the
Merger. Also includes 104,273 shares of Common Stock subject to an option
owned by SERP. See "Certain Transactions -- SERP Agreement." Without giving
effect to the Merger, Mr. Fotheringham owns 120 shares of ART Corp. Common
Stock, constituting 35.3% of the outstanding Common Stock of ART Corp., and
no shares of the Company.
(2) Although Messrs. Fotheringham and Pierson and High Sky Inc. are directors,
officers or principal stockholders, as the case may be, of ART Corp., each
disclaims beneficial ownership of 10,013,055 shares of Common Stock held by
ART Corp. except to the extent of his or its respective percentage interest
in ART Corp.
(3) Includes 2,455,401 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." Without giving effect to the
Merger, Mr. Pierson owns 83 shares of ART Corp. Common Stock, constituting
24.4% of the outstanding Common Stock of ART Corp., and no shares of the
Company. Mr. Pierson's address is c/o Pierson, Burnett & Hanley, 1667 K.
Street, N.W., Washington, D.C. 20006.
(4) 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 1,398,878 and 349,726 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." Without giving effect to the Merger, High Sky owns 48
shares of ART Corp. Common Stock, constituting 14.1% of the outstanding
Common Stock of ART Corp., and no shares of the Company and High Sky II owns
12 shares of ART Corp. Common Stock, constituting 3.5% of the outstanding
Common Stock of ART Corp., and no shares of the Company. High Sky Inc.'s
address is c/o Frank S. Phillips Company, 6106 MacArthur Blvd., Bethesda,
Maryland 20816.
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(5) Includes 37,500 shares issuable upon exercise of Indemnity Warrants. Does
not include 294,487 shares, 1,375,699 shares, 5,276,440 shares and 95,719
shares 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 15,334,366 shares
of Common Stock constituting 50.9% of the Company's outstanding securities
prior to the Offerings. LHC is controlled by Laurence S. Zimmerman. Without
giving effect to the Merger, LHC owns 9 shares of ART Corp. Common Stock,
constituting 2.6% of the outstanding Common Stock of ART Corp., which will
convert into 276,831 shares of Common Stock issuable upon completion of the
Merger. LHC's address is 667 Madison Avenue, New York, New York 10021. See
"-- Voting Trust Agreement."
(6) Includes 2,882,659 shares, 141,050 shares and 3,029 shares issuable upon
conversion of Series E Preferred Stock 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.
(7) Includes 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."
(8) 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."
(9) Includes 81,250 shares issuable upon exercise of Indemnity Warrants. Does
not include 154,000 shares issuable upon exercise of Bridge Warrants or
4,221,152 shares held in each case by members of Mr. Demetree's family, 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) Includes 81,250 shares issuable upon exercise of Indemnity Warrants. Does
not include 154,000 shares issuable upon exercise of Bridge Warrants or
4,221,152 shares held in each case by members of Mr. Demetree's family, of
which he disclaims beneficial ownership. Mark C. Demetree's address is c/o
North American Salt Co., 8300 College Boulevard, Overland Park, Kansas
66210.
(11) Includes 7,000 shares issuable upon exercise of options anticipated to be
granted under the Directors Plan on the date of this Prospectus.
(12) Includes 441,753 shares 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.
(13) Includes 7,000 shares currently issuable upon exercise of an option.
(14) Includes 100,000 shares currently issuable upon exercise of an option.
(15) Includes 10,000 shares currently issuable upon exercise of an option.
(16) Reflects the anticipated resignations of Messrs. J.C. Demetree, Jr., Gove
and Zimmerman. Does not include 8,292,019 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, Andrew I. Fillat and
two unaffiliated directors issuable upon exercise of options to be granted
under the Directors Plan on the date of this Prospectus.
VOTING TRUST AGREEMENT
Pursuant to a proposed Voting Trust and Irrevocable Proxy Agreement,
effective on the date of this Prospectus, LHC will deposit all of its shares of
ART Common Stock in trust with certain directors of the Company, 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 later to occur
of December 31, 1999 and the payment in full in cash of the Notes, but is
subject to early termination in the event of (i) a business combination in which
the Notes are repaid in full in cash and ART stockholders own less than 50%, and
ART directors constitute less than 50% of the board of directors, of the
combined entity and LHC owns less than 5% of the voting power of such entity,
(ii) the death of Laurence S. Zimmerman or (iii) the sale by LHC of such shares
to unaffiliated parties. The trustees of the trust will be indemnified by the
Company.
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CERTAIN TRANSACTIONS
FORMATION OF ART CORP.
The Company's business was commenced in August 1993 by Vernon L.
Fotheringham and W. Theodore Pierson, Jr., who organized Advanced Radio
Technologies Corporation ("ART Corp.") 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 Corp. common stock in a private
placement which, net of certain subsequent transfers, currently constitute
shares of ART Corp. common stock equivalent to an aggregate of 6,000,475 shares
of Common Stock upon completion of the Merger.
HIGH SKY PRIVATE PLACEMENTS
In November 1993 and March 1994, ART Corp. raised $60,000 and $30,000
through the sale of its common stock (which, net of sales and acquisitions of
additional shares, upon completion of the Merger, will be converted into an
aggregate of 1,398,878 shares and 349,726 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 June 1994, ART Corp.
borrowed $70,000 from High Sky II. The loan was evidenced by a promissory note
executed by ART Corp. 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 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 ART Corp. common stock owned by
them. 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
Corp. and Extended. Mark T. Marinkovich, Vice President, Finance 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
Corp. issued to Extended shares of ART Corp. common stock, which, upon
completion of the Merger will be converted into 368,121 shares of Common Stock.
Of these 368,121 shares, 15,678 shares are subject to an option owned by
Southeast Research Partners. See "-- SERP Agreement."
ORGANIZATION OF THE COMPANY
ART Corp. and Landover Holdings Corporation ("LHC") organized Advanced Radio
Telecom Corp. ("ART" or the "Company") 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 the Company, respectively, which, after giving effect to
anti-dilution adjustments resulting from issuances of Preferred Stock as
described in "-- LHC Purchase Agreement" and the transactions described in "--
February 1996 Reorganization" and "-- Merger," currently are equivalent to
10,013,855 shares and 8,320,000, shares respectively, 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 the Company's Class A Common Stock which, after such
adjustments, transactions and the Merger, currently are equivalent to 441,753
shares and 147,251 shares of Common Stock of the Company, respectively. LHC is
controlled by Laurence S. Zimmerman. Hedgerow is controlled by Matthew C. Gove,
a director of the Company. Hedgerow and Toro are consultants to LHC.
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LHC PURCHASE AGREEMENT
GENERAL. Pursuant to a Purchase Agreement, dated April 21, 1995 (the "LHC
Purchase Agreement") among ART Corp., LHC and the Company, LHC, on behalf of
itself and its designees, agreed to purchase additional securities of the
Company (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 Corp. and the Company entered into the ART
Corp. Services Agreement with the Company. See "Business -- Proposed Merger."
Moreover, ART Corp. and its stockholders agreed with the Company and its
stockholders to enter into a revised stockholders agreement (the "May 1995
Stockholders Agreement"), a registration rights agreement and a merger
agreement.
Upon the first closing under the LHC Purchase Agreement, on May 8, 1995, the
Company 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 by
the Company. 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 (convertible into
466,349 shares of Common Stock). 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, the Company, ART Corp. and LHC agreed that the LHC Purchase Agreement was
substantially completed.
ART CORP. SERVICES AGREEMENT. Pursuant to the LHC Purchase Agreement, ART
Corp. and the Company entered into a Services Agreement, dated May 8, 1995 (the
"ART Corp. Services Agreement") pursuant to which, for a 20-year term, the
Company provides management services for, and receives 75.0% of the cash flow
from operations under wireless licenses held by ART Corp. See "Business --
Agreements Relating to Licenses and Authorizations -- ART Corp. Services
Agreement."
LANDOVER PARTNERSHIPS. Between May 8, 1995 and November 13, 1995, the LHC
Stock was diluted by purchases of series of Company 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 Preferred Stock matching other
investors under the LHC Purchase Agreement, purchased 405,880 shares of Series A
Preferred Stock (which convert into 5,276,440 shares of Common Stock upon
consummation of 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 Series B
Preferred Stock (which converts into 1,375,699 shares of Common Stock upon
consummation of the Offerings) for an aggregate of $842,000. E1 purchased 13,797
shares of Series A Preferred Stock (which converts into 179,361 shares of Common
Stock upon consummation of the Offerings) for an aggregate of $60,000 and 8,856
shares of Series B Preferred Stock (which converts into 115,128 shares of Common
Stock upon consummation of the Offerings) for an aggregate of $38,300. E2-3
purchased an aggregate of 7,363 shares of Series C Preferred Stock (which
converts into 95,719 shares of Common Stock upon consummation of the Offerings)
for an aggregate of $112,700. All of the Landover Partnerships will liquidate
upon effectiveness of the Merger. See "Principal Stockholders."
ADVENT PRIVATE PLACEMENT. On November 13, 1995, ART Corp. 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
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stated amount of ART Corp. 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 Corp., the Company, 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
Series E Preferred Stock of the Company (which convert into 3,026,738 shares of
Common Stock upon completion of the Offerings). The Series E Preferred Stock
provides, among other things, that the holders thereof have a right to designate
a director of 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 the Company 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 the
Company 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
consummation of the Offerings, 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 Corp., 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 Corp. Under the SERP
Agreement, SERP received options from the other parties to such agreement to
purchase, for an aggregate consideration of $210,000, 10.65 shares of ART Corp.
Common Stock (equivalent to 313,512 shares of Common Stock after giving effect
to the Merger) and $245,000 in cash as a fee for introducing LHC to ART Corp.
SERIES D PREFERRED STOCK ISSUANCE
On November 9, 1995, the Company sold 61,640 shares of Series D Preferred
Stock (which convert into 801,320 shares of Common Stock upon consummation of
the Offerings) for $2.0 million in a private placement. The Company
simultaneously redeemed 807,924 shares of Common Stock from LHC for $2.0
million. In connection with the February 1996 Reorganization described below,
LHC granted to the holders of Series D Preferred Stock a contingent option to
purchase 400,634 shares of 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, the Company, ART Corp. and their respective
stockholders agreed 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 the Company, including providing for the conversion of
Class A and Class B Common Stock of the Company into Common Stock, the revision
of the terms and conversion into Common Stock (upon consummation of the
Offerings) of the Series A, B, C, D, E and F Preferred Stock (collectively, the
"Preferred Stock") of the Company and a 13 for 1 stock split, (iii) the exchange
of the Advent/ART Securities for Series E Preferred Stock of the Company, (iv)
revision of provisions for
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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 Escrow Shares to the original owners
thereof, (vii) the change of name of the Company to Advanced Radio Telecom Corp.
and (viii) approval of a revised merger agreement (the "Merger Agreement")
providing for the merger of ART Corp. into the Company (the "Merger").
MERGER
On February 2, 1996, the Company and ART Corp. entered into the Merger
Agreement which provides for the Merger of ART Corp. into the Company. Upon
completion of the Merger, the stockholders of ART Corp. will receive 10,013,855
shares of Common Stock, and the 10,013,855 shares of Common Stock then held by
ART Corp. will be cancelled. The consummation of the Merger is contingent solely
on receipt of FCC approval therefor. See "Business -- Proposed Merger." The
Merger Agreement further provides that if the Merger is not approved by the FCC
by May 13, 1997, the shares of Common Stock owned by ART Corp. will be
surrendered to the Company for nominal consideration, and the ART Corp. Services
Agreement will be amended to provide that (i) the term thereof will be extended
to 40 years, (ii) ART Corp. will receive, in the event of any dividends paid by
the Company to its stockholders, an amount equal to the percentage share of the
Company on the date that the ART Corp. stockholders would have received in the
Merger of such aggregate dividends, (iii) ART Corp. would have a right of
co-sale, subject to FCC approval, in accordance with such percentage share in
the event of any merger or sale of substantial assets by the Company and (iv) in
the event the Company agrees to merge into another entity or to sell
substantially all its assets to another entity, ART Corp. 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 Corp. and the Company in such transaction.
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 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, the
Company 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 five-year warrant to purchase
877,136 shares of Common Stock of the Company exercisable at a price of $.001
per share (the "Ameritech Warrant"). On April 29, 1996, the Company entered into
the Ameritech Strategic Development Agreement. The Company has a call on the
Series F Preferred Stock and the Ameritech Warrant in the event Ameritech
terminates such agreement in the first two years of its term. See "Business --
Strategic Alliances -- Ameritech Strategic Distribution Agreement."
BRIDGE FINANCING
On March 8, 1996, the Company entered into a financing (the "Bridge
Financing") pursuant to which it issued $5.0 million of 10% notes due in 1998
(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 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 29, 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
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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 $624,305 due April 29,
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 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 & HANLEY TRANSACTIONS
W. Theodore Pierson, Jr., Executive Vice President and General Counsel of
the Company is a principal in the law firm of Pierson, Burnett & Hanley, which
regularly provided legal services to the Company and ART Corp. During the year
ended December 31, 1995, the Company paid Pierson, Burnett & Hanley $209,000 for
such services. The Company believes that the terms of its relationship with
Pierson, Burnett & Hanley are at least as favorable to the Company as could be
obtained from an unaffiliated party. See "Management -- Executive Compensation"
and "Principal Stockholders" for a description of Mr. Pierson's consulting
agreement with the Company and for information regarding his share ownership.
The Company subleases office space for its regional office in Washington, D.C.
from Pierson, Burnett & Hanley. 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 invest, subject to definitive documentation, $700,000
to $1.0 million for research and development. 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.
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DESCRIPTION OF UNITS
Each Unit offered hereby consists of $1,000 principal amount at maturity of
Notes and Warrants, each Warrant initially representing the right to
purchase shares of Common Stock. The Notes and the Warrants will not be
separable until the earliest to occur of (i) , 1996 and (ii) such
earlier date as may be determined by the Underwriters (the "Separation Date").
DESCRIPTION OF NOTES
The Notes will be issued under an Indenture (the "Indenture") between the
Company and , as trustee (the "Trustee"). A copy of the form of the
Indenture has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part. The following summary of certain provisions of the
Indenture does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act"), and to all of the provisions of the Indenture, including
the definitions of certain terms therein and those terms made a part of the
Indenture by reference to the Trust Indenture Act, as in effect on the date of
the Indenture. The definitions of certain terms used in the following summary
are set forth below under "-- Certain Definitions."
As of the date of the Indenture, all of the Company's Subsidiaries will be
Restricted Subsidiaries. However, under certain circumstances, the Company will
be able to designate future Subsidiaries as Unrestricted Subsidiaries.
Unrestricted Subsidiaries will not be subject to many of the restrictive
covenants set forth in the Indenture.
GENERAL
The Notes will be general unsecured obligations of the Company, will be
limited to $ million aggregate principal amount at maturity and will mature
on , 2006. The Notes are being issued at a discount from their
principal amount to generate aggregate gross proceeds of approximately $125.0
million. The Notes will accrete at a rate of % compounded semiannually, to an
aggregate principal amount of $ million by , 2001. Cash interest
will not accrue on the Notes prior to , 2001. Commencing
, 2001, cash interest on the Notes will be payable, at a rate of
% per annum, semi-annually in arrears on each and
(each, an "Interest Payment Date"), to the holders of record of Notes at the
close of business on the and immediately preceding such
Interest Payment Date. Cash interest on the Notes will accrue from the most
recent Interest Payment Date to which interest has been paid or duly provided
for, or, if no interest has been paid or duly provided for, , 2001.
Cash interest will be computed on the basis of a 360-day year of twelve 30-day
months. If, prior to , 2001, the Company defaults in any payment of
principal (including any accreted original issue discount), whether at maturity,
upon redemption or otherwise, if the payment of cash interest on the Notes is
then permitted by law, cash interest will accrue on the amount in default at the
rate of interest borne by the Notes on or after , 2001 and, if the
payment of such cash interest is not permitted by law, original issue discount
will continue to accrete at the rate then in effect. On or after ,
2001, interest on overdue principal and, to the extent permitted by law, on
overdue installments of interest will accrue at the rate of interest borne by
the Notes.
Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes will be exchangeable and transferable, at the office or agency of
the Company in The City of New York maintained for such purposes (which
initially will be the office of the Trustee); PROVIDED, HOWEVER, the payment of
interest may be made by check mailed to the address of the Person entitled
thereto as shown on the security register. The Notes will be issued only in
fully registered form without coupons and only in denominations of $1,000 and
any integral multiple thereof. No service charge will be made for any
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registration of transfer, exchange or redemption of Notes, but the Company may
require payment in certain circumstances of a sum sufficient to cover any tax or
other governmental charge that may be imposed in connection therewith.
REDEMPTION
OPTIONAL REDEMPTION
The Notes will be redeemable at the option of the Company, in whole or in
part, at any time on or after , 2001, upon not less than 30 nor more
than 60 days' notice, at the redemption prices (expressed as percentages of
principal amount at maturity) set forth below, plus accrued and unpaid interest,
if any, to the date of redemption, if redeemed during the 12- month period
beginning on of the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
-------------------------- ------------
<S> <C>
2001...................................................... %
2002...................................................... %
2003...................................................... %
2004 and thereafter....................................... 100.000%
</TABLE>
Notwithstanding the foregoing, in the event of a sale by the Company of its
Common Stock in one or more Equity Offerings or Investments by one or more
Strategic Equity Investors for an aggregate purchase price equal to or exceeding
$70.0 million, on or prior to , 1999, the Company may, at its
option, use all or a portion of the net proceeds thereof to redeem up to a
maximum of 33 1/3% of the initially outstanding aggregate principal amount at
maturity of the Notes at a redemption price equal to % of the Accreted Value
of the Notes (determined as of the redemption date); PROVIDED that not less than
66 2/3% of the initially outstanding aggregate principal amount at maturity of
the Notes remain outstanding following such redemption. Any such redemption must
be effected upon not less than 30 nor more than 60 days' notice given within 30
days after any such Equity Offering or sale to a Strategic Equity Investor
resulting in such gross proceeds, as the case may be.
MANDATORY REDEMPTION
The Company is not required to make any mandatory sinking fund payments in
respect of the Notes. However, (i) upon the occurrence of a Change in Control,
the Company is obligated to make an offer to purchase all outstanding Notes at a
price of (A) 101% of the Accreted Value thereof (determined at the date of
purchase), if such purchase is prior to , 2001, or (B) 101% of the
principal amount at maturity thereof, plus accrued interest thereon, if any, to
the date of purchase, if such purchase is on or after , 2001 and
(ii) the Company may be obligated to make an offer to purchase Notes with the
Net Cash Proceeds of certain Asset Sales at a price of (A) 101% of the Accreted
Value thereof (determined at the date of purchase), if such purchase is prior to
, 2001, or (B) 101% of the principal amount at maturity thereof,
plus accrued and unpaid interest, if any, to the date of purchase, if such
purchase is on or after , 2001. See "-- Certain Covenants -- Change
in Control" and "-- Disposition of Proceeds of Asset Sales."
SELECTION; EFFECT OF REDEMPTION NOTICE
In the case of a partial redemption, selection of the Notes for redemption
will be made PRO RATA, by lot or by such other method as the Trustee in its sole
discretion deems fair and appropriate or in such manner as complies with the
requirements of the principal national securities exchange, if any, on which the
Notes being redeemed are listed. Upon giving of a redemption notice, interest on
the Notes called for redemption will cease to accrue from and after the date
fixed for redemption (unless the Company defaults in providing the funds for
such redemption) and, upon redemption on such redemption date, such Notes will
cease to be outstanding.
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RANKING
The Indebtedness of the Company evidenced by the Notes will rank PARI PASSU
in right of payment with all existing and future senior Indebtedness of the
Company and senior in right of payment to all existing and future subordinated
Indebtedness of the Company. At December 31, 1995, on a pro forma basis after
giving effect to indebtedness incurred after December 31, 1995, the Offerings
and the application of the net proceeds therefrom, the aggregate principal
amount of senior Indebtedness of the Company (excluding trade payables, other
accrued liabilities and the Notes) was approximately $4.0 million, which
consisted of notes payable arising from the acquisition of the EMI Assets and
the Equipment Note.
CERTAIN COVENANTS
LIMITATION ON INDEBTEDNESS
The Indenture will provide that the Company will not, and will not permit
any of its Subsidiaries to, Incur any Indebtedness (including Acquired Debt);
PROVIDED that the Company may Incur Indebtedness (including Acquired Debt) if,
after giving effect to the Incurrence of such Indebtedness and the receipt and
application of the proceeds therefrom, the Indebtedness to EBITDA Ratio would be
greater than zero and less than 5 to 1.
The foregoing provisions will not apply to:
(i) Indebtedness of the Company outstanding at any time in an aggregate
principal amount not to exceed $100.0 million, less any amount of
Indebtedness permanently repaid as provided under the "Disposition of
Proceeds of Asset Sales" covenant described below;
(ii)Indebtedness of any of the Company's Restricted Subsidiaries owing to
the Company; PROVIDED, HOWEVER, that (A) any subsequent issuance or
transfer of Capital Stock that results in any such Indebtedness being held
by a Person other than the Company and (B) any sale or other transfer of any
such Indebtedness to a Person that is not the Company shall be deemed, in
each case, to constitute an Incurrence of such Indebtedness by the Company;
(iii)
Indebtedness issued in exchange for, or the net proceeds of which are
used to refinance or refund, then outstanding Indebtedness, other
than Indebtedness Incurred under clause (i), (ii), (v) or (vi) of this
paragraph, and any refinancings thereof in an amount not to exceed the
amount so refinanced or refunded (plus premiums, accrued interest, fees and
expenses); PROVIDED that Indebtedness the proceeds of which are used to
refinance or refund the Notes or Indebtedness that is PARI PASSU with, or
subordinated in right of payment to, the Notes shall only be permitted under
this clause (iii) if (A) in case the Notes are refinanced in part or the
Indebtedness to be refinanced is PARI PASSU with the Notes, such new
Indebtedness (by its terms or by the terms of any agreement or instrument
pursuant to which such new Indebtedness is outstanding) is PARI PASSU with,
or is expressly made subordinate in right of payment to, the remaining
Notes, (B) in case the Indebtedness to be refinanced is subordinated in
right of payment to the Notes, such new Indebtedness, by its terms or by the
terms of any agreement or instrument pursuant to which such new Indebtedness
is outstanding, is expressly made subordinate in right of payment to the
Notes at least to the extent that the Indebtedness to be refinanced is
subordinated to the Notes, and (C) such new Indebtedness, determined as of
the date of Incurrence of such new Indebtedness, does not have a Stated
Maturity prior to the Stated Maturity of the Indebtedness to be refinanced
or refunded, and the Average Life of such new Indebtedness is at least equal
to the remaining Average Life of the Indebtedness to be refinanced or
refunded; and PROVIDED FURTHER that in no event may Indebtedness of the
Company be refinanced by means of any Indebtedness of any Restricted
Subsidiary of the Company pursuant to this clause (iii);
(iv)Indebtedness (A) in respect of performance, surety or appeal bonds
provided in the ordinary course of business; and (B) arising from
agreements providing for indemnification, adjustment of purchase price or
similar obligations, or from Guarantees or letters of credit, surety
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bonds or performance bonds securing any obligations of the Company or any of
the Restricted Subsidiaries pursuant to such agreements, in any case
Incurred in connection with the disposition of any business, assets or
Restricted Subsidiary of the Company (other than Guarantees of Indebtedness
Incurred by any Person acquiring all or any portion of such business, assets
or Restricted Subsidiary of the Company for the purpose of financing such
acquisition), in a principal amount not to exceed the gross proceeds
actually received by the Company or any Restricted Subsidiary in connection
with such disposition;
(v) without duplication of clause (viii) hereof, Indebtedness of the
Company not to exceed, at any one time outstanding, two TIMES an
amount equal to (A) the aggregate net proceeds (which proceeds may consist
of cash, Capital Stock of an entity that as a result of such transaction
becomes a Restricted Subsidiary of the Company, or Telecommunications Assets
which in connection with such transaction become held by the Company or a
Restricted Subsidiary of the Company, and the value of which proceeds shall
be the fair market value thereof as determined in good faith by the Board,
which in all events shall deduct the face amount of any Indebtedness
associated with such Capital Stock or Telecommunications Assets in making
such determination) received by the Company from the issuance and sale of
its Capital Stock (other than Redeemable Stock and Preferred Stock that
provides for the payment of dividends in cash) MINUS (B) the fair market
value of any Directed Investments made with the proceeds of such issuances
or sales; PROVIDED that such Indebt-
edness (x) does not have a Stated Maturity prior to the Stated Maturity of
the Notes and has an Average Life longer than the Notes and (y) is unsecured
and is expressly subordinated in right of payment to the Notes;
(vi)Indebtedness to the extent such Indebtedness is secured by Liens
permitted under clause (xxiv) of the definition of "Permitted Liens;"
(vii)
Indebtedness of the Company, to the extent the proceeds thereof are
immediately used to purchase Notes tendered in an Offer to Purchase
made as a result of a Change in Control;
(viii)
without duplication of clause (v) hereof, Indebtedness of the Company
Incurred in connection with the acquisition of (A) 38 GHz licenses or
authorizations through auctions conducted by the FCC or (B) other licenses
or authorizations through other spectrum auctions conducted by the FCC with
respect to other frequencies approved for microwave point-to-point
transmissions, in an amount not to exceed, at any one time outstanding, the
greater of (1) $10.0 million and (2) the aggregate net proceeds received by
the Company from an offering of its Capital Stock (other than Redeemable
Stock and Preferred Stock that provides for the payment of dividends in
cash); PROVIDED that such Indebtedness (x) does not have a Stated Maturity
prior to the Stated Maturity of the Notes and has an Average Life longer
than the Notes and (y) is unsecured and is PARI PASSU in right of payment
with the Notes;
(ix)revolving credit Indebtedness of any Restricted Subsidiary Incurred
pursuant to a credit facility in an aggregate amount not to exceed,
at any one time outstanding, the greater of 62.5% and such greater
percentage permitted pursuant to such credit facility of the accounts
receivable net of reserves and allowances for doubtful accounts, determined
in accordance with GAAP, of such Restricted Subsidiary and its Restricted
Subsidiaries (without duplication); PROVIDED that such Indebtedness is not
Guaranteed by the Company or any of its other Restricted Subsidiaries;
(x) the Incurrence by the Company or any of its Restricted Subsidiaries
of Hedging Obligations that are Incurred for the purpose of fixing or
hedging interest rate risk with respect to any floating rate Indebtedness of
the Company or any Restricted Subsidiary, as the case may be, that is
permitted by the terms of the Indenture to be outstanding;
(xi)the Incurrence by the Company's Unrestricted Subsidiaries of
Non-Recourse Debt, PROVIDED, HOWEVER, that if any such Indebtedness
ceases to be Non-Recourse Debt of an Unrestricted Subsidiary, such event
shall be deemed to constitute an incurrence of Indebtedness by a Restricted
Subsidiary of the Company;
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(xii)
the Incurrence by Unrestricted Subsidiaries of Indebtedness to the
Company or any Restricted Subsidiary of the Company to the extent
permitted by the "Limitation on Restricted Payments" covenant;
(xiii)
Indebtedness of the Company existing on the Issue Date; and
(xiv)
Indebtedness of the Company represented by the Notes and the
Indenture.
For purposes of determining compliance with this "Limitation on
Indebtedness" covenant, in the event that an item of Indebtedness meets the
criteria of more than one of the types of Indebtedness described in the above
clauses, the Company, in its sole discretion, shall classify such item of
Indebtedness and only be required to include the amount and type of such
Indebtedness in one of such clauses.
The Company will not, and will not permit any Restricted Subsidiary to,
Incur any Guarantee of Indebtedness of any Unrestricted Subsidiary.
LIMITATION ON RESTRICTED PAYMENTS
The Indenture will provide that the Company will not, and will not permit
any Restricted Subsidiary to, directly or indirectly, (i) declare or pay any
dividend or make any distribution on its Capital Stock (other than dividends or
distributions payable solely in shares of its or such Restricted Subsidiary's
Capital Stock (other than Redeemable Stock) held by such holders or in options,
warrants or other rights to acquire such shares of Capital Stock) other than
such Capital Stock held by the Company or any of its Restricted Subsidiaries
(and other than pro rata dividends or distributions on Common Stock of
Restricted Subsidiaries), (ii) repurchase, redeem, retire or otherwise acquire
for value any shares of Capital Stock (including options, warrants or other
rights to acquire such shares of Capital Stock) of the Company (other than any
such Capital Stock held by the Company or any Wholly Owned Restricted Subsidiary
of the Company), (iii) make any voluntary or optional principal payment, or
voluntary or optional redemption, repurchase, defeasance, or other acquisition
or retirement for value, of Indebtedness of the Company that is subordinated in
right of payment to the Notes or (iv) make any Investment, other than a
Permitted Investment, in any Person (including any Affiliate of the Company)
(such payments or any other actions described in clauses (i) through (iv) being
collectively "Restricted Payments") if, at the time of, and after giving effect
to, the proposed Restricted Payment:
(A) a Default or Event of Default shall have occurred and be continuing;
(B) except with respect to any Investment (other than an Investment
consisting of the designation of a Restricted Subsidiary as an
Unrestricted Subsidiary), the Company could not Incur at least $1.00 of
Indebtedness under the first paragraph of the "Limitation on Indebtedness"
covenant; and
(C) the aggregate amount expended for all Restricted Payments (the amount
so expended, if other than in cash, to be determined in good faith by
the Board, whose determination shall be conclusive and evidenced by a
resolution of the Board) after the Issue Date shall exceed the sum of (1)
50% of the aggregate amount of the Adjusted Consolidated Net Income (or, if
the Adjusted Consolidated Net Income is a loss, MINUS 100% of such amount)
(determined by excluding income resulting from transfers of assets by the
Company or a Restricted Subsidiary to an Unrestricted Subsidiary) accrued on
a cumulative basis during the period (taken as one accounting period)
beginning on the first day of the fiscal quarter immediately following the
Issue Date and ending on the last day of the last fiscal quarter preceding
the date for which reports have been filed pursuant to the "Reports"
covenant, PLUS (2) the aggregate Net Cash Proceeds received by the Company
after the Issue Date from the issuance and sale permitted by the Indenture
of its Capital Stock (other than Redeemable Stock) to a Person who is not a
Subsidiary of the Company, or from the issuance to a Person who is not a
Subsidiary of the Company of any options, warrants or other rights to
acquire Capital Stock of the Company (in each case, exclusive of any
convertible Indebtedness, Redeemable Stock or any options, warrants or other
rights that are redeemable at the option of the holder, or are required to
be redeemed, prior to the Stated Maturity of the Notes), MINUS an amount
equal to the
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lesser of (x) 50% of the aggregate net cash proceeds from the issuance of
Capital Stock by the Company for the purpose of making Directed Investments
and (y) the actual amount of cash used to make such Directed Investments,
PLUS (3) an amount equal to the net reduction in Investments (other than
reductions in Permitted Investments) in any Person resulting from payments
of interest on Indebtedness, dividends, repayments of loans or advances, or
other transfers of assets, in each case to the Company or any Restricted
Subsidiary (except to the extent any such payment is included in the
calculation of Adjusted Consolidated Net Income), or from the redesignation
of Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each case
as provided in the definition of "Investments"), not to exceed the amount of
Investments previously made by the Company and its Restricted Subsidiaries
in such Person.
The foregoing provision shall not be violated by reason of:
(i) the payment of any dividend within 60 days after the date of
declaration thereof if, at said date of declaration, such payment
would comply with the foregoing paragraph;
(ii)the redemption, repurchase, defeasance or other acquisition or
retirement for value of Indebtedness that is subordinated in right of
payment to the Notes, including premium, if any, and accrued and unpaid
interest, with the proceeds of, or in exchange for, Indebtedness Incurred
under clause (iii) of the second paragraph of the "Limitation on
Indebtedness" covenant;
(iii)
the repurchase, redemption or other acquisition of Capital Stock of
the Company (or options, warrants or other rights to acquire such
Capital Stock) in exchange for, or out of the proceeds of a substantially
concurrent offering of, shares of Capital Stock or options, warrants or
other rights to acquire such Capital Stock (in each case other than
Redeemable Stock) of the Company;
(iv)the making of any principal payment or repurchase, redemption,
retirement, defeasance or other acquisition for value of Indebtedness
of the Company which is subordinated in right of payment to the Notes in
exchange for, or out of the proceeds of, a substantially concurrent offering
of, shares of the Capital Stock of the Company (other than Redeemable
Stock);
(v) payments or distributions, in the nature of satisfaction of
dissenters' rights, pursuant to or in connection with a
consolidation, merger or transfer of assets that complies with the
provisions of the Indenture applicable to mergers, consolidations and
transfers of all or substantially all of the property and assets of the
Company;
(vi)any purchase or acquisition from, or withholding on issuances to, any
employee of the Company's Capital Stock in order to satisfy any
applicable federal, state or local tax payments in respect of the receipt of
shares of the Company's Capital Stock;
(vii)
any purchase or acquisition from, or withholding on issuances to, any
employee of the Company's Capital Stock in order to pay the purchase
price of such Capital Stock or similar instrument pursuant to a stock
option, equity incentive or other employee benefit plan or agreement of the
Company or any of its Restricted Subsidiaries;
(viii)
the repurchase of shares of, or options to purchase shares of, the
Company's Capital Stock from employees of the Company in connection
with the termination of their employment; PROVIDED that (A) the aggregate
price paid for all such repurchased shares of Capital Stock made in any
twelve-month period shall not exceed $250,000 PLUS the aggregate cash
proceeds received by the Company during such twelve-month period from any
reissuance of such Capital Stock by the Company to employees of the Company
and its Restricted Subsidiaries and (B) no Default shall have occurred and
be continuing immediately after such transaction;
(ix)payments and distributions pursuant to any tax sharing agreement
between the Company and any other Person with which the Company files
a consolidated tax return or with which the Company is part of a
consolidated group, in each case, for federal income tax purposes; and
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(x) cash payments in lieu of the issuance of fractional shares of Common
Stock of the Company upon conversion of any class of Preferred Stock
of the Company;
PROVIDED that, except in the case of clauses (i) and (ii), no Default or Event
of Default shall have occurred and be continuing or occur as a consequence of
the actions or payments set forth herein. Any Investments made other than in
cash shall be valued, in good faith, by the Board.
Each Restricted Payment permitted pursuant to the preceding paragraph (other
than the Restricted Payment referred to in clause (ii) thereof) and the Net Cash
Proceeds from any issuance of Capital Stock referred to in clause (iii) or (iv)
shall be included in calculating whether the conditions of clause (C) of the
first paragraph of this "Limitation on Restricted Payments" covenant have been
met with respect to any subsequent Restricted Payments. In the event the
proceeds of an issuance of Capital Stock of the Company and used for the
redemption, repurchase or other acquisition of the Notes or Indebtedness that is
PARI PASSU with the Notes, then the Net Cash Proceeds of such issuance shall be
included in clause (C) of the first paragraph of this "Limitation on Restricted
Payments" covenant only to the extent such proceeds are not used for such
redemption, repurchase or other acquisition of Indebtedness.
The Board may designate any Restricted Subsidiary to be an Unrestricted
Subsidiary if such designation would not cause a Default; PROVIDED that in no
event shall the Telecommunications Assets of the business currently owned or
managed by the Company on the Issue Date be transferred to or held by an
Unrestricted Subsidiary. For purposes of making such determination, all
outstanding Investments by the Company and its Restricted Subsidiaries (except
to the extent repaid in cash) in the Subsidiary so designated will be deemed to
be Restricted Payments at the time of such designation and will reduce the
amount available for Restricted Payments under the first paragraph of this
covenant. All such outstanding Investments will be deemed to constitute
Investments in an amount valued in accordance with the definition of
"Investment." Such designation will only be permitted if such Restricted Payment
would be permitted at such time and if such Restricted Subsidiary otherwise
meets the definition of an Unrestricted Subsidiary.
LIMITATION ON LIENS SECURING CERTAIN INDEBTEDNESS
The Indenture will provide that the Company will not, and will not permit
any Subsidiary to, create, Incur, assume or suffer to exist any Lien, other than
Permitted Liens, on any of its assets or properties of any character, or any
shares of Capital Stock or Indebtedness of any Subsidiary, without making
effective provision for all of the Notes and all other amounts due under the
Indenture to be directly secured equally and ratably with (or, if the obligation
or liability to be secured by such Lien is subordinated in right of payment to
the Notes prior to) the obligation or liability secured by such Lien.
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES
The Indenture will provide that the Company will not, and will not permit
any Restricted Subsidiary to, create or otherwise cause or suffer to exist or
become effective any consensual encumbrance or restriction of any kind on the
ability of any Restricted Subsidiary to (i) pay dividends or make other
distributions permitted by applicable law on any Capital Stock of such
Restricted Subsidiary owned by the Company or any other Restricted Subsidiary,
(ii) pay any Indebtedness owed to the Company or any other Restricted Subsidiary
that owns, directly or indirectly, any Capital Stock of such Restricted
Subsidiary, (iii) make loans or advances to the Company or any other Restricted
Subsidiary that owns, directly or indirectly, any Capital Stock of such
Restricted Subsidiary or (iv) transfer any of its property or assets to the
Company or any other Restricted Subsidiary that owns, directly or indirectly,
any Capital Stock of such Restricted Subsidiary.
The foregoing provisions shall not prohibit any encumbrances or
restrictions:
(i) existing on the Issue Date in the Indenture or any other agreement in
effect on the Issue Date, and any extensions, refinancings, renewals
or replacements of such agreements; PROVIDED that
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the encumbrances and restrictions in any such extensions, refinancings,
renewals or replacements are no less favorable in any material respect to
the holders than those encumbrances or restrictions that are then in effect
and that are being extended, refinanced, renewed or replaced;
(ii)existing under or by reason of applicable law;
(iii)
existing with respect to any Person or the property or assets of such
Person acquired by the Company or any Restricted Subsidiary, at the
time of such acquisition and not Incurred in contemplation thereof, which
encumbrances or restrictions are not applicable to any Person or the
property or assets of any Person other than such Person or the property or
assets of such Person so acquired;
(iv)in the case of clause (iv) of the first paragraph of this "Limitation
on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries" covenant, (A) that restrict in a customary manner the
subletting, assignment or transfer of any property or asset that is a lease,
license, conveyance or contract or similar property or asset, (B) existing
by virtue of any transfer of, agreement to transfer, option or right with
respect to, or Lien on, any property or assets of the Company or any
Restricted Subsidiary, not otherwise prohibited by the Indenture or (C)
arising or agreed to in the ordinary course of business, not relating to any
Indebtedness, and that do not, individually or in the aggregate, detract
from the value of property or assets of the Company or any Restricted
Subsidiary in any manner material to the Company or any Restricted
Subsidiary; or
(v) with respect to a Restricted Subsidiary and imposed pursuant to an
agreement that has been entered into for the sale or disposition of
all or substantially all of the Capital Stock of, or property and assets of,
such Restricted Subsidiary.
Nothing contained in this "Limitation on Dividend and Other Payment
Restrictions Affecting Restricted Subsidiaries" covenant shall prevent the
Company or any Restricted Subsidiary from (a) creating, Incurring, assuming or
suffering to exist any Liens otherwise permitted in the "Limitation on Liens
Securing Certain Indebtedness" covenant or (b) restricting the sale or other
disposition of property or assets of the Company or any of its Restricted
Subsidiaries that secure Indebtedness of the Company or any of its Restricted
Subsidiaries.
LIMITATION ON TRANSACTIONS WITH AFFILIATES
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into or make any contract, agreement, understanding, loan,
advance or guarantee with, or any contract, agreement, understanding, loan,
advance or guarantee for the specific benefit of, any Affiliate (each of the
foregoing, an "Affiliate Transaction"), unless (i) such Affiliate Transaction is
on terms that are no less favorable to the Company or the relevant Restricted
Subsidiary than those that would have been obtained in a comparable transaction
by the Company or such Restricted Subsidiary with an unrelated Person and (ii)
the Company delivers to the Trustee (A) with respect to any Affiliate
Transaction involving aggregate consideration in excess of $1.0 million, a
resolution of the Board of Directors set forth in an Officers' Certificate
certifying that such Affiliate Transaction complies with clause (A) above and
that such Affiliate Transaction has been approved by a majority of the
disinterested members of the Board of Directors and (B) with respect to any
Affiliate Transaction involving aggregate consideration in excess of $5.0
million and (1) involving the incurrence of Indebtedness, a written opinion of a
nationally recognized investment banking or accounting firm experienced in the
review of similar types of transactions, (2) involving the transfer of real
property, fixed assets or equipment, either directly or by a transfer of 50% or
more of the Capital Stock of a Restricted Subsidiary which holds any such real
property, fixed assets or equipment, a written appraisal from a nationally
recognized appraiser experienced in the review of similar types of transactions
or (3) not otherwise described in (1) or (2) above, a written certification from
a nationally recognized professional experienced in evaluating similar types of
transactions, in each case, stating that the terms
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of such transaction are fair to the Company or such Restricted Subsidiary, as
the case may be, from a financial point of view; PROVIDED that the following
shall not be deemed to constitute Affiliate Transactions:
(i) the payment of reasonable fees to directors of the Company who are
not employees of the Company;
(ii)agreements and arrangements existing on the date hereof;
(iii)
any employment agreement entered into by the Company or any of its
Restricted Subsidiaries in the ordinary course of business of the
Company or such Restricted Subsidiary;
(iv)the adoption of employee benefit plans in the ordinary course of
business and payments and other transactions thereunder; PROVIDED
that any such adoption, payment or other transaction shall have been
approved by a majority of the disinterested members of the Board;
(v) transactions between or among the Company and/or its Wholly Owned
Restricted Subsidiaries;
(vi)any contract, agreement, understanding, loan, advance or guarantee
for the general benefit of the Company and its stockholders,
including stockholders that are Affiliates of the Company; and
(vii)
transactions permitted by the provisions of the Indenture described
above under the caption "-- Limitation on Restricted Payments."
LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF WHOLLY OWNED
RESTRICTED SUBSIDIARIES
The Indenture will provide that the Company will not sell, and will not
permit any Restricted Subsidiary, directly or indirectly, to issue or sell any
shares of Capital Stock of a Restricted Subsidiary (including options, warrants
or other rights to purchase shares of such Capital Stock) except (i) to the
Company or a Wholly Owned Restricted Subsidiary, (ii) issuances or sales to
foreign nationals of shares of Capital Stock of foreign Restricted Restricted
Subsidiaries, to the extent required by applicable law, (iii) if, immediately
after giving effect to such issuance or sale, such Restricted Subsidiary would
no longer constitute a Restricted Subsidiary or (iv) issuances or sales of
Common Stock of Restricted Subsidiaries, if within six months of each such
issuance or sale, the Company or such Restricted Subsidiary applies an amount
not less than the Net Cash Proceeds thereof (if any) in accordance with clause
(A) or (B) of the first paragraph of the "Disposition of Proceeds of Asset
Sales" covenant described below.
BUSINESS ACTIVITIES OF THE COMPANY
The Company will not, and will not permit any Restricted Subsidiary to,
engage in (i) any business other than the Telecommunications Business and such
business activities as are incidental or related thereto and (ii) any business,
activities or services in which the Company and its Restricted Subsidiaries were
engaged on the Issue Date.
CHANGE IN CONTROL
In the event of a Change in Control, the Company must commence and
consummate an Offer to Purchase for all the Notes then outstanding, at a
purchase price equal to (i) 101% of the Accreted Value thereof, in the case of
any such purchase prior to , 2001, or (ii) 101% of the principal
amount at maturity thereof, together with accrued and unpaid interest, if any,
to the date of purchase, in the case of any such purchase on or after
, 2001. Within 20 days following any Change in Control, the Company
will mail a notice to each holder describing the transaction or transactions
that constitute the Change in Control and offering to repurchase Notes pursuant
to the procedures required by the Indenture and described in such notice. The
Company will comply with the requirements of Rule 14e-1 under the Exchange Act
and any other securities laws and regulations thereunder to the extent
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such laws and regulations are applicable in connection with the repurchase of
the Notes as a result of a Change in Control. The Company will publicly announce
the results of the Offer to Purchase on or as soon as practicable after the
Change in Control payment date.
Except as described above with respect to a Change in Control, the Indenture
does not contain provisions that permit the holders of the Notes to require that
the Company repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar restructuring. There can be no assurance that the
Company will have sufficient funds available at the time of any Change in
Control to make any debt payment (including repurchases of Notes) required by
the foregoing covenant (as well as may be contained in other securities of the
Company which might be outstanding at the time).
DISPOSITION OF PROCEEDS OF ASSET SALES
The Indenture will provide that the Company will not, and will not permit
any Restricted Subsidiary to, consummate any Asset Sale, unless (a) the
consideration received by the Company or such Restricted Subsidiary is at least
equal to the fair market value of the assets sold or disposed of and (b) at
least 85% of the consideration received consists of cash or Temporary Cash
Investments, PROVIDED that any notes or other obligations received by the
Company or any such Restricted Subsidiary as consideration that are converted by
the Company or such Restricted Subsidiary into cash within 30 days of their
receipt (to the extent of the cash received), shall be deemed to be cash for
purposes of this provision. In the event and to the extent that the Net Cash
Proceeds received by the Company or its Restricted Subsidiaries from one or more
Asset Sales occurring on or after the Issue Date in any period of 12 consecutive
months exceed 10% of Adjusted Consolidated Net Tangible Assets (determined as of
the date closest to the commencement of such 12-month period for which a
consolidated balance sheet of the Company and its Restricted Subsidiaries has
been prepared), then the Company shall or shall cause the relevant Restricted
Subsidiary to (i) within six months after the date Net Cash Proceeds so received
exceed 10% of Adjusted Consolidated Net Tangible Assets (A) apply an amount
equal to such excess Net Cash Proceeds to permanently repay unsubordinated
Indebtedness of the Company or any of its Restricted Subsidiaries, or
Indebtedness of any Restricted Subsidiary, in each case owing to a Person other
than the Company or any of its Restricted Subsidiaries or (B) invest an equal
amount, or the amount not so applied pursuant to clause (A) (or enter into a
definitive agreement committing to so invest within six months after the date of
such agreement), in property or assets of a nature or type or that are used in a
business (or in a company having property and assets of a nature or type, or
engaged in a business) similar or related to the nature or type of the property
and assets of, or the business of, the Company and its Restricted Subsidiaries
existing on the date of such Investment (as determined in good faith by the
Board, whose determination shall be conclusive and evidenced by a resolution of
the Board and (ii) apply (no later than the end of the six-month period referred
to in clause (i)) such excess Net Cash Proceeds (to the extent not applied
pursuant to clause (i)) as provided in the following paragraph of this
"Disposition of Proceeds of Asset Sales" covenant. The amount of such excess Net
Cash Proceeds required to be applied (or to be committed to be applied) during
such six-month period as set forth in clause (i) of the preceding sentence and
not applied as so required by the end of such period shall constitute "Excess
Proceeds."
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Offer to Purchase pursuant to this
"Limitation on Asset Sales" covenant totals at least $5.0 million, the Company
must commence, not later than the fifteenth business day of such month, and
consummate an Offer to Purchase from the holders on a pro rata basis an
aggregate principal amount of Notes equal to the Excess Proceeds on such date,
at a purchase price equal to (i) 101% of the Accreted Value thereof (determined
at the date of purchase), if such purchase is prior to , 2001, or
(ii) 101% of the principal amount at maturity thereof, plus accrued and unpaid
interest, if any, to the date of purchase, if such purchase is on or after
, 2001.
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NO AMENDMENT TO AGREEMENT
The Indenture will provide that the Company will not amend, modify or alter
the Voting Trust Agreement without having obtained the consent of the holders of
not less than a majority in principal amount at maturity of the Notes then
outstanding.
REPORTS
The Indenture will provide that, whether or not required by the rules and
regulations of the Securities and Exchange Commission (the "Commission"), so
long as any Notes are outstanding, the Company will furnish to the Holders of
Notes (i) all quarterly and annual financial information that would be required
to be contained in a filing with the Commission on Forms 10-Q and 10-K if the
Company were required to file such Forms, including a "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and, with respect
to the annual information only, a report thereon by the Company's certified
independent accountants and (ii) all current reports that would be required to
be filed with the Commission on Form 8- K if the Company were required to file
such reports. In addition, whether or not required by the rules and regulations
of the Commission, the Company will file a copy of all such information and
reports with the Commission for public availability (unless the Commission will
not accept such a filing) and make such information available to securities
analysts and prospective investors upon request.
CONSOLIDATION, MERGER, SALE OF ASSETS, ETC.
The Indenture will provide that the Company shall not consolidate with,
merge with or into, or sell, convey, transfer, lease or otherwise dispose of all
or substantially all of its property and assets (as an entirety or substantially
an entirety in one transaction or a series of related transactions) to, any
Person (other than a consolidation or merger with or into a Wholly Owned
Restricted Subsidiary with a positive net worth; PROVIDED that, in connection
with any such merger or consolidation, no consideration (other than Common Stock
in the surviving Person, or the Company) shall be issued or distributed to the
stockholders of the Company) or permit any Person to merge with or into the
Company unless: (i) the Company shall be the continuing Person, or the Person
(if other than the Company) formed by such consolidation or into which the
Company is merged or that acquired or leased such property and assets of the
Company shall be a corporation organized and validly existing under the laws of
the United States of America or any jurisdiction thereof and shall expressly
assume, by a supplemental indenture, executed and delivered to the Trustee, all
of the obligations of the Company on all of the Notes and under the Indenture;
(ii) immediately after giving effect to such transaction, no Default or Event of
Default shall have occurred and be continuing; (iii) immediately after giving
effect to such transaction on a pro forma basis the Company, or any Person
becoming the successor obligor of the Notes could Incur at least $1.00 of
Indebtedness under the first paragraph of the "Limitation on Indebtedness"
covenant; PROVIDED that this clause (iii) shall not apply to (A) the merger of a
corporation, the sole material asset of which consists of Common Stock of the
Company (and options, warrants or other rights to purchase or acquire such
Common Stock), into the Company, if (a) the Chief Executive Officer of the
Company delivers to the Trustee a certificate, in the form attached to the
Indenture as Schedule I, to the effect that to his best knowledge there are no
liabilities, contingent or otherwise, of such corporation and (b) the only
consideration received by the stockholders of such corporation in connection
with such merger consists of Common Stock of the Company (and options, warrants
or other rights to purchase or acquire such Common Stock), in the aggregate in
an amount not to exceed the amount thereof held by such corporation immediately
prior to such merger or (B) any transaction or series of transactions effected
solely for the purpose of creating a parent corporation of which the Company
shall be a Wholly Owned Subsidiary and whose stockholders shall be substantially
identical to those of the Company immediately prior to such transaction; and
(iv) the Company delivers to the Trustee an Officers' Certificate (attaching the
arithmetic computations to demonstrate compliance with clause (iii)) and an
Opinion of Counsel, in each case stating that such consolidation, merger or
transfer and such supplemental indenture complies with this provision and that
all conditions precedent provided for herein relating to such transaction have
been complied with; PROVIDED, HOWEVER, that clause (iii) above does not
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apply if, in the good faith determination of the Board of the Company, whose
determination shall be evidenced by a resolution of the Board, the principal
purpose of such transaction is to change the state of incorporation of the
Company; and PROVIDED FURTHER that any such transaction shall not have as one of
its purposes the evasion of the foregoing limitations.
EVENTS OF DEFAULT AND REMEDIES
The following events are "Events of Default" under the Indenture:
(i) default in the payment of interest on the Notes when it becomes due
and payable, and continuance of such default for a period of 30 days
or more; or
(ii)default in the payment of principal of, or premium, if any, on the
Notes when due; or
(iii)
default in the performance, or breach, of any covenant described
under "Certain Covenants -- Limitation on Restricted Payments," "--
Limitation on Indebtedness," "-- Change in Control," "-- Disposition of
Proceeds of Asset Sales" and "Consolidation, Merger, Sale of Assets, Etc.";
or
(iv)default in the performance, or breach, of any covenant in the
Indenture (other than defaults specified in clause (i), (ii) or (iii)
above), and the continuance of such default or breach for a period of 30
days or more after written notice to the Company by the Trustee or to the
Company and the Trustee by the holders of at least 25% in aggregate
principal amount at maturity of the outstanding Notes (in each case, when
such notice is deemed received in accordance with the Indenture); or
(v) default under any mortgage, indenture or instrument under which there
may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is Guaranteed by the Company or any of
its Restricted Subsidiaries) whether such Indebtedness or Guarantee now
exists, or is created after the Issue Date, which default (A) is caused by a
failure to pay principal of or premium, if any, or interest on such
Indebtedness prior to the expiration of the grace period provided in such
Indebtedness on the date of such default (a "Payment Default") or (B)
results in the acceleration of such Indebtedness prior to its express
maturity and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness under
which there has been a Payment Default or the maturity of which has been so
accelerated, aggregates $5.0 million or more; or
(vi)any final judgment or order (not covered by insurance) for the
payment of money in excess of $5.0 million in the aggregate for all
such final judgments or orders against all such Persons (treating any
deductibles, self-insurance or retention as not so covered) shall be
rendered against the Company or any Significant Subsidiary and shall not be
paid or discharged, and there shall be any period of 60 consecutive days
following entry of the final judgment or order that causes the aggregate
amount for all such final judgments or orders outstanding and not paid or
discharged against all such Persons to exceed $5.0 million during which a
stay of enforcement of such final judgment or order, by reason of a pending
appeal or otherwise, shall not be in effect; or
(vii)
a court having jurisdiction in the premises enters a decree or order
for (A) relief in respect of the Company or any Significant
Subsidiary in an involuntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, (B) appointment
of a receiver, liquidator, assignee, custodian, trustee, sequestrator or
similar official of the Company or any Significant Subsidiary or for all or
substantially all of the property and assets of the Company or any
Significant Subsidiary; or (C) the winding up or liquidation of the affairs
of the Company or any Significant Subsidiary and, in each case, such decree
or order shall remain unstayed and in effect for a period of 60 consecutive
days; or
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(viii)
the Company or any Significant Subsidiary (A) commences a voluntary
case under any applicable bankruptcy, insolvency or other similar law
now or hereafter in effect, or consents to the entry of an order for relief
in an involuntary case under any such law, (B) consents to the appointment
of or taking possession by a receiver, liquidator, assignee, custodian,
trustee, sequestrator or similar official of the Company or any Significant
Subsidiary or for all or substantially all of the property and assets of the
Company or any Significant Subsidiary or (C) effects any general assignment
for the benefit of creditors; or
(ix)the holder of any Indebtedness of the Company or any of its
Restricted Subsidiaries aggregating at least $5.0 million in
principal amount that is secured by a Lien on assets of the Company or any
such Restricted Subsidiary (or any agent of such holder of such Indebtedness
or the Trustee or other representative then acting under any indenture or
other instrument under which such Indebtedness is outstanding) shall
commence any proceeding, or take any action (including, without limitation,
by way of set-off) to retain in satisfaction of such Indebtedness or to
collect on, seize, dispose of or apply in satisfaction of such Indebtedness,
assets of the Company or any of its Restricted Subsidiaries having a fair
market value in excess of $5.0 million individually or in the aggregate.
If any Event of Default (other than an Event of Default specified in clause
(vii) or (viii) above with respect to the Company) occurs and is continuing,
then the Trustee or the holders of at least 25% in principal amount at maturity
of outstanding Notes may, by written notice, and the Trustee upon the request of
the holders of not less than 25% in principal amount at maturity of the
outstanding Notes shall, declare the Default Amount of, and any accrued and
unpaid interest on, all outstanding Notes to be immediately due and payable and
upon any such declaration such amounts shall become immediately due and payable.
If an Event of Default specified in clause (vii) or (viii) above with respect to
the Company occurs and is continuing, then the Default Amount of, and any
accrued and unpaid interest on, all outstanding Notes shall IPSO FACTO become
and be immediately due and payable without any declaration or other act on the
part of the Trustee or any holder.
After a declaration of acceleration, the holders of a majority in aggregate
principal amount at maturity of outstanding Notes may, by notice to the Trustee,
rescind such declaration of acceleration if all existing Events of Default,
other than nonpayment of the Default Amount of, and any accrued and unpaid
interest on, the Notes that has become due solely as a result of such
acceleration, have been cured or waived and if the rescission of acceleration
would not conflict with any judgment or decree. The holders of a majority in
principal amount at maturity of the outstanding Notes also have the right to
waive past defaults under the Indenture, except a default in the payment of the
Default Amount of, or any interest on, any outstanding Note, or in respect of a
covenant or a provision that cannot be modified or amended without the consent
of all holders of Notes.
No holder of any of the Notes has any right to institute any proceeding with
respect to the Indenture or any remedy thereunder, unless the holders of at
least 25% in principal amount at maturity of the outstanding Notes have made
written request, and offered reasonable security or indemnity, to the Trustee to
institute such proceeding as Trustee, the Trustee has failed to institute such
proceeding within 60 days after receipt of such notice and the Trustee has not
within such 60-day period received directions inconsistent with such written
request by holders of a majority in principal amount at maturity of the
outstanding Notes. Such limitations do not apply, however, to a suit instituted
by a holder of a Note for the enforcement of the payment of the Default Amount
of, or any accrued and unpaid interest on, such Note on or after the respective
due dates expressed in such Note.
During the existence of an Event of Default, the Trustee is required to
exercise such rights and powers vested in it under the Indenture and use the
same degree of care and skill in its exercise thereof as a prudent Person would
exercise under the circumstances in the conduct of such Person's own affairs.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, if an Event of Default shall occur and be continuing, the Trustee is
not under any obligation to exercise any of its rights or powers under the
Indenture at the request or direction of any of the holders unless such holders
shall
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have offered to such Trustee reasonable security or indemnity. Subject to
certain provisions concerning the rights of the Trustee, the holders of a
majority in principal amount at maturity of the outstanding Notes have the right
to direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred on the
Trustee.
The Indenture provides that the Trustee will, within 45 days after the
occurrence of any Default, give to the holders of the Notes notice of such
Default known to it, unless such Default shall have been cured or waived;
PROVIDED that the Trustee shall be protected in withholding such notice if it
determines in good faith that the withholding of such notice is in the interest
of such holders.
The Company is required to furnish to the Trustee annually a statement as to
its compliance with all conditions and covenants under the Indenture.
DEFEASANCE
The Company may at any time terminate all of its obligations with respect to
the Notes ("defeasance"), except for certain obligations, including those
regarding any trust established for a defeasance and obligations to register the
transfer or exchange of the Notes, to replace mutilated, destroyed, lost or
stolen Notes as required by the Indenture and to maintain agencies in respect of
the Notes. The Company may at any time terminate its obligations under certain
covenants set forth in the Indenture, some of which are described under "Certain
Covenants" above, and any omission to comply with such obligations shall not
constitute a Default with respect to the Notes ("covenant defeasance"). To
exercise either defeasance or covenant defeasance, the Company must irrevocably
deposit in trust, for the benefit of the holders of the Notes, with the Trustee
money (in United States dollars) or U.S. government obligations (denominated in
United States dollars), or a combination thereof, in such amounts as will be
sufficient to pay the principal of, premium, if any, and interest on the
outstanding Notes to redemption or maturity and comply with certain other
conditions, including the delivery of a legal opinion as to certain tax matters.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of Notes)
as to all outstanding Notes when either (a) all such Notes theretofore
authenticated and delivered (except lost, stolen or destroyed Notes that have
been replaced or paid and Notes for whose payment money has theretofore been
deposited in trust or segregated and held in trust by the Company and thereafter
repaid to the Company or discharged from such trust) have been delivered to the
Trustee for cancellation; or (b)(i) all such Notes not theretofore delivered to
the Trustee for cancellation have become due and payable by their terms or shall
have been called for redemption and the Company has irrevocably deposited or
caused to be deposited with the Trustee as trust funds in trust for the purpose
an amount of money sufficient to pay and discharge the entire Indebtedness on
the Notes not theretofore delivered to the Trustee for cancellation or
redemption, for the principal amount, premium, if any, and accrued interest to
the date of such deposit; (ii) the Company has paid all other sums payable by it
under the Indenture; and (iii) the Company has delivered irrevocable
instructions to the Trustee to apply the deposited money toward the payment of
the Notes at maturity or on the redemption date, as the case amy be. In
addition, the Company must deliver an Officers' Certificate and an Opinion of
Counsel stating that all conditions precedent to satisfaction and discharge have
been complied with.
AMENDMENTS AND WAIVERS
From time to time the Company, when authorized by resolutions of its Board,
and the Trustee, without the consent of the holders of the Notes, may amend,
waive or supplement the Indenture or the Notes for certain specified purposes,
including, among other things, curing ambiguities, defects or inconsistencies,
maintaining the qualification of the Indenture under the Trust Indenture Act or
making any change that does not adversely affect the rights of any holder. Other
amendments and modifications of the Indenture and the Notes may be made by the
Company and the Trustee with the
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consent of the holders of not less than a majority of the aggregate principal
amount at maturity of the outstanding Notes (including consents obtained in
connection with a tender offer or exchange offer for Notes); PROVIDED that no
such modification or amendment may, without the consent of the holder of each
outstanding Note affected thereby, (i) reduce the principal amount at maturity
of, extend the fixed maturity of, or alter the redemption provisions of, the
Notes or amend or modify the calculation of the Accreted Value or the Default
Amount so as to reduce the amount of the Accreted Value or the Default Amount,
(ii) change the currency in which any Notes or any premium or the accrued
interest thereon is payable, (iii) reduce the percentage in principal amount at
maturity outstanding of Notes who must consent to an amendment, supplement or
waiver or consent to take any action under the Indenture or the Notes, (iv)
impair the right to institute suit for the enforcement of any payment on or with
respect to the Notes, (v) waive a default in payment with respect to the Notes,
(vi) reduce the rate or extend the time for payment of interest on the Notes or
(vii) adversely affect the ranking of the Notes in a manner adverse to the
holder of the Notes.
In addition, without the consent of at least 66 2/3% in principal amount at
maturity of the Notes then outstanding (including consents obtained in
connection with a tender offer or exchange offer for Notes), no amendment to the
Indenture may make any change in, and no waiver may be made with respect to any
Default in the performance of, the provisions described above under the captions
"Change in Control" and "Disposition of Proceeds of Asset Sales."
CONCERNING THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in the Indenture. If an Event of Default has occurred and is continuing, the
Trustee will exercise such rights and powers vested in it under the Indenture
and use the same degree of care and skill in its exercise as a prudent Person
would exercise under the circumstances in the conduct of such Person's own
affairs.
The Indenture and the provisions of the Trust Indenture Act incorporated by
reference therein contain certain limitations on the rights of the Trustee
thereunder, should it become a creditor of the Company, to obtain payment of
claims in certain cases, or to realize on certain property received by it in
respect of any such claims, as security or otherwise. The Trustee is permitted
to engage in other transactions; PROVIDED, HOWEVER, that if it acquires any
conflicting interest it must eliminate such conflict or resign.
GOVERNING LAW
The Indenture and the Notes will be governed by, and construed in accordance
with, the laws of the State of New York without giving effect to the principals
of conflicts of law thereof.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for any other capitalized terms used herein for which
no definition is provided.
"ACCRETED VALUE" as of any Specified Date, means with respect to each $1,000
principal amount at maturity of Notes:
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(i) if the Specified Date occurs on one of the following dates (each, a
"Semi-Annual Accrual Date"), the amount set forth below opposite such
date:
<TABLE>
<CAPTION>
SEMI-ANNUAL ACCRUAL DATE ACCRETED VALUE
- --------------------------------------------------------------- --------------
<S> <C>
, 1996......................................... $
, 1997.........................................
, 1997.........................................
, 1998.........................................
, 1998.........................................
, 1999.........................................
, 1999.........................................
, 2000.........................................
, 2000.........................................
, 2001.........................................
, 2001......................................... $ 1,000.00
</TABLE>
(ii)if the Specified Date occurs before the first Semi-Annual Accrual
Date, the sum of (A) the original issue price and (B) an amount equal
to the product of (1) the Accreted Value for the first Semi-Annual Accrual
Date less the original issue price (2) a fraction, the numerator of which is
the number of days from the issue date of the Notes to the Specified Date,
using a 360-day year of twelve 30-day months, and the denominator of which
is the number of days elapsed from the issue date of the Notes to the first
Semi- Annual Accrual Date, using a 360-day year of twelve 30-day months;
(iii)
if the Specified Date occurs between two Semi-Annual Accrual Dates,
the sum of (A) the Accreted Value for the Semi-Annual Accrual Date
immediately preceding the Specified Date and (B) an amount equal to the
product of (1) the Accreted Value for the immediately following Semi-Annual
Accrual Date less the Accreted Value for the immediately preceding
Semi-Annual Accrual Date (2) a fraction, the numerator of which is the
number of days from the immediately preceding Semi-Annual Accrual Date to
the Specified Date, using 360-day year of twelve 30-day months, and the
denominator of which is 180; or
(iv)if the Specified Date occurs after the last Semi- Annual Accrual
Date, $1,000.
"ACQUIRED DEBT" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"ADJUSTED CONSOLIDATED NET INCOME" means, for any period, the aggregate net
income (or loss) of the Company and its Restricted Subsidiaries for such period
determined in conformity with GAAP; PROVIDED that the following items shall be
excluded in computing Adjusted Consolidated Net Income (without duplication):
(i) the net income of any Person (other than net income attributable to a
Restricted Subsidiary) in which any Person (other than the Company or any of its
Restricted Subsidiaries) has a joint interest and the net income of any
Unrestricted Subsidiary, except to the extent of the amount of dividends or
other distributions actually paid to the Company or any of its Restricted
Subsidiaries by such other Person (including, without limitation, an
Unrestricted Subsidiary) during such period; (ii) solely for the purposes of
calculating the amount of Restricted Payments that may be made pursuant to
clause (C) of the first paragraph of the "Limitation on Restricted Payments"
covenant described above (and in such case, except to the extent includable
pursuant to clause (i) above), the net income (or loss) of any Person accrued
prior to the date it becomes a Restricted Subsidiary or is merged into or
consolidated with the Company or any of its Restricted Subsidiaries or all or
substantially all of the property and assets of such Person are acquired by the
Company or any of its Restricted Subsidiaries; (iii) the net income of any
Restricted Subsidiary to the extent that the declaration or payment of dividends
or similar distributions by such Restricted Subsidiary of such net income is not
at the time permitted by the operation of
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the terms of its charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to such Restricted
Subsidiary; (iv) any gains or losses (on an after-tax basis) attributable to
Asset Sales; (v) except for purposes of calculating the amount of Restricted
Payments that may be made pursuant to clause (C) of the first paragraph of the
"Limitation on Restricted Payments" covenant described above, any amount paid
as, or accrued for, cash dividends on Preferred Stock of the Company or any
Restricted Subsidiary owned by Persons other than the Company and any of its
Restricted Subsidiaries; and (vi) all extraordinary or nonrecurring gains and
losses.
"ADJUSTED CONSOLIDATED NET TANGIBLE ASSETS" means the total amount of assets
of the Company and its Restricted Subsidiaries (less applicable depreciation,
amortization and other valuation reserves), except to the extent resulting from
write-ups of capital assets (excluding write-ups in connection with accounting
for acquisitions in conformity with GAAP), after deducting therefrom (i) all
current liabilities of the Company and its Restricted Subsidiaries (excluding
intercompany items) and (ii) all goodwill, trade names, trademarks, patents,
unamortized debt discount and expense and other like intangibles (other than
licenses issued by the FCC), all as set forth on the quarterly or annual
consolidated balance sheet of the Company and its Restricted Subsidiaries,
prepared in conformity with GAAP and most recently filed with the Commission
pursuant to the "Reports" covenant; PROVIDED that the value of any licenses
issued by the FCC shall, in the event of an auction for similar licenses, be
equal to the fair market value ascribed thereto in good faith by the Board and
evidenced by a resolution of the Board. As used in the Indenture, references to
financial statements of the Company and its Restricted Subsidiaries shall be
adjusted to exclude Unrestricted Subsidiaries if the context requires.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; PROVIDED that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control. For purposes of the Indenture, the term "Affiliate"
shall at all times include Laurence S. Zimmerman, Landover Holdings Corporation
and their respective Affiliates.
"ART WEST" means ART West Joint Venture, a Delaware partnership equally
owned by the Company and Extended Communications, Inc.
"ASSET ACQUISITION" means (i) an Investment by the Company or any of its
Restricted Subsidiaries in any other Person pursuant to which such Person shall
become a Restricted Subsidiary of the Company or shall be merged into or
consolidated with the Company or any of its Restricted Subsidiaries or (ii) an
acquisition by the Company or any of its Restricted Subsidiaries of the property
and assets of any Person other than the Company or any of its Restricted
Subsidiaries that constitute substantially all of a division or line of business
of such Person.
"ASSET SALE" means any sale, transfer or other disposition (including by way
of merger, consolidation or sale-leaseback transaction) in one transaction or a
series of related transactions by the Company or any of its Restricted
Subsidiaries to any Person other than the Company or any of its Restricted
Subsidiaries of (i) all or any of the Capital Stock of any Restricted
Subsidiary, (ii) all or substantially all of the property and assets of an
operating unit or business of the Company or any of its Restricted Subsidiaries
or (iii) any other property or assets of the Company or any of its Restricted
Subsidiaries (including Capital Stock of any Unrestricted Subsidiaries) outside
the ordinary course of business of the Company or such Restricted Subsidiary;
PROVIDED that the following shall not be included within the meaning of "Asset
Sale": (A) sales or other dispositions of inventory, receivables and other
current assets; (B) sales or other dispositions of equipment that has become
worn out, obsolete or damaged or otherwise unsuitable for use in connection with
the business of the Company or its Restricted Subsidiaries; (C) Permitted Asset
Swaps; (D) sales, transfers or other dispositions otherwise constituting Asset
Sales in an aggregate amount not to exceed $500,000 during the relevant
twelve-month period referred
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to in the "Disposition of Proceeds of Asset Sales" covenant; (E) any Restricted
Payment permitted by the "Limitation on Restricted Payments" covenant; (F) any
Lien permitted to be Incurred by the "Limitation on Liens Securing Certain
Indebtedness" covenant; (G) any transaction that is governed by the provisions
of the "Consolidation, Merger, Sale of Assets, Etc." covenant; and (H) any sale,
transfer or other disposition of the Capital Stock of an Unrestricted
Subsidiary.
"AVERAGE LIFE" means, at any date of determination with respect to any debt
security, the quotient obtained by dividing (i) the sum of the products of (A)
the number of years from such date of determination to the dates of each
successive scheduled principal payment of such debt security and (B) the amount
such principal payment by (ii) the sum of all such principal payments.
"BOARD" means the Board of the Company.
"CAPITAL STOCK" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
"CAPITALIZED LEASE" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) of which the discounted present value
of the rental obligations of such Person as lessee, in conformity with GAAP, is
required to be capitalized on the balance sheet of such Person; and "Capitalized
Lease Obligations" means the discounted present value of the rental obligations
under such lease.
"CHANGE IN CONTROL" means such time as (i) a "person" or "group" (within the
meaning of Sections 13(d) and 14(d)(2) of the Exchange Act) becomes the ultimate
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of Voting
Stock representing more than 50% of the total voting power of the Voting Stock
of the Company on a fully diluted basis, (ii) individuals who on the Issue Date
constitute the Board (together with any new directors whose election by the
Board or whose nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds of the members of the Board then in
office who either were members of the Board on the Issue Date or whose election
or nomination for election was previously so approved) cease for any reason to
constitute a majority of the members of the Board then in office and (iii) the
merger or consolidation of the Company with or into another corporation, or the
merger or consolidation of another corporation with and into the Company, with
the effect that, immediately after such transaction, the stockholders of the
Company immediately prior to such transaction hold less than 50% of the total
voting power of all securities generally entitled to vote for the election of
directors, managers or trustees of the Person surviving such merger or
consolidation.
"COMMON STOCK" means the common stock, par value $.001 per share, of the
Company.
"CONSOLIDATED EBITDA" means, for any period, the sum of the amounts for such
period of (i) Adjusted Consolidated Net Income, (ii) Consolidated Interest
Expense, to the extent such amount was deducted in calculating Adjusted
Consolidated Net Income, (iii) income taxes, to the extent such amount was
deducted in calculating Adjusted Consolidated Net Income (other than income
taxes (either positive or negative) attributable to extraordinary and
non-recurring gains or losses or sales of assets), (iv) depreciation expense, to
the extent such amount was deducted in calculating Adjusted Consolidated Net
Income, (v) amortization expense, to the extent such amount was deducted in
calculating Adjusted Consolidated Net Income, (vi) all other non-cash items
reducing Adjusted Consolidated Net Income (other than items that will require
cash payments and for which an accrual or reserve is, or is required by GAAP to
be, made), less all non-cash items increasing Adjusted Consolidated Net Income
and (vii) all cash dividend payments (and non-cash dividend payments in the case
of a Person that is a Restricted Subsidiary) on any series of preferred stock of
such Person, all as determined on a consolidated basis for the Company and its
Restricted Subsidiaries in conformity with GAAP; PROVIDED that, if any
Restricted Subsidiary is not a Wholly Owned Restricted Subsidiary, Consolidated
EBITDA
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shall be reduced (to the extent not otherwise reduced in accordance with GAAP)
by an amount equal to (A) the amount of the Adjusted Consolidated Net Income
attributable to such Restricted Subsidiary multiplied by (B) the quotient of (1)
the number of shares of outstanding Common Stock of such Restricted Subsidiary
not owned on the last day of such period by the Company or any of its Restricted
Subsidiaries divided by (2) the total number of shares of outstanding Common
Stock of such Restricted Subsidiary on the last day of such period.
Notwithstanding the foregoing, the provision for taxes based on the income or
profits of, and the depreciation and amortization and other non-cash charges of,
a Restricted Subsidiary of a Person shall be added to Adjusted Consolidated Net
Income to compute Consolidated EBITDA only to the extent (and in the same
proportion) that the net income of such Restricted Subsidiary was included in
calculating the Adjusted Consolidated Net Income of such Person and only if a
corresponding amount would be permitted at the date of determination to be
dividended to the Company by such Restricted Subsidiary without prior approval
(that has not been obtained), pursuant to the terms of its charter and all
agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to that Restricted Subsidiary or its
stockholders.
"CONSOLIDATED INTEREST EXPENSE" means, for any period, the aggregate amount
of interest in respect of Indebtedness (including amortization of original issue
discount on any Indebtedness and the interest portion of any deferred payment
obligation, calculated in accordance with the effective interest method of
accounting; all commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing and net payments
(if any) pursuant to Hedging Obligations; and Indebtedness that is Guaranteed or
secured by the Company or any of its Restricted Subsidiaries) and all but the
principal component of rentals in respect of Capitalized Lease Obligations paid,
accrued or scheduled to be paid or to be accrued by the Company and its
Restricted Subsidiaries during such period; EXCLUDING, HOWEVER, (i) any amount
of such interest of any Restricted Subsidiary if the net income of such
Restricted Subsidiary is excluded from the calculation of Adjusted Consolidated
Net Income pursuant to clause (iii) of the definition thereof (but only in the
same proportion as the net income of such Restricted Subsidiary is excluded from
the calculation of Adjusted Consolidated Note Income pursuant to clause (iii) of
the definition thereof) and (ii) any premiums, fees and expenses (and any
amortization thereof) payable in connection with the offering of the Notes, all
as determined on a consolidated basis (without taking into account Unrestricted
Subsidiaries) in conformity with GAAP.
"DEFAULT" means any event that is, or with the passage of time or the giving
of notice or both would be, an Event of Default.
"DEFAULT AMOUNT" means (i) as of any date prior to , 2001, the
Accreted Value of the Notes (plus any applicable premium thereon) as of such
date and (ii) as of any date on or after , 2001, 100% of the
principal amount at maturity of the Notes (plus any applicable premium thereon).
"DIRECTED INVESTMENT" means any Investment in a Telecommunications Business
that is made by investing the net proceeds of the issuance of Capital Stock
(other than Redeemable Stock) by the Company (or options, warrants or other
rights to purchase such Capital Stock) after the Issue Date; PROVIDED that such
Investment shall be made with such net proceeds in the form received by the
Company and shall be limited to an amount equal to (A) 50% of such net proceeds
to the extent that such net proceeds consist of cash, and (B) 100% of such net
proceeds to the extent such net proceeds consist of Capital Stock; PROVIDED
FURTHER that such Investment is made within 90 days of such issuance of Capital
Stock.
"EQUITY OFFERING" means an underwritten public offering or flotation of
Common Stock of the Company which has been registered under the Securities Act
and/or admitted to listing on a national securities exchange.
"FAIR MARKET VALUE" means the price that would be paid in an arm's length
transaction between an informed and willing seller under no compulsion to sell
and an informed and willing buyer under no compulsion to buy, as determined in
good faith by the Board (whose determination shall be conclusive) and evidenced
by a resolution of the Board.
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"FCC" means the United States Federal Communications Commission and any
state or local telecommunications authority, department, commission or agency
(and any successors thereto).
"GAAP" means generally accepted accounting principles in the United States
of America as in effect from time to time, including, without limitation, those
set forth in the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession. All ratios and computations contained in the Indenture
shall be computed in conformity with GAAP applied on a consistent basis, except
that calculations made for purposes of determining compliance with the terms of
the covenants and with other provisions of the Indenture shall be made without
giving effect to (i) the amortization of any expenses incurred in connection
with the offering of the Notes and (ii) except as otherwise provided, the
amortization of any amounts required or permitted by Accounting Principles Board
Opinion Nos. 16 and 17.
"GUARANTEE" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness or other obligation of any
other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness or other obligation of such other Person (whether arising by virtue
of partnership arrangements, or by agreements to keep-well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (ii) entered into for purposes of assuring
in any other manner the obligee of such Indebtedness or other obligation of the
payment thereof or to protect such obligee against loss in respect thereof (in
whole or in part); PROVIDED that the term "Guarantee" shall not include
endorsements for collection or deposit in the ordinary course of business. The
term "Guarantee" used as a verb has a corresponding meaning.
"HEDGING OBLIGATIONS" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates.
"INCUR" means, with respect to any Indebtedness, to incur, create, issue,
assume, Guarantee or otherwise become liable for or with respect to, or become
responsible for, the payment of, contingently or otherwise, such Indebtedness,
including, with respect to the Company and its Restricted Subsidiaries, an
"incurrence" of Indebtedness by reason of a Person becoming a Restricted
Subsidiary of the Company; PROVIDED that neither the accrual of interest nor the
accretion of original issue discount shall be considered an Incurrence of
Indebtedness.
"INDEBTEDNESS" means, with respect to any Person at any date of
determination (without duplication), (i) all indebtedness of such person for
borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments (whether negotiable or
non-negotiable), (iii) all obligations of such Person in respect of letters of
credit or other similar instruments (including reimbursement obligations with
respect thereto), (iv) all obligations of such Person to pay the deferred and
unpaid purchase price of property or services, which purchase price is due more
than six months after the date of placing such property in service or taking
delivery and title thereto or the completion of such services, except trade
payables and escrows, holdbacks and comparable arrangements to secure
indemnification obligations under acquisition agreements, (v) all obligations of
such Person as lessee under Capitalized Leases, (vi) all indebtedness of other
Persons secured by a Lien on any asset of such Person, whether or not such
indebtedness is assumed by such Person; PROVIDED that the amount of such
indebtedness shall be the lesser of (A) the fair market value of such asset at
such date of determination and (B) the amount of such indebtedness, (vii) the
balance deferred and unpaid of the purchase price of any property or
representing any Hedging Obligations, except any such balance that constitutes
an accrued expense or trade payable, and (viii) all indebtedness of other
Persons Guaranteed by such Person to the extent such indebtedness is Guaranteed
by such Person. The amount of Indebtedness of any Person at
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any date shall be the outstanding balance at such date of all unconditional
obligations as described above and, with respect to contingent obligations that
are included in any of clauses (i) through (viii) above, the maximum liability
upon the occurrence of the contingency giving rise to the obligation, PROVIDED
(A) that the amount outstanding at any time of any Indebtedness issued with
original issue discount is the face amount of such Indebtedness and (B) that
Indebtedness shall not include any liability for federal, state, local or other
taxes.
"INDEBTEDNESS TO EBITDA RATIO" means, as at any date of determination, the
ratio of (i) the aggregate amount of Indebtedness of the Company and its
Restricted Subsidiaries on a consolidated basis ("Consolidated Indebtedness") as
at the date of determination (the "Transaction Date") to (ii) the Consolidated
EBITDA of the Company for the then most recent four full fiscal quarters for
which reports have been filed pursuant to the "Reports" covenant described above
(such four full fiscal quarter period being referred to herein as the "Four
Quarter Period"); PROVIDED that (x) pro forma effect shall be given to any
Indebtedness Incurred from the beginning of the Four Quarter Period through the
Transaction Date (including any Indebtedness Incurred on the Transaction Date),
to the extent outstanding on the Transaction Date, (y) if during the period
commencing on the first day of such Four Quarter Period through the Transaction
Date (the "Reference Period"), the Company or any of the Restricted Subsidiaries
shall have engaged in any Asset Sale, Consolidated EBITDA for such period shall
be reduced by an amount equal to the EBITDA (if positive), or increased by an
amount equal to the EBITDA (if negative), directly attributable to the assets
which are the subject of such Asset Sale any related retirement of Indebtedness
as if such Asset Sale and related retirement of Indebtedness had occurred on the
first day of such Reference Period or (z) if during such Reference Period the
Company or any of the Restricted Subsidiaries shall have made any Asset
Acquisition, Consolidated EBITDA of the Company shall be calculated on a pro
forma basis as if such Asset Acquisition and any Incurrence of Indebtedness to
finance such Asset Acquisition had taken place on the first day of such
Reference Period.
"INVESTMENT" in any Person means any direct or indirect advance, loan or
extension of credit (including, without limitation, by way of Guarantee or
similar arrangement; but excluding advances to customers in the ordinary course
of business that are, in conformity with GAAP, recorded as accounts receivable
on the balance sheet of the Company or its Restricted Subsidiaries) or capital
contribution to (by means of any transfer of cash or other property to others or
any payment for property or services for the account or use of others), or any
purchase or acquisition of Capital Stock, bonds, notes, debentures or other
similar instruments issued by, such Person and shall include (i) the designation
of a Restricted Subsidiary as an Unrestricted Subsidiary and (ii) the fair
market value of the Capital Stock held by the Company and the Restricted
Subsidiaries of any Person that has ceased to be a Restricted Subsidiary by
reason of any transaction permitted by clause (iii) of the "Limitation on the
Issuance and Sale of Capital Stock of Restricted Subsidiaries" covenant. For
purposes of the definition of "Unrestricted Subsidiary" and the "Limitation on
Restricted Payments" covenant, (i) "Investment" shall include the fair market
value of the assets (net of liabilities) of any Restricted Subsidiary of the
Company at the time that such Restricted Subsidiary is designated an
Unrestricted Subsidiary and shall exclude the fair market value of the assets
(net of liabilities) of any Unrestricted Subsidiary at the time that such
Unrestricted Subsidiary is designated a Restricted Subsidiary of the Company and
(ii) any property transferred to or from an Unrestricted Subsidiary shall be
valued at its fair market value at the time of such transfer, in each case as
determined by the Board in good faith.
"ISSUE DATE" means the date of original issuance of the Notes.
"LIEN" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the nature
thereof, any option or other agreement to sell or give a security interest in
and any filing of or agreement to give any financing statement under the Uniform
Commercial Code (or equivalent statutes) of any jurisdiction).
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"NET CASH PROCEEDS" means (a) with respect to any Asset Sale, the proceeds
of such Asset Sale in the form of cash or cash equivalents, including payments
in respect of deferred payment obligations (to the extent corresponding to the
principal, but not interest, component thereof) when received in the form of
cash or cash equivalents (except to the extent such obligations are financed or
sold with recourse to the Company or any Restricted Subsidiary of the Company)
and proceeds from the conversion of other property received when converted to
cash or cash equivalents, net of (i) brokerage commissions and other fees and
expenses (including fees and expenses of counsel and investment bankers) related
to such Asset Sale, (ii) provisions for all taxes (whether or not such taxes
will actually be paid or are payable) as a result of such Asset Sale without
regard to the consolidated results of operations of the Company and its
Restricted Subsidiaries, taken as a whole, (iii) payments made to repay
Indebtedness or any other obligation outstanding at the time of such Asset Sale
that either (A) is secured by a Lien on the property or assets sold or (B) is
required to be paid as a result of such sale and (iv) appropriate amounts to be
provided by the Company or any Restricted Subsidiary of the Company as a reserve
against any liabilities associated with such Asset Sale, including, without
limitation, pension and other post-employment benefit liabilities, liabilities
related to environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale, all as determined in conformity
with GAAP and (b) with respect to any issuance or sale of Capital Stock, the
proceeds of such issuance or sale in the form of cash or cash equivalents,
including payments in respect of deferred payment obligations (to the extent
corresponding to the principal, but not interest, component thereof) when
received in the form of cash or cash equivalents (except to the extent such
obligations are financed or sold with recourse to the Company or any Restricted
Subsidiary of the Company) and proceeds from the conversion of other property
received when converted to cash or cash equivalents, net of attorney's fees,
underwriters' or placement agents' fees, discounts or commissions and brokerage,
consultant and other fees incurred in connection with such issuance or sale and
net of taxes paid or payable as a result thereof.
"NON-RECOURSE DEBT" means Indebtedness (a) as to which neither the Company
nor any of its Restricted Subsidiaries (i) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness) or (ii) is directly or indirectly liable (as a guarantor or
otherwise); and (b) no default with respect to which (including any rights that
the holders thereof may have to take enforcement action against an Unrestricted
Subsidiary) would permit (upon notice, lapse of time or both) any holder of any
other Indebtedness (other than the Notes) of the Company or any of its
Restricted Subsidiaries to declare a default on such other Indebtedness or cause
the payment thereof to be accelerated or payable prior to its stated maturity;
and (c) as to which the lender of any indebtedness for borrowed money in an
aggregate amount in excess of $5.0 million has been notified in writing that
such lender will not have any recourse to the stock or assets of the Company or
any of its Restricted Subsidiaries.
"OFFER TO PURCHASE" means an offer to purchase Notes by the Company from the
holders that is required by the "Disposition of Proceeds of Asset Sales" or
"Change in Control" covenants of the Indenture and which is commenced by mailing
a notice to the Trustee and each holder stating: (i) the covenant pursuant to
which the offer is being made and that all Notes validly tendered will be
accepted for payment on a pro rata basis; (ii) the purchase price and the date
of purchase (which shall be a business day no earlier than 30 days nor later
than 60 days from the date such notice is mailed) (the "Payment Date"); (iii)
that any Note not tendered will continue to accrue interest pursuant to its
terms; (iv) that, unless the Company defaults in the payment of the purchase
price, any Note accepted for payment pursuant to the Offer to Purchase shall
cease to accrue interest on and after the Payment Date; (v) that holders
electing to have a Note purchased pursuant to the Offer to Purchase will be
required to surrender the Note together with the form entitled "Option of the
Holder to Elect Purchase" on the reverse side thereof completed, to the Paying
Agent at the address specified in the notice prior to the close of business on
the business day immediately preceding the Payment Date; (vi) that holders will
be entitled to withdraw their election if the Payment Agent receives, not later
than the close of business on the third business day immediately preceding the
Payment Date, a telegram, facsimile transmission or letter setting forth the
name of such holder, the principal amount of Notes delivered for purchase and a
statement that such holder is withdrawing his election to have such Notes
purchased; and (vii) that
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holders whose Notes are being purchased only in part will be issued new Notes
equal in principal amount to the unpurchased portion thereof; PROVIDED that each
Note purchased and each new Note issued shall be in a principal amount of $1,000
or integral multiples thereof. On the Payment Date, the Company shall (i) accept
for payment on a pro rata basis Notes or portions thereof tendered pursuant to
an Offer to Purchase, (ii) deposit with the Paying Agent money sufficient to pay
the purchase price of all Notes or portions thereof so accepted and (iii)
deliver, or cause to be delivered, to the Trustee all Notes or portions thereof
so accepted together with an Officers' Certificate specifying the Notes or
portions thereof so accepted for payment by the Company. The Paying Agent shall
promptly mail to the holders of Notes so accepted for payment in an amount equal
to the purchase price, and the Trustee shall promptly authenticate and mail to
such holders a new Note equal in principal amount to any unpurchased portion of
the Note surrendered; PROVIDED that each Note purchased and each new Note issued
shall be in a principal amount of $1,000 or integral multiples thereof. The
Company will publicly announce the results of an Offer to Purchase as soon as
practicable after the Payment Date. The Trustee shall act as the Paying Agent
for an Offer to Purchase. The Company will comply with Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable, in the event that the Company
is required to repurchase Notes pursuant to an Offer to Purchase.
"PERMITTED ASSET SWAP" means any disposition by the Company or any of its
Restricted Subsidiaries of Telecommunications Assets or a majority of the Voting
Stock of a Restricted Subsidiary in exchange for comparable Telecommunications
Assets or a majority of the Voting Stock of a comparable Restricted Subsidiary;
PROVIDED that the Board shall have approved such disposition and exchange and
determined the fair market value of the assets subject to such transaction as
evidenced by a resolution of the Board or such fair market value has been
determined by a written opinion of an investment banking firm of national
standing or other recognized independent expert with experience appraising the
terms and conditions of the type of transaction contemplated thereby.
"PERMITTED INVESTMENTS" MEANS:
(i) an Investment in a Restricted Subsidiary or a Person which will, upon
the making of such Investment, become a Restricted Subsidiary or be
merged or consolidated with or into or transfer or convey all or
substantially all its assets to, the Company or a Restricted Subsidiary;
(ii)Temporary Cash Investments;
(iii)
payroll, travel and similar advances to cover matters that are
expected at the time of such advances ultimately to be treated as
expenses in accordance with GAAP;
(iv)loans or advances to employees (other than executive officers of the
Company) in an aggregate principal amount not to exceed $1.0 million
at any one time outstanding;
(v) stock, obligations or securities received in satisfaction of
judgments;
(vi)Investments, to the extent that the consideration provided by the
Company or any of its Restricted Subsidiaries consists solely of
Capital Stock (other than Redeemable Stock) of the Company;
(vii)
notes payable to the Company that are received by the Company as
payment of the purchase price for Capital Stock (other than
Redeemable Stock) of the Company;
(viii)
an Investment in ART West in an aggregate amount not to exceed $10.0
million, PROVIDED that (A) the Company shall make such Investment not
later than the Issue Date, (B) such Investment shall be represented by notes
having substantially the same terms as the Notes, which notes shall prohibit
ART West from (1) Incurring any Indebtedness, (2) entering into or
permitting to exist any limitation on dividends or distributions by ART West
on account of its equity interests, and
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(3) using the proceeds of such Investment other than in accordance with the
covenant described above under "Business Activities of the Company," and (C)
the Company shall at all times own not less than 50% of ART West;
(ix)Investments in an aggregate amount not to exceed $15.0 million at any
one time outstanding;
(x) Investments in entities (other than ART West) that own licenses
granted by the FCC; PROVIDED that (A) such Investments are made pursuant to
a senior promissory note, in an amount equal to such Investment, that by its
terms is payable in full at or before any required repayment of principal on
the Notes, (B) such promissory note is secured equally and ratably with (or
prior to) any other secured Indebtedness of such entity, (C) such Investment
is made and used for the purpose of effecting, and does not exceed the
amount reasonably required to effect, the minimum build-out with respect to
such licenses that is required by the FCC as a prerequisite to the transfer
of a majority equity interest in such entity to the Company or one of its
Restricted Subsidiaries, as determined in good faith by the Board and (D)
the Company, at the time such Investment is made, had a contractual right
to, and intends (subject in all cases to compliance with applicable FCC
rules and regulations) to, acquire such majority equity interest;
(xi)existing Investments on the Issue Date;
(xii)
the acquisition of all equity interests of ART West not otherwise
owned by the Company; and
(xiii)
Directed Investments.
"PERMITTED LIENS" MEANS:
(i) Liens for taxes, assessments, governmental charges or claims that are
being contested in good faith by appropriate legal proceedings timely
instituted and diligently conducted and for which a reserve or other
appropriate provision, if any, as shall be required in conformity with GAAP
shall have been made;
(ii)statutory or common law Liens of landlords and carriers,
warehousemen, mechanics, suppliers, materialmen, repairmen or other
similar Liens arising in the ordinary course of business and with respect to
amounts not yet delinquent or being contested in good faith by appropriate
legal proceedings timely instituted and diligently conducted and for which a
reserve or other appropriate provision, if any, as shall be required in
conformity with GAAP shall have been made;
(iii)
Liens incurred or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and
other types of social security;
(iv)Liens incurred or deposits made to secure the performance of tenders,
bids, leases, statutory or regulatory obligations, bankers'
acceptances, surety and appeal bonds, government contracts, performance and
return- of-money bonds and other obligations of a similar nature incurred in
the ordinary course of business (exclusive of obligations for the payment of
borrowed money) and a bank's unexercised right of set-off with respect to
deposits made in the ordinary course;
(v) easements, rights-of-way, municipal and zoning ordinances and similar
charges, encumbrances, title defects or other irregularities that do
not materially interfere with the ordinary course of business of the Company
or any of its other irregularities that do not materially interfere with the
ordinary course of business of the Company or any of its Subsidiaries;
(vi)Liens (including extensions and renewals thereof) upon real or
personal property acquired after the Issue Date; PROVIDED that (A)
such Lien is created solely for the purpose of securing Indebtedness
Incurred in accordance with the "Limitation on Indebtedness" covenant, (1)
to finance the cost (including the cost of improvement or construction) of
the item of property or
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assets subject thereto and such Lien is created prior to, at the time of or
within six months after the later of the acquisition, the completion of
construction or the commencement of full operation of such property or (2)
to refinance any Indebtedness previously so secured, (B) the principal
amount of the Indebtedness secured by such Lien does not exceed 100% of such
cost and (C) any such Lien shall not extend to or cover any property or
assets other than such item of property or assets and any improvements on
such item;
(vii)
leases or subleases granted to others that do not materially
interfere with the ordinary course of business of the Company and its
Restricted Subsidiaries, taken as a whole;
(viii)
Liens encumbering property or assets under construction arising from
progress or partial payments by a customer of the Company or its
Restricted Subsidiaries relating to such property or assets;
(ix) any interest or title of a lessor in the property subject to any
Capitalized Lease or operating lease;
(x) Liens arising from filing Uniform Commercial Code financing
statements regarding leases;
(xi)Liens on property of, or on shares of stock or Indebtedness of, any
corporation existing at the time such corporation becomes, or becomes
a part of, any Restricted Subsidiary; PROVIDED that such Liens do not extend
to or cover any property or assets of the Company or any Restricted
Subsidiary other than the property or assets acquired;
(xii)
Liens in favor of the Company or any Restricted Subsidiary;
(xiii)
Liens arising from the rendering of a final judgment or order against
the Company or any Restricted Subsidiary of the Company that does not
give rise to an Event of Default;
(xiv)
Liens securing reimbursement obligations with respect to letters of
credit that encumber documents and the property relating to such
letters of credit and the products and proceeds thereof;
(xv)Liens in favor of customs and revenue authorities arising as a matter
of law to secure payment of customs duties in connection with the
importation of goods;
(xvi)
Liens arising out of conditional sale, title retention, consignment
or similar arrangements for the sale of goods entered into by the
Company or any of its Restricted Subsidiaries in the ordinary course of
business in accordance with the past practices of the Company and its
Restricted Subsidiaries prior to the Issue Date;
(xvii)
Liens on or sales of receivables;
(xviii)
Liens securing other Indebtedness in an aggregate amount not to
exceed $250,000 at any one time;
(xix)Liens on assets of Unrestricted Subsidiaries that secure
Non-Recourse Debt of Unrestricted Subsidiaries;
(xx) Liens existing on the Issue Date;
(xxi)Liens granted after the Issue Date on any assets or Capital Stock of
the Company or its Restricted Subsidiaries created in favor of the
holders of the Notes;
(xxii)
Liens with respect to the assets of a Restricted Subsidiary granted
by such Restricted Subsidiary to the Company or a Wholly Owned
Restricted Subsidiary to secure Indebtedness owing to the Company or such
other Wholly Owned Restricted Subsidiary;
(xxiii)
Liens securing Indebtedness which is Incurred to refinance secured
Indebtedness which is permitted to be Incurred under clause (iii) of
the second paragraph of the "Limitation on
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Indebtedness" covenant; PROVIDED that such Liens do not extend to or cover
any property or assets of the Company or any Restricted Subsidiary other
than the property or assets securing the Indebtedness being refinanced; and
(xxiv)
purchase money Liens upon equipment acquired or held by the Company
or any of its Restricted Subsidiaries taken or retained by the
seller of such equipment to secure all or a part of the purchase price
therefor; PROVIDED that such Liens do not extend to or cover any property or
assets of the Company or any Restricted Subsidiary other than the equipment
so acquired.
"PERSON" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"PREFERRED STOCK" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
Person's preferred or preference stock, whether now outstanding or issued after
the Issue Date, and including, without limitation, all classes and series of
preferred or preference stock of such Person.
"REDEEMABLE STOCK" means any class or series of Capital Stock of any Person
that by its terms or otherwise is (i) required to be redeemed prior to the
Stated Maturity of the Notes, (ii) redeemable at the option of the holder of
such class or series of Capital Stock at any time prior to the Stated Maturity
of the Notes (unless the redemption price is, at the Company's option, without
conditions precedent, payable solely is Common Stock (other than Redeemable
Stock) of the Company) or (iii) convertible into or exchangeable for Capital
Stock referred to in clause (i) or (ii) above or Indebtedness having a scheduled
maturity prior to the Stated Maturity of the Notes; PROVIDED that any Capital
Stock that would not constitute Redeemable Stock but for provisions thereof
giving holders thereof the right to require such Person to repurchase or redeem
such Capital Stock upon the occurrence of an "asset sale" or "change of control"
occurring prior to the Stated Maturity of the Notes shall not constitute
Redeemable Stock if the "asset sale" or "change of control" provisions
applicable to such Capital Stock are no more favorable to the holders of such
Capital Stock than the provisions contained in "Disposition of Proceeds of Asset
Sales" and "Change in Control" covenants described above and such Capital Stock
specifically provides that such Person will not repurchase or redeem any such
stock pursuant to such provision prior to the Company's repurchase of such Notes
as are required to be repurchased pursuant to the "Disposition of Proceeds of
Asset Sales" and "Change in Control" covenants described above.
"RESTRICTED SUBSIDIARY" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"SIGNIFICANT SUBSIDIARY" means, at any date of determination, any Restricted
Subsidiary of the Company that, together with its Subsidiaries, (i) for the most
recent fiscal year of the Company, accounted for more than 10% of the
consolidated revenues of the Company and its Restricted Subsidiaries or (ii) as
of the end of such fiscal year, had assets accounting for more than 10% of the
consolidated assets of the Company and its Restricted Subsidiaries, all as set
forth on the most recently available consolidated financial statements of the
Company for such fiscal year.
"SPECIFIED DATE" means any redemption date, any date of purchase of Notes
pursuant to the "Disposition of Proceeds of Asset Sales" or "Change in Control"
covenants described above, or any date on which the Notes are due and payable
after an Event of Default.
"STATED MATURITY" means, (i) with respect to any debt security, the date
specified in such debt security as the fixed date on which the final installment
of principal of such debt security is due and payable and (ii) with respect to
any scheduled installment of principal of or interest on any debt security, the
date specified in such debt security as the fixed date on which such installment
is due and payable.
"STRATEGIC EQUITY INVESTOR" means any company which is (or a controlled
Affiliate of any company which is or a controlled Affiliate of which is) engaged
principally in a cable or telecommunications business which has a total market
capitalization of at least $1.0 billion.
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"SUBSIDIARY" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"TELECOMMUNICATIONS ASSETS" means all assets (including, without limitation,
assets consisting of subscribers), rights (contractual or otherwise) and
properties, whether tangible or intangible, used in connection with a
Telecommunications Business.
"TELECOMMUNICATIONS BUSINESS" means, when used in reference to any Person,
that such Person is engaged primarily in the business of (i) transmitting voice,
video or data communications, (ii) creating, developing or marketing
communications related network equipment, software and other devices for use in
a wireless communications capacity or (iii) evaluating, participating in or
pursuing any other activity or opportunity that is related to those identified
in clauses (i) or (ii) above.
"TEMPORARY CASH INVESTMENT" means any of the following: (i) direct
obligations of the United States or any agency thereof or obligations fully and
unconditionally guaranteed by the United States or any agency thereof; (ii) time
deposit accounts, certificates of deposit and money market deposits maturing
within six months of the date of acquisition thereof issued by a bank or trust
company which is organized under the laws of the United States, any state
thereof or any foreign country recognized by the United States, and which bank
or trust company has capital, surplus and undivided profits aggregating in
excess of $50.0 million (or the foreign currency equivalent thereof) and has
outstanding debt which is rated "A" (or such similar equivalent rating) or
higher by at least one nationally recognized statistical rating organization (as
defined in Rule 436 under the Securities Act) or any money-market fund sponsored
by a registered broker dealer or mutual fund distributor; (iii) repurchase
obligations with a term of not more than 30 days for underlying securities of
the types described in clause (i) above entered into with a bank meeting the
qualifications described in clause (ii) above; (iv) commercial paper, maturing
not more than six months after the date of acquisition, issued by a corporation
other than an Affiliate of the Company) organized and in existence under the
laws of the United States, any state thereof or any foreign country recognized
by the United States with rating at the time as of which any investment therein
is made of "P-1" (or higher) according to Moody's Investors Service, Inc. or
"A-1" (or higher) according to Standard & Poor's Ratings Group; and (v)
securities with maturities of six months or less from the date of acquisition
issued or fully and unconditionally guaranteed by any state, commonwealth or
territory of the United States, or by any political subdivision or taxing
authority thereof, and rated at least "A" by Standard & Poor's Ratings Group or
Moody's Investors Service, Inc.; PROVIDED that, notwithstanding the foregoing,
the maturity of any of the foregoing that is applied to provide security in
favor of the Indebtedness referred to in clause (xxiv) of the definition of
"Permitted Liens" may occur as late as the earliest date that such Indebtedness
may be redeemed at the option of the obligor with respect to such Indebtedness
and provided further that the Company shall cause such Liens referred to in such
clause (xxiv) to be incurred no later than the first anniversary of the Issue
Date.
"UNRESTRICTED SUBSIDIARY" means any Subsidiary that is designated by the
Board as an Unrestricted Subsidiary pursuant to a resolution of the Board; but
only to the extent that such Subsidiary (i) has no Indebtedness other than
Non-Recourse Debt; (ii) is not party to any agreement, contract, arrangement or
understanding with the Company or any Restricted Subsidiary of the Company
unless the terms of any such agreement, contract, arrangement or understanding
are no less favorable to the Company or such Restricted Subsidiary than those
that might be obtained at the time from Persons who are not Affiliates of the
Company; (iii) is a Person with respect to which neither the Company nor any of
its Restricted Subsidiaries has any direct or indirect obligation (A) to
subscribe for additional equity interests or (B) to maintain or preserve such
Person's financial condition or to cause such Person to achieve any specified
levels of operating results; (iv) has not guaranteed or otherwise directly or
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indirectly provided credit support for any Indebtedness of the Company or any of
its Restricted Subsidiaries; and (v) has, immediately prior to the commencement
of material business operations, at least one director on its board of directors
that is not a director or executive officer of the Company or any of its
Restricted Subsidiaries and has at least one executive officer that is not a
director or executive officer of the Company or any of its Restricted
Subsidiaries. Any such designation by the Board shall be evidenced to the
Trustee by filing with the Trustee a certified copy of the resolution of the
Board giving effect to such designation and an Officers' Certificate certifying
that such designation complied with the foregoing conditions and was permitted
by the covenant described above under the caption "Limitation on Restricted
Payments." If, at any time, any Unrestricted Subsidiary would fail to meet the
foregoing requirements as an Unrestricted Subsidiary, it shall thereafter cease
to be an Unrestricted Subsidiary for purposes of the Indenture and any
Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted
Subsidiary of the Company as of such date (and, if such Indebtedness is not
permitted to be incurred as of such date under the covenant described under the
caption "Limitation on Indebtedness," the Company shall be in default of such
covenant). The Board may at any time designate any Unrestricted Subsidiary to be
a Restricted Subsidiary; PROVIDED that such designation shall be deemed to be an
incurrence of Indebtedness by a Restricted Subsidiary of the Company of any
outstanding Indebtedness of such Unrestricted Subsidiary and such designation
shall only be permitted if (i) such Indebtedness is permitted under the covenant
described under the caption "Limitation on Indebtedness," and (ii) no Default or
Event of Default would be in existence following such designation.
"VOTING STOCK" means with respect to any Person, Capital Stock of any class
or kind ordinarily having the power to vote for the election of directors,
managers or other voting members of the governing body of such Person.
"VOTING TRUST AGREEMENT" means that certain Voting Trust and Irrevocable
Proxy Agreement, to be entered into on the date hereof.
"WHOLLY OWNED" means, with respect to any Subsidiary of any Person, such
Subsidiary if all of the outstanding Capital Stock in such Subsidiary (other
than any director's qualifying shares or Investments by foreign nationals
mandated by applicable law) is owned by such Person or one or more Wholly Owned
Subsidiaries of such Person.
DESCRIPTION OF WARRANTS
The Warrants will be issued pursuant to a warrant agreement (the "Warrant
Agreement") by and between the Company and , as warrant
agent (the "Warrant Agent"). The following summary of certain provisions of the
Warrant Agreement and the Warrants does not purport to be complete and is
qualified in its entirety by reference to the Warrant Agreement and the
Warrants, including the definitions therein of certain terms. The Warrant
Agreement will be substantially in the form of the Warrant Agreement filed as an
exhibit to the Registration Statement of which this Prospectus is a part.
GENERAL
Each Warrant, when exercised, will entitle the holder thereof to receive
shares of Common Stock (such shares, the "Warrant Shares") at an exercise
price of $ per share (the "Exercise Price"). The Exercise Price and the
number of Warrant Shares issuable on exercise of a Warrant are both subject to
adjustment in certain cases referred to below. The Warrants are exercisable at
any time on or after the Separation Date. Unless exercised, the Warrants will
automatically expire on , 2006 (the "Expiration Date"). The Warrants
will entitle the holders thereof to purchase in the aggregate approximately %
of the outstanding Common Stock of the Company on a fully diluted basis as of
the date of issuance of the Warrants after giving effect to the consummation of
the Offerings.
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The Warrants may be exercised at any time on or after the Separation Date by
surrendering to the Company at the office of the Warrant Agent the Warrant
certificates evidencing such Warrants with the accompanying form of election to
purchase properly completed and executed, together with payment of the Exercise
Price. Payment of the Exercise Price may be made in the form of cash or a
certified or official bank check payable to the order of the Company. Upon
surrender of the Warrant certificate and payment of the Exercise Price, the
Warrant Agent will deliver or cause to be delivered, to or upon the written
order of such holder, a stock certificate representing the number of whole
Warrant Shares or other securities or property to which such holder is entitled
under the Warrant Agreement and the Warrants, including, without limitation, any
cash payment to adjust for fractional interests in Warrant Shares issuable upon
such exercise. If less than all of the Warrants evidenced by a Warrant
certificate are to be exercised, a new Warrant certificate will be issued for
the remaining number of Warrants. The Common Shares to be issued upon the
exercise of the Warrants will be registered under the Securities Act.
No fractional Warrant Share will be issued upon exercise of the Warrants. If
any fraction of a Warrant Share would, except for the foregoing provision, be
issuable on the exercise of any Warrants (or a specified portion thereof), the
Company shall pay an amount in cash equal to the current market price per
Warrant Share, as determined on the day immediately preceding the date the
Warrant is presented for exercise, multiplied by such fraction, computed to the
nearest whole U.S. cent.
Certificates for Warrants will be issued in registered form only, and no
service charge will be made for registration of transfer or exchange upon
surrender of any Warrant certificate at the office of the Warrant Agent
maintained for that purpose. The Company may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
with any registration or transfer or exchange of Warrant certificates.
The holders of the Warrants have no right to vote on matters submitted to
the stockholders of the Company and have no right to receive dividends. The
holders of the Warrants are not be entitled to share in the assets of the
Company in the event of liquidation, dissolution or winding up of the Company's
affairs.
In the event of taxable distribution to holders of Common Stock which
results in an adjustment to the number of Warrant Shares or other consideration
for which a Warrant may be exercised, the holders of the Warrants may, in
certain circumstances, be deemed to have received a distribution subject to
United States federal income tax as a dividend. See "Certain Federal Income Tax
Considerations".
REGISTRATION OF WARRANT SHARES
Holders of Warrants will be able to exercise their Warrants only if a
registration statement relating to the Warrant Shares is then in effect, or the
exercise of such Warrants is exempt from the registration requirements of the
Securities Act, and such securities are qualified for sale or exempt from
qualification under the applicable securities laws of the states in which the
various holders of the Warrants or other persons to whom it is proposed that the
Warrant Shares be issued on exercise of the Warrants reside. The Company is
required under the terms of the Warrant Agreement to file and use its best
efforts to make effective, by the earlier of days from the closing of the Unit
Offering or 45 days after the occurrence of a Change in Control, and (subject to
certain "black-out" periods not to exceed 45 days in any calendar year) maintain
effective until the expiration or exercise of all Warrants a shelf registration
statement on an appropriate form under the Securities Act covering the issuance
of the Warrant Shares upon the exercise of the Warrants. There can be no
assurance that the Company will be able to file, cause to be declared effective
or keep a registration statement continuously effective until all of the
Warrants have been exercised or have expired.
ADJUSTMENTS
The number of shares of Common Stock purchasable upon the exercise of the
Warrants and the Exercise Price both will be subject to adjustment in certain
events (subject to certain exceptions)
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including (i) the payment by the Company of dividends (and other distributions)
on Common Stock payable in Common Stock or other shares of the Company's capital
stock, (ii) subdivisions, combinations and reclassifications of Common Stock,
(iii) the issuance to all holders of Common Stock of rights, options or warrants
entitling them to subscribe for Common Stock or of securities convertible into
or exchangeable for Common Stock, for a consideration per share of Common Stock
which is less than the current market price per share of Common Stock and (iv)
the distribution to all holders of Common Stock of any of the Company's assets,
debt securities or any rights or warrants to purchase securities (excluding
those rights and warrants referred to in clause (iii) above and excluding cash
dividends less than a specified amount). In addition, the Exercise Price may be
reduced in the event of purchases of Common Stock pursuant to a tender or
exchange offer made by the Company of any subsidiary thereof at a price greater
than the sale price of the Common Stock at the time such tender or exchange
offer expires.
No adjustment in the Exercise Price will be required unless such adjustment
would require an increase or decrease of at least one percent (1%) in the
Exercise Price; PROVIDED, HOWEVER, that any adjustment which is not made will be
carried forward and taken into account in any subsequent adjustment.
In the case of certain consolidations or mergers of the Company, or the sale
of all or substantially all of the assets of the Company to another corporation,
each Warrant shall thereafter be exercisable for the right to receive the kind
and amount of shares of stock or other securities or property to which such
holder would have been entitled as a result of such consolidation, merger or
sale had the Warrants been exercised immediately prior thereto.
AUTHORIZED SHARES
The Company has authorized for issuance such number of shares of Common
Stock as shall be issuable upon the due exercise of all outstanding Warrants.
Such shares of Common Stock, when paid for and issued, will be duly and validly
issued, fully paid and non-assessable, free of preemptive rights and free from
all taxes, liens, charges and security interests with respect to the issue
thereof (other than any such tax, lien, charge or security interest imposed upon
or granted by the holder of the Common Stock).
AMENDMENT
From time to time, the Company and the Warrant Agent, without the consent of
the holders of the Warrants, may amend or supplement the Warrant Agreement for
certain purposes, including curing defects or inconsistencies or making changes
that do not materially adversely affect the rights of any holder. Any amendment
or supplement to the Warrant Agreement that has a material adverse effect on the
interests of the holders of the Warrants shall require the written consent of
the holders of a majority of the then outstanding Warrants (excluding Warrants
held by the Company or any of its Affiliates). The consent of each holder of the
Warrants affected shall be required for any amendment pursuant to which the
Exercise Price would be increased or the number of Warrant Shares purchasable
upon exercise of Warrants would be decreased (other than pursuant to adjustments
provided in the Warrant Agreement).
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GOVERNING LAW
The Warrant Agreement and the Warrants will be governed by, and construed in
accordance with, the laws of the State of New York without regard to the
principles of conflicts of law thereof.
REPORTS
Whether or not the Company is subject to the reporting requirements of the
Exchange Act, the Company shall cause copies of the reports described under
"Description of Notes -- Certain Covenants -- Reports" to be filed with the
Commission (to the extent permitted) and the Warrant Agent and mailed to the
holders at their addresses appearing in the register of Warrants maintained by
the Warrant Agent to the same extent as such reports are furnished to the
holders of Notes in accordance with the Indenture.
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DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 60,000,000 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 April 25, 1996, there were 18,114,135 shares of Common Stock
outstanding held of record by four stockholders (without giving effect to the
Merger, any conversion of outstanding Preferred Stock 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 outstanding shares of Preferred Stock, the
holders of Common Stock are entitled to receive ratably such dividends as may be
declared from time to time by the Board of Directors out of funds legally
available therefor. In the event of the liquidation, dissolution or winding up
of the Company, the holders of Common Stock are entitled to share ratably in all
assets remaining after payment of liabilities, subject to prior liquidation
rights of 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 April 25, 1996, there were 920,951 shares of Preferred Stock
outstanding held of record by 15 stockholders. Upon the consummation of the
Offerings, all outstanding shares of Preferred Stock will automatically convert
to shares of Common Stock, and 343,359 shares of Preferred Stock will be
retired. See "Principal Stockholders." The Board of Directors will have the
authority to issue Preferred Stock in one or more series and to fix the rights,
preferences, privileges and restrictions granted to or imposed upon any wholly
unissued shares of Preferred Stock and to fix the number of shares constituting
any series in the designations of such series, without any further vote or
action by the stockholders. The Board of Directors, without stockholder
approval, can issue Preferred Stock with voting and conversion rights which
could adversely affect the voting power of the holders of Common Stock. The
issuance of Preferred Stock may have the effect of delaying, deferring or
preventing a change in control of the Company. The Company does not presently
intend to issue Preferred Stock. In addition, the terms of the Indenture will
restrict the ability of the Company to issue Preferred Stock. See "Description
of Notes -- Certain Covenants."
CHANGE IN CONTROL PROVISIONS
Certain provisions of the Company's Certificate of Incorporation and Bylaws
may have the effect of preventing, discouraging or delaying any change in the
control of the Company any may maintain the incumbency of the Board of Directors
and management. The authorization of Preferred Stock makes it possible for the
Board of Directors to issue Preferred Stock with voting or other rights or
preferences that could impede the success of any attempt to effect a change in
control of the Company. In addition, on the effectiveness of the Offering,
certain provisions of the Certificate of Incorporation will create three classes
of directors serving for staggered three-year terms and prevent any amendment to
such provisions without the consent of holders of at least two-thirds of the
then outstanding shares of Common Stock. These provisions could also impede the
success of any attempt to effect a change in control of the Company.
The Company is not subject to the provisions of Section 203 of the Delaware
General Corporation Law regulating corporate takeovers. A Delaware corporation
may "opt out" of Section 203 by an
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express provision in its original certificate of incorporation or an express
provision in its certificate of incorporation or bylaws resulting from a
stockholders' amendment approved by at least a majority of the outstanding
voting shares. The Company has "opted out" of the application of Section 203.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is Continental Stock
Transfer & Trust Company.
LISTING
The Company is applying for quotation of the Common Stock on the Nasdaq
National Market under the symbol "ARTT."
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DESCRIPTION OF CERTAIN INDEBTEDNESS
EMI NOTE
In connection with the acquisition by ART Corp. of the EMI Assets, the
Company issued to EMI a $1.5 million principal amount non-negotiable and
non-transferable 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 July 1996. The EMI
Note matures on November 14, 1998. ART Corp. has also guaranteed the obligations
of ART under the EMI Note. See "Business -- Agreements Relating to Licenses and
Acquisitions -- EMI Acquisition."
EQUIPMENT FINANCING
On April 29, 1996, CRA, Inc. ("CRA") entered into the secured Equipment
Financing with the Company for the purchase from P-Com of 38 GHz radio
equipment. To evidence its obligations and 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
29, 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 will be repaid with proceeds from the
Offerings. See "Use of Proceeds."
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of the material United States federal
income tax considerations relevant to the purchase, ownership and disposition of
the Units, Notes and Warrants by holders acquiring Units on original issue for
cash, but does not purport to be a complete analysis of all potential tax
effects. The discussion is based upon the Internal Revenue Code of 1986, as
amended (the "Code"), Treasury regulations, Internal Revenue Service ("IRS")
rulings and pronouncements and judicial decisions all in effect as of the date
hereof, all of which are subject to change at any time, and any such change may
be applied retroactively in a manner that could adversely affect a holder of the
Units, Notes or Warrants. The discussion does not address all of the federal
income tax consequences that may be relevant to a holder in light of such
holder's particular circumstances or to holders subject to special rules, such
as certain financial institutions, insurance companies, dealers in securities,
foreign corporations, nonresident alien individuals and persons holding the
Units, Notes or Warrants as part of a "straddle," "hedge" or "conversion
transaction." Moreover, the effect of any applicable state, local or foreign tax
laws is not discussed. The discussion deals only with Units, Notes and Warrants
held as "capital assets" within the meaning of section 1221 of the Code.
The Company has not sought and will not seek any rulings from the IRS with
respect to the position of the Company discussed below. There can be no
assurance that the IRS will not take a different position concerning the tax
consequences of the purchase, ownership or disposition of the Units, Notes or
Warrants or that any such position would not be sustained.
PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH REGARD TO
THE APPLICATION OF THE TAX CONSIDERATIONS DISCUSSED BELOW TO THEIR PARTICULAR
SITUATIONS AS WELL AS THE APPLICATION OF ANY STATE, LOCAL, FOREIGN OR OTHER TAX
LAWS.
THE UNITS
Because the original purchasers of the Notes also will acquire Warrants,
each Note is likely to be treated for federal income tax purposes as having been
issued as part of an "investment unit" consisting of the Note and associated
Warrants. The issue price of an investment unit consisting of the Note and
associated Warrants will be the first price at which a substantial amount of
Units are sold to the public for money (excluding sales to underwriters,
placement agents or wholesalers, etc.). The "issue price" of an investment unit
is allocated between its component parts based on their relative fair market
values. A holder of a Unit must use the issuer's allocation unless the holder
discloses on its federal income tax return that it plans to use an allocation
that is inconsistent with the issuer's allocation.
The Company will allocate the issue price of a Unit between the Note and the
associated Warrants in accordance with their relative fair market values on the
issue date. The Company will use that allocation to determine the issue price of
the Notes and the holder's tax basis in the Warrants. That allocation is not
binding on the IRS.
THE NOTES
The Notes will be issued with "original issue discount" for federal income
tax purposes. A holder generally is required to include original issue discount
in gross income as it accrues, regardless of the holder's method of accounting
for federal income tax purposes. Accordingly, each holder will be required to
include amounts in gross income in advance of the receipt of the cash to which
such income is attributable.
The amount of original issue discount with respect to each Note is an amount
equal to the excess of the "stated redemption price at maturity" of such Note
over its issue price. The stated redemption price at maturity of each Note will
include all cash payments, including principal and interest, required to be
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made thereunder until maturity. The issue price of a Note will be equal to that
portion of the issue price of the Unit allocable to the Note as described above.
Accordingly, each Note will be issued with a substantial amount of original
issue discount.
TAXATION OF ORIGINAL ISSUE DISCOUNT. Each holder of a Note will be required
to include in gross income an amount equal to the sum of the "daily portions" of
the original issue discount of the Note for all days during each taxable year in
which the holder holds the Note. The daily portions of original issue discount
will be determined on a constant interest rate basis by allocating to each day
during the taxable year in which the holder holds the Note a pro rata portion of
the original issue discount thereon that is attributable to the "accrual period"
in which such day is included. The amount of the original issue discount
attributable to each full accrual period will be the product of the "adjusted
issue price" of the Note at the beginning of such accrual period and the "yield
to maturity" of the Note (adjusted to reflect the length of the accrual period).
The adjusted issue price of a Note at the beginning of an accrual period is the
original issue price of the Note plus the aggregate amount of original issue
discount that has accrued in all prior accrual periods, less any cash payments
on the Note on or before the first day of such accrual period. The yield to
maturity is the discount rate that, when used in computing the present value of
all principal and interest payments to be made on the Note, produces an amount
equal to the issue price.
The accrual period generally is the six-month period ending on the day in
each calendar year corresponding to the day before the maturity date of the Note
or the date six months before such date. The initial accrual period of a note is
the short period beginning on the issue date and ending on the day before the
first day of the first full accrual period. The amount of original issue
discount attributable to an initial short accrual period may be computed under
any reasonable method.
The Company is required to furnish certain information to the IRS, and will
furnish annually to record holders of a Note, information with respect to
original issue discount accruing during the calendar year. That information will
be based upon the adjusted issue price of the Note as if the holder were the
original holder of the Note.
A holder who purchases a Note for an amount other than the adjusted issue
price and/or on a date other than the end of an accrual period will be required
to determine for himself the amount of original issue discount, if any, he is
required to include in gross income for federal income tax purposes.
SALE OR RETIREMENT OF A NOTE. In general, a holder of a Note will recognize
gain or loss upon the sale, retirement or other taxable disposition of such Note
in an amount equal to the difference between (a) the amount of cash and the fair
market value of property received in exchange therefor (except to the extent
attributable to the payment of accrued interest or original issue discount,
which generally will be taxable to a holder as ordinary income) and (b) the
holder's adjusted tax basis in such Note.
A holder's tax basis in a Note generally will be equal to the price paid for
such Note, increased by the amount of original issue discount, if any, included
in gross income prior to the date of disposition, and decreased by the amount of
any payment on such Note prior to disposition.
Any gain or loss recognize on the sale, retirement, or other taxable
disposition of a Note generally will be capital gain or loss. Such capital gain
or loss generally will be long-term capital gain or loss if the Note had been
held for more than one year.
Holders should be aware that the resale of a Note may be affected by the
"market discount" rules of the Code under which a subsequent purchaser of a Note
acquiring the Note at a market discount generally would be required to include
as ordinary income a portion of the gain realized upon the disposition or
retirement of such Note to the extent of the market discount that has accrued
while the debt instrument was held by such holder.
104
<PAGE>
THE WARRANTS
Upon the sale or exchange of a Warrant (including the receipt of cash in
lieu of a fractional interest in a Warrant Share upon exercise of a Warrant), a
holder will recognize gain or loss in an amount equal to the difference between
the amount of cash and the fair market value of property received therefor and
the holder's tax basis in the Warrant. A holder's initial tax basis in a Warrant
acquired in the Unit Offering will be that portion of the issue price of the
Units allocable to the Warrant, as described above, subject to adjustment in the
events described below. Such gain or loss will be capital gain or loss if the
Warrant Shares to which the Warrants relate would be a capital asset in the
hands of the Warrant holder. Any such capital gain or loss will be long-term
capital gain or loss if the Warrant was held for more than one year.
The exercise of a Warrant for cash will not result in a taxable event to the
holder of the Warrant (except to the extent of cash, if any, received in lieu of
fractional interest in a Warrant Share). Upon such exercise, the holder's tax
basis in the Warrant Shares obtained will be equal to the sum of such holder's
tax basis in the Warrant (described above) and the exercise price of the
Warrant; the holder's holding period with respect to such Warrant Shares will
commence on the day after the date of exercise. If a Warrant expires without
being exercised, the holder will recognize a loss in an amount equal to its tax
basis in the Warrant. Such loss will be a capital loss if the Warrant Shares to
which the Warrants relate would have been a capital asset in the hands of the
Warrant holder, and such capital loss will be a long-term capital loss is the
Warrant was held for more than one year.
Adjustments to the conversion ratio of the Warrants, or the failure to make
adjustments, may in certain circumstances result in the receipt of taxable
constructive dividends by the holder, in which event the holder's tax basis in
the Warrants would be increased by an amount equal to the constructive dividend.
BACKUP WITHHOLDING
A holder of a Note may be subject to backup withholding at a rate of 31%
with respect to interest and original issue discount on, and gross proceeds upon
sale or retirement of, a Note unless such holder (i) is a corporation or other
exempt recipient and, when required, demonstrates that fact, or (ii) provides,
when required, a correct taxpayer identification number, certified that backup
withholding is not in effect and otherwise complies with applicable requirements
of the backup withholding rules. Backup withholding is not an additional tax;
any amounts so withheld are creditable against the holder's federal income tax,
provided the required information is provided to the IRS.
DEDUCTIBILITY OF ORIGINAL ISSUE DISCOUNT AND INTEREST PAYMENTS
The deduction by the Company in respect of interest (including original
issue discount) accrued with respect to the Notes will be limited in part and
deferred in part if the Notes are "applicable high yield discount obligations."
The Company anticipates that the Notes will be applicable high yield discount
obligations because, among other things, it is expected that the yield to
maturity of the Notes will exceed the sum of the applicable federal long-term
rate (a rate published by the IRS each month for application during the
following calendar month) in effect at the time of issuance of the Notes (the
"AFR") plus five percentage points. If the Notes are applicable high yield
discount obligations, then (i) if the yield to maturity of the Notes exceeds the
sum of the AFR plus six percentage points (such excess referred to below as the
"Disqualified Yield"), the deduction for interest (including original issue
discount) accrued on the Notes will be permanently disallowed to the extent such
interest or original issue discount is attributable to the Disqualified Yield,
and such interest (including original issue discount) would be treated as
dividends to corporate holders of the Notes for purposes of the dividends-
received deduction (to the extent that such amounts would have been treated as
dividends had they been distributions made by the Company with respect to its
stock) and (ii) the remainder of the original issue discount on the Notes would
not be deductible by the Company until paid.
105
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Purchase Agreement (the "Purchase
Agreement"), among the Company, Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch"), Montgomery Securities ("Montgomery Securities")
and Smith Barney Inc. ("Smith Barney" and, together with Merrill Lynch and
Montgomery Securities, the "Underwriters"), the Company has agreed to sell to
the Underwriters, and each Underwriter has agreed to purchase from the Company,
severally and not jointly, the number of Units set forth opposite its name
below. The Purchase Agreement provides that, subject to the terms and conditions
set forth therein, the Underwriters will be obligated to purchase all of the
Units if any such Units are purchased.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF UNITS
---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..........................................
Montgomery Securities............................................
Smith Barney Inc.................................................
---------
Total.................................................
---------
---------
</TABLE>
The Underwriters propose to offer the Units directly to the public at the
offering price set forth on the cover page of this Prospectus, and in part to
certain selected dealers at such price less a concession not in excess of %
per Unit. The several Underwriters may allow, and such dealers may reallow, a
discount not in excess of % per Unit to certain other dealers. After the
initial public offering, the public offering price, concession and discount may
be changed. The Underwriters do not intend to confirm sales to any accounts over
which they exercise discretionary authority.
There is currently no public market for the Units, the Notes or the
Warrants, and the Company does not intend to apply for listing of the Units, the
Notes or the Warrants on any securities exchange or on any inter-dealer
quotation system. The Company is applying for quotation of the Common Stock
(including the Warrant Shares) on the Nasdaq National Market. The Company has
been advised by the Company that, following the completion of the initial public
offering of the Notes, the Underwriters presently intend to make a market in the
Units, the Notes and the Warrants as permitted by applicable laws and
regulations; however, they are not obligated to do so and any such market-making
may be discontinued at any time without notice at the sole discretion of each
Underwriter. Accordingly, there can be no assurance as to whether an active
public market for the Units, the Notes or the Warrants will develop or, if a
public market does develop, as to the liquidity of the trading market for the
Units, the Notes or the Warrants. If an active public market does not develop,
the market price and liquidity for the Units, the Notes or the Warrants may be
adversely affected. See "Risk Factors -- Absence of Public Market; Possible
Volatility of Stock Price"
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended
(the "Securities Act"), and, under certain circumstances, to contribute to
payments the Underwriters may be required to make in respect thereof.
The Company has agreed that it will not, for a period of 180 days from the
date of this Prospectus, without the prior written consent of the Underwriters,
directly or indirectly, offer, sell, grant any option to purchase or otherwise
dispose of, any debt security of the Company which is publicly offered or sold
pursuant to Rule 144A under the Securities Act.
Montgomery Securities is acting as an underwriter in connection with the
Common Stock Offering and will receive customary compensation in connection
therewith.
106
<PAGE>
LEGAL MATTERS
The validity of the Units, the Notes and the Warrants offered hereby will be
passed upon for the Company by Hahn & Hessen LLP, New York, New York. Certain
legal matters in connection with the Unit Offering will be passed upon for the
Underwriters by Latham & Watkins, Washington, D.C. As of the date of this
Prospectus, a member of Hahn & Hessen LLP owns $25,000 of the Bridge Notes and
5,500 Bridge Warrants and beneficially owns 13,627 shares of Common Stock.
Latham & Watkins, Washington, D.C., currently represents the Company with
respect to certain FCC matters.
EXPERTS
The historical financial statements of Advanced Radio Telecom Corp. as of
December 31, 1995 and for the period from March 28, 1995 (date of inception) to
December 31, 1995 and 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 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 Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (together with all
amendments, exhibits, schedules and supplements thereto, the "Registration
Statement") under the Securities Act with respect to the securities offered
hereby. This Prospectus, which forms a part of the Registration Statement, does
not contain all of the information set forth in the Registration Statement,
certain parts of which have been omitted in accordance with the rules and
regulations of the Commission. For further information with respect to the
Company and the securities offered hereby, reference is made to the Registration
Statement and to the schedules and exhibits filed therewith. Statements
contained in this Prospectus as to the contents of certain documents are not
necessarily complete, and, in each instance, reference is made to the copy of
the document filed as an exhibit to the Registration Statement. The Registration
Statement, including the exhibits and schedules thereto, can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the following regional offices of the Commission: New York Regional Office, 7
World Trade Center, New York, New York 10007; and Chicago Regional Office, Suite
1400, Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois
60661. Copies of such material can also be obtained from the Commission at
prescribed rates through its Public Reference Section at 450 Fifth Street, N.W.,
Washington, D.C. 20549.
Immediately following the Offerings, the Company will be subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and in accordance therewith will be required to file
reports and other information with the Commission. Such reports may be inspected
and copied at the public reference facilities at the addresses set forth above
and at the Public Reference Section of the Commission at the address set forth
above. In addition, the Indenture and the Warrant Agreement provide that the
Company, to the extent that it is not required to file such information pursuant
to the Exchange Act, shall provide the Trustee and holders of the Notes and
Warrants with audited year-end financial statements of the Company prepared in
accordance with GAAP and substantially in the form of the Financial Statements
included in this Prospectus, and unaudited quarterly financial statements of the
Company prepared in accordance with GAAP and substantially in the form of the
Financial Statements included in this Prospectus.
107
<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 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.
CAP (COMPETITIVE ACCESS PROVIDER) -- A company that provides its customers
with an alternative to the local telephone company for local transport of
private line, special access and interstate transport of 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 among the many issues related to the
telecommunication industry that are being debated for federal legislation.
Essentially, customers should be able to have 1+ and 0+ service no matter which
local or long distance carrier they choose. For example, when MCI first got into
the long distance business, customers had to dial a ten digit prefix before the
number they were calling. This was considered unacceptable to many in the
industry who favor "dialing parity."
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.
108
<PAGE>
ESMR (ENHANCED SPECIALIZED MOBILE RADIO) -- A mobile services category
granted certain radio spectrum rights by the FCC before the advent of modern
cellular networks.
FCC -- Federal Communications Commission.
FIBER OPTICS -- Fiber optic cable is the medium of choice for the
telecommunications and cable industries. Fiber is 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. A strand of fiber optic
cable is as thick as a human hair yet is said to have more bandwidth capacity
than copper cable the size of a telephone pole.
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.
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, as well as a select few CAPs that are authorized for IXC
service.
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.
LATAS (LOCAL ACCESS AND TRANSPORT AREAS) -- The geographically defined areas
in which LECs are 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.
109
<PAGE>
MARKET -- The potential and actual customers within the boundaries of a
wireless license. For simplicity, census or other definitions may be used,
though each application as granted defines its own actual boundaries.
MEGABIT -- One million bits of information. The information-carrying
capacity (i.e., bandwidth) of a circuit may be measured in "megabits per
second."
MFJ (MODIFIED FINAL JUDGMENT) -- The MFJ was 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 created two distinct segments of telecommunications
service: local and long distance. This laid the groundwork for intense
competition in the long distance industry, but essentially created seven
separate regionally-based local exchange service monopolies. The MFJ has been
superseded by the Telecommunications Act of 1996.
MSA (METROPOLITAN STATISTICAL AREA) -- An area erected by Rand McNally based
upon various business demographics to define a contiguous urban area, without
reference to political or similar boundaries.
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
generally refers to frequencies above 2 GHz.
MILLIMETRIC MICROWAVE OR MILLIMETER WAVE -- Those portions of the microwave
radio spectrum having either wave length measured in millimeter lengths, or a
frequency 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. This is considered to be anti-competitive because customers
are reluctant to change numbers, since they may lose business or confuse those
people trying to call them. It is currently being ascertained whether or not
number portability is technologically and economically feasible, and over what
time frame it can be implemented.
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.
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 long distance carrier has
installed transmission equipment in a service area that serves as, or relays
calls to, a network switching center of that long distance carrier.
PSTN (PUBLIC SWITCHED TELECOMMUNICATIONS NETWORK) -- The traditional LEC
networks.
RBOCS (REGIONAL BELL OPERATING COMPANIES) -- The holding companies owning
LEC affiliates of the old AT&T or Bell system.
110
<PAGE>
REPEATER -- An intermediate transceiver between two transceivers established
to circumvent obstacles in the links, 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 or in windows of tall buildings, on
special towers or even on utility poles or pylons.
WIDEBAND -- Data streams between 64 kilobits and 1.544 megabits per second.
111
<PAGE>
ADVANCED RADIO TELECOM CORP.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Advanced Radio Telecom Corp.
Unaudited Pro Forma:
Unaudited Pro Forma Condensed Balance Sheet as of December 31, 1995................................... F-3
Unaudited Pro Forma Condensed Statement of Operations for the year ended December 31, 1995............ F-4
Notes to Unaudited Pro Forma Condensed Financial Statements........................................... F-5
Historical:
Report of Independent Accountants..................................................................... F-6
Balance Sheet as of December 31, 1995................................................................. F-7
Statement of Operations for the period from March 28, 1995 (date of inception) to December 31, 1995... F-8
Statement of Stockholders' Deficit for the period from March 28, 1995 (date of inception) to December
31, 1995............................................................................................. F-9
Statement of Cash Flows for the period from March 28, 1995 (date of inception) to December 31, 1995... F-10
Notes to Financial Statements......................................................................... F-11
Advanced Radio Technologies Corporation:
Historical:
Report of Independent Accountants..................................................................... F-23
Balance Sheets as of December 31, 1995 and 1994....................................................... F-24
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-25
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-26
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-27
Notes to Financial Statements......................................................................... F-28
</TABLE>
F-1
<PAGE>
ADVANCED RADIO TELECOM CORP.
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 1995
The following unaudited pro forma condensed financial statements are
presented as if all of the following transactions had occurred: (i) the exchange
of the Advent/ART Securities, including accrued interest, into 232,826 shares of
ART Preferred Stock (which convert into 3,026,738 shares of Common Stock upon
consummation of the Offerings) and the related anti-dilution share adjustments;
(ii) the issuance of 48,893 shares of Preferred Stock (which convert into
635,609 shares of Common Stock upon consummation of the Offerings) and the
Ameritech Warrant to Ameritech in exchange for $2,350,000 in cash proceeds and
the Ameritech Strategic Distribution Agreement, after deducting related expenses
of $150,000, and the recognition of a $1,053,000 market development expense for
the value ascribed to the Ameritech Strategic Distribution Agreement; (iii) the
receipt of $4,950,000 in cash proceeds from the issuance of the Bridge Notes and
the Bridge Warrants, after deducting related expenses of $50,000; (iv) 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; and (v) the effects of the Merger,
including the issuance of ART Common Stock to ART Corp. stockholders and the
cancellation of all outstanding ART Corp. common stock.
The following unaudited pro forma as adjusted condensed financial statements
reflect further adjustments assuming the sale by the Company of (i) shares
of Common Stock offered in the Common Stock Offering based on an assumed initial
public offering price of $ per share, the midpoint of the filing range set
forth on the cover page of the prospectus relating to the Common Stock Offering
and (ii) the Units offered in the Unit Offering, and, in each case, after
deducting the estimated underwriting discount and offering expenses, (iii) the
receipt and application of the net proceeds therefrom and (iv) the conversion of
all outstanding shares of Preferred Stock into shares of Common Stock.
All such transactions are reflected as if they had occurred as of January 1,
1995 for the unaudited pro forma condensed statement of operations and December
31, 1995 for the unaudited pro forma condensed balance sheet.
These unaudited pro forma condensed financial statements were derived from
the audited financial statements of ART and ART Corp. and should be read in
conjunction with the audited financial statements of ART and related notes
thereto, and the audited financial statements of ART Corp. and 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 TELECOM CORP.
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------------------------------------------------------------------------------------
HISTORICAL
---------------------------------------------------------------
ADVANCED RADIO ELIMINATIONS HISTORICAL PRO FORMA
TELECOM CORP.(A) (C) COMBINED ADJUSTMENTS (D) PRO FORMA
---------------- ADVANCED RADIO -------------- ----------- ---------------- -----------
TECHNOLOGIES
CORPORATION (B)
----------------
(PREDECESSOR)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents......... $ 627,585 $ 6,069 -- $ 633,654 $ 2,350,000(2)
4,950,000(4)
2,220,000(5) $10,153,654
Due from ART Corp.... 738,680 -- $ (738,680) -- -- --
Other current
assets.............. 52,325 -- -- 52,325 -- 52,325
---------------- ---------------- -------------- ----------- ---------------- -----------
Total current
assets............ 1,418,590 6,069 (738,680) 685,979 9,520,000 10,205,979
Note receivable from
ART................... -- 5,000,000 (5,000,000) -- -- --
Property and equipment,
net................... 3,579,838 1,723 -- 3,581,561 -- 3,581,561
Equity investments..... -- 285,000 -- 285,000 -- 285,000
FCC licenses........... 4,226,821 8,913 -- 4,235,734 -- 4,235,734
Deferred finance 321,354 457,543 -- 778,897 (457,543)(1)
costs................. 50,000(4)
175,899(5) 547,253
Equipment and other
deposits.............. 284,012 -- -- 284,012 -- 284,012
Other assets........... -- 25,376 -- 25,376 -- 25,376
---------------- ---------------- -------------- ----------- ---------------- -----------
$ 9,830,615 $ 5,784,624 $(5,738,680) $ 9,876,559 $ 9,288,356 $19,164,915
---------------- ---------------- -------------- ----------- ---------------- -----------
---------------- ---------------- -------------- ----------- ---------------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and
accrued
liabilities......... $ 3,450,537 $ 243,952 -- $ 3,694,489 (66,452)(1) $ 3,628,037
Due to ART........... -- 738,680 $ (738,680) -- -- --
---------------- ---------------- -------------- ----------- ---------------- -----------
Total current
liabilities....... 3,450,537 982,632 (738,680) 3,694,489 (66,452) 3,628,037
Note payable to ART
Corp.................. 5,000,000 (5,000,000)
Losses in excess of
equity investment..... -- 211,543 (211,543) -- -- --
Convertible notes
payable............... -- 4,950,000 -- 4,950,000 $ (4,950,000)(1) --
Note payable to EMI.... 1,500,000 -- -- 1,500,000 -- 1,500,000
Bridge notes payable... -- -- -- -- 3,950,000(4) 3,950,000
Equipment financing
note payable.......... -- -- -- -- 1,911,439(5) 1,911,439
Senior discount
notes.................
---------------- ---------------- -------------- ----------- ---------------- -----------
Total
liabilities....... 9,950,537 6,144,175 (5,950,223) 10,144,489 844,987 10,989,476
---------------- ---------------- -------------- ----------- ---------------- -----------
Redeemable preferred
stock................. -- 44,930 -- 44,930 (44,930)(1) --
---------------- ---------------- -------------- ----------- ---------------- -----------
Stockholders' equity
(deficit):
Preferred stock,
par................. 488 -- -- 488 384(1)
49(2) 921
Common stock, par.... 15,291 3 -- 15,294 2,823(1)
(3)(3) 18,114
Additional paid-in
capital............. 2,845,372 998,385 (802,002)
(340) 3,041,415 4,600,632(1)
3,402,951(2)
3(3)
1,050,000(4)
484,460(5)
6,795,514 (11 19,374,975
Accumulated
deficit............. (2,981,073) (1,402,869) 1,013,885 (3,370,057) (1,053,000)(2)
(6,795,514)(11) (11,218,571)
---------------- ---------------- -------------- ----------- ---------------- -----------
Total stockholders'
equity
(deficit)......... (119,922) (404,481) 211,543 (312,860) 8,488,299 8,175,439
---------------- ---------------- -------------- ----------- ---------------- -----------
$ 9,830,615 $ 5,784,624 $(5,738,680) $ 9,876,559 $ 9,288,356 $19,164,915
---------------- ---------------- -------------- ----------- ---------------- -----------
---------------- ---------------- -------------- ----------- ---------------- -----------
<CAPTION>
OFFERING PRO FORMA
ADJUSTMENTS (E) AS ADJUSTED
----------------- -------------
<S> <C> <C>
Current assets:
Cash and cash
equivalents......... $ $
Due from ART Corp....
Other current
assets..............
----- -----
Total current
assets............
Note receivable from
ART...................
Property and equipment,
net...................
Equity investments.....
FCC licenses...........
Deferred finance
costs.................
Equipment and other
deposits..............
Other assets...........
----- -----
$ $
----- -----
----- -----
Current liabilities:
Accounts payable and
accrued
liabilities......... $ $
Due to ART...........
----- -----
Total current
liabilities.......
Note payable to ART
Corp..................
Losses in excess of
equity investment.....
Convertible notes
payable...............
Note payable to EMI....
Bridge notes payable...
Equipment financing
note payable..........
Senior discount
notes.................
----- -----
Total
liabilities.......
----- -----
Redeemable preferred
stock................. -- --
----- -----
Stockholders' equity
(deficit):
Preferred stock,
par.................
Common stock, par....
Additional paid-in
capital.............
Accumulated
deficit.............
----- -----
Total stockholders'
equity
(deficit).........
----- -----
$ $
----- -----
----- -----
</TABLE>
See accompanying notes to pro forma condensed financial statements.
F-3
<PAGE>
ADVANCED RADIO TELECOM CORP.
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
---------------------------------------------------------------------------------------------------
HISTORICAL
----------------------------------------------------------------
ADVANCED RADIO
TELECOM PRO FORMA
CORP. (A) ELIMINATIONS (C) COMBINED ADJUSTMENTS (D) PRO FORMA
-------------- ---------------- ------------ ---------------- ---------------
ADVANCED RADIO
TECHNOLOGIES
CORPORATION (B)
----------------
(PREDECESSOR)
----------------
<S> <C> <C> <C> <C> <C> <C>
Operating revenue............. $ 5,793 $ -- $ -- $ 5,793 $ -- $ 5,793
-------------- ---------------- ---------------- ------------ ---------------- ---------------
Expenses:
General and
administrative............. 2,711,642 215,315 -- 2,926,957 (802,002 10) 2,124,955
Market development.......... 191,693 -- 191,693 1,053,000(9) 1,244,693
Interest, net............... 83,531 38,455 -- 121,986 1,019,145(6)
673,534(7)
(73,568 (8) 1,741,097
-------------- ---------------- ---------------- ------------ ---------------- ---------------
Total expenses............ 2,986,866 253,770 -- 3,240,636 1,870,109 5,110,745
Equity loss in ART............ -- 1,013,885 (1,013,885) -- -- --
-------------- ---------------- ---------------- ------------ ---------------- ---------------
Net loss................ $ 2,981,073 $ 1,267,655 $ 1,013,885 $ 3,234,843 $ 1,870,109 $ 5,104,952
-------------- ---------------- ---------------- ------------ ---------------- ---------------
-------------- ---------------- ---------------- ------------ ---------------- ---------------
Net loss per share of common
stock (F).................... $ .19 $ 4,495.23 $
-------------- ---------------- ---------------
-------------- ---------------- ---------------
Weighted average number of
shares of Common Stock
outstanding (F).............. 15,919,596 282
-------------- ---------------- ---------------
-------------- ---------------- ---------------
<CAPTION>
OFFERING PRO FORMA
ADJUSTMENTS (E) AS ADJUSTED
--------------- ---------------
<S> <C> <C>
Operating revenue............. $ $
--------------- ---------------
Expenses:
General and
administrative.............
Market development..........
Interest, net...............
--------------- ---------------
Total expenses............
Equity loss in ART............
--------------- ---------------
Net loss................ $ $
--------------- ---------------
--------------- ---------------
Net loss per share of common
stock (F).................... $
---------------
---------------
Weighted average number of
shares of Common Stock
outstanding (F)..............
---------------
---------------
</TABLE>
See accompanying notes to unaudited pro forma condensed financial statements.
F-4
<PAGE>
ADVANCED RADIO TELECOM CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
(A) Represents the historical amounts of ART as of December 31, 1995 and for the
period from March 28, 1995 (date of inception) to December 31, 1995.
(B) Represents the historical amounts of ART's predecessor, ART Corp. as of and
for the year ended December 31, 1995.
(C) Represents eliminations of inter-entity transactions and balances primarily
consisting of receivables, payables and ART Corp.'s investment in and equity
in losses of ART.
(D) Pro forma adjustments:
(1) Conversion of the Advent/ART Securities, including accrued interest,
into shares of ART Series E Preferred Stock and the resulting
anti-dilution adjustments for certain holders of ART Common Stock and
Serial Preferred Stock.
(2) Issuance of shares of ART Series F Preferred Stock and the Ameritech
Warrants to Ameritech in exchange for cash of $2,350,000, net of the
related financing costs of $150,000 and the Ameritech Strategic
Distribution Agreement. The value ascribed to the Ameritech Strategic
Distribution Agreement totaled $1,053,000.
(3) Issuance of ART Common Stock to ART Corp. stockholders and cancellation
of all outstanding ART Corp. Common Stock in connection with the Merger.
(4) Proceeds from Bridge Financing received from stockholders of ART of
$4,950,000 in cash, net of the related financing costs of $50,000, in
exchange for the Bridge Notes and Bridge Warrants. The value ascribed to
the Bridge Warrants totaled $1,050,000.
(5) Proceeds of $2,220,000 in cash from 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.
(6) Interest expense from the Bridge Financing provided by stockholders of
ART, at the effective interest rate after giving effect to the value
ascribed to the Bridge Warrants.
(7) Interest expense from the Equipment Financing, at the effective interest
rate after giving effect to the value ascribed to the Indemnity Warrants.
(8) Elimination of interest expense from the Advent Notes that were
converted into ART Series E Preferred Stock.
(9) Recognition of market development expense for the value ascribed to the
Ameritech Strategic Distribution Agreement.
(10) The reversal of a non-recurring, non-cash compensation expense of
$802,002 recognized in 1995 associated with the release of Escrow Shares
in 1995. Compensation expense associated with the termination of the
Escrow Shares arrangement in 1996, totaling $6,795,514, has not been
reflected in the unaudited pro forma condensed statements of operations
as it is non-recurring.
(11) The increase in paid-in capital and accumulated deficit to reflect the
impact of the 1996 release of the Escrow Shares.
(E) Offering adjustments:
(1) Issuance of shares of Common Stock offered in the Common Stock
Offering based on an assumed initial public offering price of $ per
share, after deducting the estimated offering discount and related
expenses.
(2) Issuance of the Units in the Unit Offering, after deducting the
estimated offering discount and related expenses.
(3) Repayment of the Bridge Notes out of the net proceeds from the
Offerings.
(4) Conversion of all shares of Serial Preferred Stock into shares of Common
Stock.
(5) Interest expense on the Notes from the Unit Offering.
(F) Pro forma net loss per share and the weighted average number of shares of
Common Stock reflect (i) the Merger of ART Corp. into ART; (ii) the
Ameritech investment; (iii) the exchange of Advent/ ART Securities for
Preferred Stock of ART; (iv) the conversion of all shares of Serial
Preferred Stock to Common Stock; and (v) 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 as if they were outstanding as of January 1, 1995.
F-5
<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, 12 and 14, 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
F-6
<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 Corp. (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 Corp. (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-7
<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)...................... 2,711,642
Market development expenses.................................................. 191,693
Interest expense, net (Notes 4 and 7)........................................ 83,531
----------
Total expenses............................................................. 2,986,866
----------
Net loss................................................................. $2,981,073
----------
----------
Net loss per share............................................................. $ .19
----------
----------
Pro forma net loss per share (unaudited)....................................... $
----------
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-8
<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
Corp. 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
Corp. 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
Corp. 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
Share issuance costs..............
Redemption of Common Stock from
Landover......................... (808)
Investment by ART Corp. 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
Corp. 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)
Share issuance costs.............. (229,814) (229,814)
Redemption of Common Stock from
Landover......................... (1,999,192) (2,000,000)
Investment by ART Corp. 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-9
<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 Corp......................................................... (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 Corp........................... 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-10
<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. ("ART" or the "Company"), formerly named
Advanced Radio Technology Ltd., was incorporated in Delaware as a subsidiary of
Advanced Radio Technologies Corporation ("ART Corp.") 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.
The Company was organized by ART Corp. 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 ART Corp.,
Landover and the Company dated April 21, 1995 (the "Purchase Agreement"),
Landover was obligated to purchase $7.0 million of securities of ART. Pursuant
to the Purchase Agreement and a stockholders' agreement between the Company, ART
Corp. and their respective shareholders dated May 8, 1995 (the "Stockholders'
Agreement"), the Company and ART Corp. will merge once approval from the Federal
Communications Commission (the "FCC") has been granted. On February 2, 1996, the
Company and ART Corp. entered into a definitive merger agreement (the "Merger
Agreement") whereby ART Corp. is to be merged into the Company (the "Merger"),
with the Company as the surviving entity. (See Note 2).
INITIAL CAPITALIZATION
As its initial capitalization, the Company 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 the Company then
outstanding. Concurrently, the Company issued 4,420,000 shares of Class A Common
Stock, representing 34% of the total number of shares of capital stock, to ART
Corp. for $340. The number of shares of Class A and Class B Common Stock issued
at the initial capitalization of the Company 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 the Company and its affiliates (the "Landover Funding
Commitment"). In consideration for this $7.0 million investment, the Company
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. The Company 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. 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 set forth in Notes 8, 12 and 14. The Company's
funding of its initial operating expenses, working capital needs and contractual
commitments is dependent upon its ability
F-11
<PAGE>
ADVANCED RADIO TELECOM CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
1. FORMATION OF THE COMPANY AND BASIS OF PRESENTATION, CONTINUED:
to raise additional financing. The Company has engaged various investment
bankers to assist it in raising financing through a public equity and debt
offering. There can be no assurance that the Company will be successful in its
effort to raise additional financing through these offerings or, if available,
that the Company 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. REORGANIZATION AND PENDING MERGER WITH ART CORP.:
Under the terms of the Purchase Agreement, the Company and ART Corp. 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, the
Company and ART Corp. entered into an exclusive 20-year services agreement (the
"Services Agreement") for the construction, development and operation of systems
in ART Corp.'s markets (see Note 8).
On February 2, 1996, the Company, ART Corp. 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 the Company (see
Note 9); (iii) the exchange of the Advent Notes and one share of ART Corp.
Series A Redeemable Preferred Stock for Series E Preferred Stock of the Company
(see Note 7); (iv) revision of provisions for election of directors; (v)
amendment and restatement of the Company's registration rights agreements; (vi)
release of shares escrowed in connection with the original Stockholders'
Agreement (see Note 9); (vii) the change of name of the Company; and (viii)
approval of the Merger Agreement (the "Reorganization").
Upon completion of the Merger, subject only to FCC approval, each
outstanding share of the Company's Common Stock held by ART Corp. immediately
before the Merger shall be canceled and the stockholders of ART Corp. are to
receive an equal number of shares of Common Stock of the Company. The Merger
Agreement also provides that if the Merger is not consummated by May 13, 1997,
ART Corp. is to surrender all of its shares of the Company's Common Stock to the
Company and the terms of the Services Agreement are to be revised to, among
other changes, extend the term of that agreement to 40 years and provide for a
proportionate participation by ART Corp.'s stockholders in any dividends paid by
the Company or in any proceeds from the sale of the Company.
3. 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.
CASH AND CASH EQUIVALENTS
The Company 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.
F-12
<PAGE>
ADVANCED RADIO TELECOM CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
3. SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
FCC LICENSES
The Company 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.
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, 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.
INCOME TAXES
The Company accounts for income taxes under the liability method of
accounting. Under the liability method, deferred taxes are determined based on
the differences between the financial statement and tax bases of assets and
liabilities at enacted tax rates in effect in the year in which the differences
are expected to reverse. Valuation allowances are established, when necessary,
to reduce deferred tax assets to the amounts expected to be realized.
NET LOSS PER SHARE
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. 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. Accordingly, an additional
shares are reflected in the weighted average number of shares of
Common Stock outstanding in computing the unaudited pro forma net loss per
share.
F-13
<PAGE>
ADVANCED RADIO TELECOM CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
3. SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
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
The Company 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 the
Company to potential credit risk include the amount due from ART Corp. (Note 12)
and deposits on equipment (Note 8).
4. ACQUISITION OF ASSETS OF EMI:
On April 4, 1995, ART Corp. entered into an 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
Corp. assigned its rights and obligations under the EMI purchase agreement to
the Company. The FCC subsequently approved the transfer of the EMI licenses and
the Company acquired the EMI Assets. 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 the Company, with a guarantee by ART Corp., 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 the Company to fund a
portion of the initial payment to EMI. The Company repaid such advance later in
the same month.
5. PROPERTY AND EQUIPMENT:
PROPERTY AND EQUIPMENT COMPRISE:
<TABLE>
<S> <C>
Wireless transmission equipment................................ $3,496,905
Office furniture and equipment................................. 88,239
----------
3,585,144
Accumulated depreciation....................................... (5,306)
----------
$3,579,838
----------
----------
</TABLE>
As of December 31, 1995, excluding the property and equipment acquired from
EMI (Note 4), the wireless transmission equipment acquired to date has not been
placed into service.
F-14
<PAGE>
ADVANCED RADIO TELECOM CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
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 CORP.:
ART Corp., the Company 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 Corp., the Company and certain
specified affiliates. Pending the merger of these entities (see Note 2), ART
Corp. issued promissory notes (the "Advent Notes") with an aggregate principal
amount of $4,950,000 and one share of ART Corp.'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 Corp. and the Company. 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 of the Company 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
Corp. from Advent were transferred to the Company 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 Corp., the Company and Advent entered
into an exchange agreement under which the Advent Notes, including accrued
interest, and the one share of ART Corp.'s Series A Redeemable Preferred Stock
held by Advent were exchanged for 232,826 shares of Series E Preferred Stock of
the Company, the note was canceled, and the Company became the owner of the one
share of ART Corp. Series A Redeemable Preferred Stock.
8. COMMITMENTS:
EQUIPMENT PURCHASE AGREEMENT
On August 11, 1995, the Company entered into an agreement to purchase
wireless transmission equipment from a vendor. Under the terms of the agreement,
the Company 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. The Company's initial non-cancelable
purchase order amounts to $13,260,000. Through December 31, 1995, the Company
has purchased and paid for $522,812 of equipment under this contract. In
addition, the Company has made a $280,000 deposit under this agreement which is
to be applied against future purchases after the Company has purchased a
specified amount of equipment, which is expected to occur in 1996.
The Company 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 the Company until alternative
supply sources are established. The Company does not manufacture, nor does it
have the capability to manufacture, any of the wireless transmission equipment
necessary to
F-15
<PAGE>
ADVANCED RADIO TELECOM CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
8. COMMITMENTS, CONTINUED:
provide its services. Although there are a limited number of other manufacturers
who have, or are developing, equipment that would meet the Company's
requirements, there can be no assurance that such equipment would be available
to the Company on comparable terms or on terms more favorable to those included
in its current arrangements. 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.
SERVICES AGREEMENTS
Under the Services Agreement, the Company has agreed to construct, operate
and manage the FCC licenses and related telecommunications systems that are
owned by ART Corp. or for which ART Corp. has existing services agreements.
Under 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 25% which is to be paid to
ART Corp. The Services Agreement is for a period of 20 years commencing April
21, 1995.
The Company, through its Services Agreement with ART Corp., has two other
exclusive services agreements, one with ART West, a joint venture in which ART
Corp. 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 Corp. and the Company, 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 the Company is the President and a shareholder of the
Company's joint venture partner in ART West.
On April 24, 1996, the Company entered into a services agreement with
Telecom One on terms substantially identical to the terms of the Services
Agreement between ART Corp. and the Company, except that compensation to the
Company is equal to all revenues generated by the systems, after deducting
certain expenses, less 10% which is paid to Telecom One.
EMPLOYMENT AND CONSULTING AGREEMENTS
On May 8, 1995, the Company and ART Corp. jointly entered into consulting
agreements with two executive officers of the Company, 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
the Company under these consulting agreements through December 31, 1995 amounted
to $166,750.
On December 16, 1995, one of the executive officers of the Company,
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, the Company entered into an employment agreement, as
amended February 2, 1996, with an officer of the Company. 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
F-16
<PAGE>
ADVANCED RADIO TELECOM CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
8. COMMITMENTS, CONTINUED:
capital stock of the Company (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.
The Company 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 Corp. 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 Corp. in exchange for cash and
options to purchase capital stock of ART Corp. Pursuant to a letter agreement
dated July 12, 1995, ART Corp. and the Company paid SERP $245,000 and the
shareholders of ART Corp. granted SERP options to purchase 10.65 shares of ART
Corp. Common Stock directly from the shareholders of ART Corp. for an aggregate
consideration of approximately $210,000
As of December 31, 1995, ART Corp. and the Company 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 the Company (see Note 9) and the balance as
part of the deferred financing costs recorded by ART Corp. in connection with
the issuance of the Advent Notes (See Note 7).
LEASES
ART and ART Corp. 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
ART and no amounts have been charged to ART Corp. 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
F-17
<PAGE>
ADVANCED RADIO TELECOM CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
9. STOCKHOLDERS' DEFICIT, CONTINUED:
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 Corp. were
required to place 175 shares of Common Stock in ART Corp. in escrow (the "Escrow
Shares") to be released upon the completion of the pending EMI Asset acquisition
(see Note 4), the Company'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, 63.6 shares of the
Escrow Shares of ART Corp. 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 Corp. 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 Corp. 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. Upon a public offering of the Company's Common Stock, all of the
then outstanding Serial Preferred Stock shall be converted into Common Stock.
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, the
Company 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, the Company 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 the Company and ART Corp. 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
F-18
<PAGE>
ADVANCED RADIO TELECOM CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
9. STOCKHOLDERS' DEFICIT, CONTINUED:
the then outstanding capital stock of the Company. 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 Company Common Stock directly from Landover for $0.001 per
share in the event the Company does not attain certain equity valuation
objectives.
On November 13, 1995, the Advent Group executed a securities purchase
agreement with ART Corp. and the Company. As a result of the exchange agreement
dated February 2, 1996, Advent received 232,826 shares of Series E Preferred
Stock of the Company, representing a 10% ownership interest (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, the Company 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.
10. STOCK OPTION PLANS:
On July 22, 1995, the Company adopted the 1995 Stock Option Plan (the
"Plan") that provides for option grants to employees, directors and independent
consultants of the Company. The Company 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 the Company 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 the Company 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 the Company under the Plan at an
option price of $3.94 per share.
On April 24, 1996, the Company 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.
F-19
<PAGE>
ADVANCED RADIO TELECOM CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
10. STOCK OPTION PLANS, CONTINUED:
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
the Company'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. The Company expects to continue accounting for
employee stock compensation awards using current accounting requirements.
11. INCOME TAXES:
As of December 31, 1995, the Company 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.
12. RELATED PARTY TRANSACTIONS:
On May 8, 1995, the Company and ART Corp. entered into a consulting
agreement with Landover as a strategic and financial consultant. The Company
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 ART Corp. entered into a management
consulting agreement with Landover to provide strategic planning, corporate
development and general management. Under the agreement, the Company will pay
Landover $35,000 per month for an initial one year term, renewable by the
Company and ART Corp. 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 the Company,
it will be paid a fee by the Company in accordance with industry standards.
Pursuant to the Purchase Agreement, the Company and ART Corp. 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 the Company and $250,000
has been capitalized as deferred financing costs by ART Corp.
An executive and shareholder of ART Corp. is a principal in a law firm that
regularly provides legal services to the Company. During the period from March
28, 1995 through December 31, 1995, the Company incurred $237,538 for such
services.
F-20
<PAGE>
ADVANCED RADIO TELECOM CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
12.
RELATED PARTY TRANSACTIONS, CONTINUED:
The Company has funded certain expenses and investments of ART Corp.,
including ART Corp.'s investment in ART West and payments of financing and other
operating costs. The amounts funded by the Company to date totalling $805,803,
offset by accrued interest of $67,123 related to the note payable to ART Corp.
(see Note 7) have been included in the amount due from ART Corp.
13. FAIR VALUES OF FINANCIAL INSTRUMENTS:
The carrying amount and fair values of the Company'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 the Company for issuance of
debt with similar terms and maturity.
14. SUBSEQUENT EVENTS:
AMERITECH FINANCING
On February 2, 1996, the Company 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, the Company 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 the Company at a price of $0.001 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 the Company's services within five midwestern states. The Company
incurred fees of $150,000 in connection with this transaction.
Under the terms of the securities purchase agreement with Ameritech,
Ameritech is entitled to a put option to require the Company 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"). The Company 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, the Company 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.
F-21
<PAGE>
ADVANCED RADIO TELECOM CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
14. SUBSEQUENT EVENTS, CONTINUED:
RESEARCH AND DEVELOPMENT ARRANGEMENTS
On January 26, 1996, the Company entered into a preliminary agreement to
invest from $700,000 to $1.0 million in an entity in which an executive of the
Company is a director and a shareholder. The preliminary agreement provides for
the entity to perform research and development of wireless transmission
equipment in which the Company will receive a right of first refusal on
production capacity and a license fee in exchange for its investment.
On March 13, 1996, the Company issued a letter of intent to a third party to
provide the Company 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, the Company entered into a software license agreement
(the "Software License Agreement"). The terms of the Software License Agreement
provide for licensed software and hardware for the Company'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 made 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, the Company and ART Corp. 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 the
Company, ART Corp., ART Corp.'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-22
<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' equity
(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 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
F-23
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
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 ART (Note 4)................................................... 5,000,000
Equity investment (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 ART (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 notes 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, 7, 8 and 11)................................
Stockholders' deficit (Note 9):
Common stock, $.01 par value; 2,000 shares authorized; 340 and 200 shares issued
and outstanding.................................................................. 3 2
Additional paid-in capital........................................................ 998,385 96,134
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-24
<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 PERIOD FROM
AUGUST 23, AUGUST 23,
YEARS ENDED 1993 (DATE OF 1993 (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 (Note 11)........... 215,315 261,734 6,594 483,643
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 ART (Note 5)................. 1,013,885 1,013,885
------------- ----------- ------------- -------------
Net loss............................................ $ 1,267,655 $ 128,620 $ 6,594 $ 1,402,869
------------- ----------- ------------- -------------
------------- ----------- ------------- -------------
Net loss per share........................................ $ 4,495.23 $ 702.84 $ 65.94
------------- ----------- -------------
------------- ----------- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-25
<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
PAID-IN DEVELOPMENT
COMMON STOCK CAPITAL STAGE TOTAL
------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Net issuance of 100 shares of common stock for cash........ $ 1 $ 61,135 $ 61,136
Net loss................................................... $ (6,594) (6,594)
--
------------- -------------- --------------
Balance, December 31, 1993................................. 1 61,135 (6,594) 54,542
Issuance of 100 shares of common stock for cash............ 1 34,999 35,000
Net loss................................................... (128,620) (128,620)
--
------------- -------------- --------------
Balance, December 31, 1994................................. 2 96,134 (135,214) (39,078)
Issuance of 2.5 shares of common stock to ART West......... 25,000 25,000
Issuance of 137.5 shares of common stock to existing
shareholders.............................................. 1 (1)
Conversion of note payable and interest to paid-in
capital................................................... 75,250 75,250
Investment in ART as a result of the release of escrow
shares.................................................... 802,002 802,002
Net loss................................................... (1,267,655) (1,267,655)
--
------------- -------------- --------------
Balance, December 31, 1995................................. $ 3 $ 998,385 $ (1,402,869) $ (404,481)
--
--
------------- -------------- --------------
------------- -------------- --------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-26
<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:
Depreciation and amortization......................... 54,754 8,281 688 63,723
Equity loss on investment in ART...................... 1,013,885 1,013,885
Changes in operating assets and liabilities:
Accounts payable and accrued liabilities.............. 62,513 (8,282) 19,971 74,202
-------------- ------------- ------------- --------------
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 ART.......................... (255,340) (255,340)
Note receivable from ART................................ (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
Share 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 ART.............................................. 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 ART................................................. $ 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-27
<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 Corp.") was organized as a
Delaware corporation on August 23, 1993, to provide broadband wireless digital
telecommunication services to the domestic telecommunications market. ART
Corp.'s operations to date include the application 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, ART Corp. 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. ("ART") was organized by ART Corp.
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 ART Corp., Landover, and ART dated April 21, 1995, ("the Purchase
Agreement") Landover was obligated to purchase $7,000,000 of securities of ART.
Pursuant to the Purchase Agreement and a stockholders' agreement between ART,
ART Corp. and their respective shareholders dated May 8, 1995 (the
"Stockholders' Agreement"), ART and ART Corp. will merge once approval from the
FCC has been granted. On February 2, 1996, ART and ART Corp. entered into a
definitive merger agreement (the "Merger Agreement") whereby ART Corp. is to be
merged into ART (the "Merger"), with ART as the surviving entity. (See Note 2).
INITIAL CAPITALIZATION
ART Corp. was formed on August 23, 1993 by two of its executives (the
"Founding Stockholders") by issuing 100 shares of common stock in exchange for
$1,136. During November 1993, ART Corp. redeemed 40 shares of common stock from
the Founding Stockholders and through a private placement issued 40 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 ART Corp. in exchange for 20 shares of common stock and
a $70,000 Promissory Note. In connection with the High Sky II financing, ART
Corp. issued an additional aggregate of 80 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 Corp. 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 ART
Corp., 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. ART Corp. has a substantial
working capital deficit, has incurred operating losses since inception and does
not expect to recognize material operating revenues until the commencement of
its commercial services,
F-28
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
1. FORMATION OF THE COMPANY AND BASIS OF PRESENTATION, CONTINUED:
which is anticipated to occur in fiscal 1996. ART Corp. 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 7, 8 and 11. ART Corp.'s continued funding of its initial
operating expenses, working capital needs and contractual commitments is
dependent upon its ability to raise additional financing. ART Corp. 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 ART Corp.
and ART will be successful in their effort to raise additional financing through
these offerings or, if available, that ART Corp. and ART will be able to obtain
it on acceptable terms. These conditions raise substantial doubt about ART
Corp.'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:
INITIAL CAPITALIZATION OF ART
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
ART 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 ART then outstanding. Concurrently, ART Corp. received 4,420,000 shares
of Class A common stock, representing 34% of the total number of shares of
capital stock of ART then outstanding in exchange for $340. All of the above
references to shares of common stock of ART 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 and its affiliates (the "Landover Funding
Commitment"). In consideration for this $7,000,000 investment, ART 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, ART agreed to issue, for no
consideration, additional shares of Class A Common Stock in number necessary to
maintain the 36% ownership interest in ART of the holders of Class A Common
Stock.
Under the Purchase Agreement, the individual shareholders of ART Corp. were
required to place 175 shares of Common Stock in ART Corp. in escrow (the "Escrow
Shares") to be released upon the completion of the pending EMI Asset acquisition
(see Note 8), ART'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, 63.6 of the Escrow Shares of ART Corp.
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 ART, the effect
of which has been recognized as additional paid-in capital in ART Corp. 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 Corp. 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.
F-29
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
2. PURCHASE AGREEMENT, CONTINUED:
MERGER AGREEMENT
Under the terms of the Purchase Agreement, ART Corp. and ART intend to
operate both companies as a single enterprise and are committed to merge if and
when permitted by the FCC. Concurrent with the Purchase Agreement, ART Corp. and
ART entered into an exclusive 20-year services agreement (the "Services
Agreement") for the construction, development and operation of systems in ART
Corp.'s markets (see Note 6).
On February 2, 1996, ART, ART Corp. 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 ART; (iii) the exchange of the Advent Notes and one share
of ART Corp. Series A Redeemable Preferred Stock for Series E Preferred Stock of
ART (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;
(vii) the change of name of ART; and (viii) approval of the Merger Agreement
(the "Reorganization").
Upon completion of the Merger, each outstanding share of ART's Common Stock
held by ART Corp. immediately before the Merger shall be canceled and the
stockholders of ART Corp. are to receive an equal number of shares of Common
Stock of ART. The Merger Agreement also provides that if the Merger is not
consummated by May 13, 1997, ART Corp. is to surrender all of its shares of
ART's Common Stock to ART and the terms of the Services Agreement are to be
revised to, among other changes, extend the term of that agreement to 40 years
and provide for a proportionate participation by ART Corp.'s stockholders in any
dividends paid by ART or the proceeds from any sale of ART.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DEVELOPMENT STAGE ENTERPRISE
ART Corp. 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 are
computed using the straight-line method over the estimated useful lives of three
years.
INVESTMENTS
ART Corp. accounts for its 50% interest in the ART West joint venture and
its 34% interest in ART under the equity method.
FCC LICENSES
ART Corp. 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.
F-30
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
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 marketplaces, 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, technological,
regulatory or other changes.
ART Corp.'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, ART Corp. 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
ART Corp. 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 is computed based on the loss for the period divided by
the weighted average number of shares of Common Stock outstanding during each
period.
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.
F-31
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
4. NOTE RECEIVABLE FROM ART AND CONVERTIBLE NOTES PAYABLE TO ADVENT:
ART Corp., ART and several entities affiliated with the 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 ART Corp., ART and
certain specified affiliates. Pending the merger of these entities (see Note 2),
ART Corp. issued promissory notes (the "Advent Notes") with an aggregate
principal amount of $4,950,000 and one share of ART Corp.'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 ART Corp. and ART. 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, ART Corp. 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 ART Corp.
from Advent were transferred to ART in exchange for a note with terms equivalent
to the terms of the Advent Notes. On February 2, 1996, ART Corp., ART and Advent
entered into an exchange agreement under which the Advent Notes, including
accrued interest, and the one share of ART Corp.'s Series A Redeemable Preferred
Stock held by Advent were exchanged for 232,826 shares of Series E Preferred
Stock of ART, and the note was canceled. As a result, the Advent Notes were
canceled and ART became the owner of the one share of the Series A Redeemable
Preferred Stock.
5. EQUITY INVESTMENTS:
INVESTMENT IN ART WEST JOINT VENTURE
On April 4, 1995, ART Corp. 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. ART Corp.'s initial capital contribution
consisted of $255,000 in cash, FCC licenses and related assets with a carrying
value of approximately $5,000, and 2.5 shares of Common Stock of ART Corp.
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 2.5 shares of common stock contributed by ART Corp. to ART West. As a result
of these contributions and distributions, ART Corp. and Extended share equally
in the partnership interests of ART West. ART Corp. recorded its investment in
ART West in the amount of $285,000. The excess of ART Corp.'s share of the
underlying net assets of ART West over ART Corp.'s recorded investment will be
amortized over the life of the ART West Systems.
On October 1, 1994, ART Corp. entered into an exclusive services agreement
with Extended, whereby ART Corp. 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 Corp. will incur all costs and expenses
related to construction, operation and management of the systems. As
compensation, ART Corp. will receive all revenues
F-32
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
5. EQUITY INVESTMENTS, CONTINUED:
generated by the systems after deducting certain related direct expenses, less
45% which is to be paid to ART West. ART Corp.'s interest in this service
agreement was subsequently assigned to ART (Note 6). An officer of ART Corp. is
also the President and a shareholder of Extended.
INVESTMENT IN ART
ART Corp. acquired 4,420,000 shares of Class A common stock of ART, or 34%
of the outstanding and issued shares, for cash of $340 (see Note 2). ART Corp.
also recorded $802,002 as an investment in ART based upon the fair value of
Escrow Shares released in 1995 (see Note 2). The excess of ART Corp.'s share of
the underlying net assets of ART over ART Corp.'s recorded investment will be
amortized over the estimated useful life of ART's FCC licenses.
ART Corp. recognizes its proportionate share of the losses of ART in excess
of its investment to the extent of its funding and financial commitments. During
1995, ART Corp. recognized its proportionate share of ART's loss in the amount
of $1,013,885. Summarized financial information for ART as of December 31, 1995
and the period 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 Corp............................................................... 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. ART SERVICES AGREEMENT:
ART Corp. entered into an exclusive services agreement (the "Services
Agreement") with ART, for the construction, operation and management of the FCC
licenses and related telecommunications systems that are owned by ART Corp. or
for which ART Corp. has existing services agreements. Under 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 25% which is to be paid to ART Corp. The Services Agreement is
for a period of 20 years.
F-33
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
6. ART SERVICES AGREEMENT, CONTINUED:
Through this Services Agreement, ART Corp. 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, ART Corp. entered into an agreement with DCT
Communications, Inc. ("DCT"), in which ART Corp. obtained the option to purchase
certain FCC licenses (the "Systems") from DCT for $500,000 and shares of ART
Corp.'s common stock that represent 5% of its fully diluted equity as of the
date of transfer. The option is exercisable at any time after December 31, 1995
and up to the date that is three years after the FCC issues DCT's first license.
At any time after December 31, 1995, DCT may require that ART Corp. purchase the
Systems for $50,000, plus reimbursement of certain costs defined in the
agreement.
SERVICES AGREEMENT
On September 1, 1994, ART Corp. entered into an exclusive services agreement
with DCT whereby ART Corp. 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, ART Corp. will incur all costs and expenses
related to construction, operation and management of the systems. As
compensation, ART Corp. 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, ART Corp. 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 ART Corp. $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, ART and ART Corp. 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 ART.
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, ART Corp. entered into an 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,
ART Corp. assigned its rights and obligations under the purchase agreement to
ART. The FCC subsequently approved the transfer of the EMI licenses and ART
acquired the EMI Assets. ART Corp. has also issued a guarantee to EMI of the
obligations of ART under the promissory note.
F-34
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
8. COMMITMENTS, CONTINUED:
TELECOM ONE OPTION
On May 25, 1995, ART Corp. entered into an agreement with TeleCom One
Incorporated ("TeleCom One") whereby ART Corp. 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, ART Corp.
acquired options to purchase a 49% interest in each of the FCC licenses obtained
by TeleCom One. The term of the TeleCom One Agreement is five years. ART Corp.
has not exercised any of its options.
EMPLOYMENT AND CONSULTING AGREEMENTS
On May 8, 1995, ART Corp. and ART jointly entered into consulting agreements
with two executive officers of ART Corp. and ART, 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 this contract have
been recorded by ART and no amounts have been charged to ART Corp.
On December 16, 1995, one of the executive officers of ART Corp. and ART,
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 ART and no amounts have been charged to ART Corp.
On July 11, 1995, ART Corp. and ART entered into an employment agreement, as
amended January 8, 1996, with an officer of ART and ART Corp. 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 ART Common Stock were awarded to this officer equivalent to 2.5% of
the outstanding capital stock of ART. 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 ART
and no amounts have been charged to ART Corp.
ART Corp. has 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, ART Corp. entered into an agreement with Southeast Research
Partners ("SERP"), a subsidiary of Josephthal, Lyons & Ross, a Florida broker
dealer, to procure additional financing for ART Corp. in exchange for cash and
options to purchase capital stock of ART. Pursuant to a letter agreement dated
July 12, 1995, ART Corp. and ART paid SERP $245,000 and the shareholders of ART
Corp. granted SERP options to purchase 10.65 shares of ART Corp. Common Stock
directly from the Founding Stockholders for an aggregate consideration of
$210,000.
As of December 31, 1995, ART Corp. and ART 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 ART.
9. COMMON STOCK:
ART Corp. is authorized to issue 2,000 shares of common stock, par value
$.01 per share. On April 5, 1994, the Board of Directors authorized a 5 for 1
stock split. Subsequently, on April 5, 1995, the
F-35
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
9. COMMON STOCK, CONTINUED:
Board of Directors authorized a 1 for 5 reverse stock split and simultaneously
issued an additional 140 shares of common stock. All references to the number of
shares and per share amounts of ART Corp. common stock in the accompanying
financial statements have been restated to reflect the stock split and the
reverse stock split.
10. INCOME TAXES:
As of December 31, 1995 and 1994, ART Corp. 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, ART Corp. and ART entered into a consulting agreement with
Landover as a strategic and financial consultant. ART paid Landover $70,000 for
services under this agreement during 1995. The consulting agreement was
terminated on November 13, 1995.
On November 13, 1995, ART Corp. and ART entered into a management consulting
agreement with Landover to provide strategic planning, corporate development and
general management. Under the agreement, ART Corp. and ART will pay Landover
$35,000 per month for an initial one year term, renewable by ART Corp. and ART
for two additional one year terms. The aggregate expense recognized by ART under
this agreement during 1995 amounted to $70,000. These expenses have been
recorded by ART and no portion of such costs have been charged to ART Corp. The
agreement also provides that in the event Landover arranges financing,
acquisitions or certain other transactions for ART Corp. and ART, Landover will
be paid a fee in accordance with industry standards.
Pursuant to the Purchase Agreement, ART Corp. and ART 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 ART Corp. and the
balance of $141,750 has been charged to paid-in capital of ART.
ART has funded certain expenses and investments of ART Corp., including ART
Corp.'s investment in ART West and payments of financing and other operating
costs. The amounts funded by ART to date totalling $805,803, offset by accrued
interest income of $67,123 related to the note receivable from ART (see Note 4)
have been included in the amount due to ART.
In 1994, ART Corp. shared office space with a law firm in which a principal
of the law firm was also one of the Founding Stockholders. ART Corp. 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 ART Corp. During 1995 and
1994, ART Corp. incurred fees of $34,770 and $74,550, respectively for such
services.
12. FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amounts and fair values of ART Corp.'s financial instruments at
December 31 were as follows:
<TABLE>
<CAPTION>
1995 1994
---------------------------- --------------------
CARRYING CARRYING FAIR
AMOUNT FAIR VALUES AMOUNT VALUES
------------- ------------- --------- ---------
<S> <C> <C> <C> <C>
Note receivable from ART.................................... $ 5,000,000 $ 5,000,000 -- --
Notes payable............................................... 4,950,000 4,950,000 $ 70,000 $ 70,000
</TABLE>
Note receivable from ART: The carrying amounts reported in the balance sheet
are a reasonable estimate of fair values.
F-36
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
12. FAIR VALUES OF FINANCIAL INSTRUMENTS CONTINUED:
Notes payable: The carrying amounts reported in the balance sheet
approximate fair values based upon interest rates that are currently available
to ART Corp. for issuance of similar debt with similar terms and maturities.
F-37
<PAGE>
[INSIDE BACK COVER]
[MAP OF U.S. DISPLAYING ADVANCED RADIO
TELECOM CORP.'S 38 GHz SERVICE AREAS.]
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION WHERE, OR TO ANY
PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS NOT BEEN A CHANGE IN THE
FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE
DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary............................................... 3
Risk Factors..................................................... 10
The Company...................................................... 21
Use of Proceeds.................................................. 21
Capitalization................................................... 22
Selected Historical Combined and Pro Forma Financial Data........ 23
Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................... 26
Business......................................................... 30
Management....................................................... 53
Principal Stockholders........................................... 62
Certain Transactions............................................. 64
Description of Units............................................. 69
Description of Notes............................................. 69
Description of Warrants.......................................... 96
Description of Capital Stock..................................... 100
Description of Certain Indebtedness.............................. 102
Certain Federal Income Tax Considerations........................ 103
Underwriting..................................................... 106
Legal Matters.................................................... 107
Experts.......................................................... 107
Additional Information........................................... 107
Glossary......................................................... 108
Index to Financial Statements.................................... F-1
</TABLE>
------------------------
UNTIL , 1996 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE UNITS, NOTES OR WARRANTS WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS 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.
$125,000,000 GROSS PROCEEDS
[LOGO]
ADVANCED RADIO TELECOM CORP.
UNITS CONSISTING OF
SENIOR DISCOUNT NOTES
DUE 2006 AND
WARRANTS TO PURCHASE
COMMON STOCK
-----------------
PROSPECTUS
-----------------
MERRILL LYNCH & CO.
MONTGOMERY SECURITIES
SMITH BARNEY INC.
, 1996
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, not including the
Representative's non-accountable expense allowance. Except for the SEC
registration fee and the NASD filing fee, all of the amounts in the table below
are estimated.
<TABLE>
<CAPTION>
Securities and Exchange Commission registration fee................... $
<S> <C> <C>
NASD filing fee.......................................................
Accounting fees and expenses.......................................... *
Printing.............................................................. *
Blue Sky fees and expenses (including counsel fees)................... *
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 the State of Delaware provides
for indemnification by a corporation of its officers and directors as follows:
"145. INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS;
INSURANCE.
(a) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter herein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in subsections (a) and (b) of this
section. Such determination shall be made (1) by the board of directors by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (2) if such a quorum is not obtainable, or even
if obtainable, a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (3) by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or director
in defending any civil, criminal, administrative or investigative action, suit
or proceeding may be paid by the corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of such director or officer to repay such amount if it shall ultimately
be determined that he is
II-2
<PAGE>
not entitled to be indemnified by the corporation as authorized in this section.
Such expenses (including attorneys' fees) incurred by other employees and agents
may be so paid upon such terms and conditions, if any, as the board of directors
deems appropriate.
(f) The indemnification and advancement of expenses provided by, or granted
pursuant to, the other subsections of this section shall not be deemed exclusive
of any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office.
(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under this section.
[paragraphs (h), (i), and (j) not included ]"
Reference is made to Paragraph 9 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.
CLASS A AND B COMMON STOCK PRIVATE PLACEMENT
In April 1995, ART Corp. and Landover Holdings Corporation ("LHC")
subscribed 340,000 shares of Class A Common Stock and 640,000 shares of Class B
Common Stock of the Company, respectively, for $0.001 per share, which, after
giving effect to anti-dilution adjustments and the February 1996 Reorganization,
currently are equivalent to 10,013,855 shares and 7,788,170 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 Class A Common Stock of the Company at the price
of $0.001 per share, which, after giving effect to anti-dilution adjustments and
the February 1996 Reorganization currently are equivalent 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.
II-3
<PAGE>
PREFERRED STOCK PRIVATE PLACEMENTS
Between May 8, 1995 and November 13, 1995, the LHC Stock was diluted by
purchases of series of Company 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 $3,500,000 of Preferred Stock matching other investors under the
LHC Purchase Agreement, purchased 405,880 shares of 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
Series A Preferred Stock from E2-2 for $1,050,000 pursuant to an option. E2
purchased an aggregate of 105,823 shares of Series B Preferred Stock (which
converts into 1,375,699 shares of Common Stock upon completion of this offering)
for an aggregate of $842,000. E1 purchased 13,797 shares of 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 Series B
Preferred Stock (which converts into 115,128 shares of Common Stock upon
completion of this offering) for an aggregate of $ . E2-3 purchased an
aggregate of 7,363 shares of 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, the Company sold 61,640 shares of 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. The Company simultaneously
redeemed 801,320 shares of Common Stock from LHC for $2,000,000. In connection
with the February 1996 Reorganization described below, LHC granted to the
holders of Series D Preferred Stock a contingent option to purchase 400,634
shares of 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 Corp's
Series A Redeemable Preferred Stock for a purchase price of $50,000 and (ii) ART
Corp.'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 Series E Preferred Stock, $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 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, the Company entered
into the Ameritech Strategic Distribution Agreement and in connection therewith
granted to Ameritech a five-year warrant to purchase 877,136 shares of Common
Stock of the Company exercisable at a price of $.001 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, the Company issued in a private placement $5,000,000
principal amount 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 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-4
<PAGE>
EQUIPMENT FINANCING
On April 29, 1996, CRA, Inc. ("CRA") entered into a secured equipment
financing with the Company (the "Equipment Financing") for the purchase from
P-Com of 38 GHz radio equipment. To evidence its obligations and the Equipment
Financing, the Company issued in favor of CRA a $2,445,000 promissory note,
payable in twenty four monthly installments of $92,694 with a final payment
equal to $642,305 due April 29, 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.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
The following exhibits were delivered with this Registration Statement, or
will be delivered by amendment, for filing:
<TABLE>
<CAPTION>
1-1 Underwriting Agreement (to be filed by amendment).
<C> <S> <C>
2-1 Second Amended and Restated Certificate of Incorporation and Restated and
Amended By-laws of Registrant.(1)
4-1 Specimen of Common Stock Certificate (to be filed by amendment).
4-2 (a) Indenture (to be filed by amendment).
(b) Specimen of Senior Discount Note (See Exhibit 4-2(a)).
5-1 Opinion and Consent of Hahn & Hessen LLP, counsel for the Registrant, with
respect to the Registrant's Common Stock and the Notes (to be filed by
amendment).
9-1 (a) Voting Trust Agreement (to be filed by amendment).
(b) Form of Trustee Indemnification Agreement (to be filed by amendment).
10-1 Employment and Consulting Agreements.
(a) Vernon L. Fotheringham, dated December 16, 1995.(1)
(b) Steven D. Comrie, dated February 2, 1996.(1)
(c) W. Theodore Pierson Jr., dated May 8, 1995 and effective January 1,
1995.(1)
(d) I. Don Brown, dated February 16, 1996.(1)
(e) Charles Menatti, dated March 8, 1996.(1)
(f) James D. Miller, dated February 1, 1996.(1)
(g) Thomas A. Grina, dated April 26, 1996.
10-2 Amended and Restated Certificate of Incorporation and By-laws of ART Corp.(1)
10-3 Form of Director Indemnification Agreement.(1)
10-4 (a) Registrant's 1995 Stock Option Plan, as amended.(1)
(b) Form of Stock Option Agreement.(1)
10-5 (a) Registrant's 1996 Non-Employee Directors Automatic Stock Option Plan.
(b) Form of Stock Option Agreement.
10-6 Stock Option Agreements.
(a) Comrie Non-Qualified Stock Option Agreement.(1)
(b) Comrie Incentive Stock Option Agreement.(1)
10-7 Management Consulting Agreement with Landover Holdings Corporation, dated
November 13, 1995.(1)
10-8 (a) ART West Joint Venture Agreement dated April 4, 1995, with Extended
Communications, Inc.(1)
(b) Put/Call Agreement dated October 1, 1994, with Extended Communications,
Inc.(1)
(c) Services Agreement dated October 1, 1994, with Extended Communications,
Inc.(1)
</TABLE>
II-5
<PAGE>
<TABLE>
<C> <S> <C>
(d) Amendment dated April 4, 1995 to the Put/Call Agreement dated October 1,
1994, with Extended Communications, Inc.(1)
10-9 (a) Put/Call Agreement dated September 1, 1994 with DCT Communications, Inc.(1)
(b) Services Agreement dated September 1, 1994 with DCT Communications, Inc.(1)
(c) Terms Sheet dated April 26, 1996 with DCT.(1)
10-10 (a) Asset Purchase Agreement dated April 4, 1995 with EMI Communications
Corporation.(1)
(b) $1,500,000 Nonnegotiable and Nontransferable Promissory Note(1)
(c) Maintenance Agreement dated November 14, 1995 with EMI Communications
Corporation.(1)
(d) Agreement dated November 14, 1995 with EMI Communications Corporations.(1)
10-11 38 GHz Radio Links Purchase Agreement dated August 11, 1995 with P-Com, Inc.
(Confidential treatment requested for certain terms).(1)
10-12 (a) Agreement dated May 25, 1995 with Telecom One (Confidential treatment
requested for certain terms).(1)
(b) Services Agreement dated April 24, 1996 with Telecom One.(1)
10-13 Letter of Intent dated November 20, 1995 with GTE.(1)
10-14 Software License Agreement dated March 29, 1996 with GTE.(1)
10-15 Agreement dated July 12, 1995 with Southeast Research Partners, Inc.(1)
10-16 Agreement dated March 1, 1995 with High Sky Limited Partnership, High Sky II
Limited Partnership, Vernon L. Fotheringham, W. Theodore Pierson, Jr., and F.
Thomas Tuttle.(1)
10-17 Stock Purchase Agreement dated May 8, 1995 with Vernon L. Fotheringham, W.
Theodore Pierson, Jr., High Sky Limited Partnership, High Sky II Limited
Partnership, and Extended Communications, Inc.(1)
10-18 (a) Purchase Agreement dated April 21, 1995 with Landover Holdings
Corporation.(1)
(b) Letter Agreement dated May 8, 1995 with the Demetrees, ART Corp., and
Landover Holdings Corporation.(1)
(c) Letter Agreement dated November 13, 1995 with ART Corp., E2-2 Holdings,
L.P. and the Demetrees.(1)
10-19 Restated and Amended Stockholders' Agreement dated February 2, 1996 with ART
Corp. and the stockholders of each of ART Corp. and the Company.(1)
10-20 Restated and Amended Registration Rights Agreement dated February 2, 1996 with
ART Corp. and the stockholders of each of ART Corp. and the Company.(1)
10-21 Services Agreement dated May 8, 1995 with ART Corp.(1)
10-22 Option Agreement dated February 2, 1996 with ART Corp.(1)
10-23 (a) Securities Purchase Agreement dated November 13, 1995 with ART Corp.,
Vernon Fotheringham, W. Theodore Pierson, Jr., the stockholders of the
Company named therein and the Advent Partnerships.(1)
(b) Exchange Agreement dated February 2, 1996 with ART Corp. and the Advent
Partnerships.(1)
10-24 (a) Securities Purchase Agreement dated February 2, 1996 with ART Corp. and
Ameritech Development Corporation ("Ameritech"), including letter of
intent.(1)
(b) Warrant issued on February 2, 1996 to Ameritech.(1)
(c) Put/Call Agreement dated February 2, 1996 with Ameritech.(1)
10-25 Strategic Distribution Agreement dated April 29, 1996 with Ameritech.(1)
10-26 Merger Agreement and Plan of Reorganization dated February 2, 1996 between the
Company and ART Corp.(1)
10-27 (a) $2,445,000 Promissory Note in favor of CRA, Inc. ("CRA")(1)
(b) Security Agreement with CRA(1)
(c) Indemnity Agreement(1)
</TABLE>
II-6
<PAGE>
<TABLE>
<C> <S> <C>
(d) Form of Indemnity Warrant.(1)
10-28 Memorandum of Terms of Development and Procurement Agreement with American
Wireless with Extension Agreement dated April 25, 1996.(1)
10-29 (a) Purchase Agreement dated April 26, 1996 with Harris Corporation Farinon
Division ("Harris") (confidential treatment requested for certain terms).
(b) PCS Marketing Agreement dated April 26, 1996 with Harris (confidential
treatment requested for certain terms).
11 Computation of Net Loss Per Share of Common Stock.
12 Computation of Ratio of Earnings to Fixed Charges.
21 Subsidiaries of the Registrant.(1)
23(a) Consent of the Registrant's Independent Accountant.
23(b) Consent of the Registrant's Counsel will be contained in the Opinion of Counsel
(to be filed by amendment).
</TABLE>
- ------------------------
(1) Filed with the Registration Statement on Form S-1 of the Company dated May
2, 1996 (SEC Reg. No. 333-4388).
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities under the Act may be permitted to
directors, officers and controlling person of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been advised that in the
opinion of the Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes to provide the Underwriters at
the closing specified in the Underwriting Agreement certificates in such
denomination and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4), or
497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the Registration Statement;
II-7
<PAGE>
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement;
(2) That, for the purpose of determining any liability under the Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused 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 May 14, 1996.
Advanced Radio Telecom Corp.
By: /s/ VERNON L. FOTHERINGHAM
-----------------------------------
Vernon L. Fotheringham
CHAIRMAN AND CHIEF EXECUTIVE
OFFICER
<TABLE>
<C> <S> <C>
SIGNATURES TITLE DATE
- ------------------------------------------------------ -------------------------------- -----------------------
/s/ VERNON L. FOTHERINGHAM
------------------------------------------- Chairman, Chief Executive May 14, 1996
Vernon L. Fotheringham Officer and Director
/s/ STEVEN D. COMRIE
------------------------------------------- President, Chief Operating May 14, 1996
Steven D. Comrie Officer and Director
/s/ MARK T. MARINKOVICH
------------------------------------------- Vice President May 14, 1996
Mark T. Marinkovich
/s/ THOMAS A. GRINA
------------------------------------------- Executive Vice President May 14, 1996
Thomas A. Grina and Chief Financial Officer
/s/ J. C. DEMETREE, JR.
------------------------------------------- Director May 14, 1996
J. C. Demetree, Jr.
/s/ MARK C. DEMETREE
------------------------------------------- Director May 14, 1996
Mark C. Demetree
/s/ MATTHEW C. GOVE
------------------------------------------- Director May 14, 1996
Matthew C. Gove
/s/ ANDREW I. FILLAT
------------------------------------------- Director May 14, 1996
Andrew I. Fillat
/s/ LAURENCE S. ZIMMERMAN
------------------------------------------- Director May 14, 1996
Laurence S. Zimmerman
</TABLE>
II-9
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby severally constitutes and appoints Vernon L. Fotheringham and
Steven D. Comrie, and each of them, his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement and all
documents relating thereto, including one or more registration statements that
may be filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act, and to file the same, with all exhibits hereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, full power and
authority to do and perform each and every act and thing necessary or advisable
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or his substitute or substitutes, may lawfully do
or cause to be done in virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<C> <S> <C>
SIGNATURES TITLE DATE
- ------------------------------------------------------ -------------------------------- -----------------------
/s/ VERNON L. FOTHERINGHAM
------------------------------------------- Chairman, Chief Executive May 14, 1996
Vernon L. Fotheringham Officer and Director
/s/ STEVEN D. COMRIE
------------------------------------------- President, Chief Operating May 14, 1996
Steven D. Comrie Officer and Director
/s/ LAURENCE S. ZIMMERMAN
------------------------------------------- Director May 14, 1996
Laurence S. Zimmerman
/s/ J. C. DEMETREE, JR.
------------------------------------------- Director May 14, 1996
J. C. Demetree, Jr.
/s/ MARK C. DEMETREE
------------------------------------------- Director May 14, 1996
Mark C. Demetree
/s/ MATTHEW C. GOVE
------------------------------------------- Director May 14, 1996
Matthew C. Gove
/s/ ANDREW I. FILLAT
------------------------------------------- Director May 14, 1996
Andrew I. Fillat
</TABLE>
II-10
<PAGE>
EXHIBIT 11
ADVANCED RADIO TELECOM CORP.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
MARCH 28, 1995
(DATE OF YEAR ENDED DECEMBER 31, 1995
INCEPTION) ------------------------------------------
TO HISTORICAL PRO FORMA
DECEMBER 31, 1995 COMBINED PRO FORMA AS ADJUSTED
------------------ ------------- ------------- ------------
<S> <C> <C> <C> <C>
Net loss before fixed charges........................... $ 2,893,238 $ 3,041,430 $ 3,292,428 $
Deduct:
Interest expense...................................... 87,835 186,297 1,674,002
Amortization of deferred financing charges............ -- 7,116 138,522
------------------ ------------- ------------- ------------
Net loss................................................ $ 2,981,073 $ 3,234,843 $ 5,104,952 $
------------------ ------------- ------------- ------------
------------------ ------------- ------------- ------------
Fixed charges:
Interest expense...................................... $ 87,835 $ 186,297 $ 1,674,002
Amortization of deferred financing charges............ -- 7,116 138,522
------------------ ------------- ------------- ------------
Fixed charges........................................... $ 87,835 $ 193,413 $ 1,812,524 $
------------------ ------------- ------------- ------------
------------------ ------------- ------------- ------------
Deficiency of net losses to cover fixed charges......... $ 2,981,073 $ 3,234,843 $ 5,104,952
------------------ ------------- ------------- ------------
------------------ ------------- ------------- ------------
</TABLE>
ADVANCED RADIO TECHNOLOGIES CORP.
COMPUTATION OF RATIO OF LOSSES TO FIXED CHARGES
<TABLE>
<CAPTION>
AUGUST 23, 1993
(DATE OF INCEPTION)
TO YEAR ENDED YEAR ENDED
DECEMBER 31, 1993 DECEMBER 31, 1994 DECEMBER 31, 1995
------------------- ------------------ ------------------
<S> <C> <C> <C>
Net loss before fixed charges............................ $ 6,594 $ 124,245 $ 1,162,077
Deduct:
Interest expense....................................... -- 4,375 98,462
Amortization of deferred financing charges............. -- -- 7,116
------- ---------- ------------------
Net loss................................................. $ 6,594 $ 128,620 $ 1,267,655
------- ---------- ------------------
------- ---------- ------------------
Fixed charges:
Interest expense....................................... $ -- $ 4,375 $ 98,462
Amortization of deferred financing charges............. 7,116
------- ---------- ------------------
Total fixed charges...................................... $ -- $ 4,375 $ 105,578
------- ---------- ------------------
------- ---------- ------------------
Deficiency of loss to cover fixed charges................ $ 6,594 $ 128,620 $ 1,267,655
------- ---------- ------------------
------- ---------- ------------------
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ------------- ----------------------------------------------------------------------------------------- -------------
<C> <S> <C>
1-1 Underwriting Agreement (to be filed by amendment)........................................
2-1 Second Amended and Restated Certificate of Incorporation and Restated and Amended By-laws
of Registrant.(1).......................................................................
4-1 Specimen of Common Stock Certificate (to be filed by amendment)..........................
4-2 (a) Indenture (to be filed by amendment).................................................
(b) Specimen of Senior Discount Note (See Exhibit 4-2(a))................................
5-1 Opinion and Consent of Hahn & Hessen LLP, counsel for the Registrant, with respect to the
Registrant's Common Stock and the Notes (to be filed by amendment)......................
9-1 (a) Voting Trust Agreement (to be filed by amendment)....................................
(b) Form of Trustee Indemnification Agreement (to be filed by amendment).................
10-1 Employment and Consulting Agreements.....................................................
(a) Vernon L. Fotheringham, dated December 16, 1995.(1)..................................
(b) Steven D. Comrie, dated February 2, 1996.(1).........................................
(c) W. Theodore Pierson Jr., dated May 8, 1995 and effective January 1, 1995.(1).........
(d) I. Don Brown, dated February 16, 1996.(1)............................................
(e) Charles Menatti, dated March 8, 1996.(1).............................................
(f) James D. Miller, dated February 1, 1996.(1)..........................................
(g) Thomas A. Grina, dated April 26, 1996................................................
10-2 Amended and Restated Certificate of Incorporation and By-laws of ART Corp.(1)............
10-3 Form of Director Indemnification Agreement.(1)...........................................
10-4 (a) Registrant's 1995 Stock Option Plan, as amended.(1)..................................
(b) Form of Stock Option Agreement.(1)...................................................
10-5 (a) Registrant's 1996 Non-Employee Directors Automatic Stock Option Plan.................
(b) Form of Stock Option Agreement.......................................................
10-6 Stock Option Agreements..................................................................
(a) Comrie Non-Qualified Stock Option Agreement.(1)......................................
(b) Comrie Incentive Stock Option Agreement.(1)..........................................
10-7 Management Consulting Agreement with Landover Holdings Corporation, dated November 13,
1995.(1)................................................................................
10-8 (a) ART West Joint Venture Agreement dated April 4, 1995, with Extended Communications,
Inc.(1)..............................................................................
(b) Put/Call Agreement dated October 1, 1994, with Extended Communications, Inc.(1)......
(c) Services Agreement dated October 1, 1994, with Extended Communications, Inc.(1)......
(d) Amendment dated April 4, 1995 to the Put/Call Agreement dated October 1, 1994, with
Extended Communications, Inc.(1).....................................................
10-9 (a) Put/Call Agreement dated September 1, 1994 with DCT Communications, Inc.(1)..........
(b) Services Agreement dated September 1, 1994 with DCT Communications, Inc.(1)..........
(c) Terms Sheet dated April 26, 1996 with DCT.(1)........................................
10-10 (a) Asset Purchase Agreement dated April 4, 1995 with EMI Communications
Corporation.(1)......................................................................
(b) $1,500,000 Nonnegotiable and Nontransferable Promissory Note(1)......................
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ------------- ----------------------------------------------------------------------------------------- -------------
(c) Maintenance Agreement dated November 14, 1995 with EMI Communications
Corporation.(1)......................................................................
<C> <S> <C>
(d) Agreement dated November 14, 1995 with EMI Communications Corporations.(1)...........
10-11 38 GHz Radio Links Purchase Agreement dated August 11, 1995 with P-Com, Inc.
(Confidential treatment requested for certain terms).(1)................................
10-12 (a) Agreement dated May 25, 1995 with Telecom One (Confidential treatment requested for
certain terms).(1)...................................................................
(b) Services Agreement dated April 24, 1996 with Telecom One.(1).........................
10-13 Letter of Intent dated November 20, 1995 with GTE.(1)....................................
10-14 Software License Agreement dated March 29, 1996 with GTE.(1).............................
10-15 Agreement dated July 12, 1995 with Southeast Research Partners, Inc.(1)..................
10-16 Agreement dated March 1, 1995 with High Sky Limited Partnership, High Sky II Limited
Partnership, Vernon L. Fotheringham, W. Theodore Pierson, Jr., and F. Thomas
Tuttle.(1)..............................................................................
10-17 Stock Purchase Agreement dated May 8, 1995 with Vernon L. Fotheringham, W. Theodore
Pierson, Jr., High Sky Limited Partnership, High Sky II Limited Partnership, and
Extended Communications, Inc.(1)........................................................
10-18 (a) Purchase Agreement dated April 21, 1995 with Landover Holdings Corporation.(1).......
(b) Letter Agreement dated May 8, 1995 with the Demetrees, ART Corp., and Landover
Holdings Corporation.(1).............................................................
(c) Letter Agreement dated November 13, 1995 with ART Corp., E2-2 Holdings, L.P. and the
Demetrees.(1)........................................................................
10-19 Restated and Amended Stockholders' Agreement dated February 2, 1996 with ART Corp. and
the stockholders of each of ART Corp. and the Company.(1)...............................
10-20 Restated and Amended Registration Rights Agreement dated February 2, 1996 with ART Corp.
and the stockholders of each of ART Corp. and the Company.(1)...........................
10-21 Services Agreement dated May 8, 1995 with ART Corp.(1)...................................
10-22 Option Agreement dated February 2, 1996 with ART Corp.(1)................................
10-23 (a) Securities Purchase Agreement dated November 13, 1995 with ART Corp., Vernon
Fotheringham, W. Theodore Pierson, Jr., the stockholders of the Company named therein
and the Advent Partnerships.(1)......................................................
(b) Exchange Agreement dated February 2, 1996 with ART Corp. and the Advent
Partnerships.(1).....................................................................
10-24 (a) Securities Purchase Agreement dated February 2, 1996 with ART Corp. and Ameritech
Development Corporation ("Ameritech"), including letter of intent.(1)................
(b) Warrant issued on February 2, 1996 to Ameritech.(1)..................................
(c) Put/Call Agreement dated February 2, 1996 with Ameritech.(1).........................
10-25 Strategic Distribution Agreement dated April 29, 1996 with Ameritech.(1).................
10-26 Merger Agreement and Plan of Reorganization dated February 2, 1996 between the Company
and ART Corp.(1)........................................................................
10-27 (a) $2,445,000 Promissory Note in favor of CRA, Inc. ("CRA")(1)..........................
(b) Security Agreement with CRA(1).......................................................
(c) Indemnity Agreement(1)...............................................................
(d) Form of Indemnity Warrant.(1)........................................................
10-28 Memorandum of Terms of Development and Procurement Agreement with American Wireless with
Extension Agreement dated April 25, 1996.(1)............................................
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ------------- ----------------------------------------------------------------------------------------- -------------
10-29 (a) Purchase Agreement dated April 26, 1996 with Harris Corporation Farinon Division
("Harris") (confidential treatment requested for certain terms).........................
<C> <S> <C>
(b) PCS Marketing Agreement dated April 26, 1996 with Harris (confidential treatment
requested for certain terms)............................................................
11 Computation of Net Loss Per Share of Common Stock........................................
12 Computation of Ratio of Earnings to Fixed Charges........................................
21 Subsidiaries of the Registrant.(1).......................................................
23(a) Consent of the Registrant's Independent Accountant.......................................
23(b) Consent of the Registrant's Counsel will be contained in the Opinion of Counsel (to be
filed by amendment).....................................................................
</TABLE>
- ------------------------
(1) Filed with the Registration Statement on Form S-1 of the Company dated May
2, 1996 (SEC Reg. No. 333-4388).
<PAGE>
EXHIBIT 12
ADVANCED RADIO TELECOM CORP.
COMPUTATION OF NET LOSS PER SHARE OF COMMON STOCK
FOR THE PERIOD FROM MARCH 28, 1995 (DATE OF INCEPTION) TO DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<S> <C>
Net loss applicable to Common Stock......................................... $ 2,981,073
--------------
--------------
Shares:
Weighted average number of shares of Common Stock outstanding at
December 31, 1995...................................................... 15,919,596(1)
--------------
--------------
Net loss per share of Common Stock.......................................... $ .19
--------------
--------------
Pro Forma:
Shares:
Weighted average number of shares of Common Stock outstanding at
December 31, 1995 for primary computation..............................
Issuances of shares of Serial Preferred Stock, including anti-dilutive
shares, subsequent to December 31, 1995 as converted into shares of
Common Stock...........................................................
Issuance of anti-dilutive shares of Common Stock subsequent to December
31, 1995...............................................................
Conversion of shares of Serial Preferred Stock outstanding at December
31, 1995 into shares of Common Stock...................................
Options and warrants issued and outstanding at December 31, 1995 and
issued subsequent to December 31, 1995.................................
Pro forma weighted average number of shares of Common Stock............... (2)
--------------
--------------
Pro forma net loss per share of Common Stock................................ $
--------------
--------------
Pro Forma As Adjusted
Shares:
Pro forma weighted average number of shares of Common Stock.............
Common Stock and warrants issued in connection with the Offerings.......
Pro forma as adjusted weighted average number of shares of Common Stock... (2)
--------------
--------------
Pro forma as adjusted net loss per share of Common Stock.................... $
--------------
--------------
</TABLE>
(1) The weighted average number of shares of Common Stock exclude all common
stock equivalents which are anti-dilutive.
(2) 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
must be treated as outstanding for the entire period presented. The weighted
average number of shares of Common Stock on a pro forma and on a pro forma
as adjusted basis reflect those potentially dilutive instruments assuming
the sale of shares of Common Stock offered in the Common Stock Offering
based on an assumed initial public offering price of $ per share.
<PAGE>
EXHIBIT 23(A)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of
our reports dated April 26, 1996, on our audits 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 and 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. We also consent to the reference to our firm under the caption
"Experts."
COOPERS & LYBRAND L.L.P.
New York, New York
May 13, 1996
<PAGE>
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
EXHIBITS
FILED WITH
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ADVANCED RADIO TELECOM CORP.
(Exact name of issuer as specified in its charter)
VOLUME 1
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- --------------------------------------------------------------------------------
<PAGE>
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
EXHIBITS
FILED WITH
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ADVANCED RADIO TELECOM CORP.
(Exact name of issuer as specified in its charter)
VOLUME 2
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
CONFIDENTIAL
EXHIBITS
FILED WITH
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ADVANCED RADIO TELECOM CORP.
(Exact name of issuer as specified in its charter)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SELECTED DATA TRANSFER RATES
<TABLE>
<S> <C> <C>
Dial Up Line 28.8 Kbps (v.34 modem)
ISDN 128 Kbps
DS-1 1.544 Mbps
DS-3 45 Mbps
</TABLE>
<PAGE>
38 GHZ TECHNOLOGY PROVIDES SUPERIOR BANDWIDTH PER CHANNEL WHICH
ALLOWS SIGNIFICANTLY FASTER DATA TRANSFER RATES
<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.
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Responsibilities regarding the export of items delivered under this Agreement
are detailed in Articles 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
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<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, software 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 extent 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 terms 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 H. Menatti
______________________________
NAME: /s/ Charles Menatti
___________________________
TITLE: V.P. Bus. Development
___________________________
HARRIS CORPORATION
FARINON DIVISION
BY: /s/ J. Michael Slattery
______________________________
NAME: /s/ J. Michael Slattery
___________________________
TITLE: Division Controller
___________________________
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[Annexes A, B and C omitted due to confidential treatement]
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is entered into and made effective the 26th day
of April, 1996 ("Effective Date"), by and between Advanced Radio Telecom Corp.,
a Delaware Corporation with principal offices located at 500 - 108th Avenue
N.E., Suite 1910, Bellevue, WA 98004 (the "Employer"), and Thomas A. Grina,
presently residing at the address listed in Section 20 hereof (the "Employee").
The Employer is in the business of providing local wireless communications
using 38 GHz radio signals including provision of high speed data links for
business, integrated data and voice services extending fiber optic rings and
interconnections between mobile radio base stations and switches. The Employer
desires to engage the services of the Employee and the Employee desires to
accept such engagement, on the terms and subject to the conditions hereinafter
set forth.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein set forth, the parties, intending to be legally bound, hereby agree as
follows:
1. EMPLOYMENT. The Employer engages the Employee, and the Employee
accepts engagement by the Employer, upon the terms and subject to the conditions
set forth in this Agreement, and subject to the terms and conditions of the ART
Employee Handbook which the Employee has read and with which the Employee is
familiar.
2. TERM/SURVIVABILITY. Subject to the provisions hereof, the Employee's
employment by the Employer under this Agreement shall be at will. All
provisions of this Agreement, including, but not limited to those contained in
Sections 7, 10, 11, 12, 13 and 14, that by their nature are intended to survive
the termination of this Agreement shall so survive, continue in full force and
effect and be fully enforceable according to their provisions. The term of the
Employee's employment hereunder is hereinafter referred to as the "Employment
Period."
3. POSITION, TITLE AND DUTIES. The Employee's title shall be Executive
Vice President, Chief Financial Officer. During the Employment Period, the
Employee shall perform such assignments and have such powers and duties as are
assigned or delegated to him by the Employer. Such assignments, powers and
duties, may, from time to time, be modified by the Employer as Employer's needs
may require. The Employee's initial duties will include, but not be limited to
those customarily associated with the position of Executive Vice President,
Chief Financial Officer.
At the request of the Employer, the Employee shall also perform similar
services for any Affiliate (as hereinafter defined) of the Employer without
additional compensation as long as the requests are reasonable (giving due
regard to the Employee's time commitments as an executive of the Employer),
legitimate and lawful. The Employee agrees to devote substantially all of his
business time, skill, attention and best
<PAGE>
efforts to the business of the Employer and Affiliates in the advancement of
the best interests of the Employer and Affiliates, except that the Employee
shall be permitted to devote a reasonable amount of time to charitable
endeavors, investments and to personal affairs to the extent that such
additional endeavors do not interfere with the employee's duties with the
Employer. As used in this Agreement, the term "Affiliate" of the Employer
means any person or corporation that, directly or indirectly, through one or
more intermediaries, controls or is controlled by or is under common control
with the Employer or its stockholders. The Employer and its Affiliates
assume all responsibility related to the proper reporting as Employer, for
services performed by the Employee, to the relevant taxing authorities. The
Employee shall render his services in the Seattle, Washington metropolitan
area, provided that the Employer or Affiliates may require the Employee to
render his services in another community within the United States for periods
of limited duration.
4. COMPENSATION.
4.1. SALARY.
4.1.1. BASE SALARY. For all services rendered by the Employee
to the Employer through April 30, 1997, the Employer (or at the Employer's
option, any Affiliate of the Employer) shall pay the Employee an annualized Base
Salary of One Hundred Ninety Thousand Dollars ($190,000.00), to be paid in equal
semi-monthly installments. The Employer shall review the Base Salary at least
once per year, no later than the fourth calendar quarter, with any increase to
be effective January 1 of the following calendar year.
4.1.2 BONUS. A cash bonus of $50,000 shall be paid within 45
days following the end of each fiscal year beginning with the 1996 fiscal year
for achievement of annual link installation goals. The goal for fiscal year
1996 is 1596 equivalent DSI links. For subsequent years the bonus will be based
on achieving link goals to be established in succeeding years' annual operating
budgets as presented by the President and approved by the Employer's Board of
Directors. The amount of the bonus may increase or decrease depending on
achievement of these goals and will be calculated according to the Bonus
Achievement Scale immediately below:
Bonus Achievement Scale
-----------------------
Goal Achievement Level Percent of Bonus Paid
---------------------- ---------------------
200% or more 200%
175-199% 175%
150-174% 150%
125-149% 125%
100-124% 100%
75-99% 75%
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50-74% 50%
less than 50% 0%
To the extent that the Board of Directors deems it advisable, in its sole
discretion, the Employee may use amounts awarded as bonuses under this Section,
in whole or in part, to purchase shares of common stock of Advanced Radio
Technology, Limited. The class of common stock will be prescribed by the Board
of Directors. The price of such shares shall be their fair market value
("FMV"). For purposes of this Section 4.1.2, "FMV" shall mean: (a) the closing
price per share on the day prior to the date of purchase, if shares of the class
of stock to be purchased are publicly-traded; or (b) if shares of the class of
stock to be purchased are not publicly-traded, the last price at which shares of
such class were sold by the Employer in an arms-length transaction to a party
other than the Employee, and other than in a sale involving the exercise of an
option to purchase shares of such class. The Employee agrees to deliver to the
Employer, at the time of any purchase made pursuant to this Section, an executed
Stock Purchase Agreement in such form as prescribed by the Employer.
4.2. ADDITIONAL INCENTIVES.
4.2.1. [Reserved]
4.2.2. RELOCATION EXPENSES. Employer will pay the costs of
Employee's relocation from Greer, South Carolina, to the Seattle, Washington
area, including all reasonable cartage, realtor fees (on the sale of Employee's
present residence), financing fees ("points") on Employee's new residence and
other relocation assistance subject to the President's approval.
4.2.3. TEMPORARY LIVING EXPENSES. Employer will pay reasonable
expenses while Employee is in transition, subject to President's approval.
4.2.4. AUTOMOBILE ALLOWANCE. During the Employment Period, the
Employee will receive from the Employer an allowance of Eight Hundred Dollars
($800.00) per month to cover expenses associated with operating and maintaining
an automobile to be used in furtherance of the business interests of the
Employer.
4.3 STOCK OPTIONS:
4.3.1. GRANT OF OPTIONS. Upon the Effective Date of this Agreement,
the Employer will grant to the Employee options to purchase Three Hundred
Thousand (300,000) shares of common stock of the Employer (or any successor
thereto) set forth in Exhibit A, attached hereto, and incorporated herein by
reference. All of the options shall be Nonqualified Stock Options. With the
exception of the options that vest immediately all options will be subject to
certain financial performance requirements to be developed jointly with the
Employee and approved by the Employer's Board or appointed
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committee(s). All options are subject to the Employer's "1995 Employee Stock
Option Plan," regulatory rules and underwriter's approval.
4.3.2. VESTING. The stock options granted pursuant to Section 4.3.1.
of this Agreement will vest according to the schedule set forth in Exhibit A,
attached hereto, and incorporated by reference herein, provided that the
financial performance requirements, if any, contemplated by Section 4.3.1. have
been satisfied. In any event, all of the stock options granted pursuant to
Section 4.3.1. shall vest on April 26, 1999, even if the financial performance
requirements have not been satisfied Further, all such options shall vest
immediately upon the merger of the Employer with other than an affiliated
corporation, the sale of a controlling interest of the Employer in other than a
public offering, the sale of substantially all of the assets of the Employer, or
a Change of Control of the Employer as defined in the 1995 Employee Stock Option
Plan, as amended from time to time.
4.3.3. EXERCISE AND PAYMENT. Except as otherwise provided in the 1995
Employee Stock Option Plan or the Stock Option Agreements issued pursuant
thereto, each option shall be exercisable for a period of five (5) years from
the date of vesting of each such option at the exercise price of Six and Twenty
Five One Hundredths Dollars ($6.25) per share. In connection with the exercise
of any stock option granted pursuant to this Agreement, the Employee agrees to
deliver to the Employer, at the time of exercise, an executed Stock Option
Agreement in such form as prescribed by the Employer.
5. [Reserved]
6. EMPLOYEE BENEFITS. During the Employment Period, the Employee shall
be entitled to participate in the Employer's benefit plans, pension plans and
retirement plans, life insurance, long-term disability insurance,
hospitalization, surgical and major medical coverage, and other fringe benefits
enjoyed by executive employees of the Employer, including a 401(k) plan and an
Employee Stock Purchase Plan, if and when adopted, and the 1995 Employee Stock
Option Plan to the extent provided in Exhibit A hereto. The Employee will also
be entitled to paid annual vacation time (not to exceed three weeks), sick
leave, and holidays.
7. INDEMNIFICATION; LIABILITY INSURANCE. The Employer shall, to the
fullest extent permitted by the provisions of Section 145 of the General
Corporation Law of the State of Delaware, as the same may be amended and
supplemented, indemnify the Employee from and against any and all of the
expenses, liabilities, or other matters referred to in or covered by said
Section. Such indemnification shall be provided with respect to actions taken
in the Employee's official capacity and as to actions taken in another capacity
while holding such office. The indemnification coverage provided in this
Section 7 shall continue after the Employee's termination with respect to such
actions during the Employment Period. The Employer also agrees to use its best
efforts to obtain and maintain an insurance policy or policies providing
liability coverage to the
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Employer's executive officers and directors for acts or omissions in
connection with their duties as executive officers and directors of the
Employer.
8. EXPENSE REIMBURSEMENT. Subject to such policies regarding expenses
and expense reimbursement as may be adopted from time to time by the Employer
and compliance therewith by the Employee, the Employee is authorized to incur
reasonable expenses in the performance of his duties hereunder, and the Employer
shall reimburse the Employee for such reasonable out-of-pocket expenses, upon
the presentation by the Employee of an itemized account of such expenses and
receipts satisfactory to the Employer. The Employer shall have the right to
request reasonable additional documentation of such requests.
9. TERMINATION.
9.1. INVOLUNTARY TERMINATION. Termination by the Employer of the
Employee under this Agreement as a result of incapacity or disability by
accident, sickness or other cause so as to render the Employee mentally or
physically incapable of performing those services required to be performed by
him under this Agreement for a period of 180 consecutive days or longer, or for
180 days during any twelve month period (such condition being called a
"Disability"), is referred to herein as an "Involuntary Termination." If the
Employee dies during the Employment Period, his engagement hereunder shall be
deemed to cease as of the date of his death, and the termination of his
engagement occasioned thereby also shall be deemed an Involuntary Termination.
9.2. TERMINATION FOR CAUSE. The Employer may terminate the Employee's
engagement for cause ("Termination for Cause"). For purposes of this Agreement,
"Cause" is limited to the following:
(a) the willful and continued failure by the Employee substantially to
perform the duties described in Section 3 (other than a failure resulting
from an illness or similar incapacity or disability) for 10 days after a
written demand for performance is provided to the Employee by or on behalf
of the Board of Directors which specifically identifies the manner in which
it is alleged that the Employee has failed to perform his duties;
(b) the engaging of the Employee in the misappropriation of funds,
properties or assets of the Employer or any Affiliate or an intentional
tort or other conduct relating to his office or engagement with the
Employer which has, or may be reasonably anticipated to have, a material
adverse effect on the Employer or any Affiliate;
(c) the Employee's conviction of a crime constituting a felony, including
the entry of a plea of guilty or no contest by the Employee to a charge of
a crime constituting a felony.
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9.3 TERMINATION WITHOUT CAUSE. The termination of the Employee's
engagement by the Employer at any time during the Employment Period without
"Cause," other than an Involuntary Termination, is referred to herein as a
"Termination Without Cause."
9.4 VOLUNTARY TERMINATION. Any termination of the Employee's
engagement that is not an Involuntary Termination, a Termination for Cause, or a
Termination Without Cause, including the Employee's giving notice of termination
prior to the end of the Employment Period, is referred to herein as a "Voluntary
Termination."
9.5. EFFECT OF TERMINATION - VOLUNTARY TERMINATION OR TERMINATION FOR
CAUSE. Upon the termination of the Employee's engagement pursuant to a
Voluntary Termination or a Termination for Cause, neither the Employee nor his
beneficiary or estate shall have any further rights or claims against the
Company or any Affiliate under this Agreement except:
(a) the right to receive any unpaid portion of the Employee's Base Salary
provided for in Section 4.1.1 and Bonus provided for in Section 4.1.2,
computed on a PRO RATA basis to the date of termination; and
(b) reimbursement for any expenses for which the Employee has not yet been
reimbursed as provided in Section 8.
9.6 EFFECT OF TERMINATION - INVOLUNTARY TERMINATION OR TERMINATION
WITHOUT CAUSE. Upon the termination of the Employee's engagement pursuant to an
Involuntary Termination or a Termination Without Cause, the Employee shall be
entitled to the following:
(a) any unpaid portion of the Employee's Base Salary provided for in
Section 4.1.1. and Bonus, if any, provided for in Section 4.1.2, computed
on a PRO RATA basis to the date of termination;
(b) reimbursement for any expenses for which the Employee has not yet been
reimbursed as provided in Section 8;
(c) a payment equivalent to six (6) months of the employee's Base Salary
and Bonus in effect at the time of such termination;
(d) continuance of the Employee's automobile allowance, as described in
Section 4.2.4 hereof, for a period of six (6) months following the date of
termination;
(e) continuance of the Employee's long-term disability insurance,
hospitalization, surgical and major medical coverage for a period of six
(6) months following the date of termination;
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10. COVENANT NOT TO COMPETE. The Employee expressly recognizes the highly
competitive nature of the business conducted and planned to be conducted by the
Employer and its Affiliates. The Employee, therefore, covenants and agrees that
during the term of this Agreement and for a period of one (1) year thereafter,
he will not, within the United States or in any market in which the Employer is
conducting business:
(a) directly or indirectly engage in any Competitive Business, whether as
an employer, employee, officer, director, owner, partner, consultant or
other participant;
(b) assist others in engaging in any Competitive Business in the manner
described in above in clause (a); or
(c) induce employees of the Employer or its Affiliates to terminate their
employment with the Employer or Affiliates or engage in any Competitive
Business.
The Term "Competitive Business" means the provision of 38 GHz services.
Employee acknowledges that he has read and understood this Section 10; that he
understands that it may operate to restrain his ability to obtain employment
elsewhere after his termination by Employer; that this employment agreement is
adequate consideration for his agreeing to be bound by the covenant in this
Section 10; and that he agrees that breach of this Section by him would
irreparably damage Employer or its Affiliates, and he hereby consents to entry
of injunctive relief to enforce compliance with this Section 10, which relief
shall be in addition to all other forms of relief available at law or equity.
11. COVENANT NOT TO DISCLOSE OR USE. The Employee covenants and agrees
that he will not disclose, at any time during or after the Employment Period, to
any person or entity except as required by law, any secret or confidential
information concerning the business, clients or affairs of the Employer or its
Affiliates other than in furtherance of his work for the Employer or Affiliates.
The Employee also covenants and agrees that he will not, at any time during or
after the Employment Period, use for his own account or profit any secret or
confidential information concerning the business, clients or affairs of the
Employer or its Affiliates. For purposes of this Section, the term "secret or
confidential information" shall include, but not be limited to, information
concerning any inventions, processes, operations, administrative procedures,
databases, programs, systems, flow charts, software, firmware or equipment used
in the Employer's or the Affiliates' business, customers lists, customer
information, or trade secrets. Employee acknowledges that he has read and
understood this Section 11; that he understands that it may operate to restrain
his ability to obtain employment elsewhere after his termination by Employer;
that this employment agreement is adequate consideration for his agreeing to be
bound by the covenant in this Section 11; and that he
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agrees that breach of this Section by him would irreparably damage Employer
or its Affiliates, and he hereby consents to entry of injunctive relief to
enforce compliance with this Section 11, which relief shall be in addition to
all other forms of relief available at law or equity.
12. COVENANT NOT TO SOLICIT. The Employee expressly recognizes that the
Employer's or Affiliates' customers and employees are important and critical
aspects of their ability to operate profitably. The Employee, therefore,
covenants and agrees that during the term of this Agreement and for a period of
one (1) year thereafter, he will not solicit, or cause or assist in any way in
causing another person or entity to solicit, the then-existing customers or
employees of the Employer or its Affiliates to become customers or employees of
any other entity in a Competitive Business. For purposes of this Section, the
term "Competitive Business" means the provision of 38 GHz services. Employee
acknowledges that he has read and understood this Section 12; that he
understands that it may operate to restrain his ability to obtain employment
elsewhere after his termination by the Employer; that this employment agreement
is adequate consideration for his agreeing to be bound by the covenant in this
Section 12; and that he agrees that breach of this Section by him would
irreparably damage the Employer or its Affiliates, and he hereby consents to
entry of injunctive relief to enforce compliance with this Section 12, which
relief shall be in addition to all other forms of relief available at law or
equity.
13. SEVERABILITY. Wherever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but, if any provision hereof shall be prohibited by or held
invalid or unenforceable under any such law, such provision shall be ineffective
to the extent of such prohibition, invalidity or unenforceability, without
invalidating or nullifying the remainder of such provision or any other
provision of this Agreement. The parties further agree to substitute a
provision that effects the intent of the invalidated provision as nearly as
possible.
14. BINDING EFFECT; ASSIGNMENT. This Agreement is personal in its nature,
and neither the Agreement nor any rights or obligations thereunder may be
assigned or transferred without the written consent of the parties hereto;
PROVIDED, HOWEVER, that the provisions hereof shall inure to the benefit of, and
be binding upon, each successor of the Employer, whether by merger,
consolidation, transfer of all or substantially all assets, or otherwise.
15. 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.
16. ENFORCEMENT. The parties desire that the provisions of this Agreement
shall be enforced to the fullest extent permissible under the laws and public
policies applied to the jurisdiction whose laws govern this Agreement.
Accordingly, to the extent that a restriction contained in this Agreement is
more restrictive than permitted by the
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laws of any jurisdiction where this Agreement may be subject to review and
interpretation, the terms of such restriction, for the purpose only of the
operation of such restriction in such jurisdiction, shall be the maximum
restriction allowed by the laws of such jurisdiction and such restriction
shall be deemed to have been revised accordingly herein.
17. REMEDIES. The Employee acknowledges that the provisions of this
Agreement are of a special and unique nature, the loss of which cannot be
accurately compensated for in damages by an action at law, and in the event of a
breach of Section 10, 11, or 12, the Employer shall be entitled to an injunction
restraining him from such breach, in addition to any other remedies available to
the Employer.
18. 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 State of Washington even if its choice of law
provisions are in conflict with this requirement.
19. WAIVER OF BREACH. The waiver by either part of a breach of any
provision of this Agreement by the other part must be in writing and shall not
operate or be construed as a waiver of any subsequent breach by such other
party.
20. NOTICES. All notices and other communications which are required or
may be given under this Agreement shall be 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 address as the party to whom notice is to be
given has furnished to the other party. Each such notice 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: (i) on the
date of delivery if personally delivered or, if not delivered on a business day,
the first business day thereafter; (ii) on the first business day after the date
sent if sent by overnight air courier; or (iii) on the fifth business day after
the date sent if sent by mail.
If to the Employer:
Tom Walker, Esq.
Advanced Radio Telecom Corp.
500 - 108th Ave. N.E., Suite 2600
Bellevue, WA 98004
If to the Employee:
Thomas A. Grina
307 Sugar Mill Road
Greer, South Carolina 29650
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21. 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.
22. 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 this Agreement.
IN WITNESS WHEREOF, the parties have duly executed this Agreement on the date
first above written.
Employee
/s/ Thomas A. Grina
______________________
Thomas A. Grina
Advanced Radio Telecom Corp.
By: /s/ Steven D. Comrie
_______________________
Steven D. Comrie
President & COO
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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.
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Responsibilities regarding the export of items delivered under this Agreement
are detailed in Articles 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
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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
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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,
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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.
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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, software 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 extent 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.
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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 terms 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 H. Menatti
______________________________
NAME: /s/ Charles Menatti
___________________________
TITLE: V.P. Bus. Development
___________________________
HARRIS CORPORATION
FARINON DIVISION
BY: /s/ J. Michael Slattery
______________________________
NAME: /s/ J. Michael Slattery
___________________________
TITLE: Division Controller
___________________________
8
<PAGE>
[Annexes A, B and C omitted due to confidential treatement]
<PAGE>
PCS 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 38 GHz in certain markets in the
United States; and
WHEREAS Harris desires to include ART's 38 GHz 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 38 GHz
equipment to the PCS marketplace;
WHEREAS Harris desires, as a secondary approach to direct sales of it's
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;
1
<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.
3
[Section 5 omitted due to confidential treatement]
<PAGE>
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.
4
<PAGE>
10.0 CONFIDENTIALITY 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.
5
<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. Comrie 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.
6
<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, PUBLLIC 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.
7
<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 H. Menatti By: /s/ J. Michael Slattery
________________________ _________________________
Print Print
Name: Charles Menatti Name: J. Michael Slattery
_______________________ _______________________
Title: V.P. Bus. Development Title: Division Controller
______________________ ______________________
8
<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.
9
<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 Atlanta 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
10
<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
11
<PAGE>
EXHIBIT A
Page 3
80 Sacramento 9 CA
81 Salt Lake City 1 UT
82 San Antonio 11 TX
83 San Diego 6 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
12
<PAGE>
EXHIBIT A
STOCK OPTION VESTING SCHEDULE
Shares Covered Date of
by Option Vesting
-------------- -------
100,000 April 26, 1996
100,000 April 26, 1997
100,000 April 26, 1998
<PAGE>
[Exhibits B, C, D, E and F omitted due to
to confidential treatement]
<PAGE>
EXHIBIT 11
ADVANCED RADIO TELECOM CORP.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
MARCH 28, 1995
(DATE OF YEAR ENDED DECEMBER 31, 1995
INCEPTION) ------------------------------------------
TO HISTORICAL PRO FORMA
DECEMBER 31, 1995 COMBINED PRO FORMA AS ADJUSTED
------------------ ------------- ------------- ------------
<S> <C> <C> <C> <C>
Net loss before fixed charges........................... $ 2,893,238 $ 3,041,430 $ 3,292,428 $
Deduct:
Interest expense...................................... 87,835 186,297 1,674,002
Amortization of deferred financing charges............ -- 7,116 138,522
------------------ ------------- ------------- ------------
Net loss................................................ $ 2,981,073 $ 3,234,843 $ 5,104,952 $
------------------ ------------- ------------- ------------
------------------ ------------- ------------- ------------
Fixed charges:
Interest expense...................................... $ 87,835 $ 186,297 $ 1,674,002
Amortization of deferred financing charges............ -- 7,116 138,522
------------------ ------------- ------------- ------------
Fixed charges........................................... $ 87,835 $ 193,413 $ 1,812,524 $
------------------ ------------- ------------- ------------
------------------ ------------- ------------- ------------
Deficiency of net losses to cover fixed charges......... $ 2,981,073 $ 3,234,843 $ 5,104,952
------------------ ------------- ------------- ------------
------------------ ------------- ------------- ------------
</TABLE>
ADVANCED RADIO TECHNOLOGIES CORP.
COMPUTATION OF RATIO OF LOSSES TO FIXED CHARGES
<TABLE>
<CAPTION>
AUGUST 23, 1993
(DATE OF INCEPTION)
TO YEAR ENDED YEAR ENDED
DECEMBER 31, 1993 DECEMBER 31, 1994 DECEMBER 31, 1995
------------------- ------------------ ------------------
<S> <C> <C> <C>
Net loss before fixed charges............................ $ 6,594 $ 124,245 $ 1,162,077
Deduct:
Interest expense....................................... -- 4,375 98,462
Amortization of deferred financing charges............. -- -- 7,116
------- ---------- ------------------
Net loss................................................. $ 6,594 $ 128,620 $ 1,267,655
------- ---------- ------------------
------- ---------- ------------------
Fixed charges:
Interest expense....................................... $ -- $ 4,375 $ 98,462
Amortization of deferred financing charges............. 7,116
------- ---------- ------------------
Total fixed charges...................................... $ -- $ 4,375 $ 105,578
------- ---------- ------------------
------- ---------- ------------------
Deficiency of loss to cover fixed charges................ $ 6,594 $ 128,620 $ 1,267,655
------- ---------- ------------------
------- ---------- ------------------
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ------------- ----------------------------------------------------------------------------------------- -------------
<C> <S> <C>
1-1 Underwriting Agreement (to be filed by amendment)........................................
2-1 Second Amended and Restated Certificate of Incorporation and Restated and Amended By-laws
of Registrant.(1).......................................................................
4-1 Specimen of Common Stock Certificate (to be filed by amendment)..........................
4-2 (a) Indenture (to be filed by amendment).................................................
(b) Specimen of Senior Discount Note (See Exhibit 4-2(a))................................
5-1 Opinion and Consent of Hahn & Hessen LLP, counsel for the Registrant, with respect to the
Registrant's Common Stock and the Notes (to be filed by amendment)......................
9-1 (a) Voting Trust Agreement (to be filed by amendment)....................................
(b) Form of Trustee Indemnification Agreement (to be filed by amendment).................
10-1 Employment and Consulting Agreements.....................................................
(a) Vernon L. Fotheringham, dated December 16, 1995.(1)..................................
(b) Steven D. Comrie, dated February 2, 1996.(1).........................................
(c) W. Theodore Pierson Jr., dated May 8, 1995 and effective January 1, 1995.(1).........
(d) I. Don Brown, dated February 16, 1996.(1)............................................
(e) Charles Menatti, dated March 8, 1996.(1).............................................
(f) James D. Miller, dated February 1, 1996.(1)..........................................
(g) Thomas A. Grina, dated April 26, 1996................................................
10-2 Amended and Restated Certificate of Incorporation and By-laws of ART Corp.(1)............
10-3 Form of Director Indemnification Agreement.(1)...........................................
10-4 (a) Registrant's 1995 Stock Option Plan, as amended.(1)..................................
(b) Form of Stock Option Agreement.(1)...................................................
10-5 (a) Registrant's 1996 Non-Employee Directors Automatic Stock Option Plan.................
(b) Form of Stock Option Agreement.......................................................
10-6 Stock Option Agreements..................................................................
(a) Comrie Non-Qualified Stock Option Agreement.(1)......................................
(b) Comrie Incentive Stock Option Agreement.(1)..........................................
10-7 Management Consulting Agreement with Landover Holdings Corporation, dated November 13,
1995.(1)................................................................................
10-8 (a) ART West Joint Venture Agreement dated April 4, 1995, with Extended Communications,
Inc.(1)..............................................................................
(b) Put/Call Agreement dated October 1, 1994, with Extended Communications, Inc.(1)......
(c) Services Agreement dated October 1, 1994, with Extended Communications, Inc.(1)......
(d) Amendment dated April 4, 1995 to the Put/Call Agreement dated October 1, 1994, with
Extended Communications, Inc.(1).....................................................
10-9 (a) Put/Call Agreement dated September 1, 1994 with DCT Communications, Inc.(1)..........
(b) Services Agreement dated September 1, 1994 with DCT Communications, Inc.(1)..........
(c) Terms Sheet dated April 26, 1996 with DCT.(1)........................................
10-10 (a) Asset Purchase Agreement dated April 4, 1995 with EMI Communications
Corporation.(1)......................................................................
(b) $1,500,000 Nonnegotiable and Nontransferable Promissory Note(1)......................
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ------------- ----------------------------------------------------------------------------------------- -------------
(c) Maintenance Agreement dated November 14, 1995 with EMI Communications
Corporation.(1)......................................................................
<C> <S> <C>
(d) Agreement dated November 14, 1995 with EMI Communications Corporations.(1)...........
10-11 38 GHz Radio Links Purchase Agreement dated August 11, 1995 with P-Com, Inc.
(Confidential treatment requested for certain terms).(1)................................
10-12 (a) Agreement dated May 25, 1995 with Telecom One (Confidential treatment requested for
certain terms).(1)...................................................................
(b) Services Agreement dated April 24, 1996 with Telecom One.(1).........................
10-13 Letter of Intent dated November 20, 1995 with GTE.(1)....................................
10-14 Software License Agreement dated March 29, 1996 with GTE.(1).............................
10-15 Agreement dated July 12, 1995 with Southeast Research Partners, Inc.(1)..................
10-16 Agreement dated March 1, 1995 with High Sky Limited Partnership, High Sky II Limited
Partnership, Vernon L. Fotheringham, W. Theodore Pierson, Jr., and F. Thomas
Tuttle.(1)..............................................................................
10-17 Stock Purchase Agreement dated May 8, 1995 with Vernon L. Fotheringham, W. Theodore
Pierson, Jr., High Sky Limited Partnership, High Sky II Limited Partnership, and
Extended Communications, Inc.(1)........................................................
10-18 (a) Purchase Agreement dated April 21, 1995 with Landover Holdings Corporation.(1).......
(b) Letter Agreement dated May 8, 1995 with the Demetrees, ART Corp., and Landover
Holdings Corporation.(1).............................................................
(c) Letter Agreement dated November 13, 1995 with ART Corp., E2-2 Holdings, L.P. and the
Demetrees.(1)........................................................................
10-19 Restated and Amended Stockholders' Agreement dated February 2, 1996 with ART Corp. and
the stockholders of each of ART Corp. and the Company.(1)...............................
10-20 Restated and Amended Registration Rights Agreement dated February 2, 1996 with ART Corp.
and the stockholders of each of ART Corp. and the Company.(1)...........................
10-21 Services Agreement dated May 8, 1995 with ART Corp.(1)...................................
10-22 Option Agreement dated February 2, 1996 with ART Corp.(1)................................
10-23 (a) Securities Purchase Agreement dated November 13, 1995 with ART Corp., Vernon
Fotheringham, W. Theodore Pierson, Jr., the stockholders of the Company named therein
and the Advent Partnerships.(1)......................................................
(b) Exchange Agreement dated February 2, 1996 with ART Corp. and the Advent
Partnerships.(1).....................................................................
10-24 (a) Securities Purchase Agreement dated February 2, 1996 with ART Corp. and Ameritech
Development Corporation ("Ameritech"), including letter of intent.(1)................
(b) Warrant issued on February 2, 1996 to Ameritech.(1)..................................
(c) Put/Call Agreement dated February 2, 1996 with Ameritech.(1).........................
10-25 Strategic Distribution Agreement dated April 29, 1996 with Ameritech.(1).................
10-26 Merger Agreement and Plan of Reorganization dated February 2, 1996 between the Company
and ART Corp.(1)........................................................................
10-27 (a) $2,445,000 Promissory Note in favor of CRA, Inc. ("CRA")(1)..........................
(b) Security Agreement with CRA(1).......................................................
(c) Indemnity Agreement(1)...............................................................
(d) Form of Indemnity Warrant.(1)........................................................
10-28 Memorandum of Terms of Development and Procurement Agreement with American Wireless with
Extension Agreement dated April 25, 1996.(1)............................................
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ------------- ----------------------------------------------------------------------------------------- -------------
10-29 (a) Purchase Agreement dated April 26, 1996 with Harris Corporation Farinon Division
("Harris") (confidential treatment requested for certain terms).........................
<C> <S> <C>
(b) PCS Marketing Agreement dated April 26, 1996 with Harris (confidential treatment
requested for certain terms)............................................................
11 Computation of Net Loss Per Share of Common Stock........................................
12 Computation of Ratio of Earnings to Fixed Charges........................................
21 Subsidiaries of the Registrant.(1).......................................................
23(a) Consent of the Registrant's Independent Accountant.......................................
23(b) Consent of the Registrant's Counsel will be contained in the Opinion of Counsel (to be
filed by amendment).....................................................................
</TABLE>
- ------------------------
(1) Filed with the Registration Statement on Form S-1 of the Company dated May
2, 1996 (SEC Reg. No. 333-4388).
<PAGE>
EXHIBIT 12
ADVANCED RADIO TELECOM CORP.
COMPUTATION OF NET LOSS PER SHARE OF COMMON STOCK
FOR THE PERIOD FROM MARCH 28, 1995 (DATE OF INCEPTION) TO DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<S> <C>
Net loss applicable to Common Stock......................................... $ 2,981,073
--------------
--------------
Shares:
Weighted average number of shares of Common Stock outstanding at
December 31, 1995...................................................... 15,919,596(1)
--------------
--------------
Net loss per share of Common Stock.......................................... $ .19
--------------
--------------
Pro Forma:
Shares:
Weighted average number of shares of Common Stock outstanding at
December 31, 1995 for primary computation..............................
Issuances of shares of Serial Preferred Stock, including anti-dilutive
shares, subsequent to December 31, 1995 as converted into shares of
Common Stock...........................................................
Issuance of anti-dilutive shares of Common Stock subsequent to December
31, 1995...............................................................
Conversion of shares of Serial Preferred Stock outstanding at December
31, 1995 into shares of Common Stock...................................
Options and warrants issued and outstanding at December 31, 1995 and
issued subsequent to December 31, 1995.................................
Pro forma weighted average number of shares of Common Stock............... (2)
--------------
--------------
Pro forma net loss per share of Common Stock................................ $
--------------
--------------
Pro Forma As Adjusted
Shares:
Pro forma weighted average number of shares of Common Stock.............
Common Stock and warrants issued in connection with the Offerings.......
Pro forma as adjusted weighted average number of shares of Common Stock... (2)
--------------
--------------
Pro forma as adjusted net loss per share of Common Stock.................... $
--------------
--------------
</TABLE>
(1) The weighted average number of shares of Common Stock exclude all common
stock equivalents which are anti-dilutive.
(2) 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
must be treated as outstanding for the entire period presented. The weighted
average number of shares of Common Stock on a pro forma and on a pro forma
as adjusted basis reflect those potentially dilutive instruments assuming
the sale of shares of Common Stock offered in the Common Stock Offering
based on an assumed initial public offering price of $ per share.
<PAGE>
EXHIBIT 23(A)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of
our reports dated April 26, 1996, on our audits 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 and 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. We also consent to the reference to our firm under the caption
"Experts."
COOPERS & LYBRAND L.L.P.
New York, New York
May 13, 1996
