<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 6, 1997
REGISTRATION NO. 333-
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- --------------------------------------------------------------------------------
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 4812 52-1869023
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
<TABLE>
<S> <C>
VERNON L. FOTHERINGHAM
CHIEF EXECUTIVE OFFICER
ADVANCED RADIO TELECOM CORP. ADVANCED RADIO TELECOM CORP.
500 108TH AVENUE, N.E., SUITE 2600 500 108TH AVENUE, N.E., SUITE 2600
BELLEVUE, WASHINGTON 98004 BELLEVUE, WASHINGTON 98004
(206) 688-8700 (206) 688-8700
(Address, Including Zip Code, and Telephone (Name, Address, Including Zip Code, and
Number, Including Area Code, of Registrant's Telephone Number, Including Area Code, of
Principal Executive Offices) Agent for Service)
</TABLE>
<TABLE>
<S> <C>
COPIES TO:
JAMES KARDON, ESQ. JOHN D. WATSON, JR., ESQ.
HAHN & HESSEN LLP LATHAM & WATKINS
350 FIFTH AVENUE 1001 PENNSYLVANIA AVE., N.W.
NEW YORK, NEW YORK 10118 WASHINGTON, D.C. 20004
(212) 736-1000 (202) 637-2200
</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
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER UNIT (1) OFFERING PRICE (1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Units....................................... 125,000 Units $1,000 $125,000,000 $50,287
% Senior Notes due 2007................... $125,000,000 N/A N/A (2)
Warrants to Purchase Common Stock........... 125,000 Warrants N/A N/A (2)
Common Stock................................ 1,128,011 Shares $10.875 $12,267,120 $4,230
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457 under the Securities Act.
(2) 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.
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<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 JANUARY 6, 1997
PROSPECTUS
$125,000,000
[LOGO]
125,000 UNITS CONSISTING OF
% SENIOR NOTES DUE 2007
AND 125,000 WARRANTS TO PURCHASE SHARES OF COMMON STOCK
------------------
Advanced Radio Telecom Corp ("ART" or the "Company"), is hereby offering
(the "Offering") 125,000 units (the "Units"), each consisting of $1,000
principal amount of % Senior Notes due 2007 (the "Notes") and one warrant
(collectively, the "Warrants") to purchase 9.024 shares of common stock (the
"Common Stock") of the Company. The Notes and the Warrants will not be separable
until the earliest of (i) , 1997, (ii) a Change in Control (as
defined) with respect to the Company and (iii) such date as the Underwriters
may, in their discretion, deem appropriate (the "Separation Date"). At the
closing of the Offering, the Company will use approximately $44.3 million of the
net proceeds thereof to purchase a portfolio of Pledged Securities (as defined),
initially consisting of U.S. government securities, that will provide funds
sufficient for payment in full of interest on the Notes through , 2000
and that will be pledged as security for repayment of principal of the Notes.
See "Use of Proceeds." The Notes will mature on , 2007. Interest on
the Notes will be payable, at a rate of % per annum, semiannually in arrears
on and of each year, commencing , 1997. See
"Description of Notes." The Notes will be redeemable at the option of the
Company, in whole or in part, at any time on or after , 2002 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 one or more Equity Offerings (as
defined) or investments by one or more Strategic Equity Investors (as defined)
on or prior to , 2000 (other than in connection with a Change in
Control of the Company), the Company may, at its option, use all or a portion of
any such net proceeds to redeem up to a maximum of 25% of the initially
outstanding aggregate principal amount of the Notes at a redemption price equal
to % of the principal amount thereof plus accrued and unpaid interest, if any
to the redemption date; PROVIDED that not less than 75% of the initially
outstanding aggregate principal amount of the Notes remain outstanding following
such redemption. See "Description of Notes -- Redemption -- Optional
Redemption." 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 101%
of the principal amount thereof, plus accrued and unpaid interest, if any, to
the date of purchase. 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 senior obligations of the Company and will be
unsecured, except for the pledge by the Company of the Pledged Securities. The
Notes will rank PARI PASSU in right of payment with all existing and future
unsecured, senior indebtedness of the Company and will rank senior in right of
payment to all existing and future subordinated indebtedness of the Company. At
September 30, 1996, on a pro forma basis after giving effect to the Offering,
the Common Stock Offering (as defined) and the application of the net proceeds
therefrom, the aggregate amount of indebtedness of the Company (excluding the
Notes) was approximately $3.1 million, which consisted of the EMI Note (as
defined) and the Equipment Note (as defined), all of which ranked PARI PASSU
with the Notes. However, $1.6 million of such indebtedness constituted secured
indebtedness which will effectively rank senior to the Notes with respect to the
assets securing such indebtedness. Although the Indenture (as defined) will
limit the ability of the Company and its subsidiaries to incur additional
indebtedness, including senior indebtedness, the Indenture will permit the
Company to incur a substantial amount of secured indebtedness, including vendor
indebtedness and indebtedness under the Credit Facility (as defined), which, if
incurred, will effectively rank senior to the Notes with respect to the assets
securing such indebtedness. See "Risk Factors -- Possible Incurrence of
Substantial Secured Indebtedness," "Description of Notes" and "Description of
Certain Indebtedness."
Each Warrant will entitle the holder thereof, subject to certain conditions,
to purchase 9.024 shares of Common Stock at an exercise price of $ per share,
subject to adjustment under certain circumstances. Upon exercise, the holders of
Warrants will be entitled, in the aggregate, to purchase 1,128,011 shares of
Common Stock, representing 5.0% of the outstanding Common Stock on a
fully-diluted basis on the date hereof, after giving effect to the Offering and
the CommcoCCC Acquisition (as defined). The Warrants will be exercisable at any
time on or after , 1997. Unless earlier exercised, the Warrants will
expire on , 2007. 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 or for quotation on the Nasdaq National
Market. The Common Stock is quoted on the Nasdaq National Market under the
symbol "ARTT." As of January 2, 1997, the closing price of the Common Stock on
the Nasdaq National Market was $11.125 per share. See "Risk Factors -- Absence
of Public Market; Possible Volatility of Stock Price."
SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR A DISCUSSION OF CERTAIN FACTORS
WHICH SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE UNITS OFFERED
HEREBY.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITERS' PROCEEDS TO
PUBLIC(1) DISCOUNT(2) COMPANY(3)
<S> <C> <C> <C>
Per Unit................................. % % %
Total.................................... $ $ $
</TABLE>
(1) Plus accrued interest, if any, on the Notes from , 1997.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). 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 ,
1997.
------------------------------
MERRILL LYNCH & CO. CIBC WOOD GUNDY SECURITIES CORP.
------------------------------
The date of this Prospectus is , 1997.
<PAGE>
[INSIDE FRONT COVER GATE FOLD]
[MAP OF U.S. DISPLAYING ADVANCED RADIO
TELECOM CORP.'S 38 GHz SERVICE AREAS.]
<PAGE>
[GRAPHIC DISPLAYING 38 GHz LINKS
BETWEEN METROPOLITAN FIBER RING,
OFF-FIBER NET BUILDINGS AND ON-FIBER NET BUILDINGS.]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE UNITS OFFERED
HEREBY AT LEVELS ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY SHOULD BE READ IN CONJUNCTION WITH, AND IS QUALIFIED
IN ITS ENTIRETY BY, THE MORE DETAILED INFORMATION, INCLUDING "RISK FACTORS" AND
THE HISTORICAL AND PRO FORMA FINANCIAL STATEMENTS AND THE NOTES THERETO,
APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL
INFORMATION IN THIS PROSPECTUS GIVES EFFECT TO (I) THE COMPLETION OF THE MERGER
(THE "MERGER") OF A WHOLLY-OWNED SUBSIDIARY OF ADVANCED RADIO TECHNOLOGIES
CORPORATION ("ART") WITH AND INTO TELECOM (AS DEFINED) EFFECTED IN OCTOBER 1996,
(II) THE CONVERSION (THE "CONVERSION") OF ALL OUTSTANDING SHARES OF PREFERRED
STOCK OF ART INTO SHARES OF COMMON STOCK OF ART EFFECTED IN NOVEMBER 1996, (III)
THE AMENDMENT OF ART'S CERTIFICATE OF INCORPORATION TO CHANGE ITS NAME TO
"ADVANCED RADIO TELECOM CORP." ("ART" OR THE "COMPANY"), AND (IV) COMPLETION OF
THE INITIAL PUBLIC OFFERING OF 2,300,500 SHARES OF COMMON STOCK EFFECTED IN
NOVEMBER 1996 (THE "COMMON STOCK OFFERING"). AS USED IN THIS PROSPECTUS, THE
TERMS "ART" OR THE "COMPANY" REFER EITHER TO ART ON A STAND-ALONE BASIS OR ON A
COMBINED BASIS WITH ITS WHOLLY-OWNED SUBSIDIARY, ART LICENSING CORP. ("ART
LICENSING" AND, FORMERLY, TELECOM) AS THE CONTEXT MAY REQUIRE. SEE "THE
COMPANY." SEE "GLOSSARY" FOR THE DEFINITIONS OF CERTAIN TERMS AND ACRONYMS USED
HEREIN.
THE COMPANY
Advanced Radio Telecom Corp. ("ART" or the "Company") provides wireless
broadband telecommunications services using point-to-point microwave
transmissions in the 38 GHz band of the radio spectrum. The Company is seeking
to address the growing demand for high speed, high capacity digital
telecommunications services on the part of business and government end users who
require cost effective, high bandwidth local access to voice, video, data and
Internet services. Upon completion of its pending acquisition of 129 38 GHz
wireless broadband authorizations (the "CommcoCCC Assets") from CommcoCCC, Inc.
("CommcoCCC"), the Company will own, manage or have a right to use on a long-
term basis a total of 233 authorizations (which are also referred to herein as
"licenses") granted by the Federal Communications Commission (the "FCC")
covering an aggregate population of approximately 156 million in 169 U.S.
markets. ART's footprint will allow it to provide 38 GHz wireless broadband
services in 47 of the top 50 markets and 82 of the top 100 markets. Presently,
the Company owns, manages or has a right to use on a long-term basis 104
licenses (exclusive of the CommcoCCC Assets) that allow it to provide 38 GHz
wireless broadband services in 84 markets. See "Risk Factors -- Risk of
Non-Consummation of CommcoCCC Acquisition and Other Acquisitions," "Business --
38 GHz Wireless Broadband Licenses and Authorizations" and "-- Agreements
Relating to Licenses and Authorizations -- CommcoCCC Acquisition." During 1996
the Company installed over 370 radio links (single path point-to-point microwave
connections), including 99 radio links installed for other carriers and 85 radio
links providing service to customers.
The ability to access and distribute information quickly has become critical
to business and government users of telecommunications services. The rapid
growth of local area networks ("LANs"), Internet services, video
teleconferencing and other data intensive applications is significantly
increasing the volume of broadband telecommunications traffic. The inability of
the existing infrastructure to meet this demand is creating a "last mile"
bottleneck in the copper wire networks of the incumbent local exchange carriers
("LECs"). This increasing demand, together with changes in the regulatory
environment, is creating an opportunity to offer cost effective, high capacity
last mile access using both wireline and wireless solutions. See "Business --
Telecommunications Industry Overview."
ART'S WIRELESS BROADBAND SERVICES
The Company is positioned to solve the need for broadband last mile
services, linking end users to facilities of LECs, competitive access providers
("CAPs"), competitive local exchange carriers ("CLECs"), inter-exchange carriers
("IXCs") and Internet service providers ("ISPs"). The Company is also positioned
to link cell sites of mobile communications service providers and to link
metropolitan area network sites using 38 GHz technology. The Company's wireless
broadband links deliver high quality voice and data transmissions at a level of
performance which exceeds the performance of copper based networks and is a
viable alternative to fiber optic based networks. The Company provides point-
3
<PAGE>
to-point wireless digital circuits ranging in capacity from DS-1 (1.544 megabits
per second ("Mbps"), capable of carrying 24 simultaneous voice conversations) to
DS-3 (45 Mbps, capable of carrying 672 simultaneous voice conversations). The
Company believes that it generally owns or manages sufficient 38 GHz bandwidth
to satisfy the anticipated service requirements of its target customers in each
of the Company's existing markets and the additional 80 markets to be acquired
under the CommcoCCC Agreement (as defined). See "Business -- ART's Wireless
Broadband Services."
The Company intends initially to market its services as a carrier's carrier
in order to leverage ART's carrier customers' sales forces, channels of
distribution and customer bases. The Company believes that its services will be
attractive to carrier customers which do not currently have broadband networks
that reach the majority of their customers. For example, the Company has entered
into a strategic distribution agreement (the "Ameritech Strategic Distribution
Agreement") with Ameritech Corp. ("Ameritech") for delivery of the Company's
wireless broadband services throughout Ameritech's midwest operating region and
for certain large customers located outside its region. Ameritech has initiated
the sale of ART's wireless broadband services on a limited basis, and the
Company expects that full-scale rollout will begin in the first quarter of 1997.
See "Business -- Strategic Alliances -- Ameritech Strategic Distribution
Agreement."
The Company believes that a number of factors provide it with certain
significant competitive advantages in offering broadband last mile services,
including:
- The characteristics of 38 GHz technology (high data transfer rates,
significant channel capacity, rapid deployment, easy installation, very
high transmission quality and efficient network design) are ideal for the
provision of last mile services. See "Business -- 38 GHz Technology."
- The Company deploys capital efficiently because of the
installation-to-meet-demand and redeployable nature of the Company's
wireless broadband equipment, as compared to the significant upfront cost
for installation of fiber based networks.
- As one of the first 38 GHz service providers, the Company enjoys a
time-to-market advantage and is therefore well-positioned to capture a
large percentage of early adopters, which are generally among the heaviest
users. The Company believes it is one of only two 38 GHz service providers
currently offering commercial services.
- The Company is forging strategic alliances with major telecommunications
carriers, equipment vendors and technology development companies, thus
gaining access to important channels of distribution and early deployment
of advanced technologies.
- The broad scope of the Company's footprint enables it to offer wireless
broadband services targeting much of the United States's addressable
business market.
- The Company's network management operational support system provides
24-hour, seven-days-a-week network monitoring and management.
- The Company is developing proprietary Geographic Information Systems
("GIS") that provide ART with 3-D digital modeling of all of its markets,
including all building and landscape features, to reduce the time and
expense of engineering its proposed radio locations. These systems will
allow the Company to determine line of site for proposed links, produce a
list of tenants in the buildings serviceable from such locations and
integrate this information with its marketing databases.
4
<PAGE>
BUSINESS STRATEGY
The Company is seeking to capitalize on its broad footprint of 38 GHz
authorizations to become a leading provider of wireless broadband solutions to a
diverse group of traditional and emerging telecommunications service providers
and end users. See "Business -- Business Strategy." The Company has begun to
implement the following strategic initiatives to achieve this objective:
- CAPITALIZE ON BROAD SPECTRUM POSITION. The Company's spectrum assets
provide it with the foundation on which to create a large scale commercial
network of 38 GHz wireless broadband operations. The Company plans to
continue to build out its infrastructure and to intensify its marketing
effort in its market areas in order to exploit the value inherent in its
spectrum assets. See "Business -- Agreements Relating to Licenses and
Authorizations."
- ESTABLISH AND EXPAND KEY STRATEGIC ALLIANCES. The Company plans to utilize
strategic alliances to bundle its services with those of its partners, to
provide for alternative distribution channels and to gain access to
technological advancements. The Company has established and will seek to
continue to establish key strategic alliances with major service providers,
equipment manufacturers and systems integrators. Under the Ameritech
Strategic Distribution Agreement, Ameritech is targeting certain sales
objectives and has agreed to spend internally up to $7.0 million on its
sales and marketing of ART's services. Ameritech owns a 5.0% beneficial
equity interest in the Company as of January 2, 1997. The Company also has
agreements with Harris Corporation, Farinon Division ("Harris") for
marketing ART's 38 GHz services to PCS providers and with GTE Corporation
for installation, field servicing and network monitoring. See "Business--
Strategic Alliances."
- MARKET INITIALLY AS A CARRIER'S CARRIER. The Company intends to initially
market its services as a carrier's carrier in order to leverage ART's
carrier customers' sales forces, channels of distribution and customer
bases. The Company's initial target customers include LECs, CAPs/CLECs,
IXCs, ISPs and mobile communications service providers. The Company
believes that its services are particularly attractive to carrier customers
who do not currently have broadband networks capable of reaching the
majority of their customers.
- PROACTIVELY IDENTIFY OFF-NET MARKET OPPORTUNITIES FOR CARRIER CUSTOMERS.
ART utilizes its proprietary database tools, such as GIS, to analyze a
particular carrier's network and identify high density off-net customer
locations. The GIS database is then used to pre-clear off-net buildings for
line of site, distance and network design alternatives. After a critical
mass of sites has been pre-qualified, the Company is able to proactively
market to the carrier access to such customer premises and pursue a "team
selling" approach to end users. Utilizing this proactive approach with
multiple carriers is expected to allow the Company incrementally to build a
custom-designed wireless hub network in each of its target markets.
- PURSUE OPPORTUNITIES TO PROVIDE VALUE-ADDED SERVICES. The Company will
also market services such as data, video-conferencing, high resolution
imaging and video on demand directly to end users in conjunction with
system integrators, telecommunications equipment manufacturers and other
service providers. The Company also plans to offer point-to-multipoint
wireless broadband services and may also decide to offer switched-data
services to end users who desire a single source telecommunications
solution.
- MAINTAIN COMPETITIVE ADVANTAGES THROUGH TECHNOLOGY ADVANCEMENTS. As 38 GHz
microwave radios begin to be produced in large volumes with modern
manufacturing techniques, the Company believes that the cost of such
equipment will decline, thereby allowing the Company to meet anticipated
price competition in its markets. In addition, through the Company's
internal technology development efforts, as well as on-going participation
in equipment manufacturers'
5
<PAGE>
research and development activities, the Company continuously seeks to
reduce costs by designing equipment that allows it to more efficiently
utilize its spectrum. For example, the Company anticipates taking delivery
of 38 GHz OC-3 radios SONET compatible (155 Mbps) within 18-24 months.
6
<PAGE>
CUSTOMERS AND APPLICATIONS
The Company began deploying its links principally on a trial basis in
November 1995 and has since been hiring its staff, building its internal
infrastructure and developing its marketing plans and relationships with
potential customers. The Company has generated only nominal revenues from its
operations to date and has recently begun to finalize plans to roll out its
services on a wide-scale basis. Currently, the Company is providing or has
received orders to provide wireless broadband services to LECs, CAPs/ CLECs,
ISPs and mobile communications service providers, and is in the process of
becoming a qualified vendor to all the major IXCs. The Company currently
provides services to carriers such as Ameritech, Bell Atlantic NYNEX Mobile, MFS
Communications Company, Inc., UUNet, DIGEX, Incorporated, Electric Lightwave,
NEXTLINK Communications LLC, American PCS, L.P., Western Wireless, Commonwealth
Telephone, Public Interest Network, Chadwick Telephone, CGX Telecom, CAIS, Inc.
and Brooks Fiber Properties, Inc., among others. See "Business--Customers and
Applications."
38 GHZ TECHNOLOGY
The 38 GHz band provides for the following additional advantages as compared
to other spectrum bands and wireline alternatives:
- HIGH DATA TRANSFER RATES. The total amount of bandwidth for each 38 GHz
channel is 100 MHz, which exceeds the bandwidth of any other present
terrestrial wireless channel allotment and supports full broadband
capability. For example, one 38 GHz DS-3 link at 45 Mbps today can
transfer data at a rate which is over 1,300 times the rate of the fastest
dial-up modem currently in use (33.3 Kbps) and over 350 times the rate of
the fastest integrated services digital network ("ISDN") line currently in
use (128 Kbps). In addition to accommodating standard voice and data
requirements, 45 Mbps data transmission rates allow end users to receive
real time, full motion video and 3-D graphics at their workstations and to
utilize highly interactive applications on the Internet and other
networks.
- SIGNIFICANT CHANNEL CAPACITY. Because 38 GHz radio emissions have a
narrow beam width, a relatively short range and in most instances the
capability to intersect without creating interference, 38 GHz service
providers can efficiently reuse their bandwidth within a licensed area,
thereby increasing the number of customers to which such services can be
provided. Management believes that by using technology currently employed
by the Company it can serve virtually all of its addressable service
market.
- RAPID DEPLOYMENT. 38 GHz technology can be deployed considerably more
rapidly than wireline and other wireless technologies, generally within 72
hours after obtaining access to customer premises. In contrast to the
relative ease of installing a 38 GHz transmission link, extending fiber or
copper-based networks to reach new customers requires significant time and
expense. In addition, unlike providers of point-to-point microwave service
in most other spectrum bands, a 38 GHz license holder can install and
operate as many transmission links as it can engineer in the licensed area
without obtaining additional approvals from the FCC. This is a substantial
advantage over other portions of the microwave radio spectrum that must be
licensed on a link-by-link basis and that cannot commence service until
frequency coordination has been completed.
- EASE OF INSTALLATION. The equipment used for 38 GHz point-to-point
applications (I.E., antennae, transceivers and digital interface units) is
smaller, less obtrusive and less expensive than that used for microwave
equipment applications at other frequencies, making it less susceptible to
zoning restrictions. In addition, 38 GHz equipment can be easily
redeployed to meet changing customer requirements.
- VERY HIGH TRANSMISSION QUALITY. The Company's wireless broadband services
are engineered to provide 99.999% availability, with better than a 10-13
(unfaded) bit error rate. This level of availability exceeds the
performance of copper based networks and is a viable alternative to fiber
7
<PAGE>
based networks. When measured as the total amount of time "out of service"
over a year, 99.999% availability equates to less than six minutes per
year of down-time, compared to a range of four hours to 44 hours of
historical performance of similar copper-based LEC circuits.
- ADDITIONAL ADVANTAGES OVER OTHER PORTIONS OF RADIO SPECTRUM. At
frequencies above 38 GHz, point-to-point applications become less
practical because attenuation increases and the maximum distance between
transceivers accordingly decreases. Additionally, the FCC has specified
the use of many portions of the spectrum for applications other than
point-to-point, such as satellite and wireless cable services, and,
accordingly, these portions of the radio spectrum often are not available
for point-to-point applications.
RECENT DEVELOPMENTS
There have been a number of recent corporate developments at ART, including:
- AMERITECH ROLLOUT ANNOUNCEMENT. Ameritech has initiated the sale of ART's
wireless broadband services on a limited basis, and the Company expects
that full-scale rollout will begin in the first quarter of 1997. Ameritech
will rely on ART for the provision of high speed door-to-door connectivity
of voice, data and video to customers in the Midwest. See
"Business--Strategic Alliances."
- MASTER SERVICE AGREEMENTS WITH CAPS/CLECS AND ISPS. In September and
October 1996, ART entered into various master service agreements with a
number of CAPs/CLECs and ISPs, including NEXTLINK Communications LLC,
DIGEX, Incorporated, CAIS, Inc., Microwave Partners d/b/a Astrolink
Communications, Inc., American PCS, L.P., Message Center Management, Inc.,
GST Telecom, Inc., and Brooks Fiber Properties, Inc. The Company's master
service agreements contain the terms by which customers will place future
orders. The terms which are outlined in these agreements include volume
discounts, approximate geographic location of links needed and
representative pricing. Although a master service agreement is not a take
or pay commitment, it lays the groundwork for future orders by a preferred
customer and is utilized to facilitate the issuance of purchase orders by
a customer without any additional negotiations. See "Business--Strategic
Alliances."
- WORLDCOM AGREEMENTS. In November 1996, ART entered into an agreement with
WorldCom, Inc. ("WorldCom") which acquired MFS Communications Company,
Inc. on December 31, 1996, to supply trial broadband links to connect
WorldCom sites in the New York City metropolitan area. Assuming successful
completion of the trial and evaluation process, the Company anticipates
that it will be able to enter into broader contractual relationships with
WorldCom; however, there can be no assurance that the Company will be able
to do so.
- TELEPORT CONTRACT. In October 1996, ART entered into an installation
services agreement pursuant to which ART acted as a sub-contractor to
Teleport Communications Group ("TCG" or "Teleport") to provide
transmission facilities construction services. As of December 31, 1996,
all of such construction services had been substantially completed. See
"Business--Strategic Alliances."
- ICG AGREEMENT. In October 1996, ART entered into a services agreement
(the "ICG Agreement") with ICG Telecom Group, Inc. and Pacific & Eastern
Digital Transmission Services, Inc., pursuant to which the Company will
have an exclusive right, as against third parties, to use for a five-year
term ten 38 GHz wireless broadband authorizations covering an aggregate
population of approximately 13 million in or around the California cities
of Beverly Hills, Los Angeles, Palm Springs, Riverside, Santa Barbara, San
Bernardino, Santa Monica, San Diego, Santa Ana and Ventura. In addition,
the services agreement grants to the Company a right of first refusal with
respect to the purchase of such authorizations, subject to limited
exceptions. The services agreement may be renewed for successive terms
totalling five additional years upon expiration of its initial term. See
"Business--Agreements Relating to Licenses and Authorizations--ICG
Agreement."
8
<PAGE>
THE OFFERING
THE UNITS
<TABLE>
<S> <C>
Units Offered..................... 125,000 Units, each consisting of $1,000 principal
amount at maturity of % Senior Notes due 2007 and
one Warrant to purchase 9.024 shares of Common Stock of
the Company. The Notes and the Warrants will not be
separable until the earliest of (i) , 1997, (ii)
a Change in Control with respect to the Company and
(iii) such date as the Underwriters may, in their
discretion, deem appropriate (the "Separation Date").
Use of Proceeds................... To fund capital expenditures, including the purchase of
equipment and the acquisition of certain spectrum
rights, and for general corporate purposes, including
the funding of operating cash flow shortfalls,
technology development and acquisitions of additional
spectrum rights and, potentially, related businesses. At
the closing of the Offering, the Company will use
approximately $44.3 million of the net proceeds to
purchase the Pledged Securities. The amount of the net
proceeds used to purchase Pledged Securities may vary
depending upon the then current interest rates on U.S.
government securities. See "Use of Proceeds" and
"Description of Notes -- Security."
THE NOTES
Notes Offered..................... $125,000,000 aggregate principal amount of % Senior
Notes due 2007.
Maturity Date..................... , 2007.
Interest Payment Date............. Cash interest on the Notes will be payable semiannually
in arrears on and of each year,
commencing , 1997.
Security.......................... At the closing of the Offering, the Company will use a
portion (approximately $44.3 million) of the net
proceeds thereof to purchase a portfolio of Pledged
Securities that will provide funds sufficient for
payment in full of interest on the Notes through
, 2000 and that will be pledged as security for
repayment of principal of the Notes. Proceeds from the
Pledged Securities will be used by the Company to make
interest payments on the Notes through , 2000.
See "Description of Notes -- Security." The Pledged
Securities will be held by the Trustee under the Pledge
Agreement (as defined) pending disbursement.
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
, 2002 at the redemption prices set forth
herein, plus accrued and unpaid interest thereon, 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 one or more Equity Offerings
or investments by one or more Strategic Equity In-
vestors on or prior to , 2000 (other than in
connection with a Change in Control of the Company), the
Company may, at its option, use all or a portion of any
such net proceeds to redeem up to a maximum of 25% of
the initially outstanding aggregate principal amount of
the Notes at a redemption price equal to % of the
principal amount thereof, plus accrued and unpaid
interest thereon, if any, to the date of redemption;
PROVIDED that not less than 75% of the initially
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
outstanding aggregate principal amount of the Notes
remain outstanding following such redemption. See
"Description of Notes -- Redemption -- Optional
Redemption."
Change in Control................. Upon the occurrence of a Change in Control, the Company
is obligated to make an offer to purchase all
outstanding Notes at a price of 101% of the principal
amount thereof, plus accrued and unpaid interest
thereon, if any, to the date of purchase. 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 senior obligations of the
Company and will be unsecured, except for the pledge by
the Company of the Pledged Securities. The Notes will
rank PARI PASSU in right of payment with all existing
and future unsecured, senior indebtedness of the Company
and will rank senior in right of payment to all existing
and future subordinated indebtedness of the Company. At
September 30, 1996, on a pro forma basis after giving
effect to the Offering, the Common Stock Offering and
the application of the net proceeds therefrom, the
aggregate principal amount of indebtedness of the
Company (excluding the Notes) was approximately $3.1
million, which consisted of the EMI Note and the
Equipment Note, all of which ranked PARI PASSU with the
Notes. However, $1.6 million of such indebtedness
constituted secured indebtedness which will effectively
rank senior to the Notes with respect to the assets
securing such indebtedness. Although the Indenture will
limit the ability of the Company and its subsidiaries to
incur additional indebtedness, including additional
senior indebtedness, the Indenture will permit the
Company to incur a substantial amount of secured
indebtedness, including vendor indebtedness and
indebtedness under the Credit Facility, which, if
incurred, will effectively rank senior to the Notes with
respect to the assets securing such indebtedness. See
"Risk Factors -- Possible Incurrence of Substantial
Secured Indebtedness," "Description of Notes" and
"Description of Certain Indebtedness."
Certain Covenants................. The Indenture will contain certain covenants which,
among other things, will restrict the ability of the
Company and its Restricted Subsidiaries (as defined) to
(i) incur indebtedness, (ii) pay dividends or make
distributions in respect of the Company's capital stock
or make certain other restricted payments, (iii) create
certain liens, (iv) enter into certain transactions with
affiliates or related persons, (v) conduct certain
businesses or (vi) sell certain assets. In addition, the
Indenture will limit the ability of the Company to
consolidate, merge or sell all or substantially all of
its assets. These covenants are subject to important
exceptions and qualifications. See "Description of Notes
-- Certain Covenants."
THE WARRANTS
Warrants.......................... 125,000 Warrants which, when exercised, would entitle
the holders thereof to purchase, in the aggregate,
1,128,011 shares of Common Stock (the "Warrant Shares"),
representing 5.0% of the outstanding Common Stock on a
fully-diluted basis on the date hereof, after giving
effect to the Offering and the CommcoCCC Acquisition.
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
Registration Rights............... The Company will be required under the terms of the
agreement pursuant to which the Warrants are issued (the
"Warrant Agreement") to use its best efforts to cause to
become effective under the Securities Act no later than
, 1997 a shelf registration statement (the
"Warrant Shelf Registration Statement") covering the
issuance of the Warrant Shares upon exercise of the
Warrants. Subject to certain "black-out" periods, the
Company will also be required to use its best efforts to
maintain the effectiveness of the Warrant Shelf
Registration Statement until the expiration or exercise
of all Warrants. See "Description of Warrants --
Registration of Warrant Shares" and "Risk Factors --
Current Registration Required to Exercise Warrants."
Separation Date................... The Notes and the Warrants will not be separable until
the earlier of (i) , 1997, (ii) a Change in
Control with respect to the Company and (iii) 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 9.024 shares of Common
Stock at an exercise price of $ per share, subject
to adjustment under certain circumstances. The Warrants
will be exercisable at any time on or after
, 1997 and prior to the expiration of the
Warrants, as set forth below. The exercise price and
number of shares of Common Stock issuable upon exercise
of the Warrants will be subject to adjustment from time
to time upon the occurrence of certain changes with re-
spect to the Common Stock, including certain
distributions of shares of Common Stock, issuances of
options or convertible securities, dividends and
distributions and certain changes in options and
convertible securities of the Company. A Warrant does
not entitle the holder thereof to receive any dividends
paid on shares of Common Stock.
Expiration........................ , 2007.
</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."
CIBC FINANCING COMMITMENT
The Company has entered into agreements with certain investors (the
"Noteholders") which provide for the issuance of $50.0 million of Senior Secured
Notes due 1998 (the "Senior Secured Notes") at any time, at the Company's
option, until February 10, 1997 (the "CIBC Financing Commitment"). Upon
completion of the Offering, the CIBC Financing Commitment will terminate, and,
accordingly, the Company will not issue the Senior Secured Notes in such event.
See "Description of Certain Indebtedness -- CIBC Financing Commitment."
RISK FACTORS
See "Risk Factors" beginning on page 13 for a discussion of certain factors
that should be considered by prospective purchasers of the Units offered hereby.
Certain statements contained in this Prospectus constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of the Company, or industry results, to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Given these uncertainties, prospective
investors are cautioned not to place undue reliance on such forward-looking
statements. See "Risk Factors" and "Special Note Regarding Forward-Looking
Statements."
11
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table presents unaudited summary historical and pro forma
financial data which were derived from, and should be read in conjunction with,
the audited financial statements of the Company and the notes thereto, the
unaudited condensed consolidated financial statements of the Company and the
notes thereto, and the unaudited pro forma condensed consolidated financial
statements of the Company and the notes thereto, included elsewhere in this
Prospectus. The pro forma 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 nine months ended September 30, 1996 and for the
year ended December 31, 1995, nor do they purport to represent the Company's
future financial position and results of operations.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995 NINE MONTHS ENDED SEPTEMBER 30,
1996
------------------------------- -------------------------------
HISTORICAL (1) PRO FORMA (2) HISTORICAL (1) PRO FORMA (2)
------------- ---------------- ------------- ----------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Service revenue........................................ $ 5,793 $ 5,793 $ 125,013 $ 125,013
Non-cash compensation expense.......................... 1,089,605 1,089,605 7,504,452 7,504,452
Depreciation and amortization.......................... 15,684 2,509,059 504,462 2,374,493
Interest and financing expense......................... 131,540 24,616,543 1,396,943 20,546,088
Net loss............................................... 3,234,843 27,048,846 20,378,377 39,024,272
Pro forma net loss per share of Common Stock (3)....... 0.30 $ 1.36 2.15 2.12
Pro forma weighted average number of shares of Common
Stock outstanding (3)................................. 10,912,338 19,846,172 9,470,545 18,404,379
OTHER FINANCIAL DATA:
EBITDA (4)............................................. $(2,007,568) $ (2,007,568) $(9,978,993) $ (9,978,993)
Capital expenditures................................... 3,585,144 3,585,144 7,864,110 7,864,110
</TABLE>
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1995 AS OF SEPTEMBER 30, 1996
------------------ -------------------------------
HISTORICAL (1) HISTORICAL (1) PRO FORMA (2)
------------------ ------------- ----------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital surplus (deficit)........................... $ (3,008,510) $(20,700,673) $ 73,255,289
Property and equipment, net................................. 3,581,561 11,019,217 11,019,217
FCC licenses, net........................................... 4,235,734 4,276,780 104,011,780
Total assets................................................ 9,876,559 20,541,997 252,540,252
Short-term debt............................................. -- 9,275,179 --
Long-term debt (including current portion).................. 6,450,000 3,107,422 121,215,275
Total stockholders' equity (deficit)........................ (312,860) (2,995,212) 97,220,369
</TABLE>
- ------------------------------
(1) The historical summary financial data of the Company reflects the Merger of
ART and Telecom, which occurred on October 28, 1996. The Merger was
accounted for as a reorganization of entities under common control which is
similar to that of a pooling of interests.
(2) The unaudited summary financial data under the caption "Pro Forma" are
presented as if the following transactions had occurred as of the beginning
of the respective periods for the Statement of Operations Data and Other
Financial Data and as of the balance sheet date for the Balance Sheet Data:
(i) the sale by the Company of 2,300,500 shares of Common Stock offered in
the Common Stock Offering in November 1996 at a price of $15.00 per share,
after deducting the underwriting discount and offering expenses; (ii) the
Conversion in November 1996; (iii) fees and expenses of approximately $6.4
million related to the CIBC Financing Commitment, including the issuance of
the First CIBC Warrants (as defined) to purchase 300,257 shares of Common
Stock, which financing commitment is assumed to be replaced by the issuance
of the Notes in the Offering; (iv) the receipt of $1.6 million (out of a
total of $4.0 million) in cash proceeds from the September Bridge Financing
(as defined) in October 1996; (v) the application of the net proceeds from
the Common Stock Offering to repay the March Bridge Notes, the CommcoCCC
Notes and the September Bridge Notes (in each case, as defined), which
repayment occurred in November 1996, and the November 1996 payment of $3.0
million of the total $6.0 million consideration to acquire the 50% ownership
interest of ART West held by Extended (in each case, as defined); (vi) the
exercise of the Ameritech Warrant (as defined) to purchase an aggregate of
318,374 shares of Common Stock in December 1996; (vii) the sale by the
Company of 125,000 Units offered in the Offering assuming $125.0 million of
gross proceeds, after deducting (a) the estimated underwriting discount and
offering expenses, (b) the cash used to purchase the Pledged Securities of
approximately $44.3 million and (c) the value ascribed to the Warrants of
approximately $6.9 million (the value was based on an assumed value of
$11.25 per share of Common Stock, a warrant exercise price of $12.375 per
share and an assumed issuance of Warrants to purchase an aggregate of
1,128,011 shares of Common Stock); (viii) the use of $3.0 million of net
proceeds from the Offering to fund the
12
<PAGE>
balance of the ART West purchase price; and (ix) the consummation of the
acquisition by the Company of the CommcoCCC Assets in exchange for 6,000,000
shares of Common Stock at an assumed value of $11.25 per share plus related
estimated expenses.
(3) 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 2,300,500 shares of Common Stock
issued in the Common Stock Offering, the Conversion, the issuance of
potentially dilutive instruments issued within one year prior to the Common
Stock Offering at exercise prices below the initial public offering price of
$15.00 per share (in measuring the dilutive effect, the treasury stock
method was used), the issuance of the 318,374 shares of Common Stock to
Ameritech, and the issuance of 6,000,000 shares of Common Stock in
connection with the CommcoCCC Acquisition.
(4) EBITDA represents loss before interest and financing expense (net of
interest income), income tax expense, depreciation and amortization expense,
non-cash compensation expense and non-cash market development expense.
EBITDA is not intended to represent cash flows from operating activities, as
determined in accordance with generally accepted accounting
principles.EBITDA should not be considered as an alternative to, or more
meaningful than, operating income or loss, net income or loss or cash flow
as an indicator of the Company's performance. EBITDA has been included
because the Company uses it as one means of analyzing its ability to service
its debt, because a similar measure will be used in the Indenture with
respect to computations under certain covenants and the Company understands
that it is used by certain investors as one measure of a company's
historical ability to service its debt. Not all companies calculate EBITDA
in the same fashion and therefore EBITDA as presented may not be comparable
to other similarly titled measures of other companies.
13
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, THE
FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING AN
INVESTMENT IN THE UNITS OFFERED HEREBY. CERTAIN STATEMENTS CONTAINED IN THIS
PROSPECTUS CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SUCH FORWARD-LOOKING
STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS THAT
MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY, OR
INDUSTRY RESULTS, TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS,
PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING
STATEMENTS. GIVEN THESE UNCERTAINTIES, PROSPECTIVE INVESTORS ARE CAUTIONED NOT
TO PLACE UNDUE RELIANCE ON SUCH FORWARD-LOOKING STATEMENTS. SEE "SPECIAL NOTE
REGARDING FORWARD-LOOKING STATEMENTS."
BUSINESS AND REGULATORY RISKS
LIMITED OPERATIONS; HISTORY OF NET LOSSES
Although the Company's business commenced in 1993, the Company has generated
only nominal revenues from operations to date. The Company's primary activities
have focused on the acquisition of wireless authorizations, the hiring of
management and other key personnel, the raising of capital, the acquisition of
equipment and the development of operating systems. Prospective investors have
limited operating and financial data about the Company upon which to base an
evaluation of the Company's performance and an investment in the Units offered
hereby. The Company's ability to provide commercial service on a widespread
basis and to generate positive operating cash flow will depend on its ability
to, among other things, (i) deploy its 38 GHz technology on a market-by-market
basis, (ii) attract and retain an adequate customer base, (iii) develop its
operational and support systems and (iv) acquire appropriate sites for its
operations. See "Business -- Business Strategy." Given the Company's limited
operating history, there can be no assurance that it will be able to achieve
these goals, to develop a sufficiently large revenue-generating customer base,
to service its indebtedness or to compete successfully in the telecommunications
industry.
The development of the Company's business and the deployment of its services
and systems will require significant capital expenditures, a substantial portion
of which will need to be incurred before the realization of significant
revenues. Together with the associated start-up operating expenses, these
capital expenditures will result in negative cash flow until an adequate revenue
generating customer base is established. For the year ended December 31, 1995
and the nine-month period ended September 30, 1996, the Company reported net
losses of $3.2 million and $20.4 million, respectively. From inception through
September 30, 1996, the Company reported net losses of $23.9 million. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." Through December 31, 1997, the Company currently expects to incur
capital expenditures of approximately $35.0 million as the development and
expansion of its wireless broadband business continues. The Company expects to
generate significant operating and net losses for at least the next several
years. There can be no assurance that the Company will develop an adequate
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. The Company expects that
substantial marketing effort, time and expense will be required to stimulate
initial demand for the Company's wireless broadband services. See "Business --
38 GHz Technology." There can be no assurance that substantial markets will
develop for 38 GHz wireless broadband services, or, if such markets were to
develop, that the Company would be able to attract and maintain a sufficient
revenue-generating customer base or operate profitably.
13
<PAGE>
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 wireless broadband equipment. In addition, the
extent of the potential demand for wireless broadband services in the Company's
market areas cannot be estimated with certainty. There can be no assurance that
one or more of these factors will not have an adverse effect on the Company's
financial condition and results of operations.
RISK OF NON-CONSUMMATION OF COMMCOCCC ACQUISITION AND OTHER ACQUISITIONS; COMMCO
OPTION
On July 3, 1996, the Company entered into an agreement (as amended, the
"CommcoCCC Agreement") to acquire the CommcoCCC Assets from CommcoCCC (the
"CommcoCCC Acquisition") in exchange for 6,000,000 shares of Common Stock. See
"Business -- Agreements Relating to Licenses and Authorizations -- CommcoCCC
Acquisition." The CommcoCCC Acquisition is subject to various conditions
including receipt of FCC and other approvals (including approval under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, if required), receipt by
CommcoCCC of an opinion as to the tax-free nature of the transaction, minimum
population coverage requirements for the authorizations of ART and CommcoCCC,
accuracy of representations and warranties except for breaches that do not have
in the aggregate a material adverse effect, no pending or threatened material
litigation and other customary closing conditions. There can be no assurance
that all such conditions will be satisfied. After consummation of the CommcoCCC
Acquisition; a stockholder of CommoCCC may have the right, subject to certain
conditions, to acquire up to 12 authorizations from the Company pursuant to the
Commco Option (as defined). Exercise of the Commco Option would reduce the
number of authorizations owned by the Company and might adversely affect
development of the Company's business. See "Business -- Agreements Relating to
Licenses and Authorizations -- CommcoCCC Acquisition." In order to satisfy the
minimum population coverage requirements, the Company will be obliged to
complete the acquisitions of certain spectrum rights from ART West and TeleCom
One, or, in the event it cannot complete one or more of such acquisitions, to
acquire, manage or obtain the right to use on a long-term basis other spectrum
rights; however there can be no assurance that the Company will be able to do
so. The Company's acquisition agreements with ART West and TeleCom One are also
subject to various conditions and consequently there can be no assurance that
all such conditions can be satisfied. See "Business--Agreements Relating to
Licenses and Authorizations--Additional Spectrum Rights Leases."
To obtain FCC approval of the CommcoCCC Acquisition, the Company will need
to demonstrate that the shareholders of CommcoCCC acquired the authorizations
that are to be assigned to the Company with the intent of providing service to
the public and not for the speculative purpose of reselling such authorizations
and may need certain waivers or consents from the FCC. The FCC may be unwilling
to grant its approval or may grant its approval subject to conditions that may
be adverse to the Company. There can be no assurance that the FCC will grant
such waivers or that there would not be substantial delays in its doing so. If
the Company were unable to complete the CommcoCCC Acquisition for any reason,
the Company's footprint could be considerably smaller than planned, and the
expected development of the Company's business could be materially adversely
affected.
COMPETITION
The telecommunications services industry is highly competitive. The Company
has only recently begun to market its wireless broadband services to potential
customers and is currently providing services on a limited basis. In each market
area in which the Company is authorized to provide services, the Company
competes or will compete with several other service providers and technologies.
The Company expects to compete primarily on the basis of wireless broadband
service features, quality, price, reliability, customer service and rapid
response to customer needs. The Company faces significant
14
<PAGE>
competition from other 38 GHz providers and incumbent LECs, such as the Regional
Bell Operating Companies ("RBOCs"). The Company may also compete with
CAPs/CLECs, other wireless service providers, cable television operators,
electric utilities, LECs operating outside their current local service areas and
IXCs. There can be no assurance that the Company will be able to compete
effectively in any of its market areas. See "Business -- Competition."
COMPETITION FROM 38 GHZ SERVICE PROVIDERS. The Company faces competition
from other 38 GHz service providers, such as WinStar Communications, Inc.
("WinStar") and BizTel Communications, Inc. ("BizTel," which is an affiliate of
TCG), within its market areas. In many cases, one or both of these service
providers hold licenses to operate in other portions of the 38 GHz band in
geographic areas which encompass or overlap the Company's market areas. In
certain of the Company's market areas, other 38 GHz service providers may have a
longer history of operations, a larger geographic footprint or substantially
greater financial resources than the Company. WinStar commenced its 38 GHz
operations approximately one year prior to the Company, has raised significant
capital and has the competitive advantages inherent in being the first to market
38 GHz services. In addition to WinStar and BizTel several dozen smaller
entities have been granted 38 GHz authorizations in geographic regions in which
the Company plans to operate. In January 1997, WinStar acquired the 38 GHz
licenses of one such entity, Milliwave L.P. ("Milliwave"). Due to the relative
ease and speed of deployment of 38 GHz technology, the Company could face
intense price competition and competition for customers from other 38 GHz
service providers.
The Company also faces potential competition from new entrants to the 38 GHz
market, including LECs and other leading telecommunications companies. The NPRM
(as defined) contemplates an auction of certain spectrum assets, including the
lower fourteen proposed 100 MHz channels (which are similar to those used by the
Company) and four proposed 50 MHz channels in the 38 GHz spectrum band, which
have not been previously available for commercial use. See "-- Government
Regulation." On December 31, 1996, the FCC announced that it had adopted an
order that partially lifted the freeze on the processing of new applications,
which should result in the grant of additional authorizations to other 38 GHz
applicants. The grant of additional authorizations by the FCC in the 38 GHz
band, or other portions of the spectrum with similar characteristics, could
result in increased competition and diminish the value of the Company's existing
38 GHz authorizations. The Company believes that, assuming that additional
channels are made available as proposed by the NPRM, additional entities having
greater resources than the Company could acquire authorizations to provide 38
GHz services. See "Business -- Government Regulation -- Federal Regulation --
FCC Rulemaking."
OTHER WIRELESS COMPETITORS. The Company may also face competition from
other terrestrial wireless services, including 2 GHz and 28 GHz "wireless cable"
systems (MMDS and LMDS), 18 GHz point-to-point microwave services (DEMS), FCC
Part 15 wireless radio devices, and other services that use existing
point-to-point microwave channels on other frequencies. Motorola Satellite
Systems, Inc. has filed an application with the FCC for a global network of
satellites in the 37.5-40.5 GHz band and the 47.2-50.2 GHz band, which is
proposed to be used for broadband voice and data services. Other companies have
filed applications for global broadband satellite systems in the 28 GHz band. If
developed, these systems could also present significant competition to the
Company.
The FCC is planning to hold an auction for 28 GHz spectrum in all markets
for the provision of high capacity wireless cable systems. These auctions are
expected to take place in 1997. The 2 GHz wireless cable spectrum may also
provide competition for metropolitan wireless broadband services. At present,
wireless cable licenses are used primarily (if not exclusively) for the
distribution of video programming, and have only a limited capability to provide
two-way communications needed for wireless broadband telecommunications
services, but there can be no assurance that this will continue to be the case.
According to press reports and FCC records, Associated Communications Group
affiliates and joint venture partners (collectively, "ACG") hold licenses in the
18 GHz band in 31 markets. Press reports indicate that ACG plans to use fixed
wireless service to provide voice, data, Internet and videoconferencing
services.
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The FCC has allocated a number of spectrum blocks for use by wireless
devices that do not require site or network licensing. A number of vendors have
developed such devices that may provide competition to the Company for certain
low data-rate transmission services.
COMPETITION FROM INCUMBENT LECS. The Company also faces significant
competition from incumbent LECs, irrespective of whether they provide 38 GHz
services. Incumbent LECs have long-standing relationships with their customers,
generally own significant PCS or cellular assets, have the potential to
subsidize competitive services with revenues from a variety of businesses and
benefit from favorable federal and state policies and regulations. Regulatory
decisions and recent legislation, such as the Telecommunications Act of 1996
(the "Telecommunications Act"), have partially deregulated the
telecommunications industry and reduced barriers to entry into new segments of
the industry. In particular, the Telecommunications Act, among other things, (i)
enhances local exchange competition by preempting laws prohibiting competition
in the local exchange market, by requiring LECs to provide fair and equal
standards for interconnection and by requiring incumbent LECs to provide
unbundling of services and (ii) permits an RBOC to compete in the interLATA long
distance service market once certain competitive characteristics emerge in such
RBOC's service area. The Company believes that this trend towards greater
competition will continue to provide opportunities for broader entrance into the
local exchange markets. However, as LECs face increased competition, regulatory
decisions are likely to provide them with increased pricing flexibility, which
in turn may result in increased price competition. There can be no assurance
that such increased price competition will not have a material adverse effect on
the Company's results of operations.
A number of companies are developing enhancements to increase the
performance of LECs' legacy copper networks. These generally come under the
description of digital subscriber line products, such as ADSL (asymmetrical
digital subscriber line), HDSL (high-speed digital subscriber line) and VDSL
(video digital subscriber line). There can be no assurance that the Company will
be able to compete effectively with these enhancements.
OTHER COMPETITORS. The Company may compete with CAPs/CLECs for the
provision of last mile access and additional services in most of its market
areas. However, the Company believes that many CAPs/CLECs may utilize 38 GHz
transmission links primarily to augment their own service offerings to IXCs and
end users, and that the Company is well positioned to provide such 38 GHz
services to CAPs/ CLECs. However, there can be no assurance that CAPs/CLECs will
utilize the Company's 38 GHz services or that CAPs/CLECs will not seek to
acquire their own 38 GHz licenses or use the 38 GHz licenses of other licensees.
Furthermore, the ability of CAPs/CLECs to compete in the local exchange market
is limited by lack of parity with LECs in number portability, dialing parity and
interconnection. The Telecommunications Act requires the FCC and the states to
implement regulations that place CAPs/ CLECs on a more equal competitive footing
with LECs. To the extent these changes are implemented, CAPs/CLECs may be able
to compete more effectively with LECs. However, there can be no assurance that
CAPs/CLECs or 38 GHz service providers, such as the Company, will be able to
compete effectively for the provision of last mile access and other services.
The Company may also face competition from cable television operators
deploying cable modems, which provide high speed data capability over installed
coaxial cable television networks. Although cable modems are not widely
available currently, the Company believes that the cable industry may support
the deployment of cable modems to residential cable customers through methods
such as price subsidies. Notwithstanding the cable industry's interest in rapid
deployment of cable modems, the Company believes that in order to provide
broadband capacity to a significant number of business and government users
cable operators will be required to spend significant time and capital in order
to upgrade their existing networks to the next generation of hybrid fiber
coaxial network architecture. However, there can be no assurance that cable
television operators will not emerge as a source of competition to the Company.
The Company may also face competition from electric utilities, LECs
operating outside their current local service areas, IXCs and other providers.
These entities provide transmission services using
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technologies which may enjoy a greater degree of market acceptance than 38 GHz
wireless broadband technology in the provision of last mile broadband services.
In addition, the Company may face competition from new market entrants using
wireless, fiber optic and enhanced copper based networks to provide local
service.
Many of the Company's competitors have long-standing relationships with
customers and suppliers, greater name recognition and greater financial,
technical and marketing resources than the Company. As a result, these
competitors may be able to more quickly develop and exploit new or emerging
technologies, adapt to changes in customer requirements or devote greater
resources to the marketing of their services than the Company. The consolidation
of telecommunications companies and the formation of strategic alliances and
cooperative relationships in the telecommunications and related industry, as
well as the development of new technologies, could give rise to significant new
competitors to the Company. In such case, there can be no assurance as to the
degree to which the Company will be able to compete effectively.
GOVERNMENT REGULATION
The telecommunications services offered by the Company are subject to
regulation by federal, state and local government agencies. At the federal
level, the FCC has jurisdiction over the use of the electromagnetic spectrum
(I.E., wireless services) and has exclusive jurisdiction over all interstate
telecommunications services, that is, those that originate in one state and
terminate in another state. State regulatory commissions have jurisdiction over
intrastate communications, that is, those that originate and terminate in the
same state. Municipalities may regulate limited aspects of the Company's
business by, for example, imposing zoning requirements and requiring
installation permits. See "Business -- Government Regulation."
The Company is licensed by the FCC as a common carrier provider of
facilities-based local telecommunications services. For many of its intrastate
services, the Company will need to seek authorizations from the states and, in
most cases, file tariffs. The Company is in the process of filing tariffs for
some of its services with the FCC and with certain state authorities on an
ongoing basis. Certain of its proposed services have not yet been permitted in
most states. Although the Telecommunications Act requires the states to open up
all of the Company's services to competition, there can be no assurance that
this will occur on a timely basis. Challenges to its applications for
authorizations or its tariffs by third parties could cause the Company to incur
substantial legal and administrative expenses and time delay in implementing its
business plan. Although many of the Company's applications for FCC
authorizations were subject to challenge, the Company nonetheless was granted
authorizations for a majority of its applications. The Company's remaining
applications were either dismissed, voluntarily or involuntarily, or are
currently pending before the FCC.
Twenty of the Company's applications were dismissed by the FCC because they
overlapped either with authorizations granted to third parties or with third
party applications that held superior rights by virtue of the timing of their
filing. Five of the Company's applications were dismissed voluntarily by the
Company because they could not be granted under FCC policies. In one instance,
the geographic area sought was larger than that permitted by the FCC's September
1994 Policy Statement. In the other four instances, the dismissed applications
overlapped with each other and thus could not be granted under then-existing FCC
policies. None of the dismissals will impact the financial condition or
operations of the Company because they have not been included in the Company's
business plan. Some of the pending applications propose use of the same channel
in part of the same geographic area as one or more applications filed by third
parties and therefore could not be granted under the FCC rules generally
prohibiting the grant of mutually-exclusive applications. All of the pending
applications are subject to the freeze on the grant of additional authorizations
pending completion of the NPRM, which proposes dismissal of all such
applications. The Company's business plans do not assume that any of these
pending applications will be granted. The Company does not believe that a
failure to grant these applications will impair its ability to operate. See
"Business -- Government Regulation."
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In its provision of local wireless broadband services, the Company currently
is not subject to rate regulation by the FCC, but is subject to regulation by
most states. Additionally, the Company is required to comply with all applicable
local zoning and other laws governing the installation and operation of its
wireless broadband networks.
Changes in existing laws and regulations, including those relating to the
provision of wireless local telecommunications services via 38 GHz licenses, or
any failure or significant delay in obtaining necessary regulatory approvals,
could have a material adverse effect on the Company. On November 13, 1995, the
FCC released an order barring the acceptance of new applications for 38 GHz
authorizations. On December 15, 1995, the FCC announced the issuance of a notice
of proposed rulemaking (the "NPRM"), pursuant to which it proposed to amend its
current rules to provide for, among other things, (i) the adoption of an auction
procedure for the issuance of authorizations in the 38 GHz band, including a
possible auction of the lower fourteen proposed 100 MHz channels (which are
similar to those used by the Company) and the lower four proposed 50 MHz
channels in the 38 GHz band that have not been previously available for
commercial use and the possible auction of the unlicensed areas in the upper
fourteen 100 MHz channels, (ii) licensing frequencies using predefined
geographic service areas ("Basic Trading Areas"), (iii) the imposition of
substantially stricter construction requirements for authorizations that are not
received pursuant to auctions as a condition to the retention of such
authorizations and (iv) the implementation of certain technical rules designed
to avoid radio frequency interference among licensees. In addition, the FCC
ordered that those applications subject to mutual exclusivity with other
applicants or placed on public notice by the FCC after September 13, 1995 would
be held in abeyance pending the outcome of the NPRM and might then be dismissed
(the "freeze"). On December 31, 1996, the FCC announced that it had adopted an
order that partially lifted the freeze on the processing of pending
applications. Among other actions, the order provides that the Commission will
process certain amendments filed before December 15, 1995 that have the effect
of eliminating mutual exclusivity among pending applications, which is likely to
result in the grant of additional authorizations to 38 GHz applicants other than
the Company. Final rules issued in connection with the NPRM may require that 38
GHz service providers share the 38 GHz band with satellite services. Motorola
Satellite Systems, Inc. ("Motorola Satellite") has filed an application with the
FCC with respect to a global network of satellites to be used to provide
broadband voice and data services. See "-- Other Wireless Competitors." Motorola
Satellite proposes to use 38 GHz frequencies for transmissions from space to
earth. If permitted by the FCC, satellite transmissions in the 38 GHz
frequencies could adversely effect the Company's existing operations or its
future expansions by creating interference or by causing the FCC to impose power
and other limitations upon the Company's transmissions. The Motorola Satellite
application would require the FCC to change certain rules in order to be
granted, and the Company expects that a number of years would elapse before any
such system would be launched. The extent of the adverse impact upon the
Company's operations if the Motorola Satellite application were to be granted in
its current form is unknown. However, there can be no assurance that the
Company's operations would not be adversely affected.
There can also be no assurance that the final rules (if any) issued in
connection with the NPRM will resemble the rules proposed in the NPRM, and there
can also be no assurance that any proposed or final rules will not have a
material adverse effect on the Company. Statutes and regulations which may
become applicable to the Company as it expands could require the Company to
alter methods of operations at costs which could be substantial or otherwise
limit the types of services offered by the Company.
The Company manages the systems of ART West, DCT, Telecom One and CommcoCCC
(during the pendency of certain acquisitions) pursuant to management agreements.
In addition, the Company recently entered into the ICG Agreement and a services
agreement with Microwave Partners. See "Business -- Agreements Relating to
Licenses and Authorizations." The Company believes that the provisions of these
management and lease agreements comply with the FCC's policies concerning
licensee control of FCC-licensed facilities. Because the 38 GHz service is a new
service, however, there is
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no FCC precedent addressing the limits of such management arrangements for this
service. No assurance can be given that the management arrangements or proposed
acquisitions will, if challenged, be found to satisfy the FCC's policies or what
modifications, if any, may need to be made to satisfy those policies. If the FCC
were to void or require modifications of the management arrangements, the
operations of the Company could be adversely affected.
RISK OF FORFEITURE, NON-RENEWAL AND FLUCTUATION IN VALUE OF FCC LICENSES
Upon completion of the CommcoCCC Acquisition, the Company will own, manage
or have a right to use on a long-term basis a total of 233 licenses that will
allow it to provide 38 GHz wireless broadband services in 169 U.S. markets. The
Company currently owns, manages or has a right to use on a long-term basis 104
licenses (exclusive of the CommcoCCC Assets) that allow it to provide 38 GHz
wireless broadband services in 84 markets, 78 of which are owned by the Company,
14 of which are managed by the Company through the Company's interests in or
arrangements with other companies, and 12 of which the Company has the right to
use on a long-term basis. Under the current FCC rules, the recipient of a
license for 38 GHz microwave facilities is required to construct facilities to
place the station "in operation" within 18 months of the date of grant of the
authorization. Although under current FCC regulations the term "in operation" is
not defined beyond the requirement that the station be capable of providing
service, the industry custom is to establish at least one link between two
transceivers in each market area for which an authorization is held. In the
event that the recipient fails to comply with this construction deadline, the
license is subject to forfeiture, absent an extension of the deadline. All of
the 104 licenses that the Company owns, manages or has a right to use on a
long-term basis (exclusive of the CommcoCCC Assets) have met the FCC's
construction deadline. Under the terms of the CommcoCCC authorizations and the
Company's management agreement with CommcoCCC, the Company has met the
construction deadline for 76 licenses and must meet the construction deadline
for the remaining 53 licenses between mid-April and mid-August 1997. The Company
believes that, in light of current FCC practice, extensions of construction
periods are highly unlikely. Although the Company believes that it can meet the
construction deadline for all of the CommcoCCC licenses within applicable time
limits, there can be no assurance that it will be able to do so or that the
Company will be able to comply with whatever more stringent construction
requirements the FCC ultimately adopts as a result of the NPRM. As a result,
some of the Company's licenses could be subject to forfeiture, which could have
a material adverse effect on the Company's development and results of
operations. In addition, pursuant to rules that became effective August 1, 1996,
if a station does not transmit operational traffic (not test or maintenance
signals) for a consecutive period of twelve months at any time after
construction is complete, or if removal of equipment or facilities renders the
station incapable of providing service, the license is subject to forefeiture,
absent a waiver of the FCC's rules. Although this rule has not been interpreted
by the FCC, it is possible that it could be applied in such a way that could
cause one or more of the Company's licenses to be subject to forfeiture. See
"Business -- Government Regulation" and "-- 38 GHz Wireless Broadband Licenses
and Authorizations."
The FCC's current policy aligns the expiration dates of all 38 GHz licenses
so that all licenses expire concurrently. Licenses can be renewed for a period
not to exceed ten years. All of the 38 GHz licenses owned or to be acquired by
the Company will expire in February 2001. Although the Company currently
anticipates that its licenses will be renewed based upon the FCC's custom and
practice in connection with other services which have established a presumption
in favor of licensees that have complied with regulatory obligations during the
initial license period, there can be no assurance that all or any of the
licenses will be renewed upon expiration of their initial terms. In the event
that the FCC does not renew one or more of the licenses, the Company's business
and results of operations could be materially adversely affected.
The Company plans to use its licenses to develop wireless broadband systems
in all of its market areas. In addition, a limited secondary market exists for
38 GHz licenses, and the Company may from time to time purchase such licenses.
The value of licenses held or acquired hereafter by the Company will depend upon
the success of the Company's wireless broadband operations, fluctuations in the
level
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of supply and demand for such licenses and the telecommunications industry's
response to the availability and efficacy of wireless broadband systems. In
addition, federal and state regulations limit the ability of licensees to sell
their licenses. Assignments of licenses and changes of control involving
entities holding licenses require prior FCC and, in some instances, state
regulatory approval and are subject to restrictions and limitations on the
identity and status of the assignee or successor. These regulatory restrictions
on transfer of licenses may adversely affect the value of the Company's
licenses.
POTENTIAL RIGHTS TO FOREIGN LICENSES
Entities in which the Company has a substantial interest have applied or
intend to apply for licenses to provide wireless broadband services in Canada
and in various Western European countries. Although the Company currently
expects that, if licenses are obtained, these entities will be financed on a
stand-alone basis without recourse to the Company, there can be no assurance
that such entities will have access to financing on acceptable terms or at all.
See "Business -- Foreign Markets."
In October 1996, ART entered into a binding letter of intent with Advantage
Telecom, Inc. ("ATI"), a Canadian company which has applied for licenses to
provide 38 GHz service in the 66 major markets in Canada covering a population
of at least 21 million people. Upon consummation of the transactions described
in the letter of intent, ART will hold a substantial direct and indirect
minority interest in ATI and will be a party to a services agreement with ATI
pursuant to which ART will construct and operate radio systems based upon any
licenses that may be granted to ATI and subject to control by ATI. The Company
incurred approximately $300,000 of expenses, and ATI is responsible for securing
any additional funding necessary to construct the radio systems. Due to current
uncertainty in Canada's licensing policy, there can be no assurance that ATI
will be granted these licenses or that, if licenses are granted, ATI will obtain
the funding necessary to construct the radio systems.
On September 29, 1996 the Company entered into a shareholders agreement with
Trond Johannessen, pursuant to which the Company anticipates eventually
obtaining licenses and offering its wireless broadband services through separate
subsidiaries in the 17 countries comprising the European Union. The Company has
caused or will cause to be formed subsidiaries in Sweden, the United Kingdom and
Italy for this purpose. Under the shareholders agreement, in consideration for
services to be rendered and his proportionate share of the formation costs, Mr.
Johannessen is entitled to receive a 20% interest in the initial shareholdings
in certain of the subsidiaries in each country, prior to significant funding of
each subsidiary. The Company has no further commitment to fund any such
subsidiary. Mr. Johannessen is also a consultant to the Company, for which he
receives monthly payments of $10,000 plus expenses. The Company is seeking but
has not yet received any operating licenses, strategic alliances or customer
commitments in Europe. Although each member nation of the European Economic
Community is required pursuant to a directive of the European Commission to open
its telecommunication markets to competition over the next several years, the
timing and extent of a relaxation in entry barriers and the degree of
cooperation from the incumbent service providers in such areas as
interconnection to customers and the public networks is unknown. There can be no
assurance that the Company, through such subsidiaries, will be able to acquire
the licenses necessary in each European country, to finance and or implement its
business plan or to operate in any country on a profitable basis.
MANAGEMENT OF GROWTH
The Company is currently experiencing a period of rapid growth and is
pursuing a business plan that, if successfully implemented, will result in
expansion of its operations and the provision of 38 GHz services on a widespread
basis over the next two to five years. The Company's success will depend on its
ability to manage growth effectively, to enhance its operational and financial
control and information systems and to attract, assimilate and retain additional
qualified personnel. Failure by the Company to meet the demands of customers and
to manage the expansion of its business and operations could have a material
adverse effect on the Company's development and results of operations.
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LINE OF SIGHT; ROOF RIGHTS; OTHER LIMITATIONS
Wireless broadband services over 38 GHz frequencies require a direct line of
sight between two transceivers comprising a link and are subject to distance and
rain attenuation. The maximum length of a single link is generally limited to
three to five miles, and, as a result, intermediate links (or "repeaters") are
required to permit wireless broadband transmission to extend beyond this limit.
In the absence of a direct line of sight, repeaters may be required to
circumvent obstacles, such as buildings in urban areas or hills in rural areas.
In addition, in areas of heavy rainfall, the intensity of rainfall and the size
of raindrops can affect the transmission quality of 38 GHz services.
Transmission links in these areas are engineered for shorter distances and
greater power to maintain transmission quality. The use of intermediate links to
overcome obstructions or rain fade increases the cost of service. While these
increased costs may not be significant in all cases, such costs may render
wireless broadband services uneconomical in certain circumstances.
Due to line of sight limitations, the Company currently installs its
transceivers and antennas on the rooftops of buildings and on other tall
structures. Line of sight and distance limitations generally do not present
problems in urban areas due to the ability of the licensee to select
unobstructed structures from which to transmit and the concentration of
customers within a limited area although the Company may have to install
intermediate links. Line of sight and distance limitations in non-urban areas
can arise due to lack of structures with sufficient height to clear local
obstructions. The Company has generally been able to construct intermediary
repeater links and other solutions to reduce line of sight and distance
limitations in urban and non-urban areas; however, in a minority of instances
the Company has encountered line of sight and distance limitations that could
not be solved economically. In such instances, sales to certain potential
customers have been or in the future may be adversely affected, and, in some
cases, the Company may determine to provide certain services on terms that are
uneconomical in the near term as a result of these limitations. While the effect
on the financial condition and results of operations of the Company resulting
from such cases has been minimal to date, there can be no assurance that such
limitations will not have a material adverse effect on the Company's future
development and results of operations.
In order to obtain the necessary access to install its transceivers and
antennas, the Company generally must secure roof rights from the owners of each
building or other structure on which its equipment is installed. Failure to
obtain roof rights in a timely fashion may cause potential customers to use
alternative providers of 38 GHz services or to refrain from using 38 GHz
services altogether. There can be no assurance that the Company will succeed in
obtaining the roof rights necessary to establish wireless broadband services to
all potential customers in its market areas on favorable terms, if at all, or
that delays in obtaining such rights will not have a material adverse effect on
the Company's development and results of operations.
The relative significance of the size of a market area served depends on the
concentration within that area of potential customers. The Company's market
areas were defined by the Company in preparing its FCC applications for 38 GHz
licenses. The definitions of these areas were based on the Company's analysis of
the then existing local demographic characteristics in each market, such as
concentrations of employees and income levels. In certain of the Company's
market areas, other 38 GHz service providers have larger geographic footprints
or greater bandwidth. To the extent that the Company's authorizations do not
track the appropriate growth and development patterns of potential customers
within its market areas or that other 38 GHz providers have greater geographic
coverage or more bandwidth, the Company may have a competitive disadvantage.
RELIANCE ON EQUIPMENT SUPPLIERS; LACK OF INDUSTRY STANDARDS
The Company currently purchases the majority of its telecommunications
equipment pursuant to an agreement with P-Com, Inc. ("P-Com") and also has
entered into an equipment purchase agreement with Harris. Any reduction or
interruption in supply from either supplier could have a disruptive effect on
the Company. Although six manufacturers currently produce or are developing
equipment that will meet the Company's current and anticipated requirements, no
industry standard or uniform protocol currently exists for 38 GHz equipment.
Consequently, a single manufacturer's equipment must be used
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in establishing a link and generally will be used across an entire market area.
As a result, the failure of the Company to procure sufficient equipment produced
by a single manufacturer for service in a particular market area could adversely
affect the Company's results of operations. See "Business -- Strategic
Alliances."
DEPENDENCE ON THIRD PARTIES FOR MARKETING AND SERVICE
The Company is partly dependent upon third parties for marketing its
services and maintaining its operational systems. The Company entered into the
Ameritech Strategic Distribution Agreement, which allows Ameritech to resell the
Company's 38 GHz services to customers within Ameritech's midwestern region and
to major Ameritech customers nationwide. The Company also has agreements with
subsidiaries of GTE to provide field service and network monitoring and a joint
marketing agreement with Harris. The failure of any of these third parties to
perform or the loss of any of these agreements could have a material adverse
effect on the Company's results of operations or its ability to service its
customers. The Company plans to enter into sales and marketing agreements with
other companies, and the failure to successfully implement these agreements
could have an adverse effect on the Company's development and results of
operations. See "Business -- Strategic Alliances."
ACQUISITION OF ADDITIONAL BANDWIDTH IN SELECTED AREAS
Although the Company believes the 38 GHz authorizations it owns, manages,
has agreed to acquire or has the long-term right to use are sufficient in each
of its markets to implement its current business strategy, the Company may seek
to acquire or lease additional authorizations to expand its geographic footprint
or to enhance its ability to provide service to its current target market or
customers it may target in the future. The FCC has generally suspended the
acceptance of new applications and the grant of certain additional licenses,
subject to resolution of the NPRM. The Company does not believe that the FCC's
suspension will have a material effect on the Company's financial condition,
results of operation and plans of expansion since the Company's business plan
does not depend on the grant thereof. See "Business -- Government Regulation."
However, the Company believes that additional channels may become available by
virtue of (i) the obligations of other 38 GHz service providers as common
carriers to make their services available and (ii) FCC auctions of and adoption
of other licensing procedures for additional 38 GHz authorizations.
Nevertheless, there can be no assurance that access to additional 38 GHz
authorizations will be acquired on favorable terms, if at all. See "Business --
Business Strategy," "-- 38 GHz Wireless Broadband Licenses and Authorizations"
and "-- Government Regulation."
NEW SERVICES; TECHNOLOGICAL CHANGE
The telecommunications industry has been characterized by rapid
technological advances, changes in end user requirements, frequent new service
introductions, evolving industry standards and decreases in the cost of
equipment. The Company expects these changes to continue, and believes that its
long-term success will increasingly depend on its ability to exploit advanced
technologies and anticipate or adapt to evolving industry standards. There can
be no assurance that (i) the Company's wireless broadband services will not be
outmoded by technology or services now existing or developed and implemented in
the future, (ii) the Company will have sufficient resources to develop or
acquire new technologies or to introduce new services capable of competing with
future technologies or service offerings, (iii) the Company's inventory of
equipment will not be rendered obsolete or (iv) the cost of 38 GHz equipment
will decline as rapidly as that of competitive alternatives. See "Business."
DEPENDENCE ON KEY EMPLOYEES
The success of the Company is dependent, in part, on its ability to attract
and retain qualified technical, marketing, sales and management personnel,
especially the Company's executive officers. Competition for such personnel is
intense, and the Company's inability to attract and retain additional key
employees or the loss of one or more of its current key employees could have a
material adverse effect on the Company's business and results of operations. The
Company has employment agreements with each of its officers. See "Management."
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FINANCIAL RISKS
SIGNIFICANT CAPITAL REQUIREMENTS; NEED FOR ADDITIONAL FINANCING
Management anticipates that, based on its current plan of development,
assuming that no material new acquisitions are consummated, the net proceeds of
the Offering and the remaining net proceeds of the Common Stock Offering, after
the use of approximately $3.0 million to complete the acquisition of certain
spectrum rights and $2.4 million to pay expenses related to the CommcoCCC
Acquisition, when consummated, will be sufficient to fund the operations and
capital requirements of the Company at least through December 31, 1997. See "Use
of Proceeds." Management also believes that the Company's future capital needs
will continue to be significant, and management intends to seek additional
sources of financing, including the Credit Facility. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Description of Certain
Indebtedness--Proposed Credit Facility." The Company expects to incur capital
expenditures of approximately $35.0 million through December 31, 1997 as the
development and expansion of its wireless broadband business continues. The
Company expects to generate significant operating losses for at least the next
several years. The Company will require substantial investment capital for the
continued development and expansion of its wireless broadband operations, the
continued funding of related operating losses, and the possible acquisition of
additional licenses, other assets or other businesses. From its inception
through September 30, 1996, the Company reported a net loss of $23.7 million. In
addition, if (i) the Company's plan of development or projections change or
prove to be inaccurate, (ii) the proceeds from the Offering, together with other
existing financial resources, prove to be insufficient to fund the operations
and capital requirements of the Company through December 31, 1997, (iii) the
Company completes any material acquisitions not now under contract or (iv) the
Company accelerates implementation of its business plan, the Company may be
required to obtain additional financing earlier than December 31, 1997. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." There can be no assurance that the Company will be able to obtain
any additional financing, including the Credit Facility, 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 when required,
such failure could result in the modification, delay or abandonment of some or
all of the Company's development and expansion plans. Any such modification,
delay or abandonment is likely to have a material adverse effect on the
Company's business, which could adversely affect the value of the Common Stock,
the Notes and the Warrants and may limit the Company's ability to make principal
and interest payments on its indebtedness.
POSSIBLE INCURRENCE OF SUBSTANTIAL SECURED INDEBTEDNESS
The Notes will represent senior obligations of the Company and will be
unsecured, except for the pledge by the Company of the Pledged Securities. The
Notes will rank PARI PASSU in right of payment with all existing and future
unsecured, senior indebtedness of the Company and will rank senior in right of
payment to all existing and future subordinated indebtedness of the Company. At
September 30, 1996, on a pro forma basis after giving effect to the Offering and
the Common Stock Offering, and the application of the net proceeds therefrom,
the aggregate principal amount of indebtedness of the Company (excluding the
Notes) was approximately $3.1 million, which consisted of the EMI Note and the
Equipment Note, all of which ranked PARI PASSU with the Notes. However, $1.6
million of such indebtedness constituted secured indebtedness which will
effectively rank senior to the Notes with respect to the assets securing such
indebtedness. Although the Indenture will limit the ability of the Company and
its subsidiaries to incur additional indebtedness, including senior
indebtedness, the Indenture will permit the Company to incur a substantial
amount of secured indebtedness, including vendor indebtedness and indebtedness
under the Credit Facility, which, if incurred, will effectively rank senior to
the Notes with respect to the assets securing such indebtedness. In addition,
the Indenture will permit the subsidiaries of the Company (including any
subsidiary holding all or any part of the Company's FCC licenses and
authorizations) to guarantee the indebtedness of the Company under the Credit
Facility on a secured basis (consistent with applicable FCC rules), which
guarantees and security interests would effectively rank senior in right of
payment to the Notes. In such a case, if the Company
23
<PAGE>
or any such subsidiary were to become insolvent or be liquidated or if any of
such secured indebtedness were to be accelerated, the holders of such secured
indebtedness would be entitled to payment in full out of the assets securing
such indebtedness prior to payment to holders of the Notes. If the lenders party
to, or the holders of, any such secured indebtedness were to foreclose on the
collateral securing the Company's obligations to them, there can be no assurance
that there would be sufficient assets remaining after payment of all such
secured indebtedness to satisfy the claims of holders of the Notes in full. See
"Description of Notes -- Certain Covenants" and "Description of Certain
Indebtedness."
LEVERAGE; ABILITY TO SERVICE INDEBTEDNESS
Following the Offering, the Company will be leveraged and will have certain
restrictions on its operations. As of September 30, 1996, on a pro forma basis
after giving effect to the Common Stock Offering and the Offering, the use of
the proceeds therefrom, and completion of the CommcoCCC Acquisition, all as if
they had occurred on that date, the Company would have had approximately $121.2
million of total indebtedness (which is net of $6.9 million allocated to the
Warrants) and stockholders' equity of approximately $97.2 million. See
"Capitalization."
The indebtedness expected to be incurred by the Company as a result of the
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 pay interest with respect to such indebtedness; (ii) the Company's
flexibility may be limited in responding to changes in the industry and economic
conditions generally; (iii) the indenture relating to the Notes (the
"Indenture") will likely contain numerous financial and other restrictive
covenants, the failure to comply with which may result in an event of default,
which, if not cured or waived, could have a material adverse effect on the
Company; (iv) the ability of the Company to satisfy its obligations pursuant to
such indebtedness will be dependent upon its future performance which, in turn,
will be subject to management, financial, business and other factors affecting
the business and operations of the Company; (v) the Company's ability to obtain
any necessary financing in the future may be limited; (vi) the Company will be
more highly leveraged than many of its competitors, which may put it at a
competitive disadvantage and (vii) the Company's leverage may make it more
vulnerable in the event of an economic downturn or if the Company's cash flow
does not significantly increase. Some of these factors are beyond the control of
the Company. See "Unaudited Pro Forma Condensed Financial Statements," "Selected
Historical and Pro Forma Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations." In addition,
although the Indenture will limit the ability of the Company and its
subsidiaries to incur additional indebtedness, the Indenture will permit the
Company to incur substantial additional indebtedness, which may or may not be
secured, to finance the construction of networks, the purchase of equipment and
the introduction of new services. See "Description of Notes--Certain Covenants."
Any future 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 other indebtedness and could exacerbate any of the foregoing consequences.
There can be no assurance that the Company will be able to generate
sufficient cash flow to meet required interest and principal payments associated
with the Notes and its other indebtedness. If the Company is unable to generate
sufficient cash flow to meet its debt obligations, the Company may be required
to renegotiate the payment terms or to refinance all or a portion of its
indebtedness, to sell assets or to obtain additional financing. If the Company
is unable to refinance such indebtedness, substantially all of the Company's
long-term debt would be in default and could be declared immediately due and
payable. In the event the Company fails to comply with these various covenants,
it could be in default under the Notes. In the event of such default,
substantially all of the Company's long-term debt could be declared immediately
due and payable. See "Description of Notes--Certain Covenants."
24
<PAGE>
ORIGINAL ISSUE DISCOUNT
Because a portion of the purchase price for each Unit will be allocable to
the Warrants for federal income tax purposes, the Notes will be treated as
issued with original issue discount. Purchases of the Units therefore generally
will be required to include amounts in gross income for Fedreal income tax
purposes in advance of receipt of the cash interest payments on the Notes to
which the income is attributable. 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 may be deemed to constitute "unmatured interest." A holder of
a Note may not have any claim with respect to that portion of the issue price of
a Unit allocated to the Warrant 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 101% of the principal amount thereof, together with accrued and
unpaid interest, if any, to the date of purchase. 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
CURRENT REGISTRATION REQUIRED TO EXERCISE WARRANTS
Holders of Warrants will be able to exercise their Warrants only if a
registration statement relating to the Warrant Shares underlying the Warrants 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 reside. The Company is required
under the terms of the Warrant Agreement to use its best efforts to cause to
become effective under the Securities Act no later than , 1997 the
Warrant Shelf Registration Statement covering the issuance of the Warrant Shares
upon exercise of the Warrants. Subject to certain "black-out" periods, the
Company will also be required to use its best efforts to maintain the
effectiveness of the Warrant Shelf Registration Statement until the expiration
or exercise of all Warrants. See "Description of Warrants -- Registration of
Warrant Shares." 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.
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
25
<PAGE>
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."
While the Common Stock is quoted on the Nasdaq National Market, there can be
no assurance that an active public trading market will be sustained after the
Offering. 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
As of January 2, 1997, the Company's executive officers, directors and their
affiliates, as a group, beneficially owned approximately 20.6% (assuming no
exercise of the Warrants) of the Company's outstanding Common Stock (14.3% upon
consummation of the CommcoCCC Acquisition). In addition, upon completion of the
CommcoCCC Acquisition, Columbia Capital Corporation, as general partner of two
of the stockholders of CommcoCCC, and Commco, L.L.C., the remaining stockholder
of CommoCCC, will beneficially own approximately 16.7% and 14.5%, respectively,
of the Company's outstanding Common Stock and the Company has agreed to nominate
one individual designated by the CommcoCCC stockholders and acceptable to the
Company as a director of the Company after the CommcoCCC Acquisition. As a
result, these stockholders will have the ability to exercise significant
influence over the Company and the election of its directors, the appointment of
new management and the approval of any action requiring the approval of the
holders of the Company's voting stock, including adopting certain amendments to
the Company's Certificate of Incorporation and approving mergers or sales of
substantially all of the Company's assets. The directors elected by the
Company's stockholders prior to the Common Stock Offering will have the
authority to effect decisions affecting the capital structure of the Company,
including the issuance of additional capital stock, the implementation of stock
repurchase programs and the declaration of dividends. See "Principal
Stockholders."
ABSENCE OF DIVIDENDS ON COMMON STOCK
The Company has not paid and does not anticipate paying any cash dividends
on its Common Stock in the foreseeable future. The Company intends to retain its
earnings, if any, for use in the Company's growth and ongoing operations. In
addition, the terms of the Indenture will restrict the ability of the Company to
pay dividends on the Common Stock. See "Description of Notes--Certain
Covenants."
ANTITAKEOVER PROVISIONS; POSSIBLE FUTURE ISSUANCES OF PREFERRED STOCK
The Company's Certificate of Incorporation and Bylaws and the provisions of
the Delaware General Corporation Law (the "Delaware GCL") contain certain
provisions which may have the effect of discouraging, delaying or making more
difficult a change in control of the Company or preventing the removal of
incumbent directors. The existence of these provisions may have a negative
impact on the price of the Common Stock and may discourage third party bidders
from making a bid for the Company or may reduce any premiums paid to
stockholders for their Common Stock. Furthermore, the Company is subject to
Section 203 of the Delaware GCL, which could have the effect of delaying or
preventing a change in control of the Company. See "Description of Capital Stock
- -- Change in Control Provisions."
The Company's Certificate of Incorporation also allows the Board of
Directors to issue up to 10,000,000 shares of Preferred Stock and to fix the
rights, privileges and preferences of such shares without any further vote or
action by the stockholders. The rights of the holders of Common Stock will be
subject to, and may be adversely affected by, the rights of the holders of any
Preferred Stock that may be issued in the future. While the Company has no
present intention to issue shares of Preferred Stock, any such issuance could be
used to discourage, delay or make more difficult a change in control of the
Company. See "Description of Capital Stock -- Preferred Stock."
26
<PAGE>
THE COMPANY
Advanced Radio Telecom Corp. provides wireless broadband telecommunications
services using point-to-point microwave transmissions in the 38 GHz band of the
radio spectrum. The Company is seeking to address the growing demand for high
speed, high capacity digital telecommunications services on the part of business
and government end users who require cost effective, high bandwidth local access
to voice, video, data and Internet services. The Company's last mile services
are a complement and a viable alternative to fiber optic networks and offer
rapidly deployable coverage throughout the 84 markets in which the Company is
currently authorized by the FCC to provide services.
The business of the Company is comprised of (i) the business of Advanced
Radio Technologies Corporation ("ART" or the "Company"), a company organized by
Vernon L. Fotheringham and W. Theodore Pierson, Jr. in 1993 for the purpose of
acquiring 38 GHz licenses, and (ii) the business of Advanced Radio Telecom Corp.
("Telecom"), a corporation organized in Delaware in March 1995 under the name
Advanced Radio Technology, Ltd. for the purposes of acquiring additional 38 GHz
licenses and developing and operating the business of ART and Telecom on a joint
basis. In April 1995, ART entered into the ART West Joint Venture Agreement (as
defined) to apply for, acquire and develop 38 GHz operations in 13 states in the
western United States. In November 1995, the Company completed the EMI
Acquisition (as defined), pursuant to which it acquired thirty-two 38 GHz
licenses and certain related assets in the northeast United States. In July
1996, the Company entered into the CommcoCCC Agreement to acquire the CommcoCCC
Assets and other agreements to acquire authorizations it currently manages. Upon
completion of these pending acquisitions, the Company will own, manage or have a
right to use on an exclusive basis a total of 233 authorizations to provide 38
GHz wireless broadband services in 169 U.S. markets. See "Risk Factors -- Risk
of Non-Consummation of CommcoCCC Acquisition and Other Acquisitions," "Business
- -- Agreements Relating to Licenses and Authorizations -- ART West Joint
Venture," "-- EMI Acquisition" and " -- CommcoCCC Acquisition."
On October 28, 1996, a subsidiary of ART merged with and into Telecom
pursuant to the Merger Agreement (as defined). Upon the merger (the "Merger"),
Telecom became a wholly-owned subsidiary of ART and changed its name to "ART
Licensing Corp.," and ART changed its name to "Advanced Radio Telecom Corp." See
"Certain Transactions -- Merger." Prior to completion of the Merger, Telecom
managed the combined businesses of the Company (including all FCC licenses and
construction permits held by ART and Telecom).
DIGIWAVE, ART, OZ BOX and ADVANCED RADIO TELECOM are service marks of the
Company. The Company's principal executive offices are located at 500 108th
Avenue, N.E., Suite 2600, Bellevue, Washington 98004, and its telephone number
is (206) 688-8700.
27
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the Offering (assuming gross proceeds
of $125.0 million) are estimated to be approximately $119.5 million in the
aggregate after deducting estimated underwriting discount and offering expenses.
A substantial portion of the net proceeds from the Offering is expected to
be used for capital expenditures. Because the Company installs links in response
to customer orders and can redeploy links removed from service, the Company's
actual rate of capital expenditures will depend largely on levels of customer
demand. The Company currently expects to use approximately $35.0 million of the
net proceeds (including the cost to complete construction of the remaining
CommcoCCC authorizations which have not been perfected, estimated at less than
$1.5 million) for capital expenditures through December 31, 1997. An additional
$3.0 million will be used for the completion of the acquisition of certain
spectrum rights, and approximately $2.4 million of the net proceeds will be used
to fund expenses related to the CommcoCCC Acquisition, when consummated. See
"Business -- Agreements Relating to Licenses and Authorizations." At the closing
of the Offering, the Company will use approximately $44.3 million of the net
proceeds to purchase the Pledged Securities. The amount of net proceeds used to
purchase the Pledged Securities may vary depending upon the then current
interest rates on U.S. governmental securities. See "Description of
Notes -- Security."
The remainder of the net proceeds will be used for general corporate
purposes, including the funding of operating cash flow shortfalls, technology
development and acquisitions of additional spectrum rights and, potentially,
related businesses. Although the Company considers potential acquisitions from
time to time, no agreement, agreement in principle, understanding or other
arrangement, other than those disclosed in this Prospectus, has been reached
with respect to any acquisition. To the extent the Company does not consummate
any of these acquisitions, or negotiates changes in such acquisitions to provide
for payment using stock or other consideration (which is not currently
contemplated), the funds reserved for such acquisitions will be available for
general corporate purposes. See "Business -- Agreements Relating to Licenses and
Authorizations." The Company anticipates that it will fund approximately an
aggregate of $1.0 million for research and development activities pursuant to a
letter of intent with Helioss Communications Corporation. Although the Company
does not have other material commitments to fund research and development and to
make investments in other companies, the Company expects to incur additional
research and development expenses and may make other investments from time to
time. Management anticipates that, based on its current plan of development and
assuming that no material new acquisitions or investments are consummated, the
remaining net proceeds of the Offering and the Common Stock Offering will be
sufficient to fund the operations of the Company at least through December 31,
1997. The Company will require substantial additional financing to fund
anticipated capital requirements and operating losses in periods after December
31, 1997. See "Description of Certain Indebtedness -- Proposed Credit Facility"
and "Risk Factors -- Significant Capital Requirements; Need for Additional
Financing."
28
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock has been quoted on the Nasdaq Market since
November 5, 1996, under the symbol "ARTT." The following table sets forth, for
the fiscal periods indicated, the high and low last sale prices of the Common
Stock as reported on the Nasdaq National Market.
<TABLE>
<CAPTION>
COMMON STOCK PRICE
------------------------
PERIOD ENDED HIGH LOW
- ---------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
1996 Fourth Quarter (from November 5)................................. $ 16.50 $ 10.50
1997 First Quarter (through January 2)................................ $ 11.125 $ 10.625
</TABLE>
See the cover page of this Prospectus for a recent reported last sale price
of the Common Stock on the Nasdaq National Market. As of December 31, 1996,
there were 133 holders of record of the Common Stock.
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."
29
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1996 (i) on a historical basis, after giving effect to the Merger
of ART and Telecom, which occurred on October 28, 1996 (the Merger was accounted
for as a reorganization of entities under common control which is similar to
that of a pooling of interests), (ii) on a pro forma basis, giving effect to the
Common Stock Offering and the application of the net proceeds thereof as
described in Note 1 below and certain other financing transactions occurring
subsequent to September 30, 1996 as specified in Note 1 hereto and (iii) on a
pro forma as adjusted basis, giving effect to, as specified in Note 2 below, (A)
the pro forma adjustments in (ii), (B) the sale by the Company of 125,000 Units
in the Offering, after deducting the estimated underwriting discount and
offering expenses, the use of cash to purchase the Pledged Securities and the
value ascribed to the Warrants, (C) the receipt and application of the aggregate
net proceeds from the Offering as described in Note 2 below and (D) the
consummation of the CommcoCCC Acquisition. The capitalization information set
forth in the table below is qualified by the more detailed information contained
in, and should be read in conjunction with, the audited financial statements of
the Company and the notes thereto, the unaudited condensed consolidated
financial statements of the Company and the notes thereto and the unaudited pro
forma condensed consolidated financial statements of the Company and the notes
thereto, all appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
---------------------------------------------------------------
PRO FORMA
HISTORICAL PRO FORMA (1) AS ADJUSTED (2)
---------------- --------------------- ----------------------
<S> <C> <C> <C>
Cash and cash equivalents (excluding restricted cash).......... $ 752,368 $ 16,208,151 $ 85,433,151(3)
---------------- --------------------- ----------------------
---------------- --------------------- ----------------------
Short-term debt:
March Bridge Notes........................................... $ 4,243,784 $ -- $ --
CommcoCCC Notes.............................................. 2,827,836 -- --
September Bridge Notes....................................... 2,203,559 -- --
---------------- --------------------- ----------------------
$ 9,275,179 $ -- $ --
---------------- --------------------- ----------------------
---------------- --------------------- ----------------------
Long-term debt (including current portion):
Note payable to EMI.......................................... $ 1,500,000 $ 1,500,000 $ 1,500,000
Equipment Note............................................... 1,607,422 1,607,422 1,607,422
% Senior Notes due 2007 (4)............................... -- -- 118,107,853
---------------- --------------------- ----------------------
Total long-term debt....................................... 3,107,422 3,107,422 121,215,275
---------------- --------------------- ----------------------
Stockholders' equity (deficit):
Preferred stock (5).......................................... 921 -- --
Common Stock (6)............................................. 6,587 13,560 19,560
Additional paid-in capital................................... 20,745,714 54,290,502 128,676,649
Accumulated deficit ......................................... (23,748,434) (31,475,840) (31,475,840)
---------------- --------------------- ----------------------
Total stockholders' equity (deficit)....................... (2,995,212) 22,828,222 97,220,369
---------------- --------------------- ----------------------
Total capitalization..................................... $ 112,210 $ 25,935,644 $ 218,435,644
---------------- --------------------- ----------------------
---------------- --------------------- ----------------------
</TABLE>
- ------------------------
(1) Reflects adjustments for the following transactions as if they had occurred
as of September 30, 1996: (i) the sale by the Company of 2,300,500 shares of
Common Stock offered in the Common Stock Offering in November 1996 at a
price of $15.00 per share, after deducting the underwriting discount and
offering expenses; (ii) the Conversion in November 1996; (iii) fees and
expenses of approximately $6.4 million related to the CIBC Financing
Commitment, including the issuance of the First CIBC Warrants to purchase
300,257 shares of Common Stock, which financing commitment is assumed to be
replaced by the issuance of the Notes in the Offering (as described in Note
(2) below); (iv) the receipt of $1.6 million (out of a total of $4.0
million) in cash proceeds from the September Bridge Financing in October
1996; (v) the application of the net proceeds from the Common Stock Offering
to repay the March Bridge Notes, the CommcoCCC Notes and the September
Bridge Notes, which repayment occurred in November 1996, and the November
1996 payment of $3.0 million of the total $6.0 million consideration to
acquire the 50% ownership interest of ART West held by Extended; and (vi)
the exercise of the Ameritech Warrant to purchase an aggregate of 318,374
shares of Common Stock in December 1996.
(2) Reflects adjustments in (1) above and for the following transactions as if
they had occurred as of September 30, 1996 (i) the sale by the Company of
125,000 Units in the Offering assuming $125.0 million of gross proceeds,
after deducting (a) the estimated underwriting discount and offering
expenses of approximately $5.5 million, (b) the cash used to purchase the
Pledged Securities of approximately $44.3 million and (c) the value ascribed
to the Warrants of approximately $6.9 million (the value was based on an
assumed value of $11.25 per share of Common Stock, a warrant exercise price
of $12.375 per share and an assumed issuance of Warrants to purchase an
aggregate of 1,128,011 shares of Common Stock); (ii) the use of $3.0 million
of the net proceeds from the Offering to fund the remaining balance of the
ART West purchase price; and (iii) the consummation of the CommcoCCC
Acquisition in exchange for 6,000,000 shares of Common Stock at an assumed
value of $11.25 per share plus related estimated expenses.
(3) Cash and cash equivalents excludes restricted cash of $44.3 million used to
purchase the Pledged Securities.
(4) The Company anticipates gross proceeds from the Offering of $125.0 million.
The estimated value of the Warrants ($6.9 million) has been reflected as
both a debt discount and an element of additional paid-in capital. However,
the actual aggregate principal amount of the Notes is $125.0 million.
(5) Consists of convertible serial preferred stock, $.001 par value per share:
10,000,000 shares authorized; historical -- 455,550 shares of Series A,
114,679 shares of Series B, 7,363 shares of Series C, 61,640 shares of
Series D, 232,826 shares of Series E and 48,893 shares of Series F issued
and outstanding; pro forma and pro forma as adjusted -- no shares issued and
outstanding.
(6) Consists of Common Stock, $.001 par value per share: 100,000,000 shares
authorized; historical 6,586,958 shares issued and outstanding; pro forma --
13,559,420 shares issued and outstanding; pro forma as adjusted --
19,559,420 shares issued and outstanding.
30
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
HISTORICAL AND PRO FORMA DATA
The unaudited selected historical and pro forma financial data presented
below as of and for the nine months ended September 30, 1996 and for the year
ended December 31, 1995 were derived from the unaudited pro forma condensed
consolidated financial statements of the Company included elsewhere in this
Prospectus. For definitions of certain terms and more information about the
transactions cited in the notes thereto, see "Certain Transactions."
The unaudited selected historical and pro forma financial data should be
read in conjunction with the audited financial statements of the Company, and
the notes thereto, the unaudited condensed consolidated financial statements of
the Company, and the notes thereto, and the unaudited pro forma condensed
consolidated financial statements of the Company, and the notes thereto,
included elsewhere in the Prospectus. The unaudited selected pro forma 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 nine
months ended September 30, 1996 and for the year ended December 31, 1995, nor do
they purport to represent the Company's future financial position and results of
operations.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1995 SEPTEMBER 30,
---------------------------- 1996
HISTORICAL --------------
(1) PRO FORMA (2) HISTORICAL (1)
------------- ------------- --------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Service revenue........................................................... $ 5,793 $ 5,793 $ 125,013
Non-cash compensation expense............................................. 1,089,605 1,089,605 7,504,452
Depreciation and amortization............................................. 15,684 2,509,059 504,462
Interest and financing expense............................................ 131,540 24,616,543 1,396,943
Net loss.................................................................. 3,234,843 27,048,846 20,378,377
Pro forma net loss per share of Common Stock (3).......................... 0.30 $ 1.36 2.15
Pro forma weighted average number of shares of Common Stock outstanding
(3)...................................................................... 10,912,338 19,846,172 9,470,545
OTHER FINANCIAL DATA:
EBITDA (4)................................................................ $ (2,007,568 ) $ (2,007,568 ) $ (9,978,993)
Capital expenditures...................................................... 3,585,144 3,585,144 7,864,110
Ratio of earnings to fixed charges (5).................................... -- -- --
<CAPTION>
PRO FORMA (2)
--------------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Service revenue........................................................... $ 125,013
Non-cash compensation expense............................................. 7,504,452
Depreciation and amortization............................................. 2,374,493
Interest and financing expense............................................ 20,546,088
Net loss.................................................................. 39,024,272
Pro forma net loss per share of Common Stock (3).......................... $ 2.12
Pro forma weighted average number of shares of Common Stock outstanding
(3)...................................................................... 18,404,379
OTHER FINANCIAL DATA:
EBITDA (4)................................................................ $ (9,978,993)
Capital expenditures...................................................... 7,864,110
Ratio of earnings to fixed charges (5).................................... --
</TABLE>
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30,
1996
--------------
HISTORICAL (1)
--------------
<S> <C>
BALANCE SHEET DATA:
Working capital surplus (deficit)................................................................... $ (20,700,673)
Property and equipment, net......................................................................... 11,019,217
FCC licenses, net................................................................................... 4,276,780
Total assets........................................................................................ 20,541,997
Short-term debt..................................................................................... 9,275,179
Long-term debt (including current portion).......................................................... 3,107,422
Accumulated deficit................................................................................. (23,748,434)
Total stockholders' equity (deficit)................................................................ (2,995,212)
<CAPTION>
PRO FORMA (2)
----------------
<S> <C>
BALANCE SHEET DATA:
Working capital surplus (deficit)................................................................... $ 73,255,289
Property and equipment, net......................................................................... 11,019,217
FCC licenses, net................................................................................... 104,011,780
Total assets........................................................................................ 252,540,252
Short-term debt..................................................................................... --
Long-term debt (including current portion).......................................................... 121,215,275
Accumulated deficit................................................................................. (31,475,840)
Total stockholders' equity (deficit)................................................................ 97,220,369
</TABLE>
31
<PAGE>
HISTORICAL FINANCIAL DATA
The selected historical financial data of the Company below as of December
31, 1995, 1994 and 1993 and for the years ended December 31, 1995 and 1994, and
for the period from August 23, 1993 (date of inception) to December 31, 1993
were derived from and should be read in conjunction with the audited financial
statements of the Company and the related notes thereto, included elsewhere in
this Prospectus. The selected financial data of the Company below as of and for
the nine months ended September 30, 1996 and 1995 were derived from and should
be read in conjunction with the unaudited condensed consolidated financial
statements of the Company and the related notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
AUGUST 23, 1993 NINE MONTHS ENDED SEPTEMBER
(DATE OF INCEPTION) YEAR ENDED DECEMBER 31, 30,
TO -------------------------- ---------------------------
DECEMBER 31, 1993 1994 1995 1995 1996
------------------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Service revenue................................... $ -- $ -- $ 5,793 $ -- $ 125,013
Consulting revenue................................ -- 137,489 -- -- --
Depreciation and amortization..................... 688 8,281 15,684 15,407 504,462
Interest expense.................................. -- 4,375 131,540 1,539 1,396,943
Net loss.......................................... 6,594 128,620 3,234,843 1,004,313 20,378,377
Pro forma net loss per share of Common Stock
(3).............................................. -- -- $ 0.30 $ 2.15
Pro forma weighted average number of shares of
Common Stock outstanding (3)..................... -- -- 10,912,338 -- 9,470,545
OTHER FINANCIAL DATA:
EBITDA (4)........................................ $ (5,906) $ (115,964) $ (2,007,568) $ (987,367) $ (9,978,993)
Capital Expenditures.............................. -- 5,175 3,585,144 57,120 7,864,110
Ratio of earnings to fixed charges (5)............ -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF SEPTEMBER 30,
------------------------------------------- -----------------------------
1993 1994 1995 1995 1996
------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital surplus (deficit)................... $ 13,958 $ (76,556) $ (3,008,510) $ (168,791) $ (20,700,673)
Property and equipment, net......................... -- 3,448 3,581,561 49,488 11,019,217
FCC licenses, net................................... -- -- 4,235,734 175,000 4,276,780
Total assets........................................ 74,513 42,611 9,876,559 548,203 20,541,997
Short-term debt..................................... -- -- -- -- 9,275,179
Long-term debt (including current portion).......... -- -- 6,450,000 -- 3,107,422
Accumulated deficit................................. (6,594) (135,214) (3,370,057) (1,139,528) (23,748,434)
Total stockholders' equity (deficit)................ 54,542 (39,078) (312,860) 297,900 (2,995,212)
</TABLE>
32
<PAGE>
(1) The historical selected financial data of the Company reflects the Merger of
ART and Telecom, which occurred on October 28, 1996. The Merger was
accounted for as a reorganization of entities under common control which is
similar to that of a pooling of interest.
(2) The unaudited selected financial data under the caption "Pro Forma" are
presented as if the following transactions had occurred as of the beginning
of the respective periods for the Statement of Operations Data and Other
Financial Data and as of the balance sheet date for the Balance Sheet Data:
(i) the sale by the Company of 2,300,500 shares of Common Stock offered in
the Common Stock Offering in November 1996 at a price of $15.00 per share,
after deducting the underwriting discount and offering expenses; (ii) the
Conversion in November 1996; (iii) fees and expenses of approximately $6.4
million related to the CIBC Financing Commitment, including the issuance of
the First CIBC Warrants to purchase 300,257 shares of Common Stock, which
financing commitment is assumed to be replaced by the issuance of the Notes
in the Offering; (iv) the receipt of $1.6 million (out of a total of $4.0
million) in cash proceeds from the September Bridge Financing in October
1996; (v) the application of the net proceeds from the Common Stock Offering
to repay the March Bridge Notes, the CommcoCCC Notes and the September
Bridge Notes, which repayment occurred in November 1996 and the November
1996 payment of $3.0 million of the total $6.0 million consideration to
acquire the 50% ownership interest of ART West held by Extended; (vi) the
exercise of the Ameritech Warrant to purchase an aggregate of 318,374 shares
of Common Stock in December 1996; (vii) the sale by the Company of 125,000
Units offered in the Offering assuming $125.0 million of gross proceeds,
after deducting (a) the estimated underwriting discount and offering
expenses (b) the cash used to purchase the Pledged Securities of
approximately $44.3 million and (c) the value ascribed to the Warrants of
approximately $6.9 million (the value was based on an assumed value of
$11.25 per share of Common Stock, a Warrant exercise price of $12.375 per
share and an assumed issuance of Warrants to purchase an aggregate of
1,128,011 shares of Common Stock); (viii) the use of $3.0 million of the net
proceeds from the Offering to fund the balance of the ART West purchase
price; and (ix) the consummation of the acquisition by the Company of the
CommcoCCC Assets in exchange for 6,000,000 shares of Common Stock at an
assumed value of $11.25 per share plus related estimated expenses.
(3) 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 2,300,500 shares of Common Stock
issued in the Common Stock Offering, the Conversion, the issuance of
potentially dilutive instruments issued within one year prior to the Common
Stock Offering at exercise prices below the initial public offering price of
$15.00 per share (in measuring the dilutive effect, the treasury stock
method was used), the issuance of the 318,374 shares of Common Stock to
Ameritech, and the issuance of 6,000,000 shares of Common Stock in
connection with the CommcoCCC Acquisition.
(4) EBITDA represents loss before interest and financing expense (net of
interest income), income tax expense, depreciation and amortization expense,
non-cash compensation expense and non-cash market development expense.
EBITDA is not intended to represent cash flows from operating activities, as
determined in accordance with generally accepted accounting principles.
EBITDA should not be considered as an alternative to, or more meaningful
than, operating income or loss, net income or loss or cash flow as an
indicator of the Company's performance. EBITDA has been included because the
Company uses it as one means of analyzing its ability to service its debt,
because a similar measure will be used in the Indenture with respect to
computations under certain covenants and the Company understands that it is
used by certain investors as one measure of a company's historical ability
to service its debt. Not all companies calculate EBITDA in the same fashion
and therefore EBITDA as presented may not be comparable to other similarly
titled measures of other companies.
(5) For the purpose 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 cost and
original issue discount). For the purpose of the pro forma information,
fixed charges include interest expense from the Notes (including the
amortization of deferred debt issuance costs and original issue discount for
the value ascribed to the Warrants) at an assumed effective interest rate of
14.04% and the financing charges from the CIBC Financing Commitment
(including the commitment fee and the value ascribed to the First CIBC
Warrants) offset by the reversal of interest expense from the March Bridge
Notes, the CommcoCCC Notes and the September Bridge Notes (including
amortization of deferred debt issuance costs and original issue discount)
which were repaid out of the proceeds from the Common Stock Offering in
November 1996. If the interest rate on the Notes were to change by 0.5%,
interest expense would change by approximately $625,000 and $468,750 for the
year ended December 31, 1995 and nine months ended September 30, 1996,
respectively. Earnings were deficient to cover fixed charges by the
following amounts for the periods indicated:
Pro Forma
<TABLE>
<S> <C>
Nine months ended September 30, 1996.............................................. $ 39,024,272
Year ended December 31, 1995...................................................... 27,048,846
</TABLE>
Historical
<TABLE>
<S> <C>
Nine months ended September 30, 1996.............................................. 20,378,377
Nine months ended September 30, 1995.............................................. 1,004,313
Year ended December 31, 1995...................................................... 3,234,843
Year ended December 31, 1994...................................................... 128,620
August 23, 1993 (date of inception) to December 31, 1993.......................... 6,594
</TABLE>
33
<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 primarily in the 38 GHz portion of the
radio spectrum. The Company is seeking to address the growing demand for high
speed, high capacity digital telecommunications services on the part of business
and government end users who require cost effective, high bandwidth local access
to voice, video, data and Internet services.
The following discussion and analysis is based upon the financial statements
of the Company, as restated to reflect the Merger effected in October 1996.
Certain statements set forth below constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the Company, or industry results, to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Given these uncertainties, prospective investors are
cautioned not to place undue reliance on such forward-looking statements. See
"Risk Factors" and "Special Note Regarding Forward-Looking Statements."
OVERVIEW
The Company's business commenced in 1993, and the Company has generated only
nominal revenues from operations to date. The Company's primary activities have
focused on the acquisition of wireless construction permits (authorizations for
facilities that are not yet constructed) and licenses (authorizations for
facilities that are constructed), the hiring of management and other key
personnel, the raising of capital, the acquisition of equipment and the
development of its operating and support systems and infrastructure. The Company
has obtained radio spectrum rights under FCC issued licenses and construction
permits throughout the United States by applying to the FCC directly and through
the purchase or lease of such rights held by others. The Company's ability to
provide commercial services on a widespread basis and to generate positive
operating cash flow will depend on its ability, among other things, to (i)
deploy its 38 GHz technology on a market-by-market basis, (ii) attract and
retain an adequate customer base, (iii) successfully develop and deploy its
operational and support systems and (iv) acquire appropriate sites for its
operations. Proper management of the Company's anticipated growth and quality of
its service will require the Company to expand its technical, accounting and
internal management systems at a pace consistent with the Company's planned
business roll-out. This roll-out will require substantial capital expenditures.
See "Liquidity and Capital Resources" and "Risk Factors."
The Company has experienced significant operating and net losses and
negative operating cash flow in connection with the development and deployment
of its wireless broadband services and systems and expects to continue to
experience operating and net losses and negative operating cash flow until such
time as it develops a revenue-generating customer base sufficient to fund
operating expenses attributable to the Company's wireless broadband operations.
See "Risk Factors." The Company expects to achieve positive operating margins
over time by (i) increasing the number of revenue generating customers and
responding to growing demand for capacity among its customers without
significantly increasing related hardware and roof rights costs and (ii)
inducing other telecommunications service providers to utilize and market the
Company's wireless broadband services as part of their own services, thereby
reducing the Company's related marketing costs. The Company's operating revenues
will increase in 1997; however, the Company also expects that operating and net
losses and negative operating cash flow will increase as the Company implements
its growth strategy and that, under its current business plan, operating and net
losses and negative operating cash flow will continue at least through fiscal
1998. Accordingly, the Company will be dependent on various financing sources to
fund its growth as well as continued losses from operations. See "--Liquidity
and Capital Resources."
34
<PAGE>
ACQUISITIONS, BUSINESS DEVELOPMENT AND CAPITAL EXPENDITURES
From inception through September 30, 1996, the Company has invested an
aggregate of $4.3 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 through September 30, 1996, expenditures for
property and equipment have totalled $11.4 million. In addition, the Company has
incurred significant other costs and expenses in the development of its business
and has recorded cumulative losses from inception through September 30, 1996 of
approximately $23.7 million, including $9.6 million of non-cash compensation and
marketing expenses, and used cash in operating activities of approximately $10.6
million. The Company has agreed to acquire, subject to FCC approval and other
conditions, additional FCC authorizations and licenses for an aggregate purchase
price (before related expenses) of $6.0 million in cash (of which $3.0 million
was paid in December 1996) and 6,000,000 shares of Common Stock. The Company
may, when and if the opportunity arises, acquire other spectrum rights and,
potentially, related businesses, incur expenses in the development of new
technologies and expand its wireless broadband services into new market areas.
The recoverability of property and equipment and intangible assets
representing FCC authorizations is dependent upon the successful development of
systems in each of the respective markets, or through sale of such assets.
Management estimates that it will recover the carrying amounts of those assets
from cash flow generated by the systems once they have been developed. However,
it is possible that such estimate will change as a result of any failure by the
Company to develop its FCC authorizations on a timely basis, or technological,
regulatory or other changes. The Company anticipates that it will fund
approximately $1.0 million for research and development activities pursuant to a
letter of intent with Helioss Communications Corporation. Although the Company
does not have other material commitments to fund research and development or to
make investments in other companies, the Company expects to incur additional
research and development expenses and to make other such investments from time
to time.
In October 1996, ART entered into a binding letter of intent with Advantage
Telecom, Inc. ("ATI"), a Canadian company which has applied for licenses to
provide 38 GHz service in the 66 major markets in Canada covering a population
of at least 21 million. Upon consummation of the transactions described in the
letter of intent, ART will hold a substantial direct and indirect minority
interest in ATI and will be a party to a services agreement with ATI pursuant to
which ART will construct and operate radio systems based upon any licenses that
may be granted to ATI and subject to control by ATI. The Company incurred
approximately $300,000 of expenses, and ATI is responsible for securing any
additional funding necessary to construct the radio systems. Due to current
uncertainty in Canada's licensing policy, there can be no assurance that ATI
will be granted these licenses or that, if granted, ATI will obtain the funding
necessary to construct the radio systems.
On September 29, 1996 the Company entered into a shareholders agreement with
Trond Johannessen, pursuant to which the Company anticipates eventually
obtaining licenses and offering its wireless broadband services through separate
subsidiaries in the 17 countries comprising the European Union. The Company has
caused or will cause to be formed subsidiaries in Sweden, the United Kingdom and
Italy for this purpose. Under the shareholders agreement, in consideration for
services to be rendered and his proportionate share of the formation costs, Mr.
Johannessen is entitled to receive a 20% interest in the initial shareholdings
in certain of the subsidiaries in each country, prior to significant funding of
each subsidiary. The Company has no further commitment to fund any such
subsidiary. Mr. Johannessen is also a consultant to the Company, for which he
currently receives monthly payments of $10,000 plus expenses. The Company is
seeking but has not yet received any operating licenses, strategic alliances or
customer commitments in Europe. Although each member nation of the European
Economic Community is required pursuant to a directive of the European
Commission to open its telecommunication markets to competition over the next
several years, the timing and extent of a relaxation in entry barriers and the
degree of cooperation from the incumbent service providers in such
35
<PAGE>
areas as interconnection to customers and the public networks is unknown. There
can be no assurance that the Company will be able to acquire the licenses
necessary in each European country, to finance and to implement its business
plan or to operate in any country on a profitable basis.
The Company entered into a management consulting agreement in November 1995
with Landover Holdings Corporation ("LHC") to provide strategic planning,
corporate development and general management services. Under the agreement,
which terminated concurrently with the Common Stock Offering, the Company paid
LHC $35,000 per month for an initial one year term. In 1995 the Company paid
$140,000 to LHC for consulting services and $391,750 for expenses in connection
with the $7.0 million investment made under the LHC Purchase Agreement. In
November 1996, the Company paid LHC approximately $300,000 as a fee in
connection with various consulting services previously rendered under the
management consulting agreement. See "Certain Transactions."
RESULTS OF OPERATIONS
From inception through September 30, 1996, the Company has generated revenue
of $130,806 from operations and has incurred aggregate expenses of approximately
$24.0 million, including $9.6 million of non-cash compensation and marketing
expenses. The remaining expenses consist of compensation and benefits, sales and
marketing expenses, consulting and legal fees, facilities expenses, systems
development costs, management consulting expenses and depreciation and
amortization related to building the Company's business infrastructure and
marketing its wireless broadband services and net interest expense. The Company
expects to generate increased revenues beginning in 1996; however, there can be
no assurance that the Company will achieve substantially increased revenues in
the future. The Company expects that it will not achieve profitable operations
at least through fiscal 1998. See "Risk Factors -- Limited Operations; History
of Net Losses."
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO SEPTEMBER 30, 1995
Revenue for the nine months ended September 30, 1996 was $125,013 compared
to no revenue in 1995. Revenue in 1996 is earned from wireless broadband
telecommunications services provided by the Company. As of September 30, 1996,
the Company had 62 revenue generating radio links (single path point to point
microwave) in service.
Operating expenses other than interest were $19.2 million for the nine
months ended September 30, 1996 compared to $1.0 million in 1995. The increase
was primarily due to $7.5 million of non-cash compensation expense, including
$6.8 million arising from the termination of the Escrow Share Arrangement (as
defined) and subsequent release of shares to certain employees in connection
with the February 1996 Reorganization (as defined), as well as higher general
and administrative, market development and research and development expenses.
See "Certain Transactions." Excluding the non-cash compensation expense, general
and administrative expenses increased primarily due to higher payroll and
consulting costs relating to the commencement of operations of the Company.
Included in general and administrative expenses is a charge of approximately
$1.3 million associated with the Company's unsuccessful public debt offering in
July 1996. Market development expenses increased primarily due to a non-cash
marketing expense of $1.1 million related to the Ameritech Strategic
Distribution Agreement. Research and development costs were incurred as the
Company initiated its research and development of microwave radio technology.
The Company expects cash expenses for general and administrative, marketing and
research and development to increase substantially in future periods as the
development and deployment of the Company's business continues.
Net interest expense was $1.3 million for the nine months ended September
30, 1996 compared to $1,539 in 1995. The increase in interest expense was
primarily due to interest on the EMI Note, the Equipment Note, the March Bridge
Notes, the CommcoCCC Notes and the September Bridge Notes. The Company expects
the issuance of the Notes and any future financings will cause interest expense
to increase substantially in future periods. The repayment in November 1996 of
the March Bridge Notes,
36
<PAGE>
the CommcoCCC Notes and the September Bridge Notes will result in a non-cash
extraordinary loss of approximately $1.3 million in the fourth quarter of 1996
relating to the write-off of associated unamortized offering discount and
deferred financing costs.
FISCAL 1995 COMPARED TO FISCAL 1994
ART was formed in 1993, and, accordingly, the Company's historical financial
statements for 1994 reflect ART's activities in applying for 38 GHz licenses and
building operating systems.
The Company had $137,489 in consulting services income for engineering and
management services related to filing of applications for 38 GHz licenses on
behalf of others, including Extended, in 1994 and $5,793 in service revenue in
1995 derived from customers for wireless broadband services attributable to the
markets for which licenses were acquired from EMI in November 1995. See
"Business -- Agreements Relating to Licenses and Authorizations -- EMI
Acquisition."
Total expenses other than interest increased from $261,734 in 1994 to $3.1
million in 1995 due to the expansion of the business and the recognition of
non-cash compensation expenses associated with employee stock options of
$287,603 and certain Escrow Shares (as defined) of $802,002 associated with the
release to certain employees of the Company as a result of meeting certain
performance objectives for an aggregate of $1.1 million of non-cash compensation
expenses. See "Certain Transactions -- LHC Purchase Agreement -- February 1996
Reorganization." General and administrative expenses, including these non-cash
compensation expenses, increased to $2.9 million for fiscal 1995, from $253,453
for 1994. Market development expenses increased to $191,693 in 1995 from $0 in
1994. Net interest expenses increased to $121,986 in 1995 from $4,375 in 1994.
As a result, the net loss for 1995 was $3.2 million, as compared to a net loss
of $128,620 in 1994.
FISCAL 1994 COMPARED TO FISCAL 1993
The Company had $137,489 in consulting services income in 1994 compared to
no revenue in 1993. The increase in 1994 was primarily due to consulting
services related to 38 GHz license applications.
Total expenses other than interest expense increased to $261,734 in 1994
from $6,594 in 1993. The increases were due primarily to consulting and legal
fees related to the initial operations of the Company.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations have required substantial capital investment for
the acquisition of FCC authorizations and related assets, the purchase of
telecommunications equipment, staffing, and the development and expansion of the
Company's infrastructure to support anticipated growth. From inception through
September 30, 1996, the Company used $10.6 million of cash in its operating
activities and $9.8 million of cash in its investing activities. These cash
outflows were financed primarily through private equity and debt placements,
including the issuance of convertible notes payable to the Advent Partnerships
which were converted into equity in February 1996. At December 31, 1995 the
Company had a working capital deficit of $3.0 million and cash of $633,654, as
compared to a working capital deficit of $76,556 and cash of $5,133 at December
31, 1994. The Company had a working capital deficit of $20.7 million and cash of
$752,368 at September 30, 1996.
In October 1996, the Company received the remaining $1.6 million in cash
(out of a total of $4.0 million) from the September Bridge Financing. During
November and December 1996, the Company received gross proceeds of approximately
$34.5 million from the Common Stock Offering and repaid the March Bridge Notes,
the CommcoCCC Notes and the September Bridge Notes. See "Certain Transactions".
The Company's total assets increased from $42,611 as of December 31, 1994 to
$9.9 million at December 31, 1995 and $20.5 million at September 30, 1996.
Property and equipment, net of accumulated depreciation, comprised $3.6 million
of total assets at December 31, 1995 and $11.0 million at
37
<PAGE>
September 30, 1996. FCC licenses and the investment in the ART West Joint
Venture comprised $4.5 million of total assets at December 31, 1995, compared to
$4.6 million at September 30, 1996 and $0.0 at December 31, 1994.
Cash used in operating activities increased by $1.4 million to $1.5 million
in 1995 over 1994. The increase in cash used in operating activities resulted
primarily from the increase in net loss to $3.2 million, partially offset by
non-cash compensation expenses of $1.1 million and increased payables in 1995.
Cash used in investing activities increased by $4.2 million in 1995 compared
to minimal amounts in 1994. The increase was primarily due to $3.0 million paid
for the EMI acquisition, and approximately $600,000 used for property and
equipment additions in 1995.
Cash provided by financing activities increased by $6.2 million in 1995 over
1994. The increase was primarily due to the issuances of the Advent/ART
Securities of $5.0 million and of Telecom serial preferred stock, net of
redemptions of $2.0 million issued in 1995, partially offset by the use of cash
for stock and debt issuance costs.
Capital expenditures, including deposits on equipment for fiscal 1995 and
1994, were $3.9 million and $5,175, respectively. The Company currently
purchases the majority of its wireless transmission equipment from a single
vendor, P-Com, Inc., under an equipment purchase agreement which expires at the
end of 1998. The Company is committed to purchase a total of $13.3 million of
equipment under this agreement. The Company has also entered into an equipment
purchase agreement, expiring in 1997, with Harris, providing for the purchase of
wireless transmission equipment.
Cash used in operating activities increased to $9.0 million for the nine
months ended September 30, 1996 compared to $750,291 for the nine months ended
September 30, 1995. The increase was primarily due to higher operating costs.
Cash used in investing activities was approximately $5.5 million for the nine
months ended September 30, 1996 compared to $419,620 for the nine months ended
September 30, 1995. The increase was primarily due to additions to property and
equipment. Cash provided by financing activities increased to $14.6 million in
the nine months ended September 30, 1996 compared to $1.2 million for the nine
months ended September 30, 1995. The increase was primarily due to the private
equity placement with Ameritech, the issuance of the Equipment Financing, the
March Bridge Financing, the CommcoCCC Financing and the September Bridge
Financing.
The Company does not currently manufacture, nor does it have or plan to
develop the capability to manufacture, any of the wireless transmission
equipment necessary to provide its services. Although there are a limited number
of manufacturers who have, or are developing, equipment that would meet the
Company's requirements, there can be no assurance that such equipment would be
available to the Company on comparable terms or on terms more favorable than
those included in its current arrangements in the event that such arrangements
are terminated. Moreover, a change in vendors could cause a delay in the
Company's ability to provide its services, which would affect future operating
results adversely.
The Company has funded approximately $400,000 of research and development
costs with American Wireless Corporation ("American Wireless") related to
wireless transmission equipment. Vernon L. Fotheringham, the Chairman of the
Company, is a former director and a 3% shareholder of American Wireless. See
"Certain Transactions -- American Wireless Development Agreement." The Company
has also entered into a letter of intent with Helioss Communications Corporation
("Helioss") for the development of advanced 38 GHz radios. Under the letter of
intent, which is subject to definitive documentation, the Company will fund up
to $1.0 million of Helioss' research and development expenses. The Company will
have a right of first refusal on production capacity of the radios and will
receive a royalty on the sale of a certain number of radios to customers other
than the Company. Although the Company does not have any other material
commitments to fund research and development or to make investments in other
companies, it expects to incur additional expenses for research and development
and to make other such investments from time to time.
38
<PAGE>
A substantial portion of the net proceeds from the Offering is expected to
be used for capital expenditures. Because the Company installs links in response
to customer orders and can redeploy links removed from service, the Company's
actual rate of capital expenditures will depend largely on levels of customer
demand. The Company currently expects to use approximately $35.0 million of the
net proceeds for capital expenditures through December 30, 1997, consisting of
approximately $29.0 million for wireless transmission equipment, approximately
$3.0 million for network design and development and related equipment and
approximately $3.0 million for computer equipment and other capital
requirements. Included in these amounts are the costs of initial construction of
the remaining CommcoCCC authorizations which have not yet satisfied the FCC's
construction deadline, estimated to be less than $1.5 million, including
wireless transmission equipment. Although the Company does not anticipate
substantial difficulties in completing such initial construction on a timely
basis, the failure to do so could have a material adverse effect on the number
of licenses available to the Company to carry out its business. If the Company
does not consummate the CommcoCCC Acquisition, the impact upon capital
expenditures in 1997 is not expected to be significant, other than capital
expenditures for the initial construction of the remaining CommcoCCC
authorizations. The Company expects that capital expenditures for the
installation of 38 GHz wireless transmission equipment will increase as demand
for the Company's 38 GHz services increases in the targeted geographic markets
and industry segments over the next several years.
In addition, the Company has agreed to acquire authorizations and licenses
for $6.0 million from ART West, of which $3.0 million was paid in November 1996.
The Company has entered into an agreement to acquire 129 38 GHz authorizations
from CommcoCCC in exchange for 6,000,000 shares of Common Stock. CommcoCCC has
entered into a management agreement with the Company under which the Company
will construct, manage and operate the authorizations to be acquired pending
consummation of the CommcoCCC Acquisition. See "Business -- Agreements Relating
to Licenses and Authorizations" and "Risk Factors -- Risk of Non-Consummation of
CommcoCCC Acquisition and Other Acquisitions."
The Company is obliged to pay all costs and expenses of construction,
operation and management of the authorizations managed by the Company. The
Company is also obligated under the terms of the service agreements covering
such authorizations to pay fees to the current holders of those authorizations
approximating 10% to 15% of the revenue generated from such assets. See
"Business -- Agreements Relating to Licenses and Authorizations."
The Company expects that it will continue to have substantial capital
requirements in connection with (i) the acquisition of appropriate sites for its
operations, (ii) deployment of its 38 GHz technology on a market-by-market
basis, (iii) capturing and retaining an adequate revenue generating customer
base and (iv) developing and deploying its operational and support systems. The
Company believes it has an opportunity to expand its wireless broadband services
business significantly and that access to capital will enable it to expand more
quickly and effectively. See "Risk Factors -- Significant Capital Requirements;
Need for Additional Financing."
The Company has incurred significant operating and net losses and negative
operating cash flow attributable to the development of its wireless broadband
services and anticipates that such losses and negative operating cash flow will
increase as the Company implements its growth strategy. Accordingly, the Company
will be dependent on additional capital to fund its growth, as well as to fund
continued losses from operations.
During November 1996, the Company completed the Common Stock Offering,
raising $34.5 million before expenses. An aggregate of $12.0 million from the
proceeds of the Common Stock Offering was used to repay the March Bridge Notes,
the CommcoCCC Notes and the September Bridge Notes, and $3.0 million was used to
fund a portion of the acquisition of the remaining 50% interest in ART West.
Management anticipates that, based on current plans of development, assuming
that no new material acquisitions (other than those currently under contract)
are consummated, the remaining net proceeds of the Common Stock Offering and
funds available from the Offering after the use of $3.0
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million to complete pending acquisitions of certain spectrum rights and $2.4
million to pay expenses related to the CommcoCCC Acquisition when consummated,
will be sufficient to fund the operations of the Company at least through
December 31, 1997. Management also believes that the Company's future capital
needs will continue to be significant, and management intends to continue to
seek additional sources of financing. The Company is currently pursuing the
Credit Facility as a source of additional financing, although there can be no
assurance that the Credit Facility can be obtained. See "Description of Certain
Indebtedness--Proposed Credit Facility." In addition, if (i) the Company's plan
of development or projections change or prove to be inaccurate, (ii) the
proceeds of the Offering, together with other existing financial resources,
prove to be insufficient to fund the Company through December 31, 1997, (iii)
the Company completes any material acquisitions or (iv) the Company accelerates
implementation of its business plan, other than those now under contract or buys
spectrum at auction, the Company may be required to obtain additional financing
earlier than December 31, 1997. There can be no assurance that the Company will
be able to obtain any additional financing, or, if such financing is available,
that the Company will be able to obtain it on acceptable terms. If the Offering
is not consummated the Company expects that it will draw down $50.0 million of
the Senior Secured Notes due 1998 pursuant to the CIBC Financing Commitment, and
that, based on current plans of development, the remaining net proceeds of the
Common Stock Offering and the net proceeds from the CIBC Financing Commitment,
after payment to complete pending acquisitions, will be sufficient to fund
operations of the Company at least through December 1997. If the CIBC Financing
Commitment is drawn down, the Company will pursue refinancing thereof at the
earliest practicable time. In the event that the Offering is not consummated in
a timely manner, the CIBC Financing Commitment is not drawn down and the Company
is unable to obtain additional financing, the Company may be obliged to modify,
delay or abandon some or all of its development and expansion plans. Any such
modification, delay or abandonment is likely to have a material adverse effect
on the Company's business, which could adversely affect the value of the Common
Stock and may limit the Company's ability to make principal and interest
payments on its indebtedness. See "Risk Factors -- Significant Capital
Requirements; Need for Additional Financing."
NEW ACCOUNTING PRONOUNCEMENT
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." This Statement encourages, but does not require, accounting for
stock compensation awards granted to employees based on their fair value at the
date the awards are granted. Companies may elect to continue to apply current
accounting requirements for employee stock compensation awards, which generally
will result in no compensation cost for most fixed stock option plans, such as
the Company's Equity Incentive Plan. The expense measurement provisions of the
Statement apply to all equity instruments issued for goods and services provided
by persons other than employees. All companies are required to comply with the
disclosure requirements of the Statement. The Company expects to continue
accounting for employee stock compensation awards using current accounting
requirements.
INFLATION
Management does not believe that its business is impacted by inflation to a
significantly different extent than is the general economy.
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BUSINESS
Advanced Radio Telecom Corp. ("ART" or the "Company") provides wireless
broadband telecommunications services using point-to-point microwave
transmissions in the 38 GHz band of the radio spectrum. The Company is seeking
to address the growing demand for high speed, high capacity digital
telecommunications services on the part of business and government end users who
require cost effective, high bandwidth local access to voice, video, data and
Internet services. Upon completion of its pending acquisition of 129 38 GHz
wireless broadband authorizations (the "CommcoCCC Assets") from CommcoCCC, Inc.
("CommcoCCC") but excluding any licenses leased under the ICG Agreement, the
Company will own, manage or have a right to use on a long-term basis a total of
233 authorizations (which are also referred to herein as "licenses") granted by
the Federal Communications Commission (the "FCC") covering an aggregate
population of approximately 156 million in 169 U.S. markets. During 1996 the
Company installed over 370 radio links (single path point-to-point microwave
connections), including 99 radio links installed for other carriers and 85 radio
links providing service to customers.
TELECOMMUNICATIONS INDUSTRY OVERVIEW
The current telecommunications landscape is being reshaped by the
convergence of three major trends: (i) the accelerating growth in demand for
high speed, high capacity digital telecommunications services, (ii) the
deregulation of telecommunications markets and (iii) the rapid advances in
wireless technologies. The growth in demand for high speed digital
telecommunications services is being driven by the revolution in microprocessor
power and advances in new multimedia and on-line applications such as the
Internet. The ability to access and distribute information quickly has become
critical to business and government users of telecommunications services. The
rapid growth of local area networks ("LANs"), Internet services, video
teleconferencing and other data intensive applications is significantly
increasing the volume of broadband telecommunications traffic. The inability of
the existing infrastructure to meet this demand is creating a "last mile"
bottleneck in the copper wire networks of the incumbent local exchange carriers
("LECs"). This increasing demand, together with changes in the regulatory
environment, is creating an opportunity to offer cost effective, high capacity
last mile access using both wireline and wireless solutions.
The present structure of the U.S. telecommunications industry was shaped
principally by the 1984 court-directed divestiture of the Bell System (the
"Divestiture"). As part of the Divestiture, seven Regional Bell Operating
Companies ("RBOCs") were created and separated from the long distance service
provider, AT&T, resulting in two distinct telecommunications industries: local
exchange and inter-exchange (commonly known as long distance). Local exchange
services typically involve the carriage of telecommunications within defined
local access and transport areas ("LATAs"), and the provision of access, or
connections, between LECs and inter-exchange carriers ("IXCs") for the
completion of long distance calls.
Since the Divestiture, the local exchange segment of the telecommunications
market, with total 1995 revenues estimated by the FCC at over $95.0 billion, has
remained the domain of LECs. Recently, however, regulatory policy has shifted
away from monopoly protection of the LECs. U.S. court decisions, FCC actions
and, most recently, the Telecommunications Act of 1996 (the "Telecommunications
Act") have dramatically changed the regulatory environment. These changes have
permitted increased competition in the local exchange market and created
opportunities for new companies, such as competitive access providers ("CAPs").
In the late 1980s, CAPs emerged to compete with LECs by providing dedicated
private line transmission and access services. Beginning in 1994, a few states
permitted CAPs to also operate as "competitive local exchange carriers"
("CLECs"), by providing local exchange services to business customers in
addition to transmission and access services. These CAP/CLEC networks typically
consist of fiber optic facilities connecting IXC points of presence ("POPs")
with customer locations and LEC switches within a limited metropolitan area.
Initially, demand for alternative local access was driven by
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access charges of approximately 40% to 45% of the cost of a long distance call
levied by LECs on the IXCs. In addition to providing lower access charges,
CAP/CLEC fiber optic services, where available, have generally been considered
to provide superior quality and higher capacity services than those available
from LECs' legacy copper wire networks. A leading research company estimates
that in 1994 CAPs/CLECs captured approximately $1.3 billion of the revenues
generated by the local exchange market. Such research company also projects
that, as a result of increased competition and the growth of enhanced services,
CAPs/CLECs' revenues will grow in excess of 150% per year over the next two
years. In addition to CAPs/CLECs, a wide range of alternative access providers,
including cable television operators, wireless local loop service providers and
others, are expected to emerge.
Continued growth in the quality and number of competitors in the local
telecommunications market will be driven principally by (i) the growing interest
among business customers for an alternative to the LEC networks in order to
obtain higher capacity and better pricing, (ii) the increases in data
applications and capacity requirements for local and wide area network
connections, high speed Internet access and videoconferencing, (iii) the LECs'
inability to upgrade their copper networks quickly, (iv) the preference of
competing telecommunications providers to control the points of connection to
their customers and prevent LECs from obtaining confidential marketing
information and (v) new state and federal legislation mandating interconnection
and competition in the local exchange market.
Wireless broadband telecommunications services are developing rapidly to
handle these growing needs for alternative access. In particular, the successful
deployment of 38 GHz links by European cellular service providers and recent
advances in 38 GHz technology, coupled with metropolitan-wide footprint
licensing, has enabled the provision of greater capacity and reliability at a
lower cost per customer than traditional copper wire networks. Furthermore, 38
GHz facilities can be installed, deinstalled and reinstalled elsewhere with
minimal time and cost compared to both fiber optic and copper wire facilities.
ART'S WIRELESS BROADBAND SERVICES
The Company is positioned to solve the need for broadband last mile
services, linking end users to facilities of LECs, CAPs/CLECs, IXCs and Internet
Service Providers ("ISPs"). The Company is also positioned to link cell sites of
mobile communications service providers and to link metropolitan area network
sites using 38 GHz technology. The Company's wireless broadband links deliver
high quality voice and data transmissions at a level of performance which
exceeds the performance of copper based networks and is a viable alternative to
fiber optic based networks. The Company provides point-to-point wireless digital
circuits ranging in capacity from DS-1 (1.544 Megabits per second ("Mbps"),
capable of carrying 24 simultaneous voice conversations) to DS-3 (45 Mbps,
capable of carrying 672 simultaneous voice conversations). The Company believes
that it generally owns or manages sufficient 38 GHz bandwidth to satisfy the
anticipated service requirements of its target customers in each of the
Company's existing markets and the additional 80 markets to be acquired under
the CommcoCCC Agreement (as defined).
The Company intends initially to market its services as a carrier's carrier
in order to leverage ART's carrier customers' sales forces, channels of
distribution and customer bases. The Company believes that its services will be
attractive to carrier customers which do not currently have broadband networks
that reach the majority of their customers. For example, the Company has entered
into a strategic distribution agreement (the "Ameritech Strategic Distribution
Agreement") with Ameritech ("Ameritech") for delivery of the Company's wireless
broadband services throughout Ameritech's midwest operating region and for
certain large customers located outside its region. Ameritech has initiated the
sale of ART's wireless broadband services on a limited basis, and the Company
expects that full-scale rollout will begin in the first quarter of 1997. See "--
Strategic Alliances -- Ameritech Strategic Distribution Agreement."
Each of ART's wireless broadband links consists of paired millimeter wave
radio transceivers installed at a distance of up to five miles from one another
within a direct line of sight. The transceivers currently used by the Company
are installed primarily on rooftops. In order to deploy its links quickly,
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the Company plans to obtain roof rights on buildings with fiber optic points of
termination for transceiver sites. To accomplish this objective, the Company is
developing proprietary site selection and network design software which will
significantly reduce the amount of time necessary to select optimal network
sites. In coordination with its marketing plans, the Company will dispatch site
acquisition specialists locations to obtain renewable site access options at
targeted locations. The Company uses a combination of its own employees and
independent contractors for site acquisition.
Significant features of the Company's wireless broadband services include
(i) sufficient bandwidth and flexibility in each channel for most present day
applications, (ii) minimal channel interference from other sources, resulting
from dedicated spectrum, (iii) range of up to five miles between transmission
links (depending upon path engineering factors), (iv) performance engineered to
provide a minimum of 99.999% availability, (v) transmission accuracy engineered
to provide bit error rates of better than 10-13 (unfaded), (vi) optional forward
error correction for even higher data reliability, insuring the integrity of
transmitted data over wireless broadband paths, (vii) rapid deployment, (viii)
24-hour, seven-days-a-week network monitoring by the Company's network
management control center, (ix) available nationwide four-hour emergency
restoral time in most circumstances and (x) optional "hot" standby links that
remain powered up and switch "on line" if the primary link fails.
The Company believes that a number of factors provide it with certain
significant competitive advantages in offering broadband last mile services,
including:
- The characteristics of 38 GHz technology (high data transfer rates,
significant channel capacity, rapid deployment, easy installation, very
high transmission quality and efficient network design) are ideal for the
provision of last mile services. See "-- 38 GHz Technology."
- The Company deploys capital efficiently because of the
installation-to-meet-demand and redeployable nature of the Company's
wireless broadband equipment, as compared to the significant upfront cost
for installation of fiber based networks.
- As one of the first 38 GHz service providers, the Company enjoys a
time-to-market advantage and is therefore well-positioned to capture a
large percentage of early adopters, which are generally among the heaviest
users. The Company believes it is one of only two 38 GHz service providers
currently offering commercial services.
- The Company is forging strategic alliances with major telecommunications
carriers, equipment vendors and technology development companies, thus
gaining access to important channels of distribution and early deployment
of advanced technologies.
- The broad scope of the Company's footprint enables it to offer wireless
broadband services targeting much of the United States's addressable
business market.
- The Company's network management operational support system that provides
24-hour, seven-days-a-week network monitoring and management. The system
is designed to provide provisioning, link alarm monitoring, link
performance reporting, historical link performance data, remote link
diagnosis, remote link restoral and coordination and testing with
associated network operating centers.
- The Company is developing proprietary Geographic Information Systems
("GIS") that provide ART with 3-D digital modeling of all of its markets,
including all building and landscape features, to reduce the time and
expense of engineering its proposed radio locations. These systems will
allow the Company to determine line of site for proposed links, produce a
list of tenants in the buildings serviceable from such locations and
integrate this information with its marketing databases. The GIS
development will enable the Company remotely to determine line-of-sight
availability and provide immediate information regarding network design
alternatives. These systems further provide the Company with a powerful
tool to market its services to telecommunications service providers
seeking to offer broadband connectivity to their customers.
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BUSINESS STRATEGY
The Company is seeking to capitalize on its broad footprint of 38 GHz
authorizations to become a leading provider of wireless broadband solutions to a
diverse group of traditional and emerging telecommunications service providers
and end users. The Company has begun to implement the following strategic
initiatives to achieve this objective:
- CAPITALIZE ON BROAD SPECTRUM POSITION. The Company's spectrum assets
provide it with the foundation on which to create a large scale commercial
network of 38 GHz wireless broadband operations. The Company plans to
continue to build out its infrastructure and to intensify its marketing
effort in its market areas in order to exploit the value inherent in its
spectrum assets. See " -- Agreements Relating to Licenses and
Authorizations."
- ESTABLISH AND EXPAND KEY STRATEGIC ALLIANCES. The Company plans to utilize
strategic alliances to bundle its services with those of its partners, to
provide for alternative distribution channels and to gain access to
technological advancements. The Company has established and will seek to
continue to establish key strategic alliances with major service providers,
equipment manufacturers and systems integrators. Under the Ameritech
Strategic Distribution Agreement, Ameritech is targeting certain sales
objectives and has agreed to spend internally up to $7.0 million on its
sales or marketing of ART's services. Ameritech owns a 5.0% beneficial
equity interest in the Company as of January 2, 1997. The Company also has
agreements with Harris Corporation, Farinon Division ("Harris") for
marketing ART's 38 GHz services to PCS providers and with GTE Corporation
for installation, field servicing and network monitoring. See "-- Strategic
Alliances."
- MARKET INITIALLY AS A CARRIER'S CARRIER. The Company intends to initially
market its services as a carrier's carrier in order to leverage ART's
carrier customers' sales forces, channels of distribution and customer
bases. The Company's initial target customers include LECs, CAPs/CLECs,
IXCs, ISPs and mobile communications service providers. The Company
believes that its services are particularly attractive to carrier customers
who do not currently have broadband networks capable of reaching the
majority of their customers.
- PROACTIVELY IDENTIFY OFF-NET MARKET OPPORTUNITIES FOR CARRIER CUSTOMERS.
ART utilizes its proprietary database tools, such as GIS, to analyze a
particular carrier's network and identify high density off-net customer
locations. The GIS database is then used to pre-clear off-net buildings for
line-of-site, distance and network design alternatives. After a critical
mass of sites has been pre-qualified, the Company is able to proactively
market to the carrier access to such customer premises and pursue a "team
selling" approach to end users. Utilizing this proactive approach with
multiple carriers is expected to allow the Company incrementally to build a
custom-designed wireless hub network in each of its target markets.
- PURSUE OPPORTUNITIES TO PROVIDE VALUE-ADDED SERVICES. The Company will
also market services such as data, video-conferencing, high resolution
imaging and video on demand directly to end users in conjunction with
system integrators, telecommunications equipment manufacturers and other
service providers. The Company also plans to offer point-to-multipoint
wireless broadband services and may also decide to offer switched-data
services to end users who desire a single source telecommunications
solution.
- MAINTAIN COMPETITIVE ADVANTAGES THROUGH TECHNOLOGY ADVANCEMENTS. As 38 GHz
microwave radios begin to be produced in large volumes with modern
manufacturing techniques, the Company believes that the cost of such
equipment will decline, thereby allowing the Company to meet anticipated
price competition in its markets. In addition, through the Company's
internal technology development efforts, as well as on-going participation
in equipment manufacturers' research and development activities, the
Company continuously seeks to reduce costs by designing equipment that
allows it to more efficiently utilize its spectrum. For example, the
Company anticipates taking delivery of 38 GHz OC-3 SONET compatible radios
(155 Mbps) within 18-24 months.
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MARKETING PLANS
ART is addressing its initial target markets as a carrier's carrier, while
expanding its marketing efforts to include direct sales to end users of its
services. The Company is augmenting its marketing and sales channels through
resale agreements with strategic marketing partners and through alliances with
selected LECs, CAPs/CLECs, ISPs, IXCs, interconnect providers (PBX suppliers),
LAN, MAN and WAN systems integrators and other telecommunications equipment
manufacturers and service providers.
To develop the market potential of its wireless broadband authorizations,
ART has organized its operations into four geographic regions: Northeastern,
Central, Southern and Western. Each region has its own General Manager in charge
of operations, field service and sales and marketing. Factors that determine the
extent of proactive sales activity in each market include (i) number of license
areas, (ii) geographic size of license areas, (iii) end user density within
license areas, (iv) radio link design variables such as precipitation patterns
and topography and (v) the strategies of the incumbent LECs and CAPs/CLECs.
Organizing its markets into regions provides ART with significant operating cost
efficiencies through the centralization of its administrative functions, and
allows ART to provide superior service to its key customers.
The Company's internal salesforce is currently marketing the Company's
wireless broadband services by (i) team selling with the carriers' sales forces
(ii) performing field demonstrations of 38GHz service, (iii) making
presentations at industry trade shows, (iv) providing an interactive Internet
home page, (v) running promotional advertisements in selected trade media and
(vi) conducting extensive one-on-one presentations and demonstrations through
its carrier sales force. The sales organization is supported by the product
marketing group which has developed programs for each of the targeted sectors.
As a non-dominant carrier, ART does not have to cost-justify its rates to
regulatory bodies and therefore has a wide latitude to exercise individual case
based pricing, subject to certain policies against discriminatory treatment. As
a result, ART expects to enter into customer-specific and service-specific
arrangements, which include volume, capacity and term discounts and customized
billing and payment options. The services offered by ART are expected to be
competitively priced with those of the incumbent LECs. The Company also intends
to charge for installation and network monitoring services where appropriate.
The Company also anticipates offering metered services to various end users at
an appropriate point in the future.
CUSTOMERS AND APPLICATIONS
The Company began deploying its links principally on a trial basis in
November 1995 and has since been hiring its staff, building its internal
infrastructure and developing its marketing plans and relationships with
potential customers. The Company has generated only nominal revenues from its
operations to date and has recently begun to finalize plans to roll out its
services on a wide-scale basis. Currently, the Company is providing or has
received orders to provide wireless broadband services to LECs, CAPs/ CLECs,
ISPs and mobile communications service providers and is in the process of
becoming a qualified vendor to all the major IXCs. The Company currently
provides services to carriers such as Ameritech, Bell Atlantic NYNEX Mobile, MFS
Communications Company, Inc., UUNet, DIGEX, Incorporated, Electric Lightwave,
NEXTLINK Communications LLC, American PCS, L.P., Western Wireless, Commonwealth
Telephone, Public Interest Network, Chadwick Telephone, CGX Telecom, CAIS, Inc.
and Brooks Fiber Properties, Inc., among others.
The Company currently provides, or anticipates providing, wireless broadband
services to the following types of customers, among others:
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LOCAL EXCHANGE CARRIERS AND COMPETITIVE ACCESS PROVIDERS/COMPETITIVE LOCAL
EXCHANGE CARRIERS. Currently, CAPs/CLECs compete with LECs by installing fiber
optic cable rings in the highest density business locations to connect with long
distance carriers and for intra-ring transmissions. Due to the high cost
inherent in building fiber networks, CAPs/CLECs generally target densely
populated areas with high concentrations of large end-users. In order to reach
"off-net" customers, CAPs/CLECs must either lease or purchase facilities and
services from LECs or alternative suppliers until such time as it becomes
economical to extend the CAP/CLEC fiber networks to these customers.
CAPs/CLECs face certain implementation obstacles that the Company's wireless
broadband services can assist in solving. CAPs/CLECs need to reach new customers
that are off-net quickly and inexpensively, and are expected to prefer to obtain
additional network facilities from (and share proprietary information with)
someone other than a direct competitor, such as a LEC. CAPs/CLECs can utilize
the Company's wireless broadband services as an alternative to copper,
fiber-based or other such network facilities provided to the CAPs/CLECs by LECs
(see diagram below), to extend their own networks to reach areas where such
extension is neither cost-efficient nor feasible, because of rights-of-way or
other restrictions, or to provide redundant and back-up capacity to their
existing networks.
LECs are encountering many of the same obstacles CAPs/CLECs are encountering
in seeking to enhance their networks to deliver broadband services. Certain LECs
have sought to utilize 38 GHz technology to expand the range of their service
offerings to match those offered by CAPs/CLECs. Further, as LECs are permitted
to provide inter-LATA long distance services, they may seek to use 38 GHz
technology to bypass other LECs outside of their region. See "-- Strategic
Alliances -- Ameritech Strategic Distribution Agreement."
[GRAPHIC]
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INTERNET SERVICE PROVIDERS. The expanding demand for Internet access, the
growing importance of audio, video and graphic Internet applications to both
business and residents and the lack of high capacity access through local
telephone company facilities has created a growing market for wireless broadband
services similar to ART's services. The Company offers ISPs timely, reliable and
affordable access at the required high speed data rates -- both 45 Mbps and
1.544 Mbps -- allowing ISPs to keep pace with their customers' need for
increased capacity. The Company provides wireless broadband links between
customers and their ISPs and between ISP POPs and the Internet backbone. A
single 38 GHz DS-1 circuit linking a corporate user to an ISP's POP is
approximately 45 times faster than a 33.3 Kbps dial-up modem and 12 times faster
than the fastest ISDN connection. Each of the Company's 38 GHz DS-3 links can
support 28 DS-1 circuits per channel, or one DS-3 circuit per channel, which can
transfer data at a rate which is over 1,300 times the rate of the fastest
dial-up modems currently in use (33.3 Kbps) and over 350 times the rate of the
fastest ISDN lines currently in use (128 Kbps).
[GRAPHIC]
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MOBILE COMMUNICATIONS SERVICE PROVIDERS. ART's wireless broadband services
have begun to help cellular, wireless dispatch and emerging PCS carriers compete
in expanding domestic mobile communications markets by providing cost-effective
backbone network connections between cell sites, base stations and wireline
networks, regardless of location. Similar 38 GHz mobile communications
connections have been proven effective in Europe, and ART's easily installed,
economical wireless broadband links have begun to give domestic mobile carriers,
such as American PCS, L.P. and Western Wireless, a competitive edge in building
or expanding their networks through reduced construction time and installation
costs.
[GRAPHIC]
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INTER-EXCHANGE CARRIERS. To minimize costly LEC access charges and to gain
more direct contact with the consumer, IXCs have begun to utilize the Company's
wireless broadband services to connect call origination or termination points
either directly to the IXCs' POPs or by way of CAP/CLEC intermediate fiber
rings. These providers have also begun to use 38 GHz services to connect two or
more of their respective POPs in a single market area. By utilizing the
Company's wireless broadband services, IXCs are able to avoid the capacity
barriers inherent in copper wire connections, which have typically prevented
them from providing their customers with the end-to-end, high bandwidth, full
digital services available from a fiber optic or wireless-based system. Wireless
broadband services also may be utilized to provide carriers with viable,
cost-efficient physical diversity routes (I.E., back-up capacity) for traffic in
situations when primary routes become incapacitated or network reliability
concerns demand alternate telecommunications paths.
[GRAPHIC]
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PRIVATE USER NETWORKS. ART's wireless broadband services enable business,
government and other heavy usage customers to create efficient, high speed, high
capacity private voice, data and video communications networks within and among
their local facilities and buildings. These customers include universities,
hospitals, hotels, shopping centers and multi-location manufacturing, business
and governmental institutions. Working directly with ART or through ART
resellers, customers will be able to access cost-effective alternatives to LEC
copper networks.
Providing high speed data and video transmission and real time
communications services by linking customer computers in local, metropolitan and
wide area network configurations will be an important part of ART's private
networking business. The ability to send large amounts of data quickly and
efficiently and to interconnect personal computers both within and among
buildings in campus settings is a growing customer need. ART's wireless
broadband services are designed to serve this rapidly expanding market.
[GRAPHIC]
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INTERACTIVE VIDEO SERVICES USERS. ART's wireless broadband services provide
high speed, high capacity access to communications networks for customers who
require reliable videoconferencing, video on demand, and Internet video
services. The Company believes the increasing popularity and use of these
services, particularly by large business and government customers, provide a
promising market for ART's wireless links. Videoconferencing requires high speed
communications both to and from the participants. The Company's services meet
this requirement for high bandwidth, full duplex communications.
[GRAPHIC]
38 GHZ TECHNOLOGY
The FCC has allocated the 37.0-40.0 GHz (the "38 GHz") band for wireless
broadband transmissions. The FCC has authorized the use of fourteen 100 MHz
channels between 38.6 GHz and 40.0 GHz, which enables licensees to provide
point-to-point wireless telecommunications services within a specified
geographic footprint usually of up to a 50-mile radius inscribed within a
rectangle.
38 GHz technology was first widely deployed in Europe by cellular telephone
service providers for the interconnection of cell sites with switches. In the
early 1990s, technological advances resulted in a substantial reduction in the
cost and size of millimetric microwave components with a simultaneous increase
in reliability and quality, allowing for the provision of wireless broadband
telecommunication links at competitive prices. By 1993, advances in 38 GHz
technology, combined with its growing use in Europe and Central America, led to
increasing awareness of and interest in the potential uses of 38 GHz in the
United States.
The 38 GHz band provides for the following additional advantages as compared
to other spectrum bands and wireline alternatives:
- HIGH DATA TRANSFER RATES. The total amount of bandwidth for each 38 GHz
channel is 100 MHz, which exceeds the bandwidth of any other present
terrestrial wireless channel allotment and supports full broadband
capability. For example, one 38 GHz DS-3 link at 45 Mbps today can
transfer data at a rate which is over 1,500 times the rate of the fastest
dial-up modem currently in use (28.8 Kbps) and over 350 times the rate of
the fastest integrated services digital network ("ISDN") line currently in
use (128 Kbps). In addition to accommodating standard voice and 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.
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- SIGNIFICANT CHANNEL CAPACITY. Because 38 GHz radio emissions have a
narrow beam width, a relatively short range and in most instances the
capability to intersect without creating interference, 38 GHz service
providers can efficiently reuse their bandwidth within a licensed area,
thereby increasing the number of customers to which such services can be
provided. Management believes that by using technology currently employed
by the Company it can serve virtually all of its addressable service
market.
- RAPID DEPLOYMENT. 38 GHz technology can be deployed considerably more
rapidly than wireline and other wireless technologies, generally within 72
hours after obtaining access to customer premises. In contrast to the
relative ease of installing a 38 GHz transmission link, extending fiber or
copper-based networks to reach new customers requires significant time and
expense. In addition, unlike providers of point-to-point microwave service
in most other spectrum bands, a 38 GHz license holder can install and
operate as many transmission links as it can engineer in the licensed area
without obtaining additional approvals from the FCC. This is a substantial
advantage over other portions of the microwave radio spectrum that must be
licensed on a link-by-link basis and that cannot commence service until
frequency coordination has been completed.
- EASE OF INSTALLATION. The equipment used for 38 GHz point-to-point
applications (I.E., antennae, transceivers and digital interface units) is
smaller, less obtrusive and less expensive than that used for microwave
equipment applications at other frequencies, making it less susceptible to
zoning restrictions. In addition, 38 GHz equipment can be easily
redeployed to meet changing customer requirements.
- VERY HIGH TRANSMISSION QUALITY. The Company's wireless broadband services
are engineered to provide 99.999% availability, with better than a 10-13
(unfaded) bit error rate. This level of availability exceeds the
performance of copper based networks and is a viable alternative to fiber
based networks. When measured as the total amount of time "out of service"
over a year, 99.999% availability equates to less than six minutes per
year of down-time, compared to a range of four hours to 44 hours of
historical performance of similar copper-based LEC circuits.
- ADDITIONAL ADVANTAGES OVER OTHER PORTIONS OF RADIO SPECTRUM. At
frequencies above 38 GHz, point-to-point applications become less
practical because attenuation increases and the maximum distance between
transceivers accordingly decreases. Additionally, the FCC has specified
the use of many portions of the spectrum for applications other than
point-to-point, such as satellite and wireless cable services, and,
accordingly, these portions of the radio spectrum often are not available
for point-to-point applications.
38 GHZ WIRELESS BROADBAND LICENSES AND AUTHORIZATIONS
The Company was granted the first of its authorizations to construct and
operate 38 GHz wireless broadband facilities in February 1995. Upon completion
of the CommcoCCC Acquisition, the Company will own or manage a total of 233
authorizations that will allow it to provide 38 GHz wireless broadband services
in 169 U.S. markets. The Company currently owns or manages or has the right to
use on a long-term basis 104 licenses (exclusive of the CommcoCCC Assets) that
allow it to provide 38 GHz wireless broadband services in 84 markets, 78 of
which are owned by the Company, 14 of which are managed by the Company through
the Company's interests in or arrangements with other companies and 12 of which
the Company has the right to use on a long-term basis.
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The table below lists the amount of bandwidth covered by authorizations
which the Company owns, manages or has a definitive agreement to acquire in the
top 100 U.S. markets, in descending order of size based on the estimated
population of the market:
<TABLE>
<CAPTION>
BANDWIDTH COVERED BY AUTHORIZATIONS (MHZ)
-------------------------------------------
UNDER
DEFINITIVE
AGREEMENT TO
MARKET OWNED MANAGED (1) ACQUIRE TOTAL
- -------------------------------------------------- ----------- --------------- ------------- -----
<S> <C> <C> <C> <C>
300 MHZ OR MORE MARKETS
New York, NY 300 -- -- 300
Washington, D.C. 300 -- -- 300
Cincinnati, OH 100 -- 200 300
Norfolk/Virginia Beach, VA -- -- 300 300
Providence, RI/Fall River, MA 200 -- 200 400
Memphis, TN 100 -- 200 300
Birmingham, AL 100 -- 200 300
Buffalo/Niagara Falls, NY 300 -- 100 400
Richmond/Petersburg, VA 100 -- 200 300
Rochester, NY 300 -- 200 500
Hartford, CT 200 -- 200 400
Albany/Schenectady, NY 300 -- 200 500
Knoxville, TN 100 -- 200 300
New Haven/Waterbury, CT 200 -- 100 300
Syracuse, NY 200 -- 100 300
Harrisburg, PA 200 -- 100 300
Scranton/Wilkes-Barre, PA 300 -- 100 400
Springfield/Holyoke, MA 200 -- 200 400
Jackson, MS 100 -- 200 300
Shreveport, LA 100 -- 200 300
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
BANDWIDTH COVERED BY AUTHORIZATIONS (MHZ)
-------------------------------------------
UNDER
DEFINITIVE
AGREEMENT TO
MARKET OWNED MANAGED (1) ACQUIRE TOTAL
- -------------------------------------------------- ----------- --------------- ------------- -----
<S> <C> <C> <C> <C>
200 MHZ MARKETS
Philadelphia, PA/Trenton, NJ 200 -- -- 200
Boston, MA 200 -- -- 200
Miami/Fort Lauderdale, FL 100 -- 100 200
Cleveland/Akron, OH 100 -- 100 200
St. Louis, MO 100 -- 100 200
Pittsburgh, PA 200 -- -- 200
Baltimore, MD 200 -- -- 200
Portland, OR -- -- 200 200
Charlotte/Gastonia, NC -- -- 200 200
Columbus, OH -- -- 200 200
Nashville, TN 100 -- 100 200
Indianapolis, IN 100 -- 100 200
Louisville, KY 100 -- 100 200
Oklahoma City, OK -- -- 200 200
Dayton/Springfield, OH 100 -- 100 200
Las Vegas, NV -- 100 100 200
Grand Rapids, MI -- 100 100 200
Omaha, NE -- -- 200 200
Honolulu, HI -- 100 100 200
Albuquerque, NM -- 100 100 200
Des Moines, IA 100 -- 100 200
El Paso, TX -- -- 200 200
Worcester, MA 200 -- -- 200
Allentown/Bethlehem, PA 200 -- -- 200
Baton Rouge, LA 100 -- 100 200
100 MHZ MARKETS
Chicago, IL 100 -- -- 100
Los Angeles, CA -- 100(2) -- 100
Detroit, MI -- -- 100 100
Dallas/Fort Worth, TX 100 -- -- 100
Houston, TX 100 -- -- 100
Atlanta, GA 100 -- -- 100
Minneapolis, MN 100 -- -- 100
Seattle/Tacoma, WA -- -- 100 100
Phoenix, AZ -- 100 -- 100
San Diego, CA -- 100 -- 100
Tampa-St. Petersburg, FL -- -- 100 100
Denver, CO -- 100 -- 100
Kansas City, MO 100 -- -- 100
Milwaukee, WI -- -- 100 100
San Antonio, TX 100 -- -- 100
Salt Lake City, UT -- 100 -- 100
Orlando, FL -- -- 100 100
New Orleans, LA 100 -- -- 100
Greensboro/Winston-Salem, NC -- -- 100 100
Raleigh-Durham, NC -- -- 100 100
Austin, TX -- -- 100 100
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
BANDWIDTH COVERED BY AUTHORIZATIONS (MHZ)
-------------------------------------------
UNDER
DEFINITIVE
AGREEMENT TO
MARKET OWNED MANAGED (1) ACQUIRE TOTAL
- -------------------------------------------------- ----------- --------------- ------------- -----
<S> <C> <C> <C> <C>
Little Rock, AR -- -- 100 100
Tulsa, OK -- -- 100 100
Greenville/Spartanburg, SC -- -- 100 100
Toledo, OH -- -- 100 100
Tucson, AZ -- -- 100 100
Spokane, WA -- 100 -- 100
Kingsport, TN/Bristol, VA -- -- 100 100
Fort Wayne, IN -- -- 100 100
Charleston, SC 100 -- -- 100
Mobile, AL 100 -- -- 100
Madison, WI 100 -- -- 100
Wichita, KS 100 -- -- 100
Springfield, MO -- -- 100 100
Sarasota/Bradenton, FL -- -- 100 100
Corpus Christi, TX -- -- 100 100
Chattanooga, TN -- -- 100 100
</TABLE>
- ------------------------------
(1) Includes authorizations (i) held by ART West, (ii) managed by ART under the
Telecom One services agreement pursuant to a revenue-sharing arrangement and
(iii) those authorizations that are leased on a long-term exclusive basis.
Does not include (i) authorizations included in the CommcoCCC Assets which
are managed by the Company on a short-term basis, pending the CommcoCCC
Acquisition or (ii) the DCT Systems. The Company has entered into definitive
agreements to acquire all outstanding interests in the authorizations held
by ART West and Telecom One. See "--Agreements Relating to Licenses and
Authorizations."
(2) Consists of authorizations in the Los Angeles market which the Company has
the right to use on a long-term basis pursuant to the ICG Agreement. See
"--Agreements Relating to Licenses and Authorizations--ICG Agreement."
In addition to the above authorizations, the Company has 71 applications
pending before the FCC for additional authorizations. However, due to the
"freeze" imposed by the FCC and the conflicts with other applicants in same
markets, there can be no assurance that it or any other company will receive
additional authorizations with respect to any pending applications. On December
31, 1996, the FCC announced that it had adopted an order that partially lifted
the "freeze" on the processing of pending applications. Among other actions, the
order permitted applicants to modify pending applications to reduce their
coverage areas. See "Risk Factors -- Government Regulation" and "-- Government
Regulation."
Excluding the CommcoCCC Assets, the Company presently owns, manages or has a
long-term right to use between 100 and 300 MHz of transmission capacity within
each of its markets. Because 38 GHz paths are very narrow and because certain
microwave paths can intersect each other without creating interference, each
market area can accommodate thousands of paths. The Company believes it
generally owns or manages sufficient 38 GHz bandwidth to satisfy the anticipated
service requirements of its target customers in each of the Company's existing
markets and the additional 80 markets to be acquired under the CommcoCCC
Agreement. Consistent with the Company's growth strategy, the Company may seek
to obtain additional spectrum by either leasing excess capacity from other 38
GHz licensees, entering into management agreements or acquiring interests in
other 38 GHz authorizations. See "Risk Factors -- Acquisition of Additional
Bandwidth in Selected Areas."
Under the terms of the CommcoCCC authorizations and the Company's management
agreement with CommcoCCC, the Company must meet the FCC's construction deadline
for 53 licenses between mid-April and mid-August 1997. The Company has met the
construction deadline for 76 authorizations on a timely basis and expects it
will meet its other FCC deadlines. All of the 38 GHz licenses owned or to
55
<PAGE>
be acquired by the Company are due to expire in February 2001. The Company
believes that, in keeping with common FCC practices, the licenses will be
renewed for successive 10-year periods upon expiration.
AGREEMENTS RELATING TO LICENSES AND AUTHORIZATIONS
COMMCOCCC ACQUISITION. On July 3, 1996, the Company entered into an
agreement (as amended, the "CommcoCCC Agreement") to acquire 129 38 GHz wireless
broadband authorizations (the "CommcoCCC Assets") from CommcoCCC, Inc.
("CommcoCCC") in exchange for 6,000,000 shares of Common Stock (the "CommcoCCC
Acquisition"). CommcoCCC was formed in a transaction arranged by Columbia
Capital Corporation to acquire, own and operate the 38 GHz authorizations owned
by Columbia Capital Corporation and its affiliates and those owned by Commco,
L.L.C. The CommcoCCC Acquisition is subject to various conditions including
receipt of FCC and other approvals (including approval under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, if required), receipt by
CommcoCCC of an opinion as to the tax-free nature of the transaction,
consummation of the Offering on terms reasonably satisfactory to CommcoCCC,
minimum population coverage requirements for the authorizations of the Company
and CommcoCCC, accuracy of representations and warranties except for breaches
that do not have in the aggregate a material adverse effect, no pending or
threatened material litigation and other customary closing conditions. There can
be no assurance that all such conditions will be satisfied. In order to satisfy
the minimum population coverage requirements, the Company will be obliged to
complete the acquisitions of certain spectrum rights from ART West and Telecom
One, or, in the event it cannot complete one or more of such acquisitions, to
acquire or lease other spectrum rights. The Company's acquisition agreements
with ART West and Telecom One are also subject to various conditions. See
"--Additional Spectrum Rights Leases." To obtain FCC approval, the Company will
need to demonstrate that the shareholders of CommcoCCC acquired the
authorizations that are to be assigned to the Company with the intent of
providing service to the public and not for the speculative purpose of reselling
such authorizations and may need certain waivers or consents from the FCC. The
FCC may be unwilling to grant its approval or may grant its approval subject to
conditions that may be adverse to the Company. The CommcoCCC Agreement, as
amended, may be terminated by either party if the CommcoCCC Acquisition is not
consummated before October 15, 1997. See "Risk Factors -- Risk of
Non-Consummation of CommcoCCC Acquisition and Other Acquisitions; Commco
Option."
In the CommcoCCC Agreement, the Company and Telecom have each agreed that,
prior to the consummation of the transaction, except in certain circumstances or
with the consent of CommcoCCC, they will not issue equity, incur debt, acquire
spectrum, make investments, consolidate, merge or sell all or substantially all
of its assets. CommcoCCC has entered into a management agreement with the
Company pursuant to which the Company bears the responsibility during the
pendency of the CommcoCCC Acquisition to construct, manage and operate the
CommcoCCC Assets, consistent with FCC rules. Under the management agreement,
CommcoCCC is obligated to reimburse ART for up to $100,000 of operating
expenses, which obligation will be cancelled if the CommcoCCC Acquisition is
consummated. In the event the management agreement is terminated other than as a
result of the consummation of the CommcoCCC Acquisition, CommcoCCC is obligated
to purchase and ART is obligated to sell at the Company's original cost the
equipment purchased by ART necessary to meet the FCC construction requirements
for the CommcoCCC authorizations.
The stockholders of CommcoCCC loaned the Company $3.0 million payable
December 31, 1996 pursuant to a subordinated bridge financing facility (the
"CommcoCCC Financing") and, in connection therewith, received three-year
warrants to purchase 18,182 shares of Common Stock at a price of $24.75 per
share. In connection with an October 1996 amendment to the CommcoCCC Agreement,
the Company modified the terms of such warrants, reduced the exercise price of
such warrants to $17.1875 per share ($15.00 after giving effect to anti-dilution
adjustment) and increased the number of shares issuable upon exercise thereof to
87,273 shares (the "CommcoCCC Warrants"). The CommcoCCC Financing was repaid
with the proceeds of the Common Stock Offering.
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<PAGE>
The Company has given Commco, L.L.C., a stockholder of CommcoCCC, an option
(the "Commco Option") to purchase one authorization in each of 12 specified
market areas in which the Company will have more than one authorization, which
authorizations cover in the aggregate approximately 19 million people. The
Commco Option will be exercisable only if (i) the CommcoCCC Acquisition is
consummated and (ii) Commco, L.L.C. obtains authorizations pursuant to certain
pending applications previously frozen under the NPRM in market areas covering
an aggregate population of at least 40 million people, and will terminate on
August 12, 1997. The purchase price for any authorizations acquired under the
Commco Option is determined by a formula based upon the fair market value at the
time the Commco Option is exercised of up to 945,455 shares of Common Stock
depending upon the number of authorizations purchased. The purchase price is
payable in cash or, if the Commco Option is exercised within the later of 120
days after the closing of the CommcoCCC Acquisition or the date of grant by the
FCC of the authorizations necessary to exercise the Commco Option, with a
two-year note secured by shares of Common Stock having a value on the date of
exercise equal to two times the principal amount of the note. In addition, if
the Commco Option becomes exerciseable, an affiliate of Commco LLC will have the
right to sublease channel capacity from the Company in the New York and
Washington, D.C. markets on terms agreed to by the Company and Commco LLC. On
December 31, 1996, the FCC announced that it had adopted an order that partially
lifted the freeze on the processing of pending applications. Among other
actions, the order provides that the Commission will process certain amendments
filed before December 15, 1995 that have the effect of eliminating mutual
exclusivity among pending applications. The Company believes that the FCC order
could result in the grant to Commco L.L.C. of sufficient authorizations to
enable it to satisfy the population coverage condition of the Commco Option. See
"Risk Factors -- Risk of Non-Consummation of CommcoCCC Acquisition and Other
Acquisitions; Commco Option."
As part of the CommcoCCC Acquisition, Columbia Capital Corporation and its
affiliates agreed not to compete with the Company in the provision of wireless
broadband telecommunication services in the 38 GHz band of the radio spectrum
for a five-year period commencing upon the closing of the CommcoCCC Acquisition
and have granted the Company a right of first offer to acquire any 38 GHz
authorizations that Columbia Capital Corporation or its affiliates may acquire
in the future with respect to their pending applications.
Promptly upon closing of the CommcoCCC Acquisition, the Company has agreed
to nominate one individual designated by CommcoCCC's stockholders and acceptable
to the Company as a director of the Company. CommcoCCC has designated James B.
Murray, Jr. as a director of the Company effective upon the consummation of the
CommcoCCC Acquisition.
In late 1994 and 1995, Columbia Capital Corporation and certain of its
affiliates ("Columbia") entered into several letter agreements (the "Letter
Agreements") with Video/Phone Systems, Inc. ("Video/Phone"). In consideration
for services to be rendered under the Letter Agreements, Columbia granted or
agreed to grant to Video/Phone options to purchase minority equity interests in
entities formed or to be formed to apply for 38 GHz licenses. Columbia agreed
not to assign these licenses to any person controlling, controlled by or under
common control with Columbia unless such transferee granted to Video/Phone an
equivalent option. The CommcoCCC Assets include 67 authorizations transferred by
Columbia to CommcoCCC, subject to FCC approval. Columbia and Video/Phone are in
a dispute with respect to the performance and obligations of the parties under
the Letter Agreements. Columbia has agreed to indemnify and hold harmless the
Company with respect to any loss or damage resulting from the Letter Agreements.
In connection with the CommcoCCC Acquisition, Montgomery Securities has been
retained by the Company as its financial adviser for which it will receive fees
of up to approximately $2.7 million (of which $600,000 was paid in December
1996) and the reimbursement of reasonable out-of-pocket expenses incurred in
connection therewith.
EMI ACQUISITION. On April 4, 1995, ART entered into an agreement with EMI
Communications Corporation ("EMI") to acquire EMI's thirty two 38 GHz wireless
broadband licenses and related assets
57
<PAGE>
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"). The EMI Assets were acquired
by the Company in November 1995. ART has also agreed to provide wireless
broadband services to EMI for a period of five years from the date of the
agreement and to certain of EMI's customers on behalf of EMI for the terms
provided in such EMI service agreements, and EMI agreed to provide certain
services to the Company for an initial period of one year from the date of the
agreement. See "Description of Certain Indebtedness -- EMI Note."
ART WEST JOINT VENTURE. On April 4, 1995, ART and Extended Communications,
Inc. ("Extended") entered into a joint venture agreement (the "ART West
Agreement") resulting in the formation of ART West Joint Venture ("ART West"), a
Delaware partnership equally owned by ART and Extended. Under the terms of the
ART West Agreement, ART and Extended transferred to ART West all of their
respective interests in all of their 38 GHz authorizations (currently, 12
authorizations) in Alaska, Arizona, California, Colorado, Hawaii, Idaho,
Montana, Nevada, New Mexico, Oregon, Utah, Washington and Wyoming (the "ART West
Markets"). Under a separate management agreement between ART and ART West, ART
is obligated to bear all costs and expenses relating to construction, operation
and management of the ART West Markets and has agreed to utilize the ART West
authorizations before other authorizations owned or managed by ART in the ART
West Markets. As compensation, ART receives 90% of the recurring revenues of ART
West, with ART West receiving the remaining 10%. To date, Extended has had no
significant responsibilities with respect to ART West, and is not expected to
invest in or contribute any services to ART West pending the proposed
acquisition of Extended's interest described below. See "Certain Transactions --
ART West Joint Venture."
In June 1996, the Company entered into an agreement (the "Extended
Agreement") to acquire Extended's interest in ART West for an aggregate of $6.0
million in cash, subject to adjustment and subject to closing conditions
including final FCC approval. Of the $6.0 million purchase price, $3.0 million
was paid in November 1996 as a non-refundable deposit (the "ART West Deposit")
and the balance is payable upon consummation of the acquisition. Upon payment by
ART of the ART West Deposit, Extended surrendered its rights under the ART West
Agreement (i) to participate in the acquisition of additional licenses or
authorizations in certain of the ART West Markets through ART West and (ii) to
prohibit the acquisition by ART of additional licenses or authorizations in
certain other ART West Markets.
DCT SYSTEMS SERVICES AND PURCHASE AGREEMENTS. On June 28, 1996 the Company
entered into a definitive agreement (the "DCT Agreement") with DCT to acquire
DCT's interest in sixteen 38 GHz licenses (the "DCT Systems") covering a
population of approximately 15 million in exchange for $3.6 million in cash,
subject to FCC approval, consummation of the DCT Agreement by August 28, 1997
and other customary closing conditions including accuracy of representations and
warranties, absence of litigation and receipt of opinion of counsel. ART has
entered into a services agreement with DCT pursuant to which ART bears the
responsibility for the construction, operation and management of the DCT
Systems. The agreement expires on December 31, 1998 and may be terminated
earlier by DCT if the DCT Agreement terminates. DCT has alleged that the Company
has failed to satisfy a provision of the DCT Agreement which provides that if
the Company failed to obtain debt or equity proceeds by August 31, 1996 in an
amount at least equal to $3.6 million, the DCT Agreement would terminate and DCT
could retain a $100,000 deposit paid by the Company against the purchase price.
There can be no assurance as to the outcome of such dispute and, therefore, no
assurance that the Company will be in a position to consummate the acquisition
of the DCT Systems, even if the Company wishes to do so. Although the Company
believes that it has satisfied such provision of the DCT Agreement and is
legally entitled to proceed to consummate the transactions contemplated thereby,
the Company does not currently plan to purchase the DCT Systems as contemplated
by the DCT Agreement. Accordingly, the DCT Systems are not included among the
licenses managed by the Company as disclosed in this Prospectus, and the Company
does not currently intend to use the proceeds of the Offering to consummate the
purchase thereof and would use the unpaid purchase price for general corporate
purposes. See "Use of Proceeds."
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<PAGE>
Under the terms of the services agreement, ART is obligated to bear all
costs and expenses relating to construction, operation and management of the DCT
Systems. As compensation, ART is entitled to receive all of the revenues
generated by the DCT Systems until December 31, 1996. From January 1, 1997 until
the later of January 1, 1998 and the termination of the DCT Agreement, a license
fee equal to 15% of the gross revenue generated by the DCT Systems will be paid
to DCT, and thereafter a license fee based on the number and types of circuits
operated by ART over the DCT Systems will be paid to DCT. After December 31,
1997, DCT has the right to market to third parties utilizing the DCT Systems.
The services agreement terminates with respect to each DCT 38 GHz license upon
the acquisition by ART of such license. The Company has completed construction
of all of the DCT authorizations.
TELECOM ONE SERVICES AGREEMENT. On April 24, 1996, the Company and TeleCom
One, Inc. ("TeleCom One") entered into a services agreement (the "TeleCom One
Services Agreement") pursuant to which the Company constructed, and has agreed
to operate and manage, all 38 GHz wireless broadband licenses and related
telecommunications systems owned by TeleCom One that are granted by the FCC. At
present TeleCom One has been granted two authorizations. The Company has
completed construction of the two authorizations. Under the TeleCom One Services
Agreement, the Company is obligated to pay all costs and expenses related to
construction, operation and management of the systems. As compensation, the
Company receives 90% of the net revenues generated by the systems and TeleCom
One receives the remaining 10% for ten years. On June 27, 1996, the Company and
TeleCom One entered into an agreement pursuant to which the Company will
acquire, subject to FCC approval, from TeleCom One the two currently granted
authorizations that are the subject of the TeleCom One Services Agreement for
approximately $111,000 in cash. In addition, the Company will have a right of
first refusal on all future grants of 38 GHz authorizations to TeleCom One or
its current stockholders.
ICG AGREEMENT. In October 1996, ART entered into a services agreement with
ICG Telecom Group, Inc. and Pacific & Eastern Digital Transmission Services,
Inc., pursuant to which the Company will have an exclusive right, as against
third parties, to use for a five-year term ten 38 GHz wireless broadband
authorizations covering an aggregate population of approximately 13 million in
or around the California cities of Beverly Hills, Los Angeles, Palm Springs,
Riverside, Santa Barbara, San Bernardino, Santa Monica, San Diego, Santa Anna
and Ventura. In addition, the services agreement grants to the Company a right
of first refusal with respect to the purchase of such authorizations, subject to
limited exceptions. The services agreement may be renewed for successive terms
totalling five additional years upon expiration of its initial term.
MICROWAVE PARTNERS AGREEMENT. In November 1996, ART entered into a services
agreement with Microwave Partners, pursuant to which the Company will have an
exclusive right, as against third parties, to use for a five-year term two 38
GHz wireless broadband authorizations covering an aggregate population of
approximately 755,000 in or around Palm Springs, California and Bellingham,
Washington. In addition, the services agreement grants to the Company a right of
first refusal with respect to the purchase of such authorizations, subject to
limited exceptions. The services agreement may be renewed for an additional term
of two years upon expiration of its initial term.
STRATEGIC ALLIANCES
AMERITECH STRATEGIC DISTRIBUTION AGREEMENT. On April 29, 1996, the Company
and Ameritech entered into a three-year strategic distribution agreement (the
"Ameritech Strategic Distribution Agreement") pursuant to which the Company
provides 38 GHz services to Ameritech, who will in turn market the Company's
services under the Ameritech name. Ameritech has agreed to be the primary
provider of the Company's services in the midwest. Ameritech has initiated on a
limited basis the sale of its "Ameritech Wireless Broadband Service," which will
be a local access component of Ameritech's GlobalDesk Managed Access Service,
allowing seamless high-speed connectivity for LAN interconnection, desktop
videoconferencing and Internet access. The Company expects that full scale
rollout of these wireless broadband services will begin in the first quarter of
1997. Under the Ameritech Strategic Distribution Agreement, Ameritech is
targeting certain sales objectives and will spend internally up to $7.0 million
on its sales and marketing of the Company's services. The Company believes that
Ameritech's sales and
59
<PAGE>
marketing expertise and its access to extensive distribution channels within its
region will accelerate the rollout of the Company's business plan. The Ameritech
Strategic Distribution Agreement is subject to termination at any time by either
party on 90 days' notice. See "Risk Factors -- Dependence on Third Parties for
Marketing and Service."
GTE SERVICES AGREEMENT. On April 25, 1996, the Company entered into a
two-year agreement with GTE Government Systems Corporation, a subsidiary of GTE
Corporation ("GTE"). GTE will provide equipment staging and outfitting, site
preparation, equipment installation and maintenance for the Company's wireless
broadband services. Under the agreement, it is anticipated that GTE will perform
at least 75% of the Company's installations. The Company will pay a fee equal to
$1,550 for the installation of each link and a maintenance fee equal to $85 per
hour. The aggregate amount of the fee will depend on the Company's rate of
growth. The Company believes that GTE's nationwide presence and experience will
provide the Company with efficient, quality installation and maintenance for its
nationwide services. See "Risk Factors -- Dependence on Third Parties for
Marketing and Service."
GTE SOFTWARE LICENSE AGREEMENT. On March 29, 1996, the Company entered into
a software license agreement with GTE's Network Management Organization. Under
this agreement, the Company purchased software and developed its network
management and provisioning functions to produce a reliable network management
system and increase system performance. GTE's "Integrated Network Management
Products" enable the Company to quickly identify service interruptions and to
simultaneously alert the field service teams, who are able to restore services
in a timely manner. The Company will pay a license fee of approximately $1.9
million and an annual maintenance support fee of approximately $145,000. The
license fee will be paid in monthly installments commencing January 1, 1997 of
$67,000 per month, including interest. After the first year, fees are subject to
renegotiation based on market prices and conditions. See "Risk Factors --
Dependence on Third Parties for Marketing and Service."
HARRIS AGREEMENTS. On April 26, 1996, the Company and Harris Corporation,
Farinon Division ("Harris") entered into a one-year PCS marketing agreement (the
"Harris Marketing Agreement") pursuant to which the Company granted to Harris
the right to use its 38 GHz authorizations, including associated coordination
services, installation and network monitoring and field services. Pursuant to
the Harris Marketing Agreement, Harris agreed to market the Company's services
in the emerging PCS market. The Harris Marketing Agreement is automatically
renewable for successive one-year terms unless either party delivers notice of
non-renewal at least 60 days prior to the end of the initial term or any
successive term. The agreement is also subject to termination at any time by
either party on 90 days' notice.
Concurrently with the Harris Marketing Agreement, the parties entered into a
one-year purchase agreement (the "Harris Purchase Agreement") pursuant to which
the Company agreed to purchase certain microwave transmission equipment,
software and services relating thereto (the "Harris Products"). The agreement
sets minimum purchase goals for the purchase by the Company of Harris Products.
If either the Harris Purchase Agreement or the Harris Marketing Agreement shall
terminate, the other shall also terminate.
TECHNOLOGY DEVELOPMENT AGREEMENTS. The Company has had discussions with
several microwave equipment or technology development companies for development
of technologies owned by such companies, for advanced 38 GHz radios highspeed
converters and other technologies. The Company will continue to monitor new
developments in technology and may elect to fund research and development
activity in such new technology.
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<PAGE>
The Company has entered into a letter of intent with Helioss Communications
Corporation ("Helioss") for the development of advanced 38 GHz radios. Under the
letter of intent, which is subject to definitive documentation, the Company will
fund up to $1.0 million of Helioss' research and development expenses. The
Company will have a right of first refusal on production capacity of the radios
for three years from delivery of the first radios produced, and will receive a
royalty on the sale of a certain number of radios to customers other than the
Company; however, the Company will have no other rights to any technology
developed.
Through September 30, 1996, the Company has incurred approximately $650,000
of research and development expenses, including amounts incurred with American
Wireless (as defined) and Helioss. See "Certain Transactions -- American
Wireless Development Agreement." There can be no assurance that the Company can
complete a definitive agreement with Helioss or that Helioss can develop
technologies with commercial value for the Company. Although the Company does
not have any other material commitments to fund research and development or to
make investments in other companies, the Company expects to incur additional
research and development expenses or to make other such investments from time to
time.
MASTER SERVICE AGREEMENTS. The Company's master service agreements contain
the terms by which customers will place future orders. The terms which are
outlined in these agreements include volume discounts, approximate geographic
location of links needed and representative pricing. Although a master service
agreement is not a take or pay commitment, it lays the groundwork for future
orders by a preferred customer and is utilized to facilitate the issuance of
purchase orders by a customer without any additional negotiations between the
companies.
ART has entered into master service agreements with a number of CAPs/CLECs
and ISPs, including NEXTLINK Communications LLC, DIGEX, Incorporated, CAIS,
Inc., Microwave Partners d/b/a Astrolink Communications, Inc., American PCS,
L.P., Message Center Management, Inc. ("MCM"), GST Telecom, Inc., Chadwick
Telephone and Brooks Fiber Properties, Inc.
SITE ACQUISITION AGREEMENTS. In order to reduce the lag time in the
provisioning of services and ensure that the Company can respond rapidly to
customer orders, the Company has initiated a program to obtain access to antenna
sites in advance of receiving a customer order in those situations where it can
be anticipated that there may be difficulty in obtaining such rights through the
customer's contracts and where the sites fit within the Company's marketing and
network development plans. The Company has signed an agreement with MCM which
will give the Company access to 4800 sites nationwide.
TCG INSTALLATION AGREEMENT. Under an Installation Services Agreement dated
October 2, 1996, the Company acted as a sub-contractor to Teleport to provide
transmission facilities construction services. Total gross billings to the
Company under this agreement were approximately $2.6 million. As of December 31,
1996, all such services had been substantially completed.
FOREIGN MARKETS
Entities in which the Company has a substantial interest have applied or
intend to apply for licenses to provide wireless broadband services in Canada
and in various European countries. See "Risk Factors--Potential Rights to
Foreign Licenses."
In October 1996, ART entered into a binding letter of intent with Advantage
Telecom, Inc. ("ATI"), a Canadian company which has applied for licenses to
provide 38 GHz service in the 66 major markets in Canada covering a population
of at least 21 million people. Upon consummation of the transactions described
in the letter of intent, ART will hold a substantial direct and indirect
minority interest in ATI and will be a party to a services agreement with ATI
pursuant to which ART will construct and operate radio systems based upon any
licenses that may be granted to ATI and subject to control by ATI. The Company
incurred approximately $300,000 of expenses, and ATI is responsible for securing
any
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additional funding necessary to construct the radio systems. Due to current
uncertainty in Canada's licencing policy, there can be no assurance that ATI
will be granted these licenses or that, if licenses are granted, ATI will obtain
the funding necessary to construct the radio systems.
On September 29, 1996 the Company entered into a shareholders agreement with
Trond Johannessen, pursuant to which the Company anticipates eventually
obtaining licenses and offering its wireless broadband services through separate
subsidiaries in the 17 countries comprising the European Union. The Company has
caused or will cause to be formed subsidiaries in Sweden, the United Kingdom and
Italy for this purpose. Under the shareholders agreement, in consideration for
services to be rendered, and his proportionate share of the formation costs, Mr.
Johannessen is entitled to receive a 20% interest in the initial shareholdings
in certain of the subsidiaries in each country, prior to significant funding of
each subsidiary. The Company has no further commitment to fund any such
subsidiary. Mr. Johannessen is also a consultant to the Company, for which he
receives monthly payments of $10,000 plus expenses. The Company is seeking but
has not yet received any operating licenses, strategic alliances or customer
commitments in Europe. Although each member nation of the European Economic
Community is required pursuant to a directive of the European Commission to open
its telecommunication markets to competition over the next several years, the
timing and extent of a relaxation in entry barriers and the degree of
cooperation from the incumbent service providers in such areas as
interconnection to customers and the public networks is unknown. There can be no
assurance that the Company, through such subsidiaries, will be able to acquire
the licenses necessary in each European country, to finance and implement its
business plan or to operate in any country on a profitable basis.
COMPETITION
The telecommunications services industry is highly competitive. The Company
has only recently begun to market its wireless broadband services to potential
customers and is currently providing services on a limited basis. In each market
area in which the Company is authorized to provide services, the Company
competes or will compete with several other service providers and technologies.
The Company expects to compete primarily on the basis of wireless broadband
service features, quality, price, reliability, customer service and response to
customer needs. The Company faces significant competition from other 38 GHz
providers and incumbent LECs, such as the RBOCs. The Company may also compete
with CAPs/CLECs, other wireless service providers, cable television operators,
electric utilities, LECs operating outside their current local service areas and
IXCs. There can be no assurance that the Company will be able to compete
effectively in any of its market areas.
COMPETITION FROM 38 GHZ SERVICE PROVIDERS. The Company faces competition
from other 38 GHz service providers, such as WinStar and BizTel (an affiliate of
TCG), within its market areas. In many cases, one or both of these service
providers hold licenses to operate in other portions of the 38 GHz band in
geographic areas which encompass or overlap the Company's market areas. In
certain of the Company's market areas, other 38 GHz service providers may have a
longer history of operations, a larger geographic footprint or substantially
greater financial resources than the Company. WinStar commenced its 38 GHz
operations approximately one year prior to the Company, has raised significant
capital and has the competitive advantages inherent in being the first to market
38 GHz services. In addition to WinStar and BizTel several dozen smaller
entities have been granted 38 GHz authorizations in geographic regions in which
the Company plans to operate. In January 1997, WinStar acquired the 38 GHz
licenses of one such entity, Milliwave L.P. Due to the relative ease and speed
of deployment of 38 GHz technology, the Company could face intense price
competition and competition for customers (including other telecommunications
service providers) from other 38 GHz service providers.
The Company also faces potential competition from new entrants to the 38 GHz
market, including LECs and other leading telecommunications companies. The NPRM
contemplates an auction of certain spectrum assets, including the lower fourteen
proposed 100 MHz channels (which are similar to those used by the Company) and
four proposed 50 MHz channels in the 38 GHz spectrum band, which have
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not been previously available for commercial use. See "Risk Factors --
Government Regulation." On December 31, 1996, the FCC announced it had adopted
an order that partially lifted the freeze on the processing of new applications
which would result in the grant of additional authorizations to other 38 GHz
applicants. The grant of additional authorizations by the FCC in the 38 GHz
band, or other portions of the spectrum with similar characteristics, could
result in increased competition and diminish the value of the Company's existing
38 GHz authorizations. The Company believes that, assuming that additional
channels are made available as proposed by the NPRM, additional entities having
greater resources than the Company could acquire authorizations to provide 38
GHz services.
OTHER WIRELESS COMPETITORS. The Company may also face competition from
other terrestrial wireless services, including 2 GHz and 28 GHz wireless cable
systems (MMDS and LMDS), 18 GHz point-to-point microwave services (DEMS), FCC
Part 15 wireless radio devices, and other services that use existing
point-to-point microwave channels on other frequencies. Motorola Satellite
Systems, Inc. has filed an application with the FCC for a global network of
satellites in the 37.5-40.5 GHz band and the 47.2-50.2 GHz band, which is
proposed to be used for broadband voice and data services. Other companies have
filed applications for global broadband satellite systems in the 28 GHz band. If
developed, these systems could also present significant competition to the
Company.
The FCC is planning to hold an auction for 28 GHz spectrum in all markets
for the provision of high capacity "wireless cable" systems. These auctions are
expected to take place in 1997. The 2 GHz wireless cable spectrum may also
provide competition for metropolitan wireless broadband services. At present,
wireless cable licenses are used primarily (if not exclusively) for the
distribution of video programming, and have only a limited capability to provide
two-way communications needed for wireless broadband telecommunications services
but there can be no assurance that this will continue to be the case.
According to press reports and FCC records Associated Communications Group,
affiliates and joint venture partners (collectively "ACG") hold licenses in the
18 GHz band in 31 markets. Press reports indicate that ACG plans to use fixed
wireless service to provide voice, data, Internet and videoconferencing
services.
The FCC has allocated a number of spectrum blocks for use by wireless
devices that do not require site or network licensing. A number of vendors have
developed such devices that may provide competition to the Company for certain
low data-rate transmission services.
COMPETITION FROM INCUMBENT LECS. The Company also faces significant
competition from incumbent LECs, irrespective of whether they provide 38 GHz
services. Incumbent LECs have long-standing relationships with their customers,
generally own significant PCS or cellular assets, have the potential to
subsidize competitive services with revenues from a variety of businesses and
benefit from favorable federal and state policies and regulations. Regulatory
decisions and recent legislation, such as the Telecommunications Act, have
partially deregulated the telecommunications industry and reduced barriers to
entry into new segments of the industry. In particular, the Telecommunications
Act, among other things, (i) enhances local exchange competition by preempting
laws prohibiting competition in the local exchange market, by requiring LECs to
provide fair and equal standards for interconnection and by requiring incumbent
LECs to provide unbundling of services and (ii) permits an RBOC to compete in
the interLATA long distance service market once certain competitive
characteristics emerge in such RBOC's service area. The Company believes that
this trend towards greater competition will continue to provide opportunities
for broader entrance into the local exchange markets. However, as LECs face
increased competition, regulatory decisions are likely to provide them with
increased pricing flexibility, which in turn may result in increased price
competition. There can be no assurance that such increased price competition
will not have a material adverse effect on the Company's results of operations.
A number of companies are in the process of developing enhancements to
increase the performance of LECs' legacy copper networks. These generally come
under the description of digital subscriber
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line products, such as ADSL (asymmetrical digital subscriber line), HDSL
(high-speed digital subscriber line), and VDSL (video digital subscriber line).
There can be no assurance that the Company will be able to compete effectively
with these enhancements.
OTHER COMPETITORS. The Company may compete with CAPs/CLECs for the
provision of last mile access and additional services in most of its market
areas. However, the Company believes that many CAPs/CLECs have begun to utilize
38 GHz transmission links primarily to augment their own service offerings to
IXCs and end users, and that the Company is well positioned and has begun to
provide such 38 GHz services to CAPs/CLECs. However, there can be no assurance
that CAPs/CLECs will utilize the Company's 38 GHz services or that CAPs/CLECs
will not seek to acquire their own 38 GHz licenses or use the 38 GHz licenses of
other licensees. Furthermore, the ability of CAPs/CLECs to compete in the local
exchange market is limited by lack of parity with LECs in number portability,
dialing parity and reasonable interconnection. The Telecommunications Act
requires the FCC and the states to implement regulations that place CAPs/CLECs
on a more equal competitive footing with LECs. To the extent these changes are
implemented, CAPs/CLECs may be able to compete more effectively with LECs.
However, there can be no assurance that CAPs/CLECs or 38 GHz service providers,
such as the Company, will be able to compete effectively for the provision of
last mile access and other services.
The Company may also face competition from cable television operators
deploying cable modems, which provide high speed data capability over installed
coaxial cable television networks. Although cable modems are not widely
available currently, the Company believes that the cable industry may support
the deployment of cable modems to residential cable customers through methods
such as price subsidies. Notwithstanding the cable industry's interest in rapid
deployment of cable modems, the Company believes that in order to provide
broadband capacity to a significant number of business and government users,
cable operators will be required to spend significant time and capital in order
to upgrade their existing networks to the next generation of hybrid fiber
coaxial network architecture. However, there can be no assurance that cable
television operators will not emerge as a source of competition to the Company.
The Company may also face competition from electric utilities, LECs
operating outside their current local service areas, IXCs and other providers.
These entities provide transmission services using technologies which may enjoy
a greater degree of market acceptance than 38 GHz wireless broadband technology
in the provision of last mile broadband services. In addition, the Company may
face competition from new market entrants using fiber optic and enhanced copper
based networks to provide local service.
Many of the Company's competitors have long-standing relationships with
customers and suppliers, greater name recognition and greater financial,
technical and marketing resources than the Company. As a result, these
competitors may be able to more quickly develop and exploit new or emerging
technologies, adapt to changes in customer requirements, or devote greater
resources to the marketing of their services than the Company. The consolidation
of telecommunications companies and the formation of strategic alliances and
cooperative relationships in the telecommunications and related industry, as
well as the development of new technologies, could give rise to significant new
competitors to the Company. In such case, there can be no assurance as to the
degree to which the Company will be able to compete effectively.
GOVERNMENT REGULATION
The Company's wireless broadband services are subject to regulation by
federal, state and local governmental agencies. The Company believes that it is
in substantial compliance with all material laws, rules and regulations
governing its operations and has obtained, or is in the process of obtaining,
all authorizations, tariffs and approvals necessary and appropriate to conduct
its operations. Nevertheless, changes in existing laws and regulations,
including those relating to the provision of wireless local
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telecommunications services via 38 GHz and/or the future granting of 38 GHz
authorizations, or any failure or significant delay in obtaining necessary
regulatory approvals, could have a material adverse effect on the Company.
FEDERAL REGULATION
At the federal level, the FCC has jurisdiction over the use of the
electromagnetic spectrum (I.E., wireless services) and has exclusive
jurisdiction over all interstate telecommunications services, that is, those
that originate in one state and terminate in another state. State regulatory
commissions have jurisdiction over intrastate communications, that is, those
that originate and terminate in the same state. Municipalities may regulate
limited aspects of the Company's business by, for example, imposing zoning
requirements and requiring installation permits. The Company also is subject to
taxation at the federal and state levels and may be subject to varying taxes and
fees from local jurisdictions.
FCC LICENSING. The Communications Act of 1934 (the "Communications Act")
imposes certain requirements relating to licensing, common carrier obligations,
reporting and treatment of competition. Under current FCC rules, the recipient
of an authorization for 38 GHz microwave facilities is required to construct
facilities to place the station "in operation" within 18 months of the date of
grant of the authorization. Although, under current FCC regulations, the term
"in operation" is not defined beyond the requirement that the station be capable
of providing service, the industry custom is to establish at least one link
between two transceivers in each market area for which it holds a license. In
the event that the recipient fails to comply with the construction deadline, the
license is subject to forfeiture, absent an extension of the deadline. Upon
completion of the CommcoCCC Acquisition, the Company will own or manage a total
of 233 authorizations that will allow it to provide 38 GHz wireless broadband
services in 169 U.S. markets. The Company currently owns or manages 104 licenses
(exclusive of the CommcoCCC Assets) that allow it to provide 38 GHz wireless
broadband services in 84 markets to construct and operate 38 GHz wireless
broadband facilities, 78 of which are owned by the Company, 14 of which are
managed by the Company through the Company's interests in or arrangements with
other companies and 12 of which the Company has the right to use on a long-term
basis. All of the 104 licenses (exclusive of the CommcoCCC Assets) which the
Company owns, manages or has a right to use on a long-term basis have met the
FCC's construction deadline. Under the terms of the CommcoCCC authorizations and
the Company's management agreement with CommcoCCC, the Company has met the
construction deadline for 76 licenses and must meet the construction deadline
for the remaining 53 licenses between mid-April and August 1997. The Company
believes that, in light of current FCC practice, extensions of construction
periods are highly unlikely. In addition, pursuant to rules that became
effective August 1, 1996, if a station does not transmit operational traffic
(not test or maintenance signals) for a consecutive period of twelve months at
any time after construction is complete, or if removal of equipment or
facilities renders the station incapable of providing service, the license is
subject to forfeiture, absent a waiver of the FCC's rules. Although this rule
has not been interpreted by the FCC, it is possible that it could be applied in
such a way that could cause one or more of the Company's licenses to be subject
to forfeiture. See "Risk Factors -- Risk of Forfeiture, Non-Renewal and
Fluctuation in Value of FCC Licenses."
COMMON CARRIER REGULATION. Under the terms of its licenses, the Company is
classified as a common carrier, and as such is required to offer service on a
non-discriminatory basis at just and reasonable rates to anyone reasonably
requesting such service. Although the Communications Act prohibits the Company
from discriminating among its customers, the Communications Act, as currently
interpreted by the FCC, does permit the Company substantial discretion in
classifying its customers and discriminating among such classifications. The
Company generally is obligated to furnish service to its competitors and might
be obligated to allow other 38 GHz providers to install links within one of the
Company's market areas for a non-discriminatory fee. Under the FCC's streamlined
regulation of non-dominant carriers, the Company, as a non-dominant carrier,
must file tariffs with the FCC for certain interstate services on an ongoing
basis. The Company is in the process of filing tariffs with the FCC, to the
extent required,
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with respect to its provision of interstate service. The FCC has recently
initiated a rulemaking proceeding to eliminate the tariff filing requirement
pursuant to new forbearance authority contained in the Telecommunications Act.
The Company, as a non-dominant carrier, is not currently subject to rate
regulation.
The Company manages the systems of ART West, DCT, Telecom One and CommcoCCC
(during the pendency of certain acquisitions) pursuant to management agreements.
See "Business -- Agreements Relating to Licenses and Authorizations." The
Company believes that the provisions of these management agreements comply with
the FCC's policies concerning licensee control of FCC-licensed facilities.
Because the 38 GHz service is a new service, however, there is no FCC precedent
addressing the limits of such management arrangements for these services. No
assurance can be given that the management arrangements or proposed acquisitions
will, if challenged, be found to satisfy the FCC's policies or what
modifications, if any, may need to be made to satisfy those policies. If the FCC
were to void or require modifications of the management arrangements, the
Company's operating results would be adversely affected.
FCC REPORTING. The Company, as an operator of millimeter wave radio
facilities, was subject to the FCC's semiannual reporting requirements with
respect to the deployment of wireless local telecommunications services in its
licensed areas. The Company believes that it fully complied with its reporting
obligation. Since August 1, 1996, the FCC rules have not required semiannual
reporting.
COMPETITION. Over the last several years, the FCC has issued a series of
decisions and Congress has recently enacted legislation making the interstate
access services market more competitive by requiring reasonable and fair
interconnection by LECs. Concomitant with its decision to require such
interconnection, the FCC has provided LECs with a greater degree of pricing
flexibility between services (such as the ability to reduce local access charges
paid by long distance carriers utilizing LECs' local networks) and between
geographic markets (such as cross-subsidizing price cuts across geographic
markets). The Company anticipates that this pricing flexibility will result in
LECs lowering their prices in high density zones. To the extent that LECs choose
to take advantage of increased pricing flexibility to lower their rates, the
ability of the Company and CAP customers of the Company to compete for certain
markets and services and the Company's operating results may be adversely
affected.
THE TELECOMMUNICATIONS ACT. The Telecommunications Act substantially
departs from prior legislation in the telecommunications industry by
establishing local exchange competition as a national policy through the removal
of state regulatory barriers to competition and the preemption of laws
restricting competition in the local exchange market. The Telecommunications
Act, among other things, mandates that LECs (i) permit resale of their services
and facilities on reasonable and nondiscriminatory terms and at wholesale rates,
(ii) allow customers to retain the same telephone number ("number portability")
when they switch carriers, (iii) permit interconnection by competitors to a
LEC's network at any technically feasible point on the same terms as LEC charges
for its own services, (iv) unbundle their network services and facilities by
permitting competitors and others to use some but not all of their facilities at
cost-based and nondiscriminatory rates and (v) ensure that the end user does not
have to dial any more digits to reach local competitors than to reach the LEC to
the extent technically feasible ("dialing parity"). The Telecommunications Act
also allows RBOCs to provide interLATA services once certain competitive
characteristics emerge in their local exchange markets. The provisions of the
Telecommunications Act are designed to ensure that RBOCs take affirmative steps
to level the playing field for their competitors so that CAPs and others can
compete effectively. The FCC, with advice from the United States Department of
Justice, and the states are given jurisdiction to enforce these requirements.
There can be no assurance, however, that the states and the FCC will implement
the Telecommunications Act in a manner favorable to the Company and its
customers.
FCC RULEMAKING. On November 13, 1995, the FCC released an order barring the
acceptance of new applications for 38 GHz authorizations. On December 15, 1995,
the FCC announced the issuance of the NPRM, pursuant to which it proposed to
amend its current rules to provide for, among other
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things, (i) the adoption of an auction procedure for the issuance of
authorizations in the 38 GHz band, including a possible auction of the lower
fourteen proposed 100 MHz channels (which are similar to those used by the
Company) and the lower four proposed 50 MHz channels in the 38 GHz band that
have not been previously available for commercial use and a possible auction of
the unlicensed areas in the upper fourteen 100 MHz channels, (ii) licensing
frequencies using predefined geographic service areas ("Basic Trading Areas"),
(iii) the imposition of substantially stricter construction requirements for
authorizations that are not received pursuant to auctions as a condition to the
retention of such authorizations and (iv) the implementation of certain
technical rules designed to avoid radio frequency interference among licensees.
In addition, the FCC ordered that those applications subject to mutual
exclusivity with other applicants or placed on public notice by the FCC after
September 13, 1995 would be held in abeyance pending the outcome of the NPRM and
might then be dismissed (the "freeze".) On December 31, 1996, the FCC announced
that it had adopted an order that partially lifted the freeze on the processing
of pending applications. Among other actions, the order provides that the
Commission will process certain amendments filed before December 15, 1995 that
have the effect of eliminating mutual exclusivity among pending applications,
which is likely to result in the grant of additional authorizations to 38 GHz
applicants other than the Company. Final rules issued in connection with the
NPRM may require that 38 GHz service providers share the 38 GHz band with
satellite services. Motorola Satellite Systems, Inc. has filed an application
with the FCC for a global network of satellites to be used for broadband voice
and data services. Motorola proposes to use 38 GHz frequencies for transmissions
from space to earth. Satellite transmissions in the 38 GHz frequencies could
adversely effect the Company's existing operations or its future expansions by
creating interference or by inducing the FCC to impose power and other
limitations upon the Company's transmissions. However, the Motorola application
would require changes in the FCC's rules to be granted, and it would likely be a
number of years before any such system could be launched. The extent of the
adverse impact upon the Company's operations if the Motorola application were to
be granted in its current form is unknown, and there can be no assurance that
the Company's operations would not be adversely effected. The NPRM proposes
substantial strengthening of the current rules concerning the steps that a
grantee of a 38 GHz authorization must take to satisfy the FCC's construction
requirements. At present, the holder of a construction permit is only required
to certify that it is operational. Although under current FCC regulations the
term "operational" is not specifically defined, the industry custom is to
install one link, which may be only temporary and may not be producing revenue
for the operator. The NPRM expresses concern that this lenient standard might
allow the warehousing of 38 GHz spectrum. As a consequence, the NPRM proposes
much more stringent construction requirements for authorizations other than
those received pursuant to an auction. There can be no assurance that the final
rules (if any) issued in connection with the NPRM will resemble the rules
proposed in the NPRM. There also can be no assurance that any proposed or final
rules will not have a material adverse effect on the Company. Statutes and
regulations which may become applicable to the Company as it expands could
require the Company to alter methods of operations at costs which could be
substantial or otherwise limit the types of services offered by the Company.
The NPRM also proposes that 38 GHz authorizations be awarded by auction. The
NPRM would specify the geographic areas that could be licensed instead of
continuing to allow the applicants to design the geographic circumferences of
the licenses. The Company has not determined whether to seek additional licenses
in the event of an auction. The Company believes that the FCC is likely to award
38 GHz authorizations by auction, but there can be no assurance that this will
occur. The Company does not believe that awards by auction will adversely effect
the Company and that the auction of additional spectrum could enable the Company
to broaden its geographic reach as desired.
STATE REGULATION
Many of the Company's services, either now or in the future, may be
classified as intrastate and therefore may be subject to state regulation. The
Company is in the process of obtaining state authorizations deemed to be
sufficient to conduct most, if not all, of its proposed business in the
near-term, but there can be no assurance that some portion of the Company's
proposed transmissions might not be
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considered to be subject to state jurisdiction in a state in which the Company
does not have appropriate authority. The Company expects that as its business
and product lines expand and the requirements of the Telecommunications Act
favoring competition in the provision of local communications services are
implemented, it will offer an increased number and type of intrastate services.
The Company is implementing a program to expand the scope of its intrastate
certifications in various state jurisdictions as its product line expands and as
the Telecommunications Act is implemented.
Under current state regulatory schemes, entities can compete with LECs in
the provision of (i) local access services, (ii) dedicated access services,
(iii) private network services, including WAN services, for businesses and other
entities and (iv) long distance toll services. The remaining local
telecommunications services, including switched local exchange services
encompassing calls originating and terminating within a single LATA, are not
currently subject to competition in most states. The Telecommunication Act
requires each of these states to remove these barriers to competition. No
assurance can be given as to how quickly and how effectively each state will act
to implement the new legislation.
INTELLECTUAL PROPERTY RIGHTS
The Company has one registered service mark, ART, and has filed for
protection for three other service marks: DigiWave (the Company's wireless
broadband trademark), OZ Box (the Company's proprietary network management
interface) and Advanced Radio Telecom. These first filings are block mark
applications, which if allowed by the Patent and Trademark Office, would protect
future variations. The Company will seek the maximum protection for its future
service marks. There can be no assurance that the service marks applied for will
be granted nor that the Company's future efforts will be successful. Although
the Company is developing various proprietary processes, software products and
databases and intends to protect its rights vigorously and to continue to
develop such proprietary systems and databases, there can be no assurance that
these measures will be successful in establishing its proprietary rights in such
assets.
EMPLOYEES
As of December 31, 1996, the Company had a total of 118 employees, including
39 in engineering and field services, 44 in sales and marketing, 20 in
administration and finance and 15 in operations. None of the Company's employees
is represented by a collective bargaining agreement. The Company has never
experienced a work stoppage and believes that its employee relations are good.
PROPERTIES
The Company leases approximately 22,000 square feet of office, technical
operations and engineering field services depot space in Bellevue, Washington.
The Company's corporate headquarters, network operations center and western
regional sales office occupy approximately 15,000 square feet under a sublease
expiring in January 2000. The Company's engineering department leases
approximately 5,000 square feet and 2,000 square feet for technical operations
and an engineering field services depot, respectively, pursuant to leases
expiring in May 1997 and February 1997, respectively. In addition the Company
leases 1,100 square feet of office space in Portland, Oregon for sales and
marketing personnel pursuant to a lease expiring in March 1998. The Company also
leases temporary office space in Washington, D.C. under a sub-lease from Pierson
& Burnett, L.L.P. See "Certain Transactions -- Pierson & Burnett Transactions."
LITIGATION
The Company is not a party to any litigation.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers, directors and director designate 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)............ 48 Chairman of the Board of Directors and Chief Executive
Officer
Steven D. Comrie............................ 41 President, Chief Operating Officer and Director
Thomas A. Grina............................. 39 Executive Vice President and Chief Financial Officer
W. Theodore Pierson, Jr..................... 59 Executive Vice President and Secretary
James D. Miller............................. 54 Senior Vice President, Sales and Marketing
Richard A. Shields, Jr...................... 40 Senior Vice President, Technical Operations
James C. Cook (1)(3)........................ 36 Director
Mark C. Demetree (1)(2)..................... 39 Director
Andrew I. Fillat (2)(3)..................... 48 Director
Alan Z. Senter.............................. 55 Director
James B. Murray, Jr. (4).................... 50 Director Designate
</TABLE>
- ------------------------------
(1) Member of Option Committee.
(2) Member of Compensation Committee.
(3) Member of Audit Committee.
(4) Designated by CommcoCCC for election upon consummation of the CommcoCCC
Acquisition.
VERNON L. FOTHERINGHAM has served as Chairman of the Board of Directors,
Chief Executive Officer of the Company and Telecom since inception. From 1993 to
1995, Mr. Fotheringham served as president and chief executive officer of Norcom
Networks Corporation, a nationwide provider of mobile satellite services. In
1992, Mr. Fotheringham co-founded Digital Satellite Broadcasting Corporation
("DSBC"), a development stage company planning to provide satellite radio
services nationwide, served as its chairman from 1992 to 1993 and currently
serves as one of its directors. From 1988 to 1994, Mr. Fotheringham served as
senior vice president of The Walter Group, Inc. ("TWG"), a wireless
telecommunications consulting and project management firm. From 1983 to 1986,
Mr. Fotheringham served as vice president of marketing of Omninet Corporation,
which was the original developer of the current Qualcomm Omni TRACS network.
Over the last ten years, Mr. Fotheringham has advised several businesses in the
telecommunications industry, including American Mobile Satellite Corporation,
ClairCom Communications ("ClairCom") and McCaw Cellular Communications, Inc.
STEVEN D. COMRIE has served as President, Chief Operating Officer and a
director of the Company since July 1995. From 1992 to 1995, Mr. Comrie served as
vice president and general manager of Cypress Broadcasting Inc., a
California-based television subsidiary of Ackerley Communications Inc., a
diversified media company based in Seattle, Washington. From 1990 to 1992, Mr.
Comrie served as president of First Communication Media Inc. and as an investor,
advisor and manager of satellite, broadcast and telecommunications businesses in
the United States and Canada. In 1986, Mr. Comrie co-founded Netlink, the first
commercial direct broadcast satellite service operating in the U.S. which was
subsequently acquired by Tele-Communications Inc. ("TCI"). Previously, Mr.
Comrie served in a variety of management positions with cable and media
companies.
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THOMAS A. GRINA has served as Executive Vice President and Chief Financial
Officer of the Company since April 1996. From June 1989 to April 1996, Mr. Grina
was Executive Vice President, Finance and Chief Financial Officer of DialPage,
Inc. and Executive Vice President of its wholly-owned subsidiary, Dial Call
Communications, Inc., a wireless communications company operating in the
southeastern U.S.
W. THEODORE PIERSON, JR. has served as Executive Vice President of the
Company and Telecom since inception. He served as a director of the Company from
its inception until July 1996 and as General Counsel of the Company from its
inception until December 31, 1996. For more than three years, Mr. Pierson has
been a partner of the firm of Pierson & Burnett, L.L.P. (and its predecessor
firms) in Washington, D.C., which specializes in telecommunications law. Prior
to becoming a partner at Pierson & Burnett, L.L.P., Mr. Pierson was a partner of
the law firm Reed, Smith Shaw & McClay. In his 32 years of practicing law, Mr.
Pierson has advised a number of start-up telecommunications companies, including
Home Box Office, Satellite Business Systems, Omninet Corporation and DSBC. Mr.
Pierson currently serves as a director of DSBC. Mr. Pierson was also counsel to
the Competitive Telecommunications Association (the largest association of long
distance carriers) from 1984 to 1988 and the Association for Local
Telecommunications Services from 1993 to 1995.
JAMES D. MILLER has served as Senior Vice President, Sales and Marketing of
the Company since December 1995. From 1993 to 1995, Mr. Miller was vice
president and general manager of U.S. Intelco Wireless. Mr. Miller served as
executive vice president of Atlas Telecom from 1987 to 1993 and as national
sales manager of Sidereal Corporation from 1977 to 1987.
RICHARD A. SHIELDS, JR. has served as Senior Vice President, Technical
Operations of the Company since December 1996 and served as Vice President,
Technology Development of the Company from March 1996 to December 1996. From
1992 through 1996, Mr. Shields was vice president, engineering and design for
Claircom. From 1991 to 1992, Mr. Shields served as director of product
development of TWG.
JAMES C. COOK has served as a director of the Company since November 1996.
Mr. Cook is currently senior vice president of First Union Capital Partners,
Inc. ("FUCPI"), the private equity investment affiliate of First Union
Corporation, where he has been employed since 1989. Prior to joining FUCPI, Mr.
Cook served in various capacities at The Bank of New York from 1982 to 1987 and
at Kidder, Peabody & Co. Inc. in 1988.
MARK C. DEMETREE has served as a director of the Company since May 1995.
Since 1993, Mr. Demetree has been president of North American Salt Company, the
second largest salt producer in North America. From 1991 through 1993, Mr.
Demetree served as president of Trona Railway Company, a shortline railroad
division of North American Chemical Company. Mr. Demetree currently is a
director of J.C. Nichols Company, a real estate company, and serves on the Board
of Governors of the Canadian Chamber of Maritime Commerce for the Great
Lakes/St. Lawrence Seaway and is the current chairman of the CEO Council of the
Salt Institute.
ANDREW I. FILLAT has served as a director of the Company since November
1995. Mr. Fillat has been employed since 1989 by Advent International
Corporation ("Advent"), a global venture capital and private equity management
firm and currently serves as senior vice president. Prior to 1989, Mr. Fillat
was a partner at Fletcher and Company, a consulting firm specializing in
assisting venture-backed enterprises, and was an operating executive with
Fidelity Investments. Mr. Fillat is also a director of: Interlink Computer
Sciences, a systems management and communications software company; Lightbridge,
Inc., a company providing customer acquisition and marketing related services
for cellular and PCS carriers; Voxware, Inc., a software company providing
advanced voice compression and processing; and several private companies in the
Advent portfolio.
ALAN Z. SENTER has served as a director of the Company since December 1996.
From 1994 to May 1996, Mr. Senter served as executive vice president and chief
financial officer of NYNEX Corporation. From 1993 to 1994, Mr. Senter served as
chairman of Senter Associates, a financial advisory firm. From 1992 to 1993, Mr.
Senter was executive vice president, chief financial officer and a director of
GAF/ISP
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Corporation. From 1968 to 1992, Mr. Senter served in various capacities at Xerox
Corporation, including serving as vice president of finance from 1990 to 1992.
Mr. Senter currently serves as a director of XL Insurance Company and formerly
served as a director of NYNEX Cablecom (U.K.), Bell Atlantic NYNEX Mobile, NYNEX
Credit Co., International Specialty Products, Inc., GAF Corp., Rank Xerox Ltd.,
and Xerox Financial Services. Mr Senter has also served as a member of the
Advisory Committee of the University of Chicago Graduate School of Business.
JAMES B. MURRAY, JR. will become a director of the Company upon consummation
of the CommcoCCC Acquisition. Since its inception in March 1989, Mr. Murray has
been a Managing Director of Columbia Capital Corporation and since January 1995,
has been a director of The Columbia Group Incorporated. From January 1990 to
January 1993, Mr. Murray was also the President of Randolph Cellular Corp., a
cellular communications company. Mr. Murray is a member of the Board of
Directors of Saville Systems, a publicly-traded entity providing billing
solutions for service providers in the telecommunications industry as well as
several privately-held telecommunications companies, including GO Communications
Corporation, Merrick Tower Corporation, Contact New Mexico, Inc. and Columbia
Spectrum Management, Inc.
BOARD COMPOSITION
All directors hold office until their successors have been elected and
qualified. The Company's Board of Directors is divided into three classes, with
each class of directors to serve three-year staggered terms (after their initial
terms). Messrs. Comrie and Senter serve as Class I directors for an initial one-
year term expiring in 1997. Messrs. Cook and Fotheringham serve as Class II
directors for an initial two-year term expiring in 1998. Messrs. Mark C.
Demetree and Fillat serve as Class III directors for an initial three-year term
expiring in 1999.
Promptly after closing of the CommcoCCC Acquisition, the Company has agreed
to nominate Mr. Murray, who was designated by the CommcoCCC stockholders, as a
Class III director of the Company.
PROMOTERS OF TELECOM AND THE COMPANY
Landover Holdings Corporation ("LHC") and Laurence S. Zimmerman could be
deemed promoters of Telecom and the Company. See "Certain Transactions --
Organization of Telecom," "-- LHC Purchase Agreement" and "-- LHC Agreements."
Mr. Zimmerman served as a director of the Company from June to November 1996,
and as a director of Telecom from May 1995 to November 1996. Since 1985, Mr.
Zimmerman has been President, founder and beneficial owner of LHC. LHC is a
private investment firm with interests in wireless cable, wireless telephone,
cellular, managed healthcare and specialty retail companies as well as other
investments in the United States and abroad. From 1989 to 1990, Mr. Zimmerman
was a managing director of Renaissance Capital Group Inc., a leveraged buyout
firm which concentrated on emerging market and middle market telecommunications
and healthcare opportunities. In 1993, Mr. Zimmerman was a founder of, and
provided the seed capital for, National Wireless Holdings Inc., a wireless cable
company serving markets in Southern Florida. On February 1, 1995, Mr. Zimmerman
consented to the entry of an order of the Securities and Exchange Commission,
without admitting or denying the matters referred to therein, barring him from
association with any broker, dealer, municipal securities dealer, investment
company or investment adviser during the period February 1, 1995 to February 1,
1996 and requiring him not to violate certain provisions of the Federal
securities laws. The order relates to alleged violations arising out of alleged
conduct by Mr. Zimmerman in 1986 as a broker for Breuer Capital, in connection
with trading and selling shares of Balchem Corporation. Mr. Zimmerman may attend
meetings of the Board of Directors as an observer, at the invitation of the
Board of Directors. See "Principal Stockholders -- Voting Trust Agreement."
DIRECTOR COMPENSATION
Directors who are not employees of the Company 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
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addition, directors may be reimbursed for certain expenses incurred in
connection with attendance at any meeting of the Board of Directors or
Committees. Other than reimbursement of expenses, directors who are employees of
the Company receive no additional compensation for service as a director.
In May 1996, the Company adopted the Directors Plan (as defined) which
provides for automatic grants of options to purchase an aggregate of 75,000
shares of Common Stock to non-employee directors of the Company. See "-- Stock
Option Plans." As of January 2, 1997, Options to purchase an aggregate of 19,200
shares at exercise prices ranging from $11.25 to $15.00, have been granted to
non-employee directors under the Directors Plan.
BOARD COMMITTEES
The Company's bylaws, as amended (the "Bylaws"), provide that the Board of
Directors may establish committees to exercise certain powers delegated by the
Board of Directors. Pursuant to that authority, the Board of Directors has
established an Option Committee, Compensation Committee, Finance Committee and
Audit Committee.
The Option Committee reviews, interprets and administers the Equity
Incentive Plan (as defined), prescribes rules and regulations relating thereto
and determines the stock options to be granted by the Company to its employees.
Messrs. Cook, Demetree and Fillat 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
directs the Company to pay officers, directors and affiliates of the Company for
services rendered outside the scope of their respective obligations to the
Company, in accordance with industry standards for such services, which may
include introducing major transactions or providing legal services to the
Company. Messrs. Demetree, Fillat and Fotheringham currently serve on the
Compensation 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.
Cook and Fillat 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.
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EXECUTIVE COMPENSATION
The following table sets forth all compensation received by (i) the
Company's Chief Executive Officer and (ii) the four highest-paid executive
officers of the Company other than the Company's Chief Executive Officer
(collectively, the "Named Executive Officers"), for services rendered to the
Company in all capacities during the fiscal year ended December 31, 1996.
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 $ 250,000 -- -- $ 9,600(1)
Steven D. Comrie, President and Chief Operating
Officer 197,500 -- -- 9,600(1)
W. Theodore Pierson, Jr., Executive Vice President 186,107(2) -- -- --
Thomas A. Grina, Executive Vice President and Chief
Financial Officer 122,190(3) -- 181,818 29,800(1)(4)
James D. Miller, Senior Vice President, Sales and
Marketing 135,000 -- 36,364 6,200(1)
</TABLE>
- ------------------------------
(1) Automobile reimbursement benefits equal to $9,600 for each of Messrs.
Fotheringham and Comrie, $4,800 for Mr. Grina and $6,200 for Mr. Miller.
(2) The Company paid Pierson & Burnett, L.L.P., of which Mr. Pierson is a
partner, approximately $520,000 for services rendered to the Company in
1996.
(3) Reflects compensation for a partial year. See "-- Employment and Consulting
Agreements."
(4) The Company reimbursed approximately $25,000 of moving expenses.
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OPTION GRANTS. The following table sets forth certain information regarding
stock option grants made to the Named Executive Officers during the fiscal year
ended December 31, 1996.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS (2)
------------------------------------------------------ POTENTIAL REALIZABLE VALUE
NUMBER OF PERCENT OF AT ASSUMED ANNUAL RATES OF
SECURITIES TOTAL OPTIONS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM (1)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION --------------------------
NAME GRANTED FISCAL YEAR SHARE DATE 5% 10%
- ----------------------------- ------------ --------------- ----------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Thomas A. Grina 109,091 25.1% $ 17.1875 4/25/04 $ 432,927 $ 1,341,934
72,727 16.7% 17.1875 10/11/01 325,270 992,323
James D. Miller 36,364 8.4% 17.1875 10/11/01 162,635 496,161
</TABLE>
- ------------------------------
(1) The potential realizable value is calculated based on the term of the
option at its time of grant. 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 exercise prices
for the options granted expiring through April 25, 2004 were determined by
the Option Committee, which considered the fair market value of the
Company's securities at the time of grant based upon analysis of recent
private placements of securities. Subsequently, the Company engaged an
independent appraisal firm who conducted a more thorough analysis of the
value of the Company's securities and who considered such placements as
well as comparable market transactions and other relevant factors specific
to the placements (such as underlying security interest and liquidity). The
exercise prices for the options granted expiring October 11, 2004, were
determined by the Option Committee, which considered the expected price of
the Common Stock in the Common Stock Offering. In all cases, the exercise
price was equal to, or in excess of, the estimated fair value of the
Company's Common Stock at the date of grant, and in the case of the options
expiring through April 25, 2004, as determined by the independent appraisal
firm.
(2) See "-- Stock Option Plans -- Equity Incentive Plan -- Grants."
AGGREGATE STOCK OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION VALUES. The following table sets forth the number and value as of
December 31, 1996 of shares underlying unexercised options held by each of the
Named Executive Officers. As of December 31, 1996, 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 172,525 102,635 $ 1,660,557 $ 987,923
Thomas A. Grina 36,364 145,454 $ -- $ --
James D. Miller 7,273 47,273 $ 48,780 $ 73,167
</TABLE>
- ------------------------------
(1) Based on the last sales price of the Company's Common Stock reported on the
Nasdaq National Market on December 31, 1996 of $11.25 per share, less the
exercise price payable upon exercise of such options.
STOCK OPTION PLANS
EQUITY INCENTIVE PLAN.
The Equity Incentive Plan was adopted by the Company on May 30, 1996 and
amended on October 11, 1996 and approved by the stockholders on June 25, 1996
and October 14, 1996.
The Equity Incentive Plan is designed to advance the Company's interests by
enhancing its ability to attract and retain employees and others in a position
to make significant contributions to the success of the Company through
ownership of shares of Common Stock. The Equity Incentive Plan provides for the
grant of incentive stock options ("ISOs"), non-statutory stock options
("NQSOs"), stock appreciation rights ("SARs"), restricted stock, unrestricted
stock, deferred stock grants, and performance awards, loans to participants in
connection with awards, supplemental grants and combinations of the above. A
total of 1,400,000 shares of common stock are reserved for issuance under the
Equity Incentive
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Plan. The maximum number of shares as to which options or SARs may be granted to
any participant in any one calendar year is 300,000. The shares of Common Stock
issuable under the Equity Incentive Plan are subject to adjustment for stock
dividends and similar events. Awards under the Equity Incentive Plan may also
include provision for payment of dividend equivalents with respect to the shares
subject to the award.
The Equity Incentive Plan is administered by the Option Committee of the
Board of Directors (the "Option Committee"). The Option Committee shall consist
of at least two directors. If the Common Stock is registered under the
Securities Exchange Act of 1934, all members of the Option Committee shall be
"outside directors" as defined. All employees of the Company and any of its
subsidiaries and other persons or entities (including non-employee directors of
the Company and its subsidiaries) who, in the opinion of the Option Committee,
are in a position to make a significant contribution to the success of the
Company or its subsidiaries are eligible to participate in the Equity Incentive
Plan.
STOCK OPTIONS. The exercise price of an ISO granted under the Equity
Incentive Plan may not be less than 100% (110% in the case of 10% shareholders)
of the fair market value of the Common Stock at the time of grant. The exercise
price of a nonstatutory option granted under the Equity Incentive Plan is
determined by the Option Committee. The term of each option may be set by the
Option Committee but cannot exceed ten years from grant (five years from grant
in the case of an incentive stock option granted to a 10% shareholder), and each
option will be exercisable at such time or times as the Option Committee
specifies. The option price may be paid in cash or check acceptable to the
Company or, if permitted by the Option Committee and subject to certain
additional limitations, by tendering shares of Common Stock, by using a
promissory note, by delivering to the Company an unconditional and irrevocable
undertaking by a broker promptly to deliver sufficient funds to pay the exercise
price, or a combination of the foregoing.
STOCK APPRECIATION RIGHTS. SARs may be granted either alone or in tandem
with stock option grants. Each SAR entitles the participant, in general, to
receive upon exercise the excess of a share's fair market value in cash or
common stock at the date of exercise over the share's fair market value on the
date the SAR was granted. The Option Committee may also grant SARs which provide
that following a change in control of the Company as determined by the Option
Committee, the holder of such right will be entitled to receive an amount
measured by specified values or averages of values prior to the change in
control. If an SAR is granted in tandem with an option, the SAR will be
exercisable only to the extent the option is exercisable. To the extent the
option is exercised, the accompanying SAR will cease to be exercisable, and vice
versa. An SAR granted in tandem with an ISO may be exercised only when the
market price of common stock subject to the option exceeds the exercise price of
such option. SARs not granted in tandem shall be exercisable at such time, and
on such conditions, as the Option Committee may specify.
STOCK AWARDS. The Equity Incentive Plan provides for awards of
nontransferable shares of restricted Common Stock subject to forfeiture as well
as of unrestricted shares of Common Stock. Awards may provide for acquisition of
restricted and unrestricted Common Stock for a purchase price specified by the
Option Committee, but in no event less than par value. Restricted Common Stock
is subject to repurchase by the Company at the original purchase price or to
forfeiture if no cash was paid by the participant if the participant ceases to
be an employee before the restrictions lapse. Other awards under the Equity
Incentive Plan may also be settled with restricted Common Stock. Restricted
securities shall become freely transferable upon the completion of the
Restricted Period including the passage of any applicable period of time and
satisfaction of any conditions to vesting. The Option Committee, in its sole
discretion, may waive all or part of the restrictions and conditions at any
time.
The Equity Incentive Plan also provides for deferred grants entitling the
recipient to receive shares of Common Stock in the future at such times and on
such conditions as the Option Committee may specify, and performance awards
entitling the recipient to receive cash or Common Stock following the attainment
of performance goals determined by the Option Committee. Performance conditions
and provisions for deferred stock may also be attached to other awards under the
Equity Incentive Plan.
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A loan may be made under the Equity Incentive Plan either in connection with
the purchase of Common Stock under an award or with the payment of any federal,
state and local tax with respect to income recognized as a result of an award.
The Option Committee will determine the terms of any loan, including the
interest rate (which may be zero). No loan may have a term exceeding ten years
in duration. In connection with any award, the Option Committee may also provide
for and grant a cash award to offset federal, state and local income taxes or to
make a participant whole for certain taxes.
Except as otherwise provided by the Option Committee, if a participant dies,
options and SARs held by such participant immediately prior to death, to the
extent then exercisable, may be exercised by the participant's executor,
administrator or transferee during a period of one year following such death (or
for the remainder of their original term, if less). Except as otherwise
determined by the Option Committee, options and SARs not exercisable at a
participant's death terminate. Outstanding awards of restricted Common Stock
must be transferred to the Company upon a participant's death and, similarly,
deferred Common Stock grants, performance awards and supplemental awards to
which a participant was not irrevocably entitled prior to death will be
forfeited, except as otherwise determined by the Option Committee.
In the case of termination of a participant's association with the Company
for reasons other than death, options and SARs remain exercisable, to the extent
they were exercisable immediately prior to termination, for three months (or for
the remainder of their original term, if less), shares of restricted Common
Stock must be resold to the Company, and other awards to which the participant
was not irrevocably entitled prior to termination will be forfeited, unless
otherwise determined by the Option Committee. If any such association is
terminated due to the participant's discharge for cause which, in the opinion of
the Option Committee, casts such discredit on the participant as to justify
immediate termination of any award under the Equity Incentive Plan, such
participant's options and SARs may be terminated immediately.
In the event of a consolidation or merger in which the Company is not the
surviving corporation or which results in the acquisition of substantially all
of the Company's outstanding Common Stock by a single person or entity or by a
group of persons and/or entities acting in concert or in the event of the sale
or transfer of substantially all of the Company's assets (each, a "change in
control" under the Equity Incentive Plan), the Option Committee may determine
that (i) each outstanding option and SAR will become immediately exercisable
unless otherwise provided at the time of grant, (ii) each outstanding share of
restricted Common Stock will immediately become free of all restrictions and
conditions, (iii) all conditions on deferred grants, performance awards and
supplemental grants which relate only to the passage of time and continued
employment will be removed and (iv) all loans under the Equity Incentive Plan
will be forgiven. The Committee may also arrange to have the surviving or
acquiring corporation or affiliate assume any award held by a participant or
grant a replacement award. If the optionee is terminated after such a change in
control by the Company without cause, or in the case of certain officers
designated from time to time by the Option Committee resigns under certain
circumstances, within two years following the change in control, all unvested
options will vest and all options will be exercisable for the shorter of four
years or their original duration and all other awards will vest. If the option
committee makes no such determination, outstanding awards to the extent not
fully vested will be forfeited.
GRANTS. Mr. Comrie has been granted NQSOs expiring on various dates through
June 17, 2005 to purchase 275,160 shares of Common Stock at a price of $1.6244
per share. Of the NQSOs, 172,525 are currently exercisable, and 40,724 will
become exercisable on July 17, 1997 and up to an additional 61,911 shares (the
"Additional Shares") will become exercisable on June 17, 2000. The vesting of
NQSOs to purchase 20,637 Additional Shares will be accelerated in each year
based upon the attainment of certain performance goals as determined by the
Board of Directors. In accordance with such program, the vesting of NQSOs to
purchase 20,637 Additional Shares was accelerated in December 1996. Each of Mr.
Comrie's options are exercisable for a period of five years from the date of
vesting.
Mr. Grina has been granted NQSOs expiring on various dates through April 26,
2004 to purchase 109,091 shares of Common Stock at a price of $17.1875 per
share. The NQSOs are subject to vesting
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over a three-year period, of which 36,364 are fully vested and currently
exercisable. NQSOs to purchase 72,727 shares will become exercisable on April
26, 1999; however, the vesting of 36,364 of such shares will be accelerated on
each of the first and second anniversary of the date of grant based upon
attainment of certain performance goals as determined by the Board of Directors.
Each of Mr. Grina's options are exercisable for a period of five years from the
date of vesting. All of the foregoing options will be fully vested,
notwithstanding the attainment of performance goals, on April 26, 1999. In
addition, Mr. Grina has been granted NQSOs expiring on various dates through
October 11, 2005 to purchase 72,727 shares of Common Stock at a price of
$17.1875 per share. These NQSOs vest at a rate of 25% on each anniversary of the
date of grant commencing October 14, 1997. In addition, all of his options
become immediately exercisable, without regard to the vesting period, upon a
change of control under the Equity Incentive Plan and upon other corporate
changes described in the agreement evidencing his options.
Mr. Miller has been granted NQSOs expiring December 29, 2000 to purchase
18,182 shares of Common Stock at a price of $4.543 per share. The NQSOs vest at
a rate of 20% on each anniversary of the date of grant. In addition, Mr. Miller
has been granted NQSOs expiring on various dates through October 11, 2005 to
purchase 36,364 shares of Common Stock at a price of $17.1875 per share. These
NQSOs vest at a rate of 25% on each anniversary of the date of grant commencing
October 14, 1997.
As of December 31, 1996, options to purchase 816,970 shares were outstanding
under the Incentive Plan.
THE DIRECTORS PLAN.
On May 30, 1996, the Company adopted the 1996 Non-Employee Directors
Automatic Stock Option Plan, as amended (the "Directors Plan"), which provides
for the automatic grant of stock options to non-employee directors to purchase
up to an aggregate of 75,000 shares. Under the Directors Plan, options to
acquire 2,200 shares of Common Stock are automatically granted to each
non-employee director who is a director on January 1 of each year. In addition,
each non-employee director serving on the Board of Directors immediately after
the date of the Common Stock Offering received, and in the future each newly
elected non-employee director on the date of his or her first appointment or
election to the Board of Directors will receive, an automatic grant of options
to acquire 2,600 shares of Common Stock.
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. Initial options to purchase an aggregate of
7,800 shares at an exercise price equal to $15.00 per share, the initial
offering price of the Common Stock in the Common Stock Offering, and initial
options to purchase 2,600 shares at an exercise price equal to $12.625 per
share, the market price of the Common Stock on December 23, 1996, have been
granted to non-employee directors under the Directors Plan. Annual options to
purchase an aggregate of 6,600 shares at an exercise price equal to $11.25 per
share, the market price of the Common Stock on December 31, 1996, have been
granted to non-employee directors under the Directors Plan.
EMPLOYMENT AND CONSULTING AGREEMENTS
The Company has entered into a three-year employment agreement with Mr.
Fotheringham providing for full-time employment at an annualized base salary of
$250,000 for 1996, $275,000 for 1997 and $300,000 for 1998. In addition, Mr.
Fotheringham is entitled to receive an annual bonus of up to $100,000 depending
on the achievement of specified annual link installation goals. The goal for
each
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year will be established based on the operating budget approved by the Board of
Directors. The agreement precludes Mr. Fotheringham from competing with the
Company for one year after the cessation of his employment, regardless of the
reason for such cessation.
The Company has entered into a three-year employment agreement with Mr.
Comrie providing for full time employment at an annualized base salary of
$160,000 through December 31, 1995, $200,000 from January 1, 1996 to July 16,
1997 and $240,000 from July 17, 1997 to July 16, 1998. Mr. Comrie is entitled to
receive an annual bonus of up to $100,000 depending on the achievement of
specified annual link installation goals. The goal for each year will be
established based on the operating budget approved by the Board of Directors. As
part of the employment agreement, the Company provided Mr. Comrie an
interest-free loan in the amount of $30,000 and forgave payment of such loan on
January 1, 1996. The forgiveness of such loan has been accounted for as
compensation expense on the 1995 statement of operations of the Company. The
agreement also precludes Mr. Comrie from competing with the Company for one year
after the cessation of employment, regardless of the reason for such cessation.
The agreement may be terminated at any time by either party and provides that,
if the Company terminates Mr. Comrie without cause or Mr. Comrie's employment is
terminated due to his disability or death, Mr. Comrie will be entitled to
continue to receive the full amount of his base salary and any other benefits to
which he would have otherwise been entitled for a period of one year from the
date of such termination. See "-- Stock Option Plans" regarding stock options
granted to Mr. Comrie pursuant to his employment agreement.
The Company has entered into an employment agreement with Mr. Grina,
providing for full time employment on an at will basis at an annualized base
salary of $190,000 through April 30, 1997. In addition, Mr. Grina is entitled to
receive an annual bonus of up to $100,000 depending upon the achievement of
specified annual link installation goals. The goal for each year will be
established based on the operating budget approved by the Board of Directors.
The agreement precludes Mr. Grina from competing with the Company for one year
after the cessation of his employment, regardless of the reason for such
cessation. The agreement may be terminated at any time by either party and
provides that, if the Company terminates Mr. Grina without cause or Mr. Grina's
employment is terminated due to his disability or death, Mr. Grina will be
entitled to continue to receive the full amount of his base salary and any other
benefits to which he would have otherwise been entitled for a period of six
months from the date of such termination. See "-- Stock Option Plans" regarding
stock options granted to Mr. Grina pursuant to his employment agreement.
The Company has also entered into an employment agreement with Mr. Miller,
providing for full time employment at an annual base salary equal to $150,000.
His employment agreement provides for the payment by the Company of an annual
bonus in designated amounts based upon the achievement of specified performance
goals. The agreement has a term of three years and precludes him from competing
with the Company for one year after the cessation of employment, regardless of
the reason for such cessation. See "-- Stock Option Plans" regarding stock
options granted to Mr. Miller pursuant to his employment agreement. The
employment agreement may be terminated at any time by the Company or Mr. Miller
and provides that, if the Company terminates Mr. Miller's employment without
cause or his employment is terminated due to his disability or death, Mr. Miller
may continue to receive the full amount of his base salary and any other
benefits to which he would have otherwise been entitled for a period of six
months from the date of such termination.
The Company has entered into a three-year consulting agreement with Mr.
Pierson on May 8, 1995, under which Mr. Pierson agreed to provide strategic,
business and other advisory services to the Company for base fees of $80,000 for
1995, $140,000 for 1996 and $80,000 for 1997, subject to extension at the option
of the Company. The agreement also precludes Mr. Pierson from competing with the
Company for one year after termination of the agreement, regardless of the
reason for such termination. The agreement may be terminated at any time by
either party and provides that, if the Company terminates Mr. Pierson without
cause or Mr. Pierson terminates his consulting agreement for "good reason" (as
specified in the agreement), Mr. Pierson will be entitled to continue to receive
the full amount of his base fees and any other benefits to which he would have
otherwise been entitled for a period of one year from the date of such
termination. See "Certain Transactions -- Pierson & Burnett Transactions."
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information, as of January 2, 1997,
regarding the beneficial ownership of the Company's Common Stock by (i) each
person known by the Company to own beneficially more than five percent of the
outstanding shares of the Company's Common Stock, (ii) the directors, director
designate and executive officers of the Company and (iii) all executive officers
and directors as a group.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
----------------------------------
NAME NUMBER PERCENT
- ------------------------------------------------------------------------------ -------------------- ------------
<S> <C> <C>
Advent International Corporation (1).......................................... 1,321,511 9.7%
Ameritech Development Corp. (2)............................................... 681,323 5.0
High Sky Inc. (3)............................................................. 672,219 5.0
Landover Holdings Corporation (4)............................................. 2,941,165 21.7
Steven D. Comrie (5).......................................................... 172,525 1.3
James C. Cook (6)............................................................. 60,168 *
Mark C. Demetree (7).......................................................... 398,541 2.9
Andrew I. Fillat (8).......................................................... 7,327 *
Vernon L. Fotheringham (9).................................................... 1,289,114 9.5
James B. Murray, Jr. (10)..................................................... 135,000 1.4%
Alan Z. Senter (11)........................................................... 2,600 *
Thomas A. Grina (12).......................................................... 36,364 *
James D. Miller (13).......................................................... 7,273 *
W. Theodore Pierson, Jr. (14)................................................. 856,512 6.3
Richard A. Shields, Jr. (15).................................................. 5,090 *
All executive officers and directors as a group
(5)(6)(7)(8)(9)(11)(12)(13)(14)(15)(16)...................................... 2,837,713 20.6%
</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 1,189,673 shares, 1,149 shares and 58,143 shares of Common Stock
and 55,239 shares, 58 shares and 2,703 shares of Common Stock issuable upon
exercise of March Bridge Warrants, respectively, owned by Global Private
Equity II, L.P., Advent International Investors II, L.P. and Advent
Partners, L.P. (collectively, the "Advent Partnerships"), each a limited
partnership whose general partner is controlled by Advent International
Corporation ("Advent"). Also includes 13,868 shares and 678 shares of Common
Stock issuable upon exercise of September Bridge Warrants, respectively,
owned by Global Private Equity II, L.P. and Advent Partners, L.P. Mr. Fillat
is an officer of Advent. The address of Advent and each of the Advent
Partnerships is 101 Federal Street, Boston, Massachusetts 02110.
(2) Includes 60,000 shares and 21,818 shares of Common Stock issuable upon
exercise of the March Bridge Warrants and September Bridge Warrants,
respectively. The address of Ameritech is 30 South Wacker Drive, Chicago,
Illinois 60601. See "Certain Transactions -- Ameritech Financing; Ameritech
Strategic Distribution Agreement."
(3) High Sky Inc. is the general partner of High Sky and High Sky II and may be
deemed the beneficial owner of all shares held by such partnerships.
Includes 545,048 and 127,171 shares of Common Stock owned by High Sky and
High Sky II, respectively. Also includes 43,335 and 10,835 shares of Common
Stock held by High Sky and High Sky II, respectively, subject to options
owned by SERP and its designees. See "Certain Transactions -- SERP
Agreement." High Sky Inc.'s address is c/o Frank S. Phillips Company, 6106
MacArthur Blvd., Bethesda, Maryland 20816.
(4) All of such securities are held in the LHC Voting Trust (as defined) by
trustees who are directors of the Company and independent of LHC, Mr.
Zimmerman and members of his family. Includes 13,636 shares and 2,036 shares
of Common Stock issuable upon exercise of Indemnity Warrants and September
Bridge Warrants, respectively. Does not include 36,364 shares of Common
Stock beneficially owned by the wife and 36,364 shares of Common Stock
beneficially owned by a family trust of Laurence S. Zimmerman, of which
shares LHC and Mr. Zimmerman disclaim beneficial ownership. Does not reflect
the contingent effect of the Series D Option covering 145,685 shares. LHC is
controlled by Mr. Zimmerman. LHC's address is 667 Madison Avenue, New York,
New York 10021. See "-- Voting Trust Agreement" and "Certain Transactions --
Series D Preferred Stock Issuance."
(5) Consists of 172,525 shares of Common Stock currently issuable upon exercise
of options. Does not include 102,635 shares of Common Stock issuable upon
exercise of the non-vested portion of options. See "Management -- Stock
Option Plans."
(6) Includes 8,000 shares of Common Stock issuable upon exercise of March
Bridge Warrants and 4,800 shares of Common Stock issuable upon exercise of
options granted under the Directors Plan.
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(7) Includes 4,800 shares of Common Stock beneficially issuable upon exercise
of options granted under the Directors Plan. Does not include 56,000 shares
and 2,909 shares of Common Stock issuable upon exercise of March Bridge
Warrants and September Bridge Warrants, respectively, 59,090 shares of
Common Stock issuable upon exercise of Indemnity Warrants or [1,534,964]
shares of Common Stock beneficially owned in each case by members of Mr.
Demetree's family or a trust for their benefit, of which he disclaims
beneficial ownership. Mr. Demetree's address is 505 Lancaster Street, #8AB,
Jacksonville, FL 32204.
(8) Includes 4,800 shares of Common Stock issuable upon exercise of options
granted under the Directors Plan. Mr. Fillat disclaims beneficial ownership
of the shares of Common Stock and shares of Common Stock issuable upon
exercise of March Bridge Warrants and September Bridge Warrants held by the
Advent Partnerships, except for 2,495 shares of Common Stock, and 3 shares
and 29 shares issuable upon exercise of March Bridge Warrants and September
Bridge Warrants, respectively.
(9) Includes 37,917 shares of Common Stock subject to options owned by SERP and
its designees. See "Certain Transactions -- SERP Agreement."
(10) Mr. Murray is expected to become a director upon consummation of the
CommcoCCC Acquisition. He is a managing director of Columbia Capital
Corporation, which beneficially owns 195,000 shares and, upon consummation
of the CommcoCCC Acquisition, will beneficially own 3,462,787 shares of
Common Stock, including 46,630 shares and 15,543 shares issuable upon
exercise of the CommcoCCC Warrants and the September Bridge Warrants,
respectively. Upon becoming a director, he will receive an option to
purchase 2,600 shares of Common Stock under the Directors Plan.
(11) Includes 4,800 shares of Common Stock issuable upon exercise of options
granted under the Directors Plan.
(12) Includes 36,364 shares of Common Stock currently issuable upon exercise of
options.
(13) Includes 7,273 shares of Common Stock currently issuable upon exercise of
an option.
(14) Includes 16,252 shares of Common Stock subject to options owned by SERP and
its designees. See "Certain Transactions -- SERP Agreement." Mr. Pierson's
address is c/o Pierson & Burnett L.L.P., 1667 K. Street, N.W., Washington,
D.C. 20006.
(15) Includes 5,090 shares of Common Stock currently issuable upon exercise of
an option.
(16) Does not include 2,941,165 shares of Common Stock held in the LHC Voting
Trust by trustees, all of whom are directors of the Company of which such
trustees disclaim beneficial ownership. See "-- Voting Trust Agreement."
Upon completion of the CommcoCCC Acquisition, Columbia Capital Corporation,
as general partner of two of the stockholders of CommcoCCC, and Commco, L.L.C.,
the remaining stockholder of CommcoCCC, will beneficially own 3,462,787 and
2,878,577 shares, respectively, of Common Stock, including 46,630 and 40,643
shares, respectively, issuable upon exercise of the CommcoCCC Warrants and
15,543 and 13,548 shares, respectively, issuable upon exercise of the September
Bridge Warrants, constituting 17.7% and 14.7%, respectively, of the Company's
Common Stock. Assuming the consummation of the CommcoCCC Acquisition as of the
date of this Prospectus, the Company would have 19,559,420 shares of Common
Stock outstanding.
VOTING TRUST AGREEMENT
Pursuant to a Voting Trust Agreement, dated November 5, 1996, LHC and the
wife and a trust for the benefit of the family of Laurence S. Zimmerman
deposited all of their shares of ART Common Stock in trust (the "LHC Voting
Trust") with Messrs. Demetree, Fillat and Fotheringham with irrevocable
instructions to vote such shares on all matters submitted to a vote of the
stockholders of the Company in proportion to, or in certain cases, consistent
with the majority of, the vote of other stockholders of the Company. The voting
trust will expire on November 5, 2006, but is subject to early termination in
the event of (i) a business combination in which ART stockholders own less than
50%, and ART directors constitute less than 50% if the board of directors, of
the combined entity and LHC owns less than 5% of the voting power of such
entity, (ii) the death of Mr. Zimmerman or (iii) the sale by LHC of such shares
to unaffiliated parties. The trustees of the trust will be indemnified by the
Company.
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CERTAIN TRANSACTIONS
FORMATION OF ART
The Company was organized in August 1993 by Vernon L. Fotheringham and W.
Theodore Pierson, Jr., for the purpose of obtaining 38 GHz licenses from the
FCC. The initial stockholders, including Messrs. Fotheringham and Pierson,
purchased for $.01 per share ART Common Stock in a private placement which, net
of certain subsequent transfers, currently constitutes an aggregate of 2,145,626
shares of Common Stock.
HIGH SKY PRIVATE PLACEMENTS
In November 1993 and March 1994, ART raised $60,000 and $30,000 through the
sale of its common stock (which, net of sales and acquisitions of additional
shares, now constitute an aggregate of 545,048 shares and 127,171 shares of
Common Stock, respectively) to High Sky Limited Partnership and High Sky II
Limited Partnership ("High Sky II" and, collectively, the "High Sky
Partnerships"). In March 1994, ART borrowed $70,000 from High Sky II. The loan
was evidenced by a promissory note executed by ART and payable to High Sky II
(the "High Sky Note"). Pursuant to an Agreement dated March 1, 1995, High Sky II
sold the High Sky Note to Vernon L. Fotheringham and W. Theodore Pierson, Jr. in
exchange for two new promissory notes, bearing interest at 7.5% per annum,
executed by Messrs. Fotheringham and Pierson in the principal amounts of $52,675
and $22,575, respectively (the "Fotheringham/Pierson Notes"), with payment
secured by pledges of shares of Common Stock owned by them. The terms of the
notes were as favorable as could be negotiated with unrelated third parties.
After the assignment and exchange, Messrs. Fotheringham and Pierson transferred
the High Sky Note to the Company as a capital contribution. The
Fotheringham/Pierson Notes, which are due in August 1997 and which are now
unsecured, are currently held by LHC (as defined below).
ART WEST JOINT VENTURE
The Company is party to the ART West Management Agreement, pursuant to which
it manages the business and assets of ART West, a joint venture between ART and
Extended. Mark T. Marinkovich, Vice President and General Manager, Western
Region of the Company, is also the President and a stockholder of Extended. See
"Business -- Agreements Relating to Licenses and Authorizations -- ART West
Joint Venture" and "Principal Stockholders." In connection with the ART West
Joint Venture, ART issued to Extended 133,864 shares of Common Stock. Of these
133,864 shares, 5,701 shares are subject to options owned by Southeast Research
Partners and its designees. See "-- SERP Agreement." In June 1996, the Company
agreed to acquire Extended's interest in ART West for $6,000,000 in cash,
subject to FCC approval.
ORGANIZATION OF TELECOM
ART and Landover Holdings Corporation ("LHC") organized Advanced Radio
Telecom Corp. ("Telecom") on March 28, 1995, and purchased for $.001 per share
340,000 shares of Class A common stock and 640,000 shares of Class B common
stock of Telecom, respectively, which, after giving effect to anti-dilution
adjustments resulting from issuances of preferred stock as described in "-- LHC
Purchase Agreement," certain transfers and the transactions described in "--
February 1996 Reorganization" and "-- Merger," currently are equivalent to
3,641,111 shares and 2,650,414, shares respectively, after giving effect to the
November 1995 redemption of shares of Common Stock. In addition, Hedgerow
Corporation of Maine ("Hedgerow") and Toro Financial Corp. ("Toro") purchased
for $.001 per share 15,000 shares and 5,000 shares, respectively, of Telecom
Class A common stock which, after such anti-dilution adjustments and the Merger,
currently are equivalent to 160,637 shares and 53,546 shares of Common Stock,
respectively. LHC is controlled by Laurence S. Zimmerman, a former director of
the Company, and Hedgerow is controlled by Matthew C. Gove, also a former
director of the Company. From May 1994 until August 1996 Hedgerow and, from May
1994 until September 1996, Toro provided management and strategic consulting
services to LHC, including services relating to analysis and negotiation of
acquisitions.
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LHC PURCHASE AGREEMENT
GENERAL. Pursuant to a Purchase Agreement, dated April 21, 1995 (the "LHC
Purchase Agreement") among ART, LHC and Telecom, LHC, on behalf of itself and
its designees, agreed to purchase additional securities of Telecom (the "LHC
Stock") for an aggregate purchase price of $7,000,000 (the "Purchase Price"),
which additional securities would dilute only LHC's interest in the Company. In
addition, ART and Telecom entered into the ART Services Agreement. Moreover, ART
and its stockholders agreed with Telecom and its stockholders to enter into a
revised stockholders agreement (the "May 1995 Stockholders Agreement"), a
registration rights agreement and a merger agreement. Messrs. Fotheringham and
Pierson deposited 733,711 and 662,495 shares of Common Stock, respectively (the
"Escrow Shares"), under such agreement to be released upon achievement by the
Company of certain performance goals (the "Escrow Arrangement"). The Escrow
Shares were released to Messrs. Fotheringham and Pierson in part on November 13,
1995 as a result of the EMI Asset Acquisition, and the balance was released on
February 2, 1996 in connection with the February 1996 Reorganization (as
defined).
Upon the first closing under the LHC Purchase Agreement, on May 8, 1995,
Telecom received $700,000 from E2-2 Holdings, L.P. ("E2-2") and E2 Holdings,
L.P. ("E2"). In addition, E2-2 committed to subscribe for up to 50.0% of the
Purchase Price, matching other investors under the LHC Purchase Agreement with
protection from dilution to the extent such matching funds were not required.
The general partner of E2-2 and E2 is controlled by LHC. E2-2's limited partners
include J.C. Demetree, Jr. and Mark C. Demetree and their affiliates. In
addition, E2-2 granted to LHC an option to purchase from E2-2 35,873 shares of
Series A preferred stock (which converted into 169,581 shares of Common Stock in
November 1996). This option was exercised in November 1995. Mark C. Demetree is
a director and J.C. Demetree, Jr. was formerly a director of the Company. See
"Principal Stockholders."
The additional payments on the Purchase Price were made by the Landover
Partnerships (as defined below) as follows: $700,000 on August 22, 1995 and
$600,000 on October 19, 1995. On November 13, 1995, the Advent Partnerships (as
described below) paid the $5.0 million balance of the Purchase Price and the
Company paid LHC an aggregate of $391,750 for expenses. Also, on November 13,
1995, Telecom, ART and LHC agreed that the LHC Purchase Agreement was
substantially completed.
ART SERVICES AGREEMENT. Pursuant to the LHC Purchase Agreement, ART and
Telecom entered into a Services Agreement, dated May 8, 1995 (the "ART Services
Agreement"), pursuant to which, for a 20-year term, Telecom provides management
services for, and receives 75.0% of the cash flow from, operations after
deducting certain related direct expenses under wireless licenses held by ART.
LANDOVER PARTNERSHIPS. Between May 8, 1995 and November 13, 1995, the LHC
Stock was diluted by purchases of series of Telecom preferred stock by E2-2, E2,
E1 Holdings L.P. ("E1") and E2-3 Holdings, L.P. ("E2-3" and collectively with
E1, E2 and E2-2, the "Landover Partnerships"), each a limited partnership whose
general partner is controlled by LHC, in separate private placements. E2-2,
which committed to purchase up to $3.5 million of Telecom preferred stock
matching other investors under the LHC Purchase Agreement, purchased 405,880
shares of Telecom Series A preferred stock (which converted into 1,918,705
shares of Common Stock in November 1996) for an aggregate of $946,600, and LHC
purchased 35,873 shares of such Series A preferred stock (which converted into
169,581 shares of Common Stock in November 1996) from E2-2 for $1.1 million
pursuant to an option. E2 purchased an aggregate of 105,823 shares of Telecom
Series B preferred stock (which converted into 500,254 shares of Common Stock in
November 1996) for an aggregate of $842,400. E1 purchased 13,797 shares of
Telecom Series A preferred stock (which converted into 65,222 shares of Common
Stock in November 1996) for an aggregate of $60,000 and 8,856 shares of Telecom
Series B preferred stock (which converted into 41,865 shares of Common Stock in
November 1996) for an aggregate of $38,300. E2-3 purchased an aggregate of 7,363
shares of Telecom Series C preferred stock (which converted into 34,807 shares
of Common Stock in November 1996) for an aggregate of $112,700.
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Control of E2-2 was transferred to an affiliate of J.C. Demetree, Jr. and Mark
C. Demetree in August 1996. All of the Landover Partnerships were liquidated in
November 1996. See "Principal Stockholders."
ADVENT PRIVATE PLACEMENT. On November 13, 1995, ART sold, for an aggregate
of $5.0 million, $4.95 million principal amount of 10% notes due May 13, 1997
(the "Advent Notes") and $50,000 stated amount of ART Series A Preferred Stock
(collectively, with the Advent Notes, the "Advent/ART Securities") to Global
Private Equity II, L.P., Advent International Investors II, L.P. and Advent
Limited Partnership (collectively the "Advent Partnerships"), each a limited
partnership whose general partner is controlled by Advent International Corp.
("Advent"), pursuant to a Securities Purchase Agreement, dated November 13,
1995, among the Advent Partnerships, ART, Telecom, Vernon L. Fotheringham and W.
Theodore Pierson, Jr. (the "Advent Agreement"). The Advent Agreement provided
among other things that the Advent/ART Securities were convertible into, and in
the February 1996 Reorganization described below, were converted into, 232,826
shares of Telecom Series E preferred stock (which converted into 1,100,632
shares of Common Stock in November 1996). The Telecom Series E preferred stock
provides, among other things, that the holders thereof have a right to designate
a director of Telecom (and, after the Merger, the Company), which director's
term was extended to an initial term of three years pursuant to the Stockholders
Agreement, as described below.
LHC AGREEMENTS
Pursuant to the LHC Purchase Agreement, LHC and Telecom entered into a
strategic and financial consulting agreement, dated May 8, 1995, under which LHC
agreed to provide financial and strategic planning and other advisory and
management services to the Company for a fee of $10,000 per month. The strategic
and financial consulting agreement was terminated on November 13, 1995, and
Telecom entered into a management consulting agreement with LHC, dated November
13, 1995, for an initial term of one year under which the Company will pay LHC
$420,000 per year and may pay a fee in the event LHC provides other services,
such as merger and acquisition advisory services, to the Company. This
management consulting agreement was terminated in November 1996. In November
1996, the Company paid LHC an aggregate of $300,000 in connection with services
previously rendered under the management consulting agreement.
SERP AGREEMENT
Pursuant to a letter agreement, dated July 12, 1995, among Southeast
Research Partners ("SERP") ART, Vernon L. Fotheringham, W. Theodore Pierson,
Jr., High Sky Limited Partnership, High Sky II Limited Partnership and Extended
(the "SERP Agreement"), SERP agreed to procure additional capitalization or
financial assistance on behalf of ART. Under the SERP Agreement, the other
parties to such agreement agreed to grant SERP options to purchase, for an
aggregate consideration of $210,000, 114,040 shares of Common Stock and $245,000
in cash as a fee for introducing LHC to ART.
SERIES D PREFERRED STOCK ISSUANCE
On November 9, 1995, Telecom sold 61,640 shares of Telecom Series D
preferred stock (which converted into 291,390 shares of Common Stock in November
1996) for $2.0 million in a private placement. Telecom simultanously redeemed
293,791 shares of Telecom common stock from LHC for $2.0 million. In connection
with the February 1996 Reorganization described below, LHC granted to the
holders of such Series D preferred stock a contingent option ("Series D Option")
to purchase 145,685 shares of Telecom common stock owned by LHC at a nominal
price.
FEBRUARY 1996 REORGANIZATION
On February 2, 1996, Telecom, ART and their respective stockholders agreed
(the "February 1996 Reorganization") to an amendment and restatement of the May
1995 Stockholders Agreement (as amended, the "Stockholders Agreement") providing
for (i) termination effective on consummation of the Common Stock Offering, (ii)
reorganization of the capital structure of Telecom, including providing for the
conversion of Telecom Class A and Class B common stock into Telecom common
stock, the revision of the terms and conversion into ART Common Stock (upon
consummation of the Common
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Stock Offering) of the Series A, B, C, D, E and F preferred stock (originally
issued by Telecom and converted to ART preferred stock in the Merger) and a 13
for 1 stock split, (iii) the exchange of the Advent/ART Securities for Telecom
Series E preferred stock, (iv) revision of provisions for election of directors,
(v) amendment and restatement of the Company's registration rights agreement,
including waiver of registration rights relating to this offering, (vi) release
of the remaining Escrow Shares to the original owners thereof, (vii) the change
of name of Telecom to Advanced Radio Telecom Corp. and (viii) approval of a
revised merger agreement (the "Old Merger Agreement") providing for the merger
of ART into Telecom (the "Old Merger").
AMERITECH FINANCING; AMERITECH STRATEGIC DISTRIBUTION AGREEMENT
On February 2, 1996, Ameritech Development Corp. ("Ameritech") purchased for
an aggregate of $2.5 million 48,893 shares of Telecom Series F preferred stock,
par value $0.001 per share, (the "Ameritech Financing") which converted into
231,131 shares of Common Stock in November 1996. In addition, Telecom entered
into a letter of intent with Ameritech Corp., the parent of Ameritech, to enter
into the Ameritech Strategic Distribution Agreement and in connection therewith
granted to Ameritech a ten-year warrant to purchase 318,959 shares of Common
Stock of the Company exercisable at a nominal price per share (the "Ameritech
Warrant"). On April 29, 1996, Telecom entered into the Ameritech Strategic
Distribution Agreement. See "Business -- Strategic Alliances -- Ameritech
Strategic Distribution Agreement." On December 5, 1996, Ameritech exercised the
Ameritech Warrant to purchase 318,374 shares of Common Stock.
MARCH BRIDGE FINANCING
On March 8, 1996, Telecom entered into a financing (the "March Bridge
Financing") pursuant to which it issued $5.0 million of 10% unsecured notes due
in 1998 (the "March Bridge Notes") and five-year warrants to purchase up to an
aggregate of 400,000 shares of Telecom common stock at a price of $17.1875 per
share (the "March Bridge Warrants") to private investors including (i)
affiliates of J.C. Demetree, Jr. and Mark C. Demetree, then directors of the
Company, (ii)the Advent Partnerships and (iii) Ameritech, who invested $700,000,
$725,000 and $750,000, respectively, in the March Bridge Notes and March Bridge
Warrants. See "Principal Stockholders." The March Bridge Notes were repaid with
the proceeds of the Common Stock Offering.
EQUIPMENT FINANCING
On April 1, 1996 CRA, Inc. ("CRA") provided the Company with $2.5 million in
equipment financing (the "Equipment Financing") for the purchase from P-Com of
38 GHz radio equipment secured by the equipment, the Company's $1.0 million
letter of credit and a $500,000 letter of credit provided by J.C. Demetree, Jr.
and Mark C. Demetree, then directors of the Company, and LHC, a principal
stockholder of the Company (the "Indemnitors"). To evidence its obligations
under the Equipment Financing the Company executed in favor of CRA its $2.5
million Promissory Note (the "Equipment Note") which note is payable in 24
monthly installments of $92,694 with a final payment of $642,305 due April 1,
1998. The Indemnitors also agreed to provide the Company with funds and support
for up to $2.0 million of its obligations in the event of default on the
Equipment Note or draw against the Company's letter of credit. Pursuant to an
arrangement approved by the Company's disinterested directors on February 16,
1996, the Company paid to the Indemnitors or their designees an aggregate of
$225,000 in cash and five-year warrants to purchase an aggregate of 118,181
shares of Common Stock (the "Indemnity Warrants") on terms substantially similar
to the March Bridge Warrants as compensation for such indemnity. LHC has
assigned Indemnity Warrants to purchase 45,455 shares of Common Stock to a
consultant to LHC. The letter of credit provided by the Indemnitors was returned
to the Indemnitors in December 1996.
SEPTEMBER BRIDGE FINANCING
In August 1996, the Company received commitments for $3.0 million of 14.75%
unsecured notes due March 1998 (the "September Bridge Financing"). Such notes
(the "September Bridge Notes") were funded from August 1996 to October 1996. In
October 1996, the Company also received a commitment for an additional $1.0
million. The Company also issued five-year warrants to purchase up to an
aggregate of 116,363 shares of Common Stock at a price of $17.1875 per share
($15.00 after giving
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effect to anti-dilution adjustment) (the "September Bridge Warrants") to private
investors who participated in the financing, including the Advent Partnerships,
Ameritech, affiliates of CommcoCCC, LHC and affiliates of J.C. Demetree, Jr. and
Mark C. Demetree. The September Bridge Warrants are not exercisable for a period
of one year following their date of issuance. The September Bridge Notes were
repaid with the proceeds of the Common Stock Offering.
PIERSON & BURNETT TRANSACTIONS
W. Theodore Pierson, Jr., Executive Vice President and Secretary of the
Company is a principal in the law firm of Pierson & Burnett, L.L.P., which
regularly provides legal services to the Company. During the year ended December
31, 1996, the Company paid Pierson & Burnett, L.L.P. $520,000 for such services.
The Company believes that the terms of its relationship with Pierson & Burnett,
L.L.P. are at least as favorable to the Company as could be obtained from an
unaffiliated party. See "Management -- Executive Compensation" and "Principal
Stockholders" for a description of Mr. Pierson's consulting agreement with the
Company and for information regarding his share ownership. The Company subleases
office space for its regional office in Washington, D.C. from Pierson & Burnett,
L.L.P. The Company believes that the terms of its sublease are at least as
favorable to the Company as could be obtained from an unaffiliated party. See
"Business -- Properties."
AMERICAN WIRELESS DEVELOPMENT AGREEMENT
In early 1996 ART entered into a memorandum of understanding with American
Wireless Corporation ("American Wireless") to jointly develop a quick-to-market
38 GHz receive only radio. Discoveries made as a result of this initial directed
work served to define ART's requirements for a series of low cost 38 GHz
transmit/receive link equipment, ranging from 4 x DS-1 to DS-3 payload capacity.
In response to this requirement American Wireless did extensive design,
performance, and cost modelling that has enabled ART to accelerate its planned
implementation of more cost effective shared network topologies. The Company has
funded approximately $400,000 of research and development costs with American
Wireless related to the development of the 38 GHz receive only radio. Vernon L.
Fotheringham, the Chairman of the Company, is a former director and a 3.0%
stockholder of American Wireless. Mr. Fotheringham has recused himself in all
negotiations regarding agreements between the Company and American Wireless.
COMMCOCCC ACQUISITION
On July 3, 1996, the Company entered into the CommcoCCC Agreement with
CommcoCCC which provides for the acquisition, subject to FCC approval, of 129 38
GHz wireless broadband authorizations in exchange for 6,000,000 shares of Common
Stock, or 28.5% of the Company on a fully diluted basis after giving effect to
the Common Stock Offering. The stockholders of CommcoCCC simultaneously loaned
$3.0 million to the Company, bearing interest at the prime rate and payable on
September 30, 1996, and received three-year warrants to purchase up to an
aggregate of 18,182 shares of Common Stock at a price of $24.75 per share. In
connection with an October 1996 amendment to the CommcoCCC Agreement, the
Company modified the terms of such warrants, reduced the exercise price of such
warrants to $17.1875 ($15.00 after giving effect to anti-dilution adjustment)
per share and increased the number of shares issuable upon exercise thereof to
87,273 shares and increased the interest rate of the CommcoCCC Notes to 14.75%
and extended the maturity date thereof to December 31, 1996. The CommcoCCC
Financing was secured by a security interest in all of the assets of the
Company, including a pledge of the Company's stock in Telecom. The CommcoCCC
Financing was repaid with the proceeds of the Common Stock Offering. After
closing of the CommcoCCC Acquisition, the Company has agreed to nominate one
individual designated by CommcoCCC's stockholders and acceptable to the Company
as a director of the Company. James B. Murray is the individual designated by
CommcoCCC's stockholders. See "Management -- Executive Officers and Directors."
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DESCRIPTION OF UNITS
Each Unit offered hereby consists of $1,000 principal amount at maturity of
Notes and one Warrant, each Warrant initially representing the right to purchase
9.024 shares of Common Stock. The Notes and the Warrants will not be separable
until the earliest to occur of (i) , 1997, (ii) a Change in Control
with respect to the Company and (iii) such earlier date as may be determined by
the Underwriters (the "Separation Date").
DESCRIPTION OF NOTES
The Notes will be issued under an Indenture (the "Indenture") between the
Company and The Bank of New York, as trustee (the "Trustee"). The Notes will be
secured by a portion of the proceeds of the Unit Offering pursuant to the pledge
and escrow agreement, dated as of the Issue Date (the "Pledge Agreement"),
between the Company and The Bank of New York, as collateral agent (the
"Collateral Agent"). Copies of the form of the Indenture and the Pledge
Agreement have been filed as exhibits to the Registration Statement of which
this Prospectus is a part. The following summary of the material provisions of
the Indenture and the Pledge Agreement 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 and the Pledge Agreement, including the definitions
of certain terms therein and those terms made a part of the Indenture by
reference to the Trust Indenture Act, as in effect on the date of the Indenture.
The definitions of certain terms used in the following summary are set forth
below under "-- Certain Definitions."
As of the date of the Indenture, all of the Company's Subsidiaries will be
Restricted Subsidiaries other than foreign Subsidiaries that the Company may
establish prior to such date. However, under certain circumstances, the Company
will be able to designate future Subsidiaries as Unrestricted Subsidiaries.
Unrestricted Subsidiaries will not be subject to many of the restrictive
covenants set forth in the Indenture.
GENERAL
The Notes will be unsecured senior obligations of the Company, will be
limited to $125.0 million aggregate principal amount at maturity and will mature
on , 2007. Cash interest on the Notes will be payable, at a rate of
% per annum, semi-annually in arrears on and of each
year (each, an "Interest Payment Date"), commencing , 1997, to the
holders of record of Notes at the close of business on the and
immediately preceding such Interest Payment Date. Interest on the
Notes will accrue from the most recent Interest Payment Date to which interest
has been paid or, if no interest has been paid, from the date of original
issuance. Interest will be computed on the basis of a 360-day year of twelve
30-day months. 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
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.
SECURITY
The Indenture will provide that upon the closing of the Offering, the
Company will be required to purchase, and pledge to the Collateral Agent for the
benefit of the holders of the Notes, the Pledged
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Securities in such amount as will be sufficient upon receipt of scheduled
interest and principal payments of such securities, in the opinion of a
nationally recognized firm of independent public accountants selected by the
Company, to provide for payment in full of the first six scheduled interest
payments due on the Notes. The Company expects to use approximately $44.3
million of the net proceeds of the Unit Offering to acquire the Pledged
Securities; however, the precise amount of securities to be acquired will depend
upon the interest rates on government securities prevailing at the time of the
closing of the Unit Offering. The Pledged Securities will be pledged by the
Company to the Collateral Agent for the benefit of the holders of Notes pursuant
to the Pledge Agreement and will be held by the Collateral Agent in the Pledge
Account. Pursuant to the Pledge Agreement, immediately prior to an Interest
Payment Date on the Notes, the Company may either deposit with the Collateral
Agent from funds otherwise available to the Company cash sufficient to pay the
interest scheduled to be paid on such date or the Company may direct the
Collateral Agent to release from the Pledge Account proceeds sufficient to pay
interest then due. In the event that the Company exercises the former option,
the Pledge Agreement provides that the Company may thereafter direct the
Collateral Agent to release to the Company proceeds or the Pledged Securities
from the Pledge Account in like amount. A failure by the Company to pay interest
on the Notes in a timely manner through , 2000 will constitute an
immediate Event of Default under the Indenture, with no grace or cure period.
Interest earned on the Pledged Securities will be added to the Pledge
Account. In the event that the funds or Pledged Securities held in the Pledge
Account exceed (giving no effect to any excess created by the substitution of
Marketable Securities for the Government Securities originally pledged as
collateral) the amount sufficient, in the opinion of a nationally recognized
firm of independent public accountants selected by the Company, to provide for
payment in full of the first six scheduled interest payments due on the Notes
(or, in the event an interest payment or payments have been made, an amount
sufficient to provide for payment in full of any interest payment remaining, up
to and including the sixth scheduled interest payment), the Collateral Agent
will be permitted to release to the Company at the Company's request any such
excess amount. The Notes will be secured by a first priority security interest
in the Pledged Securities and in the Pledge Account and, accordingly, the
Pledged Securities and the Pledge Account will also secure repayment of the
principal amount of the Notes to the extent of such security. At any time while
the Pledge Agreement is in force, the Pledge Agreement allows the Company to
substitute Temporary Cash Investments of the types described in clauses (i)
through (iv) in the definition thereof for the U.S. government securities
originally pledged as collateral; PROVIDED, HOWEVER, Temporary Cash Investments
so substituted must have a fair market value (measured at the date of
substitution), in the opinion of a nationally recognized firm of independent
public accountants selected by the Company, at least equal to 125.0% of the
amount of any of the first six scheduled interest payments on the Notes that are
unpaid (or the PRO RATA portion of such interest payments equal to the
percentage of such interest payments to be secured by such Temporary Cash
Investments) as of the date such Temporary Cash Investments are proposed to be
substituted as security for the Company's obligation under the Pledge Agreement.
Under the Pledge Agreement, assuming that the Company makes the first six
scheduled interest payments on the Notes in a timely manner, all of the Pledged
Securities will have been released from the Pledge Account and thereafter the
Notes will be unsecured.
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 , 2002, upon not less than 30 nor more
than 60 days' notice, at the redemption prices
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(expressed as percentages of principal amount) 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>
2002...................................................... %
2003...................................................... %
2004...................................................... %
2005 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 on or prior to , 2000 (other than in
connection with a Change in Control with respect to the Company), the Company
may, at its option, use all or a portion of the net proceeds thereof to redeem
up to a maximum of 25% of the initially outstanding aggregate principal amount
of the Notes at a redemption price equal to % of the principal amount
thereof, plus accrued and unpaid interest thereon, if any, to the redemption
date; PROVIDED that not less than 75% of the initially outstanding aggregate
principal amount 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 101% of the principal amount thereof, plus accrued and unpaid interest
thereon, if any, to the date of purchase, 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 100% of the principal amount thereof, plus accrued and
unpaid interest, if any, to the date of purchase. 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.
RANKING
The Notes will represent senior obligations of the Company and will be
unsecured, except for the pledge by the Company of the Pledged Securities. The
Notes will rank PARI PASSU in right of payment with all existing and future
unsecured, senior Indebtedness of the Company and will rank senior in right of
payment to all existing and future subordinated indebtedness of the Company. At
September 30, 1996, on a pro forma basis after giving effect to the Common Stock
Offering, the Offering and the application of the net proceeds therefrom, the
aggregate principal amount of indebtedness of the Company (excluding the Notes)
was approximately $3.1 million, which consisted of the EMI Note and the
Equipment Note, all of which ranked PARI PASSU with the Notes. However, $1.6
million of such indebtedness constituted secured indebtedness which will
effectively rank senior to the Notes with respect to the assets securing such
indebtedness. Although the Indenture will limit the ability of the Company and
its subsidiaries to incur additional indebtedness, including senior
indebtedness, the Indenture will permit the Company to incur a substantial
amount of secured indebtedness, including vendor indebtedness and indebtedness
under the Credit Facility, which, if incurred, will effectively rank
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senior to the Notes with respect to the assets securing such indebtedness. In
addition, the Indenture will permit the subsidiaries of the Company (including
any subsidiary holding all or any part of the Company's FCC licenses and
authorizations) to guarantee the indebtedness of the Company under the Credit
Facility on a secured basis (consistent with applicable FCC rules), which
guarantees and security interests would effectively rank senior in right of
payment to the Notes. See "-- Certain Covenants," "Risk Factors -- Possible
Incurrence of Substantial Secured Indebtedness" and "Description of Certain
Indebtedness."
CERTAIN COVENANTS
LIMITATION ON INDEBTEDNESS
The Indenture will provide that the Company will not, and will not permit
any of its Subsidiaries to, Incur any Indebtedness (including Acquired Debt);
PROVIDED that the Company may Incur Indebtedness (including Acquired Debt) if,
after giving effect to the Incurrence of such Indebtedness and the receipt and
application of the proceeds therefrom, the Indebtedness to EBITDA Ratio would be
greater than zero and less than 5 to 1.
The foregoing provisions will not apply to:
(i)
Indebtedness of the Company outstanding at any time in an aggregate
principal amount not to exceed $100.0 million, less (A) 50% of the amount
of any Indebtedness outstanding at such time pursuant to the Credit Facility and
(B) any amount of Indebtedness permanently repaid as provided under the
"Disposition of Proceeds of Asset Sales" covenant described below;
(ii)
Indebtedness of any of the Company's Restricted Subsidiaries owing to the
Company; PROVIDED, HOWEVER, that (A) any subsequent issuance or transfer
of Capital Stock that results in any such Indebtedness being held by a Person
other than the Company and (B) any sale or other transfer of any such
Indebtedness to a Person that is not the Company shall be deemed, in each case,
to constitute an Incurrence of such Indebtedness by the Company;
(iii)
Indebtedness issued in exchange for, or the net proceeds of which are
used to refinance or refund, then outstanding Indebtedness, other than
Indebtedness Incurred under clause (i), (ii), (v), (vi) or (viii) of this
paragraph, and any refinancings thereof in an amount not to exceed the amount so
refinanced or refunded (plus premiums, accrued interest, fees and expenses);
PROVIDED that Indebtedness the proceeds of which are used to refinance or refund
the Notes or Indebtedness that is PARI PASSU with, or subordinated in right of
payment to, the Notes shall only be permitted under this clause (iii) if (A) in
case the Notes are refinanced in part or the Indebtedness to be refinanced is
PARI PASSU with the Notes, such new Indebtedness (by its terms or by the terms
of any agreement or instrument pursuant to which such new Indebtedness is
outstanding) is PARI PASSU with, or is expressly made subordinate in right of
payment to, the remaining Notes, (B) in case the Indebtedness to be refinanced
is subordinated in right of payment to the Notes, such new Indebtedness, by its
terms or by the terms of any agreement or instrument pursuant to which such new
Indebtedness is outstanding, is expressly made subordinate in right of payment
to the Notes at least to the extent that the Indebtedness to be refinanced is
subordinated to the Notes, and (C) such new Indebtedness, determined as of the
date of Incurrence of such new Indebtedness, does not have a Stated Maturity
prior to the Stated Maturity of the Indebtedness to be refinanced or refunded,
and the Average Life of such new Indebtedness is at least equal to the remaining
Average Life of the Indebtedness to be refinanced or refunded; and PROVIDED
FURTHER that in no event may Indebtedness of the Company be refinanced by means
of any Indebtedness of any Restricted Subsidiary of the Company pursuant to this
clause (iii);
(iv)
Indebtedness (A) in respect of performance, surety or appeal bonds
provided in the ordinary course of business; and (B) arising from
agreements providing for indemnification, adjustment of purchase price or
similar obligations, or from Guarantees or letters of credit, surety bonds or
performance bonds securing any obligations of the Company or any of the
Restricted Subsidiaries pursuant to such agreements, in any case Incurred in
connection with the disposition of any business, assets or
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Restricted Subsidiary of the Company (other than Guarantees of Indebtedness
Incurred by any Person acquiring all or any portion of such business, assets or
Restricted Subsidiary of the Company for the purpose of financing such
acquisition), in a principal amount not to exceed the gross proceeds actually
received by the Company or any Restricted Subsidiary in connection with such
disposition;
(v)
without duplication of clause (viii) hereof, Indebtedness of the Company
not to exceed, at any one time outstanding, two TIMES an amount equal to
(A) the aggregate proceeds (less appropriate fees and expenses) (which proceeds
may consist of cash, Capital Stock of an entity that as a result of such
transaction becomes a Restricted Subsidiary of the Company, or
Telecommunications Assets which in connection with such transaction become held
by the Company or a Restricted Subsidiary of the Company, and the value of which
proceeds shall be the fair market value thereof as determined in good faith by
the Board, which in all events shall make any appropriate adjustments on account
of any Indebtedness associated with such Capital Stock or Telecommunications
Assets in making such determination) received by the Company from the issuance
and sale of its Capital Stock (other than Redeemable Stock and Preferred Stock
that provides for the payment of dividends in cash) after the Issue Date MINUS
(B) the fair market value of any Directed Investments made with the proceeds of
such issuances or sales; PROVIDED that such Indebtedness (x) does not have a
Stated Maturity prior to the Stated Maturity of the Notes and has an Average
Life longer than the Notes and (y) is unsecured and is expressly subordinated in
right of payment to the Notes;
(vi)
Indebtedness to the extent such Indebtedness is secured by Liens
permitted under clause (xxiv) of the definition of "Permitted Liens;"
(vii)
Indebtedness of the Company, to the extent the proceeds thereof are
immediately used to purchase Notes tendered in an Offer to Purchase made
as a result of a Change in Control;
(viii)
without duplication of clause (v) hereof, Indebtedness of the Company
Incurred in connection with the acquisition of (A) 38 GHz licenses or
authorizations through auctions conducted by the FCC or (B) other licenses or
authorizations through other spectrum auctions conducted by the FCC with respect
to other frequencies approved for microwave point-to-point transmissions, in an
amount not to exceed, at any one time outstanding, the greater of (1) $10.0
million and (2) an amount equal to the aggregate proceeds (less appropriate fees
and expenses) (which proceeds may consist of cash, Capital Stock of an entity
that as a result of such transaction becomes a Restricted Subsidiary of the
Company, or Telecommunications Assets which in connection with such transaction
become held by the Company or a Restricted Subsidiary of the Company, and the
value of which proceeds shall be the fair market value thereof as determined in
good faith by the Board, which in all events shall make any appropriate
adjustments on account of any Indebtedness associated with such Capital Stock or
Telecommunications Assets in making such determination) received by the Company
from the issuance and sale of its Capital Stock (other than Redeemable Stock and
Preferred Stock that provides for the payment of dividends in cash) after the
Issue Date MINUS the fair market value of any Directed Investments made with the
proceeds of such issuances or sales; PROVIDED that such Indebtedness (x) does
not have a Stated Maturity prior to the Stated Maturity of the Notes and has an
Average Life longer than the Notes and (y) is unsecured and is PARI PASSU or
subordinated in right of payment with the Notes;
(ix)
revolving credit Indebtedness of any Restricted Subsidiary Incurred
pursuant to a credit facility in an aggregate amount not to exceed, at
any one time outstanding, the greater of 62.5% and such greater percentage
permitted pursuant to such credit facility of the accounts receivable net of
reserves and allowances for doubtful accounts, determined in accordance with
GAAP, of such Restricted Subsidiary and its Restricted Subsidiaries (without
duplication); PROVIDED that such Indebtedness is not Guaranteed by the Company
or any of its other Restricted Subsidiaries;
(x)
the Incurrence by the Company or any of its Restricted Subsidiaries of
Hedging Obligations that are Incurred for the purpose of fixing or
hedging interest rate risk with respect to any floating rate Indebtedness of the
Company or any Restricted Subsidiary, as the case may be, that is permitted by
the terms of the Indenture to be outstanding;
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(xi)
the Incurrence by the Company's Unrestricted Subsidiaries of Non-Recourse
Debt, PROVIDED, HOWEVER, that if any such Indebtedness ceases to be
Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be deemed to
constitute an incurrence of Indebtedness by a Restricted Subsidiary of the
Company;
(xii)
the Incurrence by Unrestricted Subsidiaries of Indebtedness to the
Company or any Restricted Subsidiary of the Company to the extent
permitted by the "Limitation on Restricted Payments" covenant;
(xiii)
Indebtedness of the Company in an aggregate principal amount not to
exceed $100.0 million Incurred pursuant to the Credit Facility;
(xiv)
Guarantees by the Company's Restricted Subsidiaries of the Indebtedness
referred to in clause (xiii) above;
(xv)
Indebtedness of the Company existing on the Issue Date; and
(xvi)
Indebtedness of the Company represented by the Notes and the Indenture.
For purposes of determining compliance with this "Limitation on
Indebtedness" covenant, in the event that an item of Indebtedness meets the
criteria of more than one of the types of Indebtedness described in the above
clauses, the Company, in its sole discretion, shall classify such item of
Indebtedness and only be required to include the amount and type of such
Indebtedness in one of such clauses.
The Company will not, and will not permit any Restricted Subsidiary to,
Incur any Guarantee of Indebtedness of any Unrestricted Subsidiary.
The Indenture will provide that, notwithstanding the foregoing, ART
Licensing shall not Incur any Indebtedness or issue any Preferred Stock;
PROVIDED that ART Licensing may Incur Indebtedness of the type and in the amount
set forth in clause (xiv) of the second paragraph of this "Limitation on
Indebtedness" covenant.
LIMITATION ON RESTRICTED PAYMENTS
The Indenture will provide that the Company will not, and will not permit
any Restricted Subsidiary to, directly or indirectly, (i) declare or pay any
dividend or make any distribution on its or such Restricted Subsidiary's Capital
Stock (other than dividends or distributions payable solely in shares of its or
such Restricted Subsidiary's Capital Stock (other than Redeemable Stock) held by
such holders or in options, warrants or other rights to acquire such shares of
Capital Stock) other than such Capital Stock held by the Company or any of its
Restricted Subsidiaries (and other than pro rata dividends or distributions on
Common Stock of Restricted Subsidiaries), (ii) repurchase, redeem, retire or
otherwise acquire for value any shares of Capital Stock (including options,
warrants or other rights to acquire such shares of Capital Stock) of the Company
(other than any such Capital Stock held by the Company or any Wholly Owned
Restricted Subsidiary of the Company), (iii) make any voluntary or optional
principal payment, or voluntary or optional redemption, repurchase, defeasance,
or other acquisition or retirement for value, of Indebtedness of the Company
that is subordinated in right of payment to the Notes or (iv) make any
Investment, other than a Permitted Investment, in any Person (such payments or
any other actions described in clauses (i) through (iv) being collectively
"Restricted Payments") if, at the time of, and after giving effect to, the
proposed Restricted Payment:
(A) a Default or Event of Default shall have occurred and be continuing;
(B) except with respect to any Investment (other than an Investment
consisting of the designation of a Restricted Subsidiary as an
Unrestricted Subsidiary), the Company could not Incur at least $1.00 of
Indebtedness under the first paragraph of the "Limitation on Indebtedness"
covenant; and
(C) the aggregate amount expended for all Restricted Payments (the amount
so expended, if other than in cash, to be determined in good faith by
the Board, whose determination shall be
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conclusive and evidenced by a resolution of the Board) after the Issue Date
shall exceed the sum of (1) 50% of the aggregate amount of the Adjusted
Consolidated Net Income (or, if the Adjusted Consolidated Net Income is a
loss, MINUS 100% of such amount) (determined by excluding income resulting
from transfers of assets by the Company or a Restricted Subsidiary to an
Unrestricted Subsidiary) accrued on a cumulative basis during the period
(taken as one accounting period) beginning on the first day of the fiscal
quarter immediately following the Issue Date and ending on the last day of
the last fiscal quarter preceding the date for which reports have been filed
pursuant to the "Reports" covenant, PLUS (2) the aggregate Net Cash Proceeds
received by the Company after the Issue Date from the issuance and sale
permitted by the Indenture of its Capital Stock (other than Redeemable
Stock) to a Person who is not a Subsidiary of the Company, or from the
issuance to a Person who is not a Subsidiary of the Company of any options,
warrants or other rights to acquire Capital Stock of the Company (in each
case, exclusive of any convertible Indebtedness, Redeemable Stock or any
options, warrants or other rights that are redeemable at the option of the
holder, or are required to be redeemed, prior to the Stated Maturity of the
Notes), MINUS the actual amount of Net Cash Proceeds used to make 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;
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(viii)
the repurchase of shares of, or options to purchase shares of, the
Company's Capital Stock from employees of the Company in connection with
the termination of their employment; PROVIDED that (A) the aggregate price paid
for all such repurchased shares of Capital Stock made in any twelve-month period
shall not exceed $250,000 PLUS the aggregate cash proceeds received by the
Company during such twelve-month period from any reissuance of such Capital
Stock by the Company to employees of the Company and its Restricted Subsidiaries
and (B) no Default shall have occurred and be continuing immediately after such
transaction;
(ix)
payments and distributions pursuant to any tax sharing agreement between
the Company and any other Person with which the Company files a
consolidated tax return or with which the Company is part of a consolidated
group, in each case, for federal income tax purposes;
(x)
cash payments in lieu of the issuance of fractional shares of Common
Stock of the Company upon conversion of any class of Preferred Stock of
the Company; and
(xi)
the issuance of shares of Common Stock upon exercise of warrants to
purchase shares of common stock of ART Licensing existing on the Issue
Date, including any contribution of such shares of Common Stock to ART
Licensing, any payment by ART Licensing to the Company in consideration thereof
and any contribution by the Company to ART Licensing in respect thereof;
PROVIDED that, except in the case of clauses (i) and (ii), no Default or Event
of Default shall have occurred and be continuing or occur as a consequence of
the actions or payments set forth herein. Any Investments made other than in
cash shall be valued, in good faith, by the Board.
Each Restricted Payment permitted pursuant to the preceding paragraph (other
than the Restricted Payment referred to in clause (ii) thereof) and the Net Cash
Proceeds from any issuance of Capital Stock referred to in clause (iii) or (iv)
shall be included in calculating whether the conditions of clause (C) of the
first paragraph of this "Limitation on Restricted Payments" covenant have been
met with respect to any subsequent Restricted Payments. In the event the
proceeds of an issuance of Capital Stock of the Company are used for the
redemption, repurchase or other acquisition of the Notes or Indebtedness that is
PARI PASSU with the Notes, then the Net Cash Proceeds of such issuance shall be
included in clause (C) of the first paragraph of this "Limitation on Restricted
Payments" covenant only to the extent such proceeds are not used for such
redemption, repurchase or other acquisition of Indebtedness.
The Board may designate any Restricted Subsidiary to be an Unrestricted
Subsidiary if such designation would not cause a Default. For purposes of making
such determination, all outstanding Investments by the Company and its
Restricted Subsidiaries (except to the extent repaid in cash) in the Subsidiary
so designated will be deemed to be Restricted Payments at the time of such
designation and 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
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the Company or any other Restricted Subsidiary, (ii) pay any Indebtedness owed
to the Company or any other Restricted Subsidiary that owns, directly or
indirectly, any Capital Stock of such Restricted Subsidiary, (iii) make loans or
advances to the Company or any other Restricted Subsidiary that owns, directly
or indirectly, any Capital Stock of such Restricted Subsidiary or (iv) transfer
any of its property or assets to the Company or any other Restricted Subsidiary
that owns, directly or indirectly, any Capital Stock of such Restricted
Subsidiary.
The foregoing provisions shall not prohibit any encumbrances or
restrictions:
(i)
existing on the Issue Date in the Indenture or any other agreement in
effect on the Issue Date, and any extension, refinancing, renewal or
replacement of any such agreement; PROVIDED that the encumbrances and
restrictions in any such extension, refinancing, renewal or replacement are no
less favorable in any material respect to the holders than those encumbrances or
restrictions that are then in effect and that are being extended, refinanced,
renewed or replaced;
(ii)
existing under or by reason of applicable law;
(iii)
existing with respect to any Person or the property or assets of such
Person acquired by the Company or any Restricted Subsidiary, at the time
of such acquisition and not Incurred in contemplation thereof, which
encumbrances or restrictions are not applicable to any Person or the property or
assets of any Person other than such Person or the property or assets of such
Person so acquired;
(iv)
in the case of clause (iv) of the first paragraph of this "Limitation on
Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries" covenant, (A) that restrict in a customary manner the subletting,
assignment or transfer of any property or asset that is a lease, license,
conveyance or contract or similar property or asset, (B) existing by virtue of
any transfer of, agreement to transfer, option or right with respect to, or Lien
on, any property or assets of the Company or any Restricted Subsidiary, not
otherwise prohibited by the Indenture or (C) arising or agreed to in the
ordinary course of business, not relating to any Indebtedness, and that do not,
individually or in the aggregate, detract from the value of property or assets
of the Company or any Restricted Subsidiary in any manner material to the
Company or any Restricted Subsidiary;
(v)
imposed pursuant to an agreement that has been entered into for the sale
or disposition of Capital Stock of, or property or assets of, the Company
or a Restricted Subsidiary; PROVIDED that such encumbrance or restriction shall
only remain in force during the pendency of such acquisition or disposition; or
(vi)
imposed pursuant to agreements governing Indebtedness permitted to be
Incurred under clauses (xiii) and (xiv) of the second paragraph of the
"Limitation of Indebtedness" covenant.
Nothing contained in this "Limitation on Dividend and Other Payment
Restrictions Affecting Restricted Subsidiaries" covenant shall prevent the
Company or any Restricted Subsidiary from (a) creating, Incurring, assuming or
suffering to exist any Liens otherwise permitted in the "Limitation on Liens
Securing Certain Indebtedness" covenant or (b) restricting the sale or other
disposition of property or assets of the Company or any of its Restricted
Subsidiaries that secure Indebtedness of the Company or any of its Restricted
Subsidiaries.
LIMITATION ON TRANSACTIONS WITH AFFILIATES
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into or make any contract, agreement, loan, advance or
Guarantee with, or any contract, agreement, loan, advance or Guarantee for the
specific benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction"), unless (i) such Affiliate Transaction is on terms that are no
less favorable to the Company or the relevant Restricted Subsidiary than those
that would have been obtained in a comparable transaction by the Company or such
Restricted Subsidiary with an unrelated Person and (ii) the Company delivers to
the Trustee (A) with respect to any Affiliate Transaction involving aggregate
consideration in excess of $1.0 million, a resolution of the Board of Directors
set forth in an Officers' Certificate certifying that such Affiliate Transaction
complies with clause (A) above and that such Affiliate Transaction has been
approved by a majority of the disinterested
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members of the Board of Directors and (B) with respect to any Affiliate
Transaction involving aggregate consideration in excess of $5.0 million, a
written opinion, appraisal or certification from a nationally recognized
professional experienced in evaluating similar types of transactions stating
that the terms of such transaction are fair to the Company or such Restricted
Subsidiary, as the case may be, from a financial point of view; PROVIDED that
the following shall not be deemed to constitute Affiliate Transactions:
(i) the payment of reasonable fees to directors of the Company who are not
employees of the Company;
(ii) agreements and arrangements existing on the date hereof;
(iii) any employment agreement entered into by the Company or any of its
Restricted Subsidiaries in the ordinary course of business of the Company or
such Restricted Subsidiary;
(iv) the adoption of employee benefit plans in the ordinary course of
business and payments and other transactions thereunder; PROVIDED that any such
adoption, payment or other transaction shall have been approved by a majority of
the disinterested members of the Board;
(v) transactions between or among the Company and/or its Wholly Owned
Restricted Subsidiaries;
(vi) any contract, agreement, loan, advance or Guarantee for the general
benefit of the Company and its stockholders, including stockholders that are
Affiliates of the Company; and
(vii) any Affiliate Transactions permitted by the provisions of the
Indenture described above under the caption "-- Limitation on Restricted
Payments."
LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF 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 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.
BUSINESS ACTIVITIES OF THE COMPANY AND RESTRICTED SUBSIDIARIES
The Company will not, and will not permit any Restricted Subsidiary to,
engage in (i) any business other than the Telecommunications Business and such
business activities as are incidental or related thereto and (ii) any business,
activities or services in which the Company and its Restricted Subsidiaries were
engaged on the Issue Date. In addition, the Company will (i) at such time and to
the extent permitted by the FCC, transfer, or cause to be transferred, all FCC
licenses and authorizations of the Company and its Restricted Subsidiaries to
ART Licensing and (ii) cause ART Licensing to remain a Wholly Owned Restricted
Subsidiary of the Company.
Notwithstanding the foregoing, to the extent permitted by the FCC, the
Company will not permit ART Licensing to engage in any business or activity,
other than the application for, acquisition of or ownership of FCC licenses and
authorizations; PROVIDED, HOWEVER, that ART Licensing shall be permitted to own
and operate any equipment or assets that were owned by ART Licensing on or prior
to the Issue Date.
CHANGE IN CONTROL
In the event of a Change in Control, the Company must commence and
consummate an Offer to Purchase for all the Notes then outstanding, at a
purchase price equal to 101% of the principal amount thereof, together with
accrued and unpaid interest, if any, to the date of purchase. Not later than 20
days following any Change in Control, the Company will mail a notice to each
holder describing the transaction or transactions that constitute the Change in
Control and offering to repurchase Notes pursuant to the procedures required by
the Indenture and described in such notice.
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The Indenture does not contain provisions that permit the holders of the
Notes to require that the Company repurchase or redeem the Notes in the event of
a highly leveraged transaction, including a takeover, recapitalization or
similar restructuring, that may adversely effect the holders of the Notes if
such transaction does not otherwise constitute a Change in Control. See "--
Certain Definitions." In addition, with the consent of at least 66 2/3% in
principal amount at maturity of the Notes then outstanding, the Company may
amend, and the holders of Notes may waive any Default in the performance of, the
provisions described in this "Change in Control" covenant. See "-- Amendments
and Waivers." There can be no assurance that the Company will have sufficient
funds available at the time of any Change in Control to make any debt payment
(including repurchases of Notes) required by the foregoing covenant (as well as
may be contained in other securities of the Company which might be outstanding
at the time).
DISPOSITION OF PROCEEDS OF ASSET SALES
The Indenture will provide that the Company will not, and will not permit
any Restricted Subsidiary to, consummate any Asset Sale, unless (a) the
consideration received by the Company or such Restricted Subsidiary is at least
equal to the fair market value of the assets sold or disposed of and (b) at
least 85% of the consideration received consists of cash or Temporary Cash
Investments, PROVIDED that any notes or other obligations received by the
Company or any such Restricted Subsidiary as consideration that are converted by
the Company or such Restricted Subsidiary into cash within 30 days of their
receipt (to the extent of the cash received), shall be deemed to be cash for
purposes of this provision. In the event and to the extent that the Net Cash
Proceeds received by the Company or its Restricted Subsidiaries from one or more
Asset Sales occurring on or after the Issue Date in any period of 12 consecutive
months exceed 10% of Adjusted Consolidated Net Tangible Assets (determined as of
the date closest to the commencement of such 12-month period for which a
consolidated balance sheet of the Company and its Restricted Subsidiaries has
been prepared), then the Company shall or shall cause the relevant Restricted
Subsidiary to (i) within six months after the date Net Cash Proceeds so received
exceed 10% of Adjusted Consolidated Net Tangible Assets (A) apply an amount
equal to such excess Net Cash Proceeds to permanently repay unsubordinated
Indebtedness of the Company or any of its Restricted Subsidiaries owing to a
Person other than the Company or any of its Restricted Subsidiaries or (B)
invest an equal amount, or the amount not so applied pursuant to clause (A) (or
enter into a definitive agreement committing to so invest within six months
after the date of such agreement), in property or assets of a nature or type or
that are used in a business (or in a company having property and assets of a
nature or type, or engaged in a business) similar or related to the nature or
type of the property and assets of, or the business of, the Company and its
Restricted Subsidiaries existing on the date of such Investment (as determined
in good faith by the Board, whose determination shall be conclusive and
evidenced by a resolution of the Board and (ii) apply (no later than the end of
the six-month period referred to in clause (i)) such excess Net Cash Proceeds
(to the extent not applied pursuant to clause (i)) as provided in the following
paragraph of this "Disposition of Proceeds of Asset Sales" covenant. The amount
of such excess Net Cash Proceeds required to be applied (or to be committed to
be applied) during such six-month period as set forth in clause (i) of the
preceding sentence and not applied as so required by the end of such period
shall constitute "Excess Proceeds."
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Offer to Purchase pursuant to this
"Limitation on Asset Sales" covenant totals at least $5.0 million, the Company
must commence, not later than the fifteenth business day of such month, and
consummate an Offer to Purchase from the holders on a pro rata basis an
aggregate principal amount of Notes equal to the Excess Proceeds on such date,
at a purchase price equal to 100% of the principal amount thereof, plus accrued
and unpaid interest, if any, to the date of purchase.
NO AMENDMENT TO VOTING TRUST AGREEMENTS
The Indenture will provide that the Company will not amend, modify or alter
any 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; PROVIDED, HOWEVER, that the Company may amend,
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modify or alter any Voting Trust Agreement, if, in the opinion of Delaware
counsel, such amendment, modification or alteration is necessary to cause such
Voting Trust Agreement to comply with Delaware law or any change thereto.
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 Capital
Stock in the surviving Person or the Company) shall be issued or distributed to
the stockholders of the Company) or permit any Person to merge with or into the
Company unless: (i) the Company shall be the continuing Person, or the Person
(if other than the Company) formed by such consolidation or into which the
Company is merged or that acquired or leased such property and assets of the
Company shall be a corporation organized and validly existing under the laws of
the United States of America or any jurisdiction thereof and shall expressly
assume, by a supplemental indenture, executed and delivered to the Trustee, all
of the obligations of the Company on all of the Notes and under the Indenture;
(ii) immediately after giving effect to such transaction, no Default or Event of
Default shall have occurred and be continuing; (iii) immediately after giving
effect to such transaction on a pro forma basis, the Indebtedness to Total
Market Capitalization Ratio (determined as of a date no earlier than 10 days
prior to such transaction) of the Company, or any person becoming the successor
obligor of the Notes, would be no greater than 130% of the Indebtedness to Total
Market Capitalization Ratio of the Company immediately prior to giving effect to
such transaction; PROVIDED that this clause (iii) shall not apply to any
transaction or series of transactions effected solely for the purpose of
creating a parent corporation of which the Company shall be a Wholly Owned
Subsidiary and whose stockholders shall be identical (without regard to the
exercise of options or warrants, or securities convertible or exchangeable into
shares of Common Stock) to those of the Company immediately prior thereto; and
(iv) the Company delivers to the Trustee an Officers' Certificate (attaching the
arithmetic computations to demonstrate compliance with clause (iii)) and an
Opinion of Counsel, in each case, stating that such consolidation, merger or
transfer and such supplemental indenture complies with this provision and that
all conditions precedent provided for herein relating to such transaction have
been complied with; PROVIDED, HOWEVER, that clause (iii) above does not apply
if, in the good faith determination of the Board, whose determination shall be
evidenced by a resolution of the Board, the principal purpose of such
transaction is to change the state of incorporation of the Company; and PROVIDED
FURTHER that any such transaction shall not have as one of its purposes the
evasion of the foregoing limitations.
EVENTS OF DEFAULT AND REMEDIES
The following events are "Events of Default" under the Indenture:
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(i)
default in the payment of interest on the Notes when it becomes due and
payable as to any interest payment date on or prior to , 2000
and continuance of such default for a period of 30 days or more as to any
interest payment date thereafter; 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) the appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar official of the Company or
any Significant Subsidiary or for all or substantially all of the property and
assets of the Company or any Significant Subsidiary or (C) the winding up or
liquidation of the affairs of the Company or any Significant Subsidiary and, in
each case, such decree or order shall remain unstayed and in effect for a period
of 60 consecutive days; or
(viii)
the Company or any Significant Subsidiary (A) commences a voluntary case
under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or consents to the entry of an order for relief in an
involuntary case under any such law, (B) consents to the appointment of or
taking possession by a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of the Company or any Significant Subsidiary or
for all or substantially all of the property and assets of the Company or any
Significant Subsidiary or (C) effects any general assignment for the benefit of
creditors.
If any Event of Default (other than an Event of Default specified in clause
(vii) or (viii) above with respect to the Company) occurs and is continuing,
then the Trustee or the holders of at least 25% in principal amount of
outstanding Notes may, by written notice, and the Trustee upon the request of
the holders of not less than 25% in principal amount 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
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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 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 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 principal 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 of the
outstanding Notes also have the right to waive past defaults under the
Indenture, except a default in the payment of the principal 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 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 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 principal 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 have offered to such Trustee reasonable security or indemnity. Subject to
certain provisions concerning the rights of the Trustee, the holders of a
majority in principal amount at maturity of the outstanding Notes have the right
to direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred on the
Trustee.
The Indenture provides that the Trustee will, within 45 days after the
occurrence of any Default, give to the holders of the Notes notice of such
Default known to it, unless such Default shall have been cured or waived;
PROVIDED that the Trustee shall be protected in withholding such notice if it
determines in good faith that the withholding of such notice is in the interest
of such holders.
The Company is required to furnish to the Trustee annually a statement as to
its compliance with all conditions and covenants under the Indenture.
DEFEASANCE
The Company may at any time terminate all of its obligations with respect to
the Notes ("defeasance"), except for certain obligations, including those
regarding any trust established for a defeasance and obligations to register the
transfer or exchange of the Notes, to replace mutilated, destroyed, lost or
stolen Notes as required by the Indenture and to maintain agencies in respect of
the Notes. The Company may at any time terminate its obligations under certain
covenants set forth in the Indenture, some of which are described under "Certain
Covenants" above, and any omission to comply with such obligations shall not
constitute a Default with respect to the Notes ("covenant defeasance"). To
exercise either defeasance or covenant defeasance, the Company must irrevocably
deposit in trust with the Trustee, for the benefit of the holders of the Notes,
money (in United States dollars) or U.S. government obligations (denominated in
United States dollars), or a combination thereof, in such amounts as will be
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sufficient to pay the principal of, premium, if any, and interest on the
outstanding Notes to redemption or maturity and comply with certain other
conditions, including the delivery of a legal opinion as to certain tax matters.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of Notes)
as to all outstanding Notes when either (a) all such Notes theretofore
authenticated and delivered (except lost, stolen or destroyed Notes that have
been replaced or paid and Notes for whose payment money has theretofore been
deposited in trust or segregated and held in trust by the Company and thereafter
repaid to the Company or discharged from such trust) have been delivered to the
Trustee for cancellation or (b)(i) all such Notes not theretofore delivered to
the Trustee for cancellation have become due and payable by their terms or shall
have been called for redemption and the Company has irrevocably deposited or
caused to be deposited with the Trustee as trust funds in trust for the purpose
an amount of money sufficient to pay and discharge the entire Indebtedness on
the Notes not theretofore delivered to the Trustee for cancellation or
redemption, for the principal amount, premium, if any, and accrued interest to
the date of such deposit; (ii) the Company has paid all other sums payable by it
under the Indenture; and (iii) the Company has delivered irrevocable
instructions to the Trustee to apply the deposited money toward the payment of
the Notes at maturity or on the redemption date, as the case may be. In
addition, the Company must deliver an Officers' Certificate and an Opinion of
Counsel stating that all conditions precedent to satisfaction and discharge have
been complied with.
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, the Pledge Agreement 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, the
Pledge Agreement and the Notes may be made by the Company and the Trustee with
the consent of the holders of not less than a majority of the aggregate
principal amount 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, (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,
(vii) adversely affect the ranking of the Notes in a manner adverse to the
holder of the Notes or (viii) release any Collateral from the Lien created by
the Pledge Agreement, except in accordance with the terms thereof.
In addition, without the consent of at least 66 2/3% in principal amount 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
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occurred and is continuing, the Trustee will exercise such rights and powers
vested in it under the Indenture and use the same degree of care and skill in
its exercise as a prudent Person would exercise under the circumstances in the
conduct of such Person's own affairs.
The Indenture and the provisions of the Trust Indenture Act incorporated by
reference therein contain certain limitations on the rights of the Trustee
thereunder, should it become a creditor of the Company, to obtain payment of
claims in certain cases, or to realize on certain property received by it in
respect of any such claims, as security or otherwise. The Trustee is permitted
to engage in other transactions; PROVIDED, HOWEVER, that if it acquires any
conflicting interest, it must eliminate such conflict or resign.
GOVERNING LAW
The Indenture and the Notes will be governed by, and construed in accordance
with, the laws of the State of New York without giving effect to the principles
of conflicts of law thereof.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for any other capitalized terms used herein for which
no definition is provided.
"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 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
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names, trademarks, patents, unamortized debt discount and expense and other like
intangibles (other than licenses issued by the FCC), all as set forth on the
quarterly or annual consolidated balance sheet of the Company and its Restricted
Subsidiaries, prepared in conformity with GAAP and most recently filed with the
Commission pursuant to the "Reports" covenant; PROVIDED that the value of any
licenses issued by the FCC shall, in the event of an auction for similar
licenses, be equal to the fair market value ascribed thereto in good faith by
the Board and evidenced by a resolution of the Board. As used in the Indenture,
references to financial statements of the Company and its Restricted
Subsidiaries shall be adjusted to exclude Unrestricted Subsidiaries if the
context requires.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; PROVIDED that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control. For purposes of the Indenture, the term "Affiliate"
shall at all times include Laurence S. Zimmerman, Landover Holdings Corporation
and their respective Affiliates.
"ART LICENSING" means ART Licensing Corp., a Delaware corporation and a
wholly owned subsidiary of the Company, or any successor thereto, or such other
Subsidiary or Subsidiaries of the Company formed for the purpose of the
application for, acquisition of or ownership of FCC licenses and authorizations.
"ART WEST" means ART West Joint Venture, a Delaware partnership owned by the
Company and Extended Communications, Inc.
"ASSET ACQUISITION" means (i) an Investment by the Company or any of its
Restricted Subsidiaries in any other Person pursuant to which such Person shall
become a Restricted Subsidiary of the Company or shall be merged into or
consolidated with the Company or any of its Restricted Subsidiaries or (ii) an
acquisition by the Company or any of its Restricted Subsidiaries of the property
and assets of any Person other than the Company or any of its Restricted
Subsidiaries that constitute substantially all of a division or line of business
of such Person.
"ASSET SALE" means any sale, transfer or other disposition (including by way
of merger, consolidation or sale-leaseback transaction) in one transaction or a
series of related transactions by the Company or any of its Restricted
Subsidiaries to any Person other than the Company or any of its Restricted
Subsidiaries of (i) all or any of the Capital Stock of any Restricted
Subsidiary, (ii) all or substantially all of the property and assets of an
operating unit or business of the Company or any of its Restricted Subsidiaries
or (iii) any other property or assets of the Company or any of its Restricted
Subsidiaries outside the ordinary course of business of the Company or such
Restricted Subsidiary; PROVIDED that the following shall not be included within
the meaning of "Asset Sale": (A) sales or other dispositions of inventory,
receivables and other current assets; (B) sales or other dispositions of
equipment that has become worn out, obsolete, damaged or otherwise unsuitable or
undesirable for use in connection with the business of the Company or its
Restricted Subsidiaries; (C) Permitted Asset Swaps; (D) sales, transfers or
other dispositions otherwise constituting Asset Sales in an aggregate amount not
to exceed $500,000 during the relevant twelve-month period referred to in the
"Disposition of Proceeds of Asset Sales" covenant; (E) any Restricted Payment
permitted by the "Limitation on Restricted Payments" covenant; (F) any Lien
permitted to be Incurred by the "Limitation on Liens Securing Certain
Indebtedness" covenant; (G) any transaction that is governed by the provisions
of the "Consolidation, Merger, Sale of Assets, Etc." covenant; (H) any sale,
transfer or other disposition of the Capital Stock of an Unrestricted
Subsidiary; and (I) any disposition pursuant to the Option Agreement, dated as
of July 3, 1996, between the Company and Commco, L.L.C.
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"AVERAGE LIFE" means, at any date of determination with respect to any debt
security, the quotient obtained by dividing (i) the sum of the products of (A)
the number of years from such date of determination to the dates of each
successive scheduled principal payment of such debt security and (B) the amount
such principal payment by (ii) the sum of all such principal payments.
"BOARD" means the Board of Directors of the Company.
"CAPITAL STOCK" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
"CAPITALIZED LEASE" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) of which the discounted present value
of the rental obligations of such Person as lessee, in conformity with GAAP, is
required to be capitalized on the balance sheet of such Person; and "Capitalized
Lease Obligations" means the discounted present value of the rental obligations
under such lease.
"CHANGE IN CONTROL" means such time as (i) a "person" or "group" (within the
meaning of Sections 13(d) and 14(d)(2) of the Exchange Act) becomes the ultimate
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of Voting
Stock representing more than 50% of the total voting power of the Voting Stock
of the Company on a fully diluted basis, (ii) individuals who on the Issue Date
constitute the Board (together with any new directors whose election by the
Board or whose nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds of the members of the Board then in
office who either were members of the Board on the Issue Date or whose election
or nomination for election was previously so approved) cease for any reason to
constitute a majority of the members of the Board then in office and (iii) the
merger or consolidation of the Company with or into another corporation, or the
merger or consolidation of another corporation with and into the Company, with
the effect that, immediately after such transaction, the stockholders of the
Company immediately prior to such transaction hold less than 50% of the Voting
Stock of the Person surviving such merger or consolidation.
"COLLATERAL" means the Pledged Securities and the proceeds thereof.
"COMMON STOCK" of any Person means Capital Stock of such Person that does
not rank prior to, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding up
to such Person, to shares of Capital stock of any other class of such Person.
"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 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
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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 Net Income pursuant to clause (iii) of
the definition thereof) and (ii) any premiums, fees and expenses (and any
amortization thereof) payable in connection with the offering of the Notes, all
as determined on a consolidated basis (without taking into account Unrestricted
Subsidiaries) in conformity with GAAP.
"CREDIT FACILITY" means a bank credit facility, to be entered into among the
Company, Canadian Imperial Bank of Commerce, Inc., as agent (the "Agent"), and
certain lenders to be party thereto, on substantially the terms set forth in the
Summary of Terms and Conditions of the Agent, dated as of December 19, 1996, and
any amendment, extension, restatement, refinancing or refunding thereof;
PROVIDED that the Company and the Agent shall have (A) executed a commitment
letter with respect to such facility not later than June 30, 1997 and (B)
entered into such facility not later than December 31, 1997; PROVIDED FURTHER
that, in the event that the Company and the Agent shall have failed to execute a
commitment letter or enter into such facility within the time periods specified
in the second provision of this definition, clauses (xiii) and (xiv) of the
second paragraph of the "Limitation on Indebtedness" covenant shall be of no
further force and effect.
"DEFAULT" means any event that is, or with the passage of time or the giving
of notice or both would be, an Event of Default.
"DIRECTED INVESTMENT" means any Investment in a Telecommunications Business
that is made by investing the net proceeds of the issuance of Capital Stock
(other than Redeemable Stock) by the Company (or options, warrants or other
rights to purchase such Capital Stock) after the Issue Date; PROVIDED that such
Investment shall be made with such net proceeds in the form received by the
Company and shall be limited to an amount equal to (A) 50% of such net proceeds
to the extent that such net proceeds consist of cash, and (B) 100% of such net
proceeds to the extent such net proceeds consist of Capital Stock or
Telecommunications Assets; PROVIDED FURTHER that such Investment is made within
180 days of such issuance of Capital Stock.
"EQUITY OFFERING" means an underwritten public offering or flotation of
Common Stock of the Company which has been registered under the Securities Act
and/or admitted to listing on a national securities exchange.
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"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; PROVIDED that, with respect to the Pledged
Securities, the fair market value thereof shall be net of the accrued and unpaid
interest, if any, on the Notes.
"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,
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whether or not such indebtedness is assumed by such Person, PROVIDED that the
amount of such indebtedness shall be the lesser of (A) the fair market value of
such asset at such date of determination and (B) the amount of such
indebtedness, (vii) the balance deferred and unpaid of the purchase price of any
property or representing any Hedging Obligations, except any such balance that
constitutes an accrued expense or trade payable and (viii) all indebtedness of
other Persons Guaranteed by such Person to the extent such indebtedness is
Guaranteed by such Person. The amount of Indebtedness of any Person at any date
shall be the outstanding balance at such date of all unconditional obligations
as described above and, with respect to contingent obligations that are included
in any of clauses (i) through (viii) above, the maximum liability upon the
occurrence of the contingency giving rise to the obligation, PROVIDED (A) that
the amount outstanding at any time of any Indebtedness issued with original
issue discount is the face amount of such Indebtedness, less the remaining
unamortized portion of the original issue discount (other than original issue
discount attributable to the issuance of warrants or other equity securities in
connection with the issuance of such Indebtedness) of such Indebtedness on such
date, (B) that Indebtedness shall not include any liability for federal, state,
local or other taxes and (C) that Indebtedness shall not include the fair market
value of the Pledged Securities then held by the Trustee as determined in good
faith by an officer of the Company.
"INDEBTEDNESS TO EBITDA RATIO" means, as at any date of determination, the
ratio of (i) the aggregate amount of Indebtedness of the Company and its
Restricted Subsidiaries on a consolidated basis ("Consolidated Indebtedness") as
at the date of determination (the "Transaction Date") to (ii) the Consolidated
EBITDA of the Company for the then most recent four full fiscal quarters for
which reports have been filed pursuant to the "Reports" covenant described above
(such four full fiscal quarter period being referred to herein as the "Four
Quarter Period"); PROVIDED that (x) pro forma effect shall be given to any
Indebtedness Incurred from the beginning of the Four Quarter Period through the
Transaction Date (including any Indebtedness Incurred on the Transaction Date),
to the extent outstanding on the Transaction Date, (y) if during the period
commencing on the first day of such Four Quarter Period through the Transaction
Date (the "Reference Period"), the Company or any of the Restricted Subsidiaries
shall have engaged in any Asset Sale, Consolidated EBITDA for such period shall
be reduced by an amount equal to the EBITDA (if positive), or increased by an
amount equal to the EBITDA (if negative), directly attributable to the assets
which are the subject of such Asset Sale any related retirement of Indebtedness
as if such Asset Sale and related retirement of Indebtedness had occurred on the
first day of such Reference Period or (z) if during such Reference Period the
Company or any of the Restricted Subsidiaries shall have made any Asset
Acquisition, Consolidated EBITDA of the Company shall be calculated on a pro
forma basis as if such Asset Acquisition and any Incurrence of Indebtedness to
finance such Asset Acquisition had taken place on the first day of such
Reference Period.
"INDEBTEDNESS TO TOTAL MARKET CAPITALIZATION RATIO" means, at any date of
determination, the ratio of (i) the aggregate amount of Indebtedness of the
Company and Restricted Subsidiaries on a consolidated basis outstanding to (ii)
the Total Market Capitalization of the Company.
"INVESTMENT" in any Person means any direct or indirect advance, loan or
extension of credit (including, without limitation, by way of Guarantee or
similar arrangement; but excluding advances to customers in the ordinary course
of business that are, in conformity with GAAP, recorded as accounts receivable
on the balance sheet of the Company or its Restricted Subsidiaries) or capital
contribution to (by means of any transfer of cash or other property to others or
any payment for property or services for the account or use of others), or any
purchase or acquisition of Capital Stock, bonds, notes, debentures or other
similar instruments issued by, such Person and shall include (i) the designation
of a Restricted Subsidiary as an Unrestricted Subsidiary and (ii) the fair
market value of the Capital Stock held by the 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
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the assets (net of liabilities) of any Unrestricted Subsidiary at the time that
such Unrestricted Subsidiary is designated a Restricted Subsidiary of the
Company and (ii) any property transferred to or from an Unrestricted Subsidiary
shall be valued at its fair market value at the time of such transfer, in each
case as determined by the Board in good faith.
"ISSUE DATE" means the date of original issuance of the Notes.
"LIEN" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the nature
thereof, any option or other agreement to sell or give a security interest in
and any filing of or agreement to give any financing statement under the Uniform
Commercial Code (or equivalent statutes) of any jurisdiction).
"NET CASH PROCEEDS" means (a) with respect to any Asset Sale, the proceeds
of such Asset Sale in the form of cash or cash equivalents, including payments
in respect of deferred payment obligations (to the extent corresponding to the
principal, but not interest, component thereof) when received in the form of
cash or cash equivalents (except to the extent such obligations are financed or
sold with recourse to the Company or any Restricted Subsidiary of the Company)
and proceeds from the conversion of other property received when converted to
cash or cash equivalents, net of (i) brokerage commissions and other fees and
expenses (including fees and expenses of counsel and investment bankers) related
to such Asset Sale, (ii) provisions for all taxes (whether or not such taxes
will actually be paid or are payable) as a result of such Asset Sale without
regard to the consolidated results of operations of the Company and its
Restricted Subsidiaries, taken as a whole, (iii) payments made to repay
Indebtedness or any other obligation outstanding at the time of such Asset Sale
that either (A) is secured by a Lien on the property or assets sold or (B) is
required to be paid as a result of such sale and (iv) appropriate amounts to be
provided by the Company or any Restricted Subsidiary of the Company as a reserve
against any liabilities associated with such Asset Sale, including, without
limitation, pension and other post-employment benefit liabilities, liabilities
related to environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale, all as determined in conformity
with GAAP and (b) with respect to any issuance or sale of Capital Stock, the
proceeds of such issuance or sale in the form of cash or cash equivalents,
including payments in respect of deferred payment obligations (to the extent
corresponding to the principal, but not interest, component thereof) when
received in the form of cash or cash equivalents (except to the extent such
obligations are financed or sold with recourse to the Company or any Restricted
Subsidiary of the Company) and proceeds from the conversion of other property
received when converted to cash or cash equivalents, net of attorney's fees,
underwriters' or placement agents' fees, discounts or commissions and brokerage,
consultant and other fees incurred in connection with such issuance or sale and
net of taxes paid or payable as a result thereof.
"NON-RECOURSE DEBT" means Indebtedness (a) as to which neither the Company
nor any of its Restricted Subsidiaries (i) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness) or (ii) is directly or indirectly liable (as a guarantor or
otherwise); (b) no default with respect to which (including any rights that the
holders thereof may have to take enforcement action against an Unrestricted
Subsidiary) would permit (upon notice, lapse of time or both) any holder of any
other Indebtedness (other than the Notes) of the Company or any of its
Restricted Subsidiaries to declare a default on such other Indebtedness or cause
the payment thereof to be accelerated or payable prior to its stated maturity;
and (c) as to which the lender of any indebtedness 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
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for payment on a pro rata basis; (ii) the purchase price and the date of
purchase (which shall be a business day no earlier than 30 days nor later than
60 days from the date such notice is mailed) (the "Payment Date"); (iii) that
any Note not tendered will continue to accrue interest pursuant to its terms;
(iv) that, unless the Company defaults in the payment of the purchase price, any
Note accepted for payment pursuant to the Offer to Purchase shall cease to
accrue interest on and after the Payment Date; (v) that holders electing to have
a Note purchased pursuant to the Offer to Purchase will be required to surrender
the Note together with the form entitled "Option of the Holder to Elect
Purchase" on the reverse side thereof completed, to the Paying Agent at the
address specified in the notice prior to the close of business on the business
day immediately preceding the Payment Date; (vi) that holders will be entitled
to withdraw their election if the Payment Agent receives, not later than the
close of business on the third business day immediately preceding the Payment
Date, a telegram, facsimile transmission or letter setting forth the name of
such holder, the principal amount of Notes delivered for purchase and a
statement that such holder is withdrawing his election to have such Notes
purchased; and (vii) that holders whose Notes are being purchased only in part
will be issued new Notes equal in principal amount to the unpurchased portion
thereof; PROVIDED that each Note purchased and each new Note issued shall be in
a principal amount of $1,000 or integral multiples thereof. On the Payment Date,
the Company shall (i) accept for payment on a pro rata basis Notes or portions
thereof tendered pursuant to an Offer to Purchase, (ii) deposit with the Paying
Agent money sufficient to pay the purchase price of all Notes or portions
thereof so accepted and (iii) deliver, or cause to be delivered, to the Trustee
all Notes or portions thereof so accepted together with an Officers' Certificate
specifying the Notes or portions thereof so accepted for payment by the Company.
The Paying Agent shall promptly mail to the holders of Notes so accepted for
payment in an amount equal to the purchase price, and the Trustee shall promptly
authenticate and mail to such holders a new Note equal in principal amount to
any unpurchased portion of the Note surrendered; PROVIDED that each Note
purchased and each new Note issued shall be in a principal amount of $1,000 or
integral multiples thereof. The Company will publicly announce the results of an
Offer to Purchase as soon as practicable after the Payment Date. The Trustee
shall act as the Paying Agent for an Offer to Purchase. The Company will comply
with Rule 14e-1 under the Exchange Act and any other securities laws and
regulations thereunder to the extent such laws and regulations are applicable,
in the event that the Company is required to repurchase Notes pursuant to an
Offer to Purchase.
"PERMITTED ASSET SWAP" means any disposition by the Company or any of its
Restricted Subsidiaries of Telecommunications Assets or a majority of the Voting
Stock of a Restricted Subsidiary in exchange for comparable Telecommunications
Assets or a majority of the Voting Stock of a comparable Restricted Subsidiary;
PROVIDED that the Board shall have approved such disposition and exchange and
determined the fair market value of the assets subject to such transaction as
evidenced by a resolution of the Board or such fair market value has been
determined by a written opinion of an investment banking firm of national
standing or other recognized independent expert with experience appraising the
terms and conditions of the type of transaction contemplated thereby.
"PERMITTED INVESTMENTS" MEANS:
(i) an Investment in a Restricted Subsidiary or a Person which will,
upon the making of such Investment, become a Restricted Subsidiary or be
merged or consolidated with or into or transfer or convey all or
substantially all its assets to, the Company or a Restricted Subsidiary;
(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;
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(vi) Investments, to the extent that the consideration provided by the
Company or any of its Restricted Subsidiaries consists solely of Capital
Stock (other than Redeemable Stock) of the Company;
(vii) notes payable to the Company that are received by the Company as
payment of the purchase price for Capital Stock (other than Redeemable
Stock) of the Company;
(viii) Investments in an aggregate amount not to exceed $20.0 million at
any one time outstanding;
(ix) Investments in an aggregate amount not to exceed $1.0 million at
any time outstanding in Unrestricted Subsidiaries engaged in the
Telecommunications Business outside of the United States;
(x) Investments in entities (other than ART West) that own licenses
granted by the FCC; PROVIDED that (A) such Investments are made pursuant to
a senior promissory note, in an amount equal to such Investment, that by its
terms is payable in full at or before any required repayment of principal on
the Notes, (B) such promissory note is secured equally and ratably with (or
prior to) any other secured Indebtedness of such entity, (C) such Investment
is made and used for the purpose of effecting, and does not exceed the
amount reasonably required to effect, the minimum build-out with respect to
such licenses that is required by the FCC as a prerequisite to the transfer
of a majority equity interest in such entity to the Company or one of its
Restricted Subsidiaries, as determined in good faith by the Board and (D)
the Company, at the time such Investment is made, had a contractual right
to, and intends (subject in all cases to compliance with applicable FCC
rules and regulations) to, acquire such majority equity interest;
(xi) Investments existing on the Issue Date;
(xii) the acquisition of all equity interests of ART West not otherwise
owned by the Company;
(xiii) Directed Investments; and
(xiv) promissory notes from Commco, L.L.C. in payment of the exercise
price of the option granted by the Company to Commco, L.L.C. in accordance
with the terms of the Option Agreement, dated as of July 3, 1996, between
the Company and Commco, L.L.C.
"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;
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(v) easements, rights-of-way, municipal and zoning ordinances and
similar charges, encumbrances, title defects or other irregularities that do
not materially interfere with the ordinary course of business of the Company
or any of its other irregularities that do not materially interfere with the
ordinary course of business of the Company or any of its Subsidiaries;
(vi) Liens (including extensions and renewals thereof) upon real or
personal property acquired after the Issue Date; PROVIDED that (A) such Lien
is created solely for the purpose of securing Indebtedness Incurred in
accordance with the "Limitation on Indebtedness" covenant, (1) to finance
the cost (including the cost of improvement or construction) of the item of
property or assets subject thereto and such Lien is created prior to, at the
time of or within six months after the later of the acquisition, the
completion of construction or the commencement of full operation of such
property or (2) to refinance any Indebtedness previously so secured, (B) the
principal amount of the Indebtedness secured by such Lien does not exceed
100% of such cost and (C) any such Lien shall not extend to or cover any
property or assets other than such item of property or assets and any
improvements on such item;
(vii) leases or subleases granted to others that do not materially
interfere with the ordinary course of business of the Company and its
Restricted Subsidiaries, taken as a whole;
(viii) Liens encumbering property or assets under construction arising
from progress or partial payments by a customer of the Company or its
Restricted Subsidiaries relating to such property or assets;
(ix) any interest or title of a lessor in the property subject to any
Capitalized Lease or operating lease;
(x) Liens arising from filing Uniform Commercial Code financing
statements regarding leases;
(xi) Liens on property of, or on shares of stock or Indebtedness of, any
corporation existing at the time such corporation becomes, or becomes a part
of, any Restricted Subsidiary; PROVIDED that such Liens do not extend to or
cover any property or assets of the Company or any Restricted Subsidiary
other than the property or assets acquired;
(xii) Liens in favor of the Company or any Restricted Subsidiary;
(xiii) Liens arising from the rendering of a final judgment or order
against the Company or any Restricted Subsidiary of the Company that does
not give rise to an Event of Default;
(xiv) Liens securing reimbursement obligations with respect to letters of
credit that encumber documents and the property relating to such letters of
credit and the products and proceeds thereof;
(xv) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with the
importation of goods;
(xvi) Liens arising out of conditional sale, title retention, consignment
or similar arrangements for the sale of goods entered into by the Company or
any of its Restricted Subsidiaries in the ordinary course of business in
accordance with the past practices of the Company and its Restricted
Subsidiaries prior to the Issue Date;
(xvii) Liens on or sales of receivables;
(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;
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(xx) Liens existing on the Issue Date and any extension, renewal or
replacement of any Liens existing on Issue Date, provided that the Liens in
any such extension, renewal or replacement are no less favorable in any
material respect to the holders than those Liens that are then in effect and
that are being extended, renewed or replaced;
(xxi) Liens granted after the Issue Date on any assets or Capital Stock of
the Company or its Restricted Subsidiaries created in favor of the holders
of the Notes;
(xxii) Liens with respect to the assets of a Restricted Subsidiary granted
by such Restricted Subsidiary to the Company or a Wholly Owned Restricted
Subsidiary to secure Indebtedness owing to the Company or such other Wholly
Owned Restricted Subsidiary;
(xxiii) Liens securing Indebtedness which is Incurred to refinance secured
Indebtedness which is permitted to be Incurred under clause (iii) of the
second paragraph of the "Limitation on Indebtedness" covenant; PROVIDED that
such Liens do not extend to or cover any property or assets of the Company
or any Restricted Subsidiary other than the property or assets securing the
Indebtedness being refinanced;
(xxiv) purchase money Liens upon equipment, software or systems acquired or
held by the Company or any of its Restricted Subsidiaries taken or retained
by the seller (or a financing institution acting on behalf of the seller) of
such equipment, software or systems to secure all or a part of the purchase
price therefor; PROVIDED that such Liens do not extend to or cover any
property or assets of the Company or any Restricted Subsidiary other than
the equipment so acquired;
(xxv) Liens securing Indebtedness which is permitted to be Incurred under
clause (xiii) or (xiv) of the second paragraph of the "Limitation on
Indebtedness" covenant; and
(xxvi) Liens on the Pledged Securities in favor of the holders of the
Notes.
"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.
"PLEDGE ACCOUNT" means an account established with the Trustee pursuant to
the terms of the Pledge Agreement for the deposit of the Pledged Securities
purchased by the Company with a portion of the net proceeds from the Unit
Offering.
"PLEDGE AGREEMENT" means the Collateral Pledge and Security Agreement, dated
as of the date of the Indenture, by and between the Trustee and the Company,
governing the disbursement of funds from the Pledge Account.
"PLEDGED SECURITIES" means the securities purchased by the Company with a
portion of the net proceeds from the Unit Offering, which shall initially
consist of Government Securities, to be deposited in the Pledge Account.
"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
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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.
"SUBSIDIARY" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"TELECOMMUNICATIONS ASSETS" means all assets (including, without limitation,
assets consisting of subscribers), rights (contractual or otherwise) and
properties, whether tangible or intangible, used in connection with a
Telecommunications Business.
"TELECOMMUNICATIONS BUSINESS" means, when used in reference to any Person,
that such Person is engaged primarily in the business of (i) providing voice,
video or data communications services, (ii) creating, developing, marketing or
selling communications related equipment, software and other devices or (iii)
evaluating, participating in or pursuing any other activity or opportunity that
is related or incidental to those identified in clauses (i) or (ii) above.
"TEMPORARY CASH INVESTMENT" means any of the following: (i) direct
obligations of the United States or any agency thereof or obligations fully and
unconditionally guaranteed by the United States or any agency thereof; (ii) time
deposit accounts, certificates of deposit and money market deposits maturing
within six months of the date of acquisition thereof issued by a bank or trust
company which is organized under the laws of the United States, any state
thereof or any foreign country recognized by the United States, and which bank
or trust company has capital, surplus and undivided profits aggregating in
excess of $500.0 million (or the foreign currency equivalent thereof) and has
outstanding debt which is
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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.
"TOTAL MARKET CAPITALIZATION" of any Person means, as of any day of
determination, the sum of (a) the consolidated Indebtedness of such Person and
its Restricted Subsidiaries on such day, PLUS (b) the product of (i) the
aggregate number of outstanding shares of Common Stock of such Person on such
day (which shall not include any options or warrants on, or securities
convertible or exchangeable into, shares of Common Stock of such Person) and
(ii) the average Closing Price of such Common Stock over the 10 consecutive
Trading Days ending not earlier than 10 Trading Days immediately prior to such
date of determination, PLUS (c) the liquidation value of any outstanding shares
of Preferred Stock of such Person on such day. If no such Closing Price exists
with respect to shares of any such class, the value of such shares for purposes
of clause (b) of the preceding sentence shall be determined by the Board in good
faith and evidenced by a resolution of the Board filed with the Trustee.
Notwithstanding the foregoing, unless the Company's Common Stock is listed on
any national securities exchange or on the Nasdaq National Market, the "Total
Market Capitalization" of the Company shall mean, as of any day of
determination, the enterprise value (without duplication) of the Company and its
Restricted Subsidiaries (including the fair market value of their debt and
equity, but excluding the enterprise value of the Company's Unrestricted
Subsidiaries), as determined by an independent banking firm of national standing
with experience in such valuations and evidenced by a written opinion in
customary form filed with the Trustee; PROVIDED that for purposes of any such
determination, the enterprise value of the Company shall be calculated as if the
Company were a publicly held corporation without a controlling stockholder. For
purposes of any such determination, such banking firm's written opinion may
state that such fair market value is no less than a specified amount and such
opinion may be as of a date no earlier than 90 days prior to the date of such
determination.
"TRADING DAY" with respect to a securities exchange or automated quotation
system means a day on which such exchange or system is open for a full day of
trading.
"UNRESTRICTED SUBSIDIARY" means any Subsidiary that is designated by the
Board as an Unrestricted Subsidiary pursuant to a resolution of the Board; but
only to the extent that such Subsidiary (i) has no Indebtedness other than
Non-Recourse Debt; (ii) is not party to any agreement, contract, arrangement or
understanding with the Company or any Restricted Subsidiary of the Company
unless the terms of any such agreement, contract, arrangement or understanding
are no less favorable to the Company or such Restricted Subsidiary than those
that might be obtained at the time from Persons who are not Affiliates of the
Company; (iii) is a Person with respect to which neither the Company nor any of
its Restricted Subsidiaries has any direct or indirect obligation (A) to
subscribe for additional equity interests, except to the extent that such
obligation complies with the "Limitation on Restricted Payments" covenant, or
(B) to maintain or preserve such Person's financial condition or to cause such
Person to achieve any specified levels of operating results; (iv) is not a
guarantor of or otherwise directly or indirectly provides credit support for any
Indebtedness of the Company or any of its Restricted Subsidiaries; and (v) has,
immediately prior to the commencement of material business operations, at least
one director on its board of directors that is not a director or executive
officer of the Company or any of its Restricted Subsidiaries and has at least
one executive officer that is not a director or executive
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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 AGREEMENTS" means (i) that certain Voting Trust and
Irrevocable Proxy Agreement, (ii) that certain Voting Agreement and (iii)
Section 7 of that certain Confidentiality Agreement, each dated as of November
5, 1996.
"WHOLLY OWNED" means, with respect to any Subsidiary of any Person, such
Subsidiary if all of the outstanding Capital Stock in such Subsidiary (other
than any director's qualifying shares or Investments by foreign nationals
mandated by applicable law) is owned by such Person or one or more Wholly Owned
Subsidiaries of such Person.
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DESCRIPTION OF WARRANTS
The Warrants will be issued pursuant to a warrant agreement (the "Warrant
Agreement") by and between the Company and Continental Stock Transfer and Trust
Company, as warrant agent (the "Warrant Agent"). The following summary of
certain provisions of the Warrant Agreement and the Warrants does not purport to
be complete and is qualified in its entirety by reference to the Warrant
Agreement and the Warrants, including the definitions therein of certain terms.
The Warrant Agreement will be substantially in the form of the Warrant Agreement
filed as an exhibit to the Registration Statement of which this Prospectus is a
part.
GENERAL
Each Warrant, when exercised, will entitle the holder thereof to receive
9.024 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 , 1997. Unless exercised, the Warrants will
automatically expire on , 2007 (the "Expiration Date"). Upon
exercise, the holders of Warrants would be entitled, in the aggregate, to
purchase 1,128,011 shares of Common Stock, representing 5.0% of the outstanding
Common Stock on a fully diluted basis on the date hereof, after giving effect to
the CommcoCCC Acquisition.
The Warrants may be exercised at any time on or after the Separation Date by
surrendering to the Company at the office of the Warrant Agent the Warrant
certificates evidencing such Warrants with the accompanying form of election to
purchase properly completed and executed, together with payment of the Exercise
Price. Payment of the Exercise Price may be made in the form of cash or a
certified or official bank check payable to the order of the Company. Upon
surrender of the Warrant certificate and payment of the Exercise Price, the
Warrant Agent will deliver or cause to be delivered, to or upon the written
order of such holder, a stock certificate representing the number of whole
Warrant Shares or other securities or property to which such holder is entitled
under the Warrant Agreement and the Warrants, including, without limitation, any
cash payment to adjust for fractional interests in Warrant Shares issuable upon
such exercise. If less than all of the Warrants evidenced by a Warrant
certificate are to be exercised, a new Warrant certificate will be issued for
the remaining number of Warrants. The Warrant Shares to be issued upon the
exercise of the Warrants will be registered under the Securities Act.
No fractional Warrant Share will be issued upon exercise of the Warrants. If
any fraction of a Warrant Share would, except for the foregoing provision, be
issuable on the exercise of any Warrants (or a specified portion thereof), the
Company shall pay an amount in cash equal to the current market price per
Warrant Share, as determined on the day immediately preceding the date the
Warrant is presented for exercise, multiplied by such fraction, computed to the
nearest whole U.S. cent.
Certificates for Warrants will be issued in registered form only, and no
service charge will be made for registration of transfer or exchange upon
surrender of any Warrant certificate at the office of the Warrant Agent
maintained for that purpose. The Company may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
with any registration, transfer or exchange of Warrant certificates.
The holders of the Warrants have no right to vote on matters submitted to
the stockholders of the Company and have no right to receive dividends. The
holders of the Warrants are not be entitled to share in the assets of the
Company in the event of liquidation, dissolution or winding up of the Company's
affairs.
In the event of taxable distribution to holders of Common Stock which
results in an adjustment to the number of Warrant Shares or other consideration
for which a Warrant may be exercised, the holders of the Warrants may, in
certain circumstances, be deemed to have received a distribution subject to
United States federal income tax as a dividend. See "Certain Federal Income Tax
Considerations".
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REGISTRATION OF WARRANT SHARES
Holders of Warrants will be able to exercise their Warrants only if a
registration statement relating to the Warrant Shares is then in effect, or the
exercise of such Warrants is exempt from the registration requirements of the
Securities Act, and such securities are qualified for sale or exempt from
qualification under the applicable securities laws of the states in which the
various holders of the Warrants or other persons to whom it is proposed that the
Warrant Shares be issued on exercise of the Warrants reside. The Company is
required under the terms of the Warrant Agreement to file and use its best
efforts to cause to become effective no later than , 1997 a shelf
registration statement (the "Warrant Shelf Registration Statement") on an
appropriate form under the Securities Act covering the issuance of the Warrant
Shares upon the exercise of the Warrants. Subject to up to two "black-out"
periods not to exceed 45 days each in any calendar year, the Company will also
be required to use its best efforts to maintain the effectiveness of the Warrant
Shelf Registration Statement until the expiration or exercise of all Warrants.
There can be no assurance that the Company will be able to file, cause to be
declared effective or keep a registration statement continuously effective until
all of the Warrants have been exercised or have expired.
ADJUSTMENTS
The number of shares of Common Stock purchasable upon the exercise of the
Warrants and the Exercise Price both will be subject to adjustment in certain
events (subject to certain exceptions) including (i) the payment by the Company
of dividends (and other distributions) on Common Stock payable in Common Stock
or other shares of the Company's capital stock, (ii) subdivisions, combinations
and reclassifications of Common Stock, (iii) the issuance to all holders of
Common Stock of rights, options or warrants entitling them to subscribe for
Common Stock or of securities convertible into or exchangeable for Common Stock,
for a consideration per share of Common Stock which is less than the current
market price per share of Common Stock and (iv) the distribution to all holders
of Common Stock of any of the Company's assets, debt securities or any rights or
warrants to purchase securities (excluding those rights and warrants referred to
in clause (iii) above and excluding cash dividends less than a specified
amount). In addition, the Exercise Price may be reduced in the event of
purchases of Common Stock pursuant to a tender or exchange offer made by the
Company of any subsidiary thereof at a price greater than the sale price of the
Common Stock at the time such tender or exchange offer expires.
No adjustment in the Exercise Price will be required unless such adjustment
would require an increase or decrease of at least one percent (1%) in the
Exercise Price; PROVIDED, HOWEVER, that any adjustment which is not made will be
carried forward and taken into account in any subsequent adjustment.
In the case of certain consolidations or mergers of the Company, or the sale
of all or substantially all of the assets of the Company to another corporation,
each Warrant shall thereafter be exercisable for the right to receive the kind
and amount of shares of stock or other securities or property to which such
holder would have been entitled as a result of such consolidation, merger or
sale had the Warrants been exercised immediately prior thereto.
AUTHORIZED SHARES
The Company has authorized for issuance such number of shares of Common
Stock as shall be issuable upon the due exercise of all outstanding Warrants.
Such shares of Common Stock, when paid for and issued, will be duly and validly
issued, fully paid and non-assessable, free of preemptive rights and free from
all taxes, liens, charges and security interests with respect to the issue
thereof (other than any such tax, lien, charge or security interest imposed upon
or granted by the holder of the Common Stock).
AMENDMENT
From time to time, the Company and the Warrant Agent, without the consent of
the holders of the Warrants, may amend or supplement the Warrant Agreement for
certain purposes, including curing
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defects or inconsistencies or making changes that do not materially adversely
affect the rights of any holder. Any amendment or supplement to the Warrant
Agreement that has a material adverse effect on the interests of the holders of
the Warrants shall require the written consent of the holders of a majority of
the then outstanding Warrants (excluding Warrants held by the Company or any of
its Affiliates). The consent of each holder of the Warrants affected shall be
required for any amendment pursuant to which the Exercise Price would be
increased or the number of Warrant Shares purchasable upon exercise of Warrants
would be decreased (other than pursuant to adjustments provided in the Warrant
Agreement).
GOVERNING LAW
The Warrant Agreement and the Warrants will be governed by, and construed in
accordance with, the laws of the State of New York without regard to the
principles of conflicts of law thereof.
REPORTS
Whether or not the Company is subject to the reporting requirements of the
Exchange Act, the Company shall cause copies of the reports described under
"Description of Notes -- Certain Covenants -- Reports" to be filed with the
Commission (to the extent permitted) and the Warrant Agent and mailed to the
holders at their addresses appearing in the register of Warrants maintained by
the Warrant Agent to the same extent as such reports are furnished to the
holders of Notes in accordance with the Indenture.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 100,000,000 shares
of Common Stock, $.001 par value, and 10,000,000 shares of Serial Preferred
Stock, $.001 par value (the "Preferred Stock").
COMMON STOCK
As of December 31, 1996, there were 13,560,005 shares of Common Stock
outstanding held of record by 133 stockholders (without giving effect to any
exercise of outstanding warrants or options). The holders of Common Stock are
entitled to one vote per share on all matters to be voted on by the
stockholders. Subject to preferences that may be applicable to the outstanding
shares of Preferred Stock, if any, the holders of Common Stock are entitled to
receive ratably such dividends as may be declared from time to time by the Board
of Directors out of funds legally available therefor. In the event of the
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to share ratably in all assets remaining after payment of
liabilities, subject to prior liquidation rights of the Preferred Stock then
outstanding. The Common Stock has no preemptive conversion rights or other
subscription rights. There are no redemption or sinking fund provisions
applicable to the Common Stock. All outstanding shares of Common Stock are fully
paid and non-assessable, and the shares of Common Stock issuable upon exercise
of the Warrants will be fully paid and non-assessable.
PREFERRED STOCK
As of December 31, 1996, there were no shares of Preferred Stock
outstanding. The Board of Directors has 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.
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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. Certain provisions of the Certificate of Incorporation
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 75% of the then outstanding shares of Common Stock. These provisions could
also impede the success of any attempt to effect a change in control of the
Company.
The Company is subject to Section 203 ("Section 203") of the Delaware
General Corporation Law (the "Delaware GCL"). Section 203 prohibits a
publicly-held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless (i)
prior to such date, the board of directors of the corporation approves either
the business combination or the transaction which resulted in the stockholder
becoming an interested stockholder, (ii) upon consummation of the transaction
which resulted in the stockholder becoming an interested stockholder, the
interested stockholder owns at least 85% of the outstanding voting stock
(excluding certain shares held by persons who are both directors and officers of
the corporation and certain employee stock plans), or (iii) on or after the
consummation date, the business combination is approved by the board of
directors and by the affirmative vote of at least 66 2/3% of the outstanding
voting stock that is not owned by the interested stockholder. For purposes of
Section 203, a "business combination" includes, among other things, a merger,
asset sale or other transaction resulting in a financial benefit to the
interested stockholder, and an "interested stockholder" is generally a person
who, together with affiliates and associates, owns (or within three years,
owned) 15% or more of the corporation's voting stock.
INDEMNIFICATION OF DIRECTORS AND OFFICERS AND LIMITATION OF DIRECTOR LIABILITY
The Company's Certificate of Incorporation contains provisions that
eliminate the personal liability of its directors to the fullest extent
permitted by the Delaware GCL for monetary damages resulting from breaches of
their fiduciary duty. The Certificate of Incorporation also contains provisions
requiring the indemnification of the Company's directors and officers to the
fullest extent permitted by the Delaware GCL against all losses or liabilities
which he or she may sustain or incur on or about the execution of the duties of
his or her office or otherwise in relation thereto. The Company believes that
these provisions are necessary to attract and retain qualified persons as
directors and officers.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is Continental Stock
Transfer & Trust Company.
LISTING
The Common Stock is quoted on the Nasdaq Stock Market under the symbol
"ARTT."
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DESCRIPTION OF CERTAIN INDEBTEDNESS
CIBC FINANCING COMMITMENT
The Company has entered into agreements with the Noteholders which provide
that the Company may draw down $50.0 million of 12.5% Senior Secured Notes, due
in two years (the "CIBC Financing Commitment"). The Company has the option of
drawing down the Senior Secured Notes until February 10, 1997. Upon completion
of the Offering, the CIBC Financing Commitment will terminate, and, accordingly,
the Company will not issue the Senior Secured Notes in such event. The interest
rate on the Senior Secured Notes increases by 0.50% per annum on February 12,
1997 and by an additional 0.50% per annum for each three-month period
thereafter.
The Senior Secured Notes, if issued, will be secured by a first priority
security interest in substantially all the assets of the Company, including a
pledge of the Company's stock in its subsidiaries. The Senior Secured Notes, if
issued, will be guaranteed by the Company's domestic subsidiaries. The Senior
Secured Notes, if issued, will contain covenants that restrict the ability of
the Company to pay dividends and make other restricted payments, to incur
additional debt, guarantees and liens, to sell its assets, to enter into mergers
and consolidations, to conduct sale and leaseback transactions and to enter into
affiliate transactions, among other restrictions.
The Company must apply the net proceeds received by it or any of its
subsidiaries from the net cash proceeds of any bank financing, sale of senior or
subordinated debt securities (excluding vendor financing and indebtedness
assumed in acquisitions and including the Offering) or any sale of equity
securities (other than equity issuances in permitted acquisitions) to prepay the
Senior Secured Notes. Upon a change of control (as defined in the CIBC Financing
Commitment agreements), the Company must make an offer to repurchase the Senior
Secured Notes at 101% of principal plus accrued and unpaid interest. The Company
may prepay the Senior Secured Notes at any time at par plus accrued interest.
In November 1996, the Company delivered to the Noteholders warrants to
purchase 300,257 shares of Common Stock (1.5% of the fully diluted Common Stock
of the Company after giving effect to the CommcoCCC Acquisition) at an exercise
price of $.01 per share (the "First CIBC Warrants"). The Company is obligated to
deliver to the Noteholders additional warrants to purchase 1.5% of the fully
diluted Common Stock upon first drawing down of the Senior Secured Notes (the
"Second CIBC Warrants" and, collectively with the First CIBC Warrants, the
"Initial CIBC Warrants"). If the Senior Secured Notes are outstanding on May 12,
1997, the Company shall issue to the Noteholders additional such warrants to
purchase 3% of the fully diluted Common Stock (the "Third CIBC Warrants"), and
if the Senior Secured Notes are outstanding after such initial six month period,
the Company will issue to the Noteholders additional such warrants (the "Fourth
CIBC Warrants", and collectively with the Third CIBC Warrants, the "Additional
CIBC Warrants") until the repayment date of the Senior Secured Notes on the
basis of 3% of the fully diluted Common Stock for every six month period,
pro-rated for any partial periods. The Initial CIBC Warrants and Additional CIBC
Warrants are referred to collectively as the "CIBC Warrants." The CIBC Warrants
have anti-dilution protection and demand and piggyback registration rights under
the Company's Registration Rights Agreement. See "Shares Eligible for Future
Sale--Registration Rights."
The commitment for sale of the Senior Secured Notes and the CIBC Warrants
(the "CIBC Financing Commitment") was arranged by CIBC Wood Gundy (as defined).
See "Underwriting." In connection with the CIBC Financing Commitment, the
Company is obligated to pay to CIBC Wood Gundy a structuring/placement fee and
is obligated to pay to the Noteholders a commitment fee, of which 50% was paid
in November 1996 and 50% is payable upon the earlier of draw down or March 31,
1997 if the Senior Secured Notes are issued. Under an exclusive placement agent
agreement, the Company has agreed to indemnify CIBC Wood Gundy and its
affiliates for liabilities resulting from the CIBC Financing Commitment and
certain future financings.
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EMI NOTE
In connection with the acquisition of the EMI Assets, the Company issued to
EMI a $1.5 million principal amount non-negotiable and non-transferable,
unsecured promissory note (the "EMI Note"). Interest on the EMI Note accrues at
a rate equal to the prime rate plus 2%. The Company is obligated to make
quarterly principal repayments of $187,500, commencing January 1, 1997. The EMI
Note matures on November 14, 1998. See "Business -- Agreements Relating to
Licenses and Acquisitions -- EMI Acquisition."
EQUIPMENT FINANCING
On April 1, 1996, CRA, Inc. ("CRA") entered into secured Equipment Financing
with the Company for the purchase from P-Com of 38 GHz radio equipment. To
evidence its obligations under the Equipment Financing, the Company issued in
favor of CRA a $2,445,000 Equipment Note, payable in twenty four monthly
installments of $92,694 with a final payment equal to $642,305 due April 1,
1998. See "Certain Transactions -- Equipment Financing."
PROPOSED CREDIT FACILITY
Canadian Imperial Bank of Commerce has provided the Company a Summary of
Terms and Conditions on which it and other banks might extend credit pursuant to
a Senior Secured Revolving Credit Facility converting to an Amortizing Term Loan
(the "Credit Facility"). Under the Credit Facility, up to $100,000,000 in
revolving loans would be available based on incurrence provisions which have not
been determined as of the date hereof but would include measures of total debt
to operating cash flows, numbers of links, numbers of links per population unit
or market and amount of revenue per link. The proceeds could be used to finance
the construction of the Company' systems, capital expenditures, permitted
acquisitions, operating losses and working capital. The Credit Facility would be
secured by all of the assets of the Company and its subsidiaries including a
pledge of stock and assets of all subsidiaries, subject to certain exceptions to
be determined, and would be guaranteed by all subsidiaries. The interest rate
would initially be at 2.50% over the bank's base rate or 3.50% over LIBOR
subject to reduction. Mandatory prepayment will be required with respect to a
percentage of excess cash flow and proceeds of equity offerings and asset sales.
The revolving credit facility will convert to a term loan after a period, for a
term and with an amortization to be determined.
In addition, the Credit Facility will include financial covenants to be
determined relating to ratios of total debt to annualized operating cash flow,
operating cash flow to cash interest expense, cash flow available for debt
service to pro forma fixed charges and total debt per total links as well as to
minimum revenues, minimum operating cash flow (or maximum loss), minimum revenue
per link and minimum number of links. The Credit Facility will prohibit the
Company from making restricted payments and acquisitions other than permitted
acquisitions, from incurring indebtedness, except with certain limitations, or
liens, or merging, and will limit investments and asset sales. The Credit
Facility will contain a provision relating to change of control of the Company.
The Credit Facility will also contain customary events of default, including but
not limited to nonpayment of principal and interest when due, violations of
covenants, falsity of representations and warranties in any material respect,
actual or asserted invalidity of security documents and security interests and
the occurrence of certain events with respect to the Company or any subsidiary
including cross-default and cross-acceleration, bankruptcy, material judgments,
ERISA violations, change in control and loss or material impairment of FCC
licenses.
The Company will be required to pay a structuring fee which has not yet been
determined, a facility fee of 3.5% payable at closing and a commitment fee of
0.5% per annum on the unused portion of the facility. Execution of the Credit
Facility will be dependent upon, among other things, satisfactory due diligence
review by the banks, consummation of the Offering on terms satisfactory to the
banks and negotiation and execution of mutually satisfactory documentation.
There is no assurance that the Credit Facility will be executed, what the terms
of the Credit Facility will be, or if executed, that the Company will be able to
borrow under the Credit Facility.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of the material United States federal
income tax considerations relevant to the purchase, ownership and disposition of
the Units, Notes and Warrants by holders acquiring Units on original issue for
cash, but does not purport to be a complete analysis of all potential tax
effects. The discussion is based upon the Internal Revenue Code of 1986, as
amended (the "Code"), Treasury regulations, Internal Revenue Service ("IRS")
rulings and pronouncements and judicial decisions all in effect as of the date
hereof, all of which are subject to change at any time, and any such change may
be applied retroactively in a manner that could adversely affect a holder of the
Units, Notes or Warrants. The discussion does not address all of the federal
income tax consequences that may be relevant to a holder in light of such
holder's particular circumstances or to holders subject to special rules, such
as certain financial institutions, insurance companies, dealers in securities,
foreign corporations, nonresident alien individuals and persons holding the
Units, Notes or Warrants as part of a "straddle," "hedge" or "conversion
transaction." Moreover, the effect of any applicable state, local or foreign tax
laws is not discussed. The discussion deals only with Units, Notes and Warrants
held as "capital assets" within the meaning of section 1221 of the Code.
The Company has not sought and will not seek any rulings from the IRS with
respect to the position of the Company discussed below. There can be no
assurance that the IRS will not take a different position concerning the tax
consequences of the purchase, ownership or disposition of the Units, Notes or
Warrants or that any such position would not be sustained.
PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH REGARD TO
THE APPLICATION OF THE TAX CONSIDERATIONS DISCUSSED BELOW TO THEIR PARTICULAR
SITUATIONS AS WELL AS THE APPLICATION OF ANY STATE, LOCAL, FOREIGN OR OTHER TAX
LAWS.
THE UNITS
Because the original purchasers of the Notes also will acquire Warrants,
each Note will be treated for federal income tax purposes as having been issued
as part of an "investment unit" consisting of the Note and associated Warrants.
The issue price of an investment unit consisting of the Note and associated
Warrants will be the first price at which a substantial amount of Units are sold
to the public for money (excluding sales to bond houses, brokers, or similar
persons or organizations acting in the capacity of underwriters, placement
agents or wholesalers). The "issue price" of an investment unit is allocated
between its component parts based on their relative fair market values. The
Company will allocate the issue price of a Unit between the Note and the
associated Warrants in accordance with the Company's determination of their
relative fair market values on the issue date. The Company will use that
allocation to determine the issue price of the Notes and the holder's tax basis
in the Warrants. Although the Company's allocation is not binding on the IRS, a
holder of a Unit must use the Company's allocation unless the holder discloses
on its federal income tax return for the year in which the Unit was acquired
that it plans to use an allocation that is inconsistent with the Company's
allocation.
THE NOTES
Holders of the Notes will be required to include payments of "qualified
stated interest" (as defined below) received thereon in taxable income in
accordance with their respective methods of accounting for federal income tax
purposes. In addition, 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 without regard to
when the cash or other payments to which such income is attributable are
received.
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 other than "qualified stated interest" payments,
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including principal and interest, required to be made thereunder until maturity.
Stated interest on the Notes will be treated as qualified stated interest. The
issue price of a Note will be equal to that portion of the issue price of the
Unit allocable to the Note as described above. It is expected that each Note
will be issued with a substantial amount of original issue discount.
TAXATION OF ORIGINAL ISSUE DISCOUNT. Each holder of a Note will be required
to include in gross income for federal income tax purposes 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 other than qualified stated
interest on or before the first day of such accrual period. The yield to
maturity is the discount rate that, when used in computing the present value of
all principal and interest payments to be made on the Note, produces an amount
equal to the issue price. Under these rules, holders will have to include
increasingly greater amounts of original issue discount in each successive
accrual period. Each payment made under a Note (except for payments of qualified
stated interest) will be treated first as a payment of original issue discount
(which was previously includable in income) to the extent of original issue
discount that has accrued as of the date of payment and has not been allocated
to prior payments and second as a payment of principal (which is not includable
in income).
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.
OPTIONAL REDEMPTION. Under the original issue discount Regulations, the
Company will be presumed to exercise its option to redeem the Notes if, by
utilizing the date of exercise of the call option as the maturity date and the
Redemption Price as the stated redemption price at maturity, the yield on the
Notes would be lower than such yield would be if the option were not exercised.
See "Description of Notes--Optional Redemption."
If the Company's option to redeem the Notes were presumed exercised on a
given date (the "Presumed Exercise Date"), the Notes would bear original issue
discount in an amount equal to the amount for which the Notes could be redeemed
(the "Redemption Amount") over their issue price. For purposes of calculating
the current inclusion of such discount, the yield on the Notes would be computed
on their issue date by treating the Presumed Exercise Date as the maturity date
of the Notes and the Redemption Amount as their stated redemption price at
maturity. If the Company's option to redeem the Notes were presumed exercised
but were not exercised in fact on the Presumed Exercise Date, the Notes would be
treated, for certain purposes, as if the option were exercised and new debt
instruments were issued on the Presumed Exercise Date for an amount of cash
equal to the Redemption Amount. In such case, it appears that any payment of
stated interest due under the Notes after the Presumed Exercise Date would
constitute qualified stated interest (rather than original issue discount) and
would be taxable as ordinary interest income at the time such interest was
accrued or was received, in accordance with such holder's regular method of
accounting for tax purposes.
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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 other property received in exchange therefor (other than amounts
attributable to accrued but unpaid stated interest) and (b) the holder's
adjusted tax basis in such Note.
A holder's tax basis in a Note generally will be equal to the price paid for
such Note, increased by the amount of original issue discount, if any,
includable in gross income prior to the date of disposition, and decreased by
the amount of any payment on such Note other than qualified stated interest
prior to disposition.
Any gain or loss recognized on the sale, retirement, or other taxable
disposition of a Note generally will be capital gain or loss. Such capital gain
or loss generally will be long-term capital gain or loss if the Note has been
held by the holder for more than one year.
THE WARRANTS
Upon the sale, exchange or other taxable disposition 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 for federal income
tax purposes 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 adjusted
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 at the time of the sale or
exchange.
Notwithstanding the above, it is possible that a redemption of a Warrant by
the Company would not be treated as a sale or exchange of a capital asset. In
that event, the holder of a Warrant could recognize ordinary income or loss on
such redemption.
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
adjusted tax basis in the Warrant Shares obtained will be equal to the sum of
such holder's adjusted tax basis in the Warrant (described above) and the
exercise price of the Warrant; the holder's holding period with respect to such
Warrant Shares will commence on the day after the date of exercise. The holder
will generally realize capital gain or loss on the sale or exchange of a Warrant
Share if the Warrant Share is a capital asset in the hands of the holder, and
such capital gain or loss will be long-term if the Warrant Share was held for
more than one year. If a Warrant expires without being exercised, the holder
will recognize a loss in an amount equal to its tax basis in the Warrant. Such
loss will be a capital loss if the Warrant Shares to which the Warrants relate
would have been a capital asset in the hands of the Warrant holder, and such
capital loss will be a long-term capital loss is the Warrant was held for more
than one year at the time of the lapse.
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 resulting in ordinary income (subject to
possible dividends received deduction in the case of corporate holders) to the
extent of the Company's current and accumulated earnings and profits. In such
event the holder's tax basis in the Warrants would be increased by an amount
equal to the constructive dividend.
If the Company fails to register the Warrant Shares within the required
period of time (and in certain other circumstances), the Company may be required
to pay Liquidated Damages to Holders. Although the characterization of these
amounts is uncertain, Liquidated Damages should be taxable as ordinary income in
accordance with the holder's method of accounting for tax purposes. Holders
should consult their own tax advisers in the event Liquidated Damages are paid.
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BACKUP WITHHOLDING
A holder of a Note may be subject to backup withholding at a rate of 31%
with respect to interest and original issue discount on, and gross proceeds upon
sale or retirement of, a Note unless such holder (i) is a corporation or other
exempt recipient and, when required, demonstrates that fact, or (ii) provides a
correct taxpayer identification number, certifies under penalty of perjury, when
required, that the taxpayer identification number provided is the holder's
correct number and that such holder is not subject to backup withholding, and
otherwise complies with applicable requirements of the backup withholding rules.
Backup withholding is not an additional tax; any amounts so withheld are
creditable against the holder's federal income tax, provided the required
information is provided to the IRS. Holders of the Notes should consult their
tax advisors as to their qualification for exemption from backup withholding and
the procedure for obtaining such an exemption.
APPLICABLE HIGH-YIELD DISCOUNT OBLIGATIONS
If the Notes are considered to have "significant original discount" (for
example, due to the number of the Warrants or the value allocated thereto) and
if the yield of the Notes is at least five percentage points above the
applicable federal rate, the Company will not be able to deduct for tax purposes
any original issue discount accruing with respect thereto until the amounts
attributable to such original issue discount is actually paid. In addition, in
that event, if the yield of the Notes is more than six percentage points above
the applicable federal rate, then (i) a portion of such interest corresponding
to the yield in excess of six percentage points above the applicable federal
rate will not be deductible by the Company at any time, and (ii) a corporate
holder may be entitled to treat the interest that is not deductible as a
dividend to the extent of the earnings and profits of the Company, which may
then qualify for the dividends received deduction. If the disqualified portion
exceeds the Company's current accumulated earnings and profits, the excess will
continue to be taxed as ordinary original issue discount income in accordance
with the rules described above. Corporate holders should consult their tax
advisers concerning the availability of the dividends received deduction.
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UNDERWRITING
Subject to the terms and conditions set forth in a purchase agreement (the
"Purchase Agreement"), among the Company and Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch") and CIBC Wood Gundy Securities Corp. ("CIBC
Wood Gundy" and, collectively with Merrill Lynch, the "Underwriters"), the
Company has agreed to sell to the Underwriters, and each Underwriter has agreed
to purchase from the Company, severally but not jointly, the number of Units set
forth opposite its name below. The Purchase Agreement provides that, subject to
the terms and conditions set forth therein, the Underwriters will be obligated
to purchase all of the Units if any such Units are purchased.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF UNITS
---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..........................................
CIBC Wood Gundy Securities Corp..................................
---------
Total................................................. 125,000
---------
---------
</TABLE>
The several 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 Offering, the public offering price, concession and discount may be
changed.
The Company has granted to Merrill Lynch a right of first refusal with
respect to the performance of certain investment banking services for which
Merrill Lynch will receive customary compensation. The Company has engaged CIBC
Wood Gundy to provide certain investment banking services for which CIBC Wood
Gundy will receive customary compensation. In addition, in connection with the
CIBC Financing Commitment, (i) CIBC Wood Gundy received a $1.25 million
structuring/placement fee and (ii) CIBC WG Argosy Merchant Fund 2, LLC, an
affiliate of CIBC Wood Gundy (the "Merchant Fund"), committed to purchase $20.0
million of Senior Secured Notes, if issued, and consequently received warrants
to purchase 120,103 shares of Common Stock and a commitment fee of $200,000 in
connection therewith. If the Senior Secured Notes are issued, (i) CIBC Wood
Gundy will receive an additional $1.25 million installment of its
structuring/placement fee and (ii) the Merchant Fund will receive an additional
$200,000 installment of its commitment fee. In the event that the Senior Secured
Notes are issued, the Merchant Fund would, under certain circumstances, be
entitled to receive additional warrants to purchase Common Stock. See
"Description of Certain Indebtedness -- CIBC Financing Commitment."
There is currently no public market for the Units, the Notes or the
Warrants, and the Company does not intend to apply for listing of the Units, the
Notes or the Warrants on any securities exchange or on any inter-dealer
quotation system. The Common Stock has been approved for quotation on the Nasdaq
National Market. The Company has been advised by the Underwriters that,
following the completion of the initial public offering of the Notes, the
Underwriters presently intend to make a market in the Units, the Notes and the
Warrants as permitted by applicable laws and regulations; however, they are not
obligated to do so and any such market-making may be discontinued at any time
without notice at the sole discretion of each Underwriter. Accordingly, there
can be no assurance as to whether an active public market for the Units, the
Notes or the Warrants will develop or, if a public market does develop, as to
the liquidity of the trading market for the Units, the Notes or the Warrants. If
an active public market does not develop, the market price and liquidity for the
Units, the Notes or the Warrants may be adversely affected. See "Risk Factors --
Absence of Public Market; Possible Volatility of Stock Price."
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended
(the "Securities Act"), and, under certain circumstances, to contribute to
payments the Underwriters may be required to make in respect thereof.
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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.
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 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 beneficially owns 8,618 shares of
Common Stock (including 2,000 shares issuable upon exercise of March Bridge
Warrants). Latham & Watkins, Washington, D.C., currently represents the Company
with respect to certain FCC matters.
EXPERTS
The balance sheets as of December 31, 1995 and 1994 and the statements of
operations, stockholders' equity (deficit) and 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 included in this Prospectus, have been included
herein in reliance on the report of Coopers & Lybrand L.L.P., independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission a registration statement on Form
S-1 (together with all amendments, exhibits, schedules and supplements thereto,
the "Registration Statement") under the Securities Act with respect to the
securities offered hereby. This Prospectus, which forms a part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement, certain parts of which have been omitted in accordance
with the rules and regulations of the Commission. For further information with
respect to the Company and the securities offered hereby, reference is made to
the Registration Statement and to the schedules and exhibits filed therewith.
Statements contained in this Prospectus as to the contents of certain documents
are not necessarily complete, and, in each instance, reference is made to the
copy of the document filed as an exhibit to the Registration Statement. The
Registration Statement, including the exhibits and schedules thereto, can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the following regional offices of the Commission: New York
Regional Office, 7 World Trade Center, New York, New York 10007; and Chicago
Regional Office, Suite 1400, Northwestern Atrium Center, 500 West Madison
Street, Chicago, Illinois 60661. Copies of such material can also be obtained
from the Commission at prescribed rates through its Public Reference Section at
450 Fifth Street, N.W., Washington, D.C. 20549. The Commission also maintains a
site on the World Wide Web at http://www.sec.gov that contains reports, proxy
and information statements and other information that registrants file with the
Commission.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith is 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
unaudited quarterly financial statements of the Company prepared in accordance
with GAAP.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Prospectus, including, without
limitation, statements containing the words "believes," "anticipates," "expects"
and words of similar import, constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the Company, or industry results, to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the following:
the limited nature of the Company's operations and its history of net losses;
the uncertain acceptance of 38 GHz services; competition; the risk of the
Company's failure to consummate the CommcoCCC Acquisition; existing government
regulations and changes in, or the failure to comply with, government
regulations; the risk of loss, non-renewal or fluctuation in value of the
Company's FCC licenses; the ability of the Company to sustain, manage or
forecast its growth; technological limitations with respect to 38 GHz
technology; dependence on significant suppliers and marketers and the potential
loss thereof; the availability of additional 38 GHz bandwidth; the changing
nature of wireless broadband services and the telecommunications industry; the
ability to attract and retain qualified personnel; the Company's significant
capital requirements and need for additional financing; the Company's leverage
and ability to service its indebtedness; ownership of Common Stock; the use of
proceeds of the Offering; retention of earnings (if any); and other factors
referenced in this Prospectus. Certain of these factors are discussed in more
detail elsewhere in this Prospectus, including, without limitation, under the
captions "Risk Factors," "Use of Proceeds," "Price Range of Common Stock and
Dividend Policy," "Capitalization," "Selected Historical and Pro Forma Financial
Data," "Management's Discussion and Analysis of Financial Condition and Results
of Operations," "Business" and "Principal Stockholders." GIVEN THESE
UNCERTAINTIES, PROSPECTIVE INVESTORS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE
ON SUCH FORWARD-LOOKING STATEMENTS. The Company disclaims any obligation to
update any such factors or to publicly announce the result of any revisions to
any of the forward-looking statements contained or incorporated by reference
herein to reflect future events or developments.
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<PAGE>
GLOSSARY
38 GHZ -- The fourteen 100 MHz channels between 38.6 GHz and 40.0 GHz and
the frequency between 37.0 and 38.5 GHz allocated by the FCC for wireless
broadband transmissions.
10-13 BIT ERROR RATE -- The measurement of a transmission path's ability to
pass data in an uncorrupted format. Bit error rate ("BER") is defined as the
number of erroneous bits ("errors"), divided by the number of bits over a
stipulated period of time. In the example of a BER of 10-13, a BER tester (a
test and measurement instrument), placed in line to measure the transmission
path (in real time) would have to measure, and analyze, ten trillion bits of
data before it detected one bit of erroneous data.
ACCESS CHARGES -- The fees paid by long distance carriers to LECs for
originating and terminating long distance calls on their local networks.
ATM (ASYNCHRONOUS TRANSFER MODE) -- A data transmission protocol that
achieves network efficiency through the use of standard 53 bit packets. The
transmission rate is scalable depending upon the underlying capacity of the
network media.
BANDWIDTH -- At any given level of compression, the amount of information
transportable over a link per unit of time. A DS-1, or Digital Service 1,
circuit will carry up to 1,544,000 bits (or 1.544 megabits) per second.
BPS -- Bits per second. A bit is the basic unit of information, yes-or-no,
on-or-off, 1-or-0 in the binary (base 2) system which is the basis of digital
computing. In contrast, a voice telephone signal over a copper wire is analog,
reflecting a continuous range of vocal tone (frequency) and volume (amplitude).
BROADBAND -- Data streams of at least 1.544 megabits per second. Broadband
communications systems can transmit large quantities of voice, data and video by
way of digital or analog signals. Examples of broadband communication systems
include DS-3 systems, which can transmit 672 simultaneous voice conversations,
or a broadcast television station signal that transmits high resolution audio
and video signals into the home. Broadband connectivity is an essential element
for interactive multimedia applications.
BTA (BASIC TRADING AREA) -- An area erected by Rand McNally based upon
various business demographics to establish a contiguous urban area, without
reference to political or similar boundaries. The FCC has proposed to use BTAs
to auction 38 GHz authorizations.
CAP (COMPETITIVE ACCESS PROVIDER) -- A company that provides its customers
with an alternative to the local telephone company for local and interstate
transport of private line, special access and switched access telecommunications
services. CAPs are also referred to in the industry as competitive local
exchange carriers (CLECs), alternative local telecommunications service
providers (ALTs) and metropolitan area network providers (MANs) and were
formerly referred to as alternative access vendors (AAVs).
CELLULAR -- Characterized by "cells," the area accessible by transceiver(s)
typically located at one site. A cellular phone connects to the transceiver in
its current cell, then the connection is handed-off as and when the user moves
to any other cell.
COMPRESSION -- Any process that transforms a signal to a more compact form
(fewer bits) for easier transfer, and then restores the signal after transfer.
CLEC (COMPETITIVE LOCAL EXCHANGE CARRIER) -- A company that provides local
exchange services in competition with the incumbent local exchange carrier.
CMRS -- Commercial mobile radio services.
COPPER WIRE -- A shorthand reference to traditional telephone lines using
electric current to carry signals over copper wire.
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DIGITAL -- A method of storing, processing and transmitting information
through the use of distinct electronic or optical pulses that represent the
binary code digits 0 and 1. Digital transmission and switching technologies
employ a sequence of these pulses to represent information as opposed to the
continuously variable analog signal. Digital transmission and switching
technologies offer a threefold improvement in speed and capacity over analog
techniques, allowing much more efficient and cost-effective transmission of
voice, video, and data.
DIALING PARITY -- Dialing parity is one of the changes, intended to level
the competitive playing field, that is required by the Telecommunication Act.
Dialing parity when implemented will enable customers to dial only 1+ or 0+ for
service no matter which local or long distance carrier they choose.
DS-0, DS-1, DS-3 -- Standard telecommunications industry digital signal
formats, which are distinguishable by bit rate (the number of binary digits (0
and 1) transmitted per second). DS-0 service has a bit rate of 64 kilobits per
second. DS-1 service has a bit rate of 1.544 megabits per second and DS-3
service has a bit rate of 45 megabits per second.
ESMR (ENHANCED SPECIALIZED MOBILE RADIO) -- A recent mobile radio services
category involving technical and service enhancements to traditional "push to
talk" dispatch services.
ETHERNET -- A data transmission protocol that operates at 10 megabits per
second using a carrier sense multiple access with collision detection scheme to
support large numbers of users of a shared network facility.
FAST ETHERNET -- Ethernet that operates at 100 megabits per second.
FCC -- Federal Communications Commission.
FIBER OPTICS -- Fiber optic cable largely immune to electrical interference
and environmental factors that affect copper wiring and satellite transmission.
Fiber optic technology involves sending laser light pulses across glass strands
in order to transmit digital information.
GHZ (GIGAHERTZ) -- Billions of cycles or hertz per second.
HERTZ -- Cycles per second. A Hertz is one full cycle (an s-shaped sine
curve with one peak and one valley).
INTER-LATA LONG DISTANCE -- Inter-LATA long distance calls are calls that
pass from one LATA to another. Typically, these calls are simply referred to as
"long distance" calls although intra-LATA calls can also be long distance calls.
INTERNET -- An array of interconnected networks using a common set of
protocols defining the information coding and processing requirements that can
communicate across hardware platforms and over many links now operated by a
consortium of telecommunications service providers and others.
ISP -- Internet service provider.
ITC (INDEPENDENT TELEPHONE COMPANY) -- A telephone company not associated or
formerly associated with the Bell Telephone system.
IXC (INTER-EXCHANGE CARRIERS) -- Usually referred to as long distance
providers. There are many facilities-based IXCs, including AT&T, MCI, WorldCom,
Sprint and Frontier.
KILOBIT -- One thousand bits of information. The information-carrying
capacity (i.e., bandwidth) of a circuit may be measured in "kilobits per
second".
KBPS -- Kilobits per second.
LANS (LOCAL AREA NETWORKS) -- The interconnection of computers for the
purpose of sharing files, programs and various devices such as work stations,
printers and high-speed modems. LANs may include dedicated computers or file
servers that provide a centralized source of shared files and
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programs. Most office computer networks use a LAN to share files, printers,
modems and other items. Where computers are separated by greater distances, a
Metropolitan Area Net (MAN) or other Wide Area Net (WAN) may be used.
LAST MILE -- A shorthand reference to the last section of a
telecommunications path to the ultimate end user which may be less than or
greater than a mile.
LATAS (LOCAL ACCESS AND TRANSPORT AREAS) -- The geographically defined areas
in which RBOCs were authorized by the MFJ to provide local exchange services.
These LATAs roughly reflect the population density of their respective states
(California has 11 LATAs while Wyoming has only one). There are 164 LATAs in the
United States. LATAs have one or more area codes and may cross state lines.
LEC (LOCAL EXCHANGE CARRIER) -- A company providing local exchange services.
The traditional local telephone companies (also known as incumbent local
exchange carriers), such as the RBOCs, which until recently were monopolies.
LINE OF SIGHT -- An unobstructed view between two transceivers.
LINK -- A transmission link between two transceivers.
MAN -- Metropolitan Area Network.
MARKET -- The potential and actual customers within the boundaries of a
wireless license. For simplicity, the definition of the market in this
Prospectus has been based on Basic Trading Areas, though each application as
granted defines its own actual boundaries.
MEGABIT -- One million bits of information. The information-carrying
capacity (i.e., bandwidth) of a circuit may be measured in "megabits per
second."
MFJ (MODIFIED FINAL JUDGMENT) -- The MFJ was a settlement of an antitrust
suit reached made in 1982 between AT&T and the Department of Justice which
forced the breakup of the old Bell System. This judgment, also known as the
Divestiture of AT&T, established seven separate RBOCs and enhanced the
establishment of two distinct segments of telecommunications service: local and
long distance. This laid the groundwork for intense competition in the long
distance industry. The MFJ has been superseded by the Telecommunications Act of
1996.
MICROWAVE -- A portion of the radio spectrum having radio waves that are
physically very short, ranging in length between about 30 cm and 0.3 cm and
generally used to refer to frequencies above 2 GHz.
MILLIMETRIC MICROWAVE OR MILLIMETER WAVE -- Those portions of the microwave
radio spectrum having wave lengths measured in millimeter lengths and generally
used to refer to frequencies above 20 GHz. A shorter wave length means a higher
frequency and vice versa.
MHZ (MEGAHERTZ) -- Millions of cycles or hertz per second.
MBPS -- Megabits per second.
NARROWBAND -- Data streams less than 64 kilobits per second.
NPRM (NOTICE OF PROPOSED RULEMAKING) -- A term used in governmental,
principally FCC, rulemaking proceedings to refer to initiation of the process.
NUMBER PORTABILITY -- The ability of an end user to change local exchange or
long distance carriers while retaining the same telephone number. If number
portability does not exist, customers will have to change phone numbers when
they change carriers.
OC-3 RADIOS -- A transmission protocol most often deployed on fiber optic
SONET networks that operates at 155 megabits per second when provisioned using
electronic rather than optical media referred to as STS-3.
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OFF-NET CUSTOMERS -- A customer that is not physically connected to a
carrier's network but who is accessed through interconnection with a LEC network
or an alternative provider such as a 38 GHz licensee.
ON-NET CUSTOMERS -- A customer that is physically connected to a carrier's
network.
PCS (PERSONAL COMMUNICATIONS SERVICES) -- Cellular-like services provided at
the 2 GHz band of the radio spectrum rather than 800 MHz. A type of wireless
telephone system that uses light, inexpensive handheld sets and communicates via
low power antennas.
PIPE -- A generic term for telecommunications transmission media, whether
wired or wireless, used to carry signals between the signal generating unit and
the user.
POPS (POINTS OF PRESENCE) -- Locations where a carrier has installed
transmission equipment in a service area that serves as, or relays calls to, a
network switching center of that carrier.
PSTN (PUBLIC SWITCHED TELEPHONE NETWORK) -- The traditional LEC networks
that switch calls between different customers.
RBOCS (REGIONAL BELL OPERATING COMPANIES) -- The holding companies owning
LEC affiliates of the old AT&T or Bell system.
REPEATER -- An intermediate transceiver between two transceivers each of
which is connected to end users and established to circumvent obstacles in the
line of sight between communication ports, such as buildings in urban areas and
hills in rural areas.
RESELLERS -- Companies which purchase telecommunications services wholesale
from underlying carriers and resell them to end users at retail rates.
ROOF RIGHTS -- The legal right to locate, maintain and operate equipment
(most commonly antennas and transceivers) on the roofs of buildings, on special
towers or even on utility poles or pylons.
SONET (SYNCHRONOUS OPTICAL NETWORK) -- A set of standards for optical
communications transmission systems that define the optical rates and formats,
signal characteristics, performance, management and maintenance information to
be embedded within the signals and the multiplexing techniques to be employed in
optical communications transmission systems. SONET facilitates the
interoperability of dissimilar vendors equipment. SONET benefits business
customers by minimizing the equipment necessary for various telecommunications
applications and supports networking diagnostic and maintenance features.
WIDEBAND -- Data streams between 64 kilobits and 1.544 megabits per second.
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ADVANCED RADIO TELCOM CORP.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Unaudited Pro Forma:
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of September 30, 1996..................... F-3
Unaudited Pro Forma Condensed Consolidated Statements of Operations for the nine months ended
September 30, 1996 and for the year ended December 31, 1995.......................................... F-4
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.............................. F-5
Historical:
Report of Independent Accountants..................................................................... F-8
Balance Sheets as of December 31, 1995 and 1994....................................................... F-9
Statements of Operations for the years ended December 31, 1995 and 1994 and for the period from August
23, 1993 (date of inception) to December 31, 1993.................................................... F-10
Statements of Stockholders' Equity (Deficit) for the years ended December 31, 1995 and 1994 and for
the period from August 23, 1993 (date of inception) to December 31, 1993............................. F-11
Statements of 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.................................................... F-13
Notes to the Financial Statements..................................................................... F-14
Unaudited Condensed Consolidated Balance Sheets as of September 30, 1996 and 1995..................... F-28
Unaudited Condensed Consolidated Statements of Operations for the nine months ended September 30, 1996
and 1995 and for the three months ended September 30, 1996 and 1995.................................. F-29
Unaudited Condensed Consolidated Statements of Stockholders' Deficit for the nine months ended
September 30, 1996................................................................................... F-30
Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 1996
and 1995............................................................................................. F-31
Notes to Unaudited Condensed Consolidated Financial Statements........................................ F-32
</TABLE>
F-1
<PAGE>
ADVANCED RADIO TELECOM CORP. AND ITS SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated financial
statements are presented for the following transactions: (i) the sale by the
Company of an aggregate of 2,300,500 shares of Common Stock offered in the
November 1996 Common Stock Offering at a price of $15.00 per share, after
deducting underwriting discount and expenses of approximately $5,600,000; (ii)
the conversion of the serial preferred stock into shares of Common Stock in
November 1996; (iii) fees and expenses of approximately $6,400,000 related to
the receipt of the CIBC Financing Commitment of $50 million, including the
issuance of CIBC Warrants to purchase 300,257 shares of Common Stock in November
1996, which financing commitment is assumed to be replaced by the issuance of
the Notes in the Offering; (iv) the October 1996 receipt of the remaining
$1,550,000 (out of a total of $4,000,000) in cash proceeds from the September
Bridge Financing; (v) the application of the net proceeds from the Common Stock
Offering to repay the March Bridge Notes, the CommcoCCC Notes and the September
Bridge Notes and to pay an initial $3,000,000 (out of a total of $6,000,000) to
acquire the 50% ownership interest of ART West held by Extended; (vi) the
exercise of the Ameritech Warrant to purchase an aggregate of 318,374 shares of
Common Stock in December 1996; (vii) the sale by the Company of 125,000 Units
(consisting of Notes and Warrants) offered in the Offering assuming $125,000,000
in gross proceeds, after deducting the estimated underwriting discount and
offering expenses and the cash used for the purchase of Pledged Securities;
(viii) the payment of the remaining $3,000,000 in the acquisition of the 50%
ownership interest of ART West held by Extended and (ix) the consummation of the
acquisition by the Company of the CommcoCCC Assets in exchange for 6,000,000
shares of Common Stock at an assumed value of $11.25 per share.
All such transactions are reflected as if they had occurred as of the
beginning of the respective periods for the unaudited pro forma condensed
consolidated statements of operations and at the balance sheet date for the
unaudited pro forma condensed consolidated balance sheet.
These unaudited pro forma condensed consolidated financial statements were
derived from and should be read in conjunction with the audited financial
statements and the related notes thereto, and the unaudited condensed
consolidated financial statements of the Company and the related notes thereto,
included elsewhere herein. In management's opinion, all adjustments necessary to
reflect the foregoing and related transactions have been made.
The unaudited pro forma condensed consolidated 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. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
---------------------------------------------------
<S> <C> <C> <C>
PRO FORMA
HISTORICAL (A) ADJUSTMENTS (B) PRO FORMA
--------------- ---------------- ----------------
ASSETS
Current assets:
Cash and cash equivalents............................... $ 752,368 $ 30,789,438(1) $
1,550,000(3) 85,433,151
(12,000,000 (4)
(6,000,000 (5)
(3,000,000 (7)
(1,883,655 (8)
75,225,000(9)
Accounts receivable..................................... 78,645
78,645
Other current assets.................................... 140,227
140,227
--------------- ---------------- ----------------
Total current assets.................................. 971,240 84,680,783 85,652,023
Restricted cash........................................... 1,000,000 44,300,000(9) 45,300,000
Property and equipment, net............................... 11,019,217
11,019,217
Equity investment......................................... 285,000 (285,000 (5) --
FCC licenses, net......................................... 4,276,780 6,285,000(5) 104,011,780
93,450,000(7)
Deferred financing costs, net............................. 2,343,087 (1,907,528 (1)
5,475,000(9) 5,910,559
Deposits.................................................. 463,036
463,036
Other assets.............................................. 183,637
183,637
--------------- ---------------- ----------------
$ 20,541,997 $ 231,998,255 $ 252,540,252
--------------- ---------------- ----------------
--------------- ---------------- ----------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities................ $ 11,154,608 $ $ 11,154,608
March Bridge Notes...................................... 4,243,784 (4,243,784 (4) --
CommcoCCC Notes......................................... 2,827,836 (2,827,836 (4) --
September Bridge Notes.................................. 2,203,559 1,384,918(3)
(3,588,477 (4) --
Current portion of long-term debt....................... 1,242,126
1,242,126
--------------- ---------------- ----------------
Total current liabilities............................. 21,671,913 (9,275,179) 12,396,734
Note payable to EMI, net of current portion............... 937,500
937,500
Equipment financing note payable, net of current
portion.................................................. 927,796
927,796
Senior Notes.............................................. -- 118,107,853(9) 118,107,853
Deferred tax liability.................................... -- 22,950,000(7) 22,950,000
--------------- ---------------- ----------------
Total liabilities..................................... 23,537,209 131,782,674 155,319,883
--------------- ---------------- ----------------
Stockholders' equity (deficit):
Serial preferred stock, $.001 par....................... 921 (921 (2) --
Common Stock, $.001 par................................. 6,587 2,301(1) 19,560
4,354(2)
318(6)
6,000(7)
Additional paid-in capital.............................. 20,745,714 28,879,609(1) 128,676,649
(3,433 (2)
165,082(3)
(318 (6)
67,494,000(7)
4,503,848(8)
6,892,147(9)
Accumulated deficit..................................... (23,748,434) (1,339,903 (4) (31,475,840)
(6,387,503 (8)
--------------- ---------------- ----------------
Total stockholders' equity (deficit).................. (2,995,212) 100,215,581 97,220,369
--------------- ---------------- ----------------
$ 20,541,997 $ 231,998,255 $ 252,540,252
--------------- ---------------- ----------------
--------------- ---------------- ----------------
</TABLE>
See the accompanying notes to unaudited pro forma condensed consolidated
financial statements.
F-3
<PAGE>
ADVANCED RADIO TELECOM CORP. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1996
-------------------------------------------------
PRO FORMA
HISTORICAL (A) ADJUSTMENTS (B) PRO FORMA
--------------- --------------- ---------------
<S> <C> <C> <C>
Service revenue.......................................... $ 125,013 $ $ 125,013
--------------- --------------- ---------------
Operating expenses:
Selling, general and administrative (D)................ 16,942,052 16,942,052
Market development (E)................................. 1,053,000 1,053,000
Research and development............................... 666,406 666,406
Depreciation and amortization.......................... 504,462 1,870,031 (11 2,374,493
--------------- --------------- ---------------
19,165,920 1,870,031 21,035,951
--------------- --------------- ---------------
Other:
Interest expense....................................... 1,396,943 (811,483)(4)
13,573,125 (10 14,158,585
Financing expense...................................... -- 6,387,503(8) 6,387,503
Interest income........................................ (59,473) (1,777,537) 10) (1,837,010)
--------------- --------------- ---------------
1,337,470 17,371,608 18,709,078
--------------- --------------- ---------------
Pretax loss........................................ 20,378,377 19,241,639 39,620,016
Deferred tax benefit..................................... -- (595,744) 11) (595,744)
--------------- --------------- ---------------
Net loss........................................... $ 20,378,377 $ 18,645,895 $ 39,024,272
--------------- --------------- ---------------
--------------- --------------- ---------------
Pro forma net loss per share of Common Stock (C)......... $ 2.15 $ $2.12
--------------- ---------------
--------------- ---------------
Pro forma weighted average number of shares of Common
Stock outstanding (C) 9,470,545 18,404,379
--------------- ---------------
--------------- ---------------
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-------------------------------------------------
PRO FORMA
HISTORICAL (A) ADJUSTMENTS (B) PRO FORMA
--------------- --------------- ---------------
<S> <C> <C> <C>
Service revenue.......................................... $ 5,793 $ $ 5,793
--------------- --------------- ---------------
Operating expenses:
Selling, general and administrative (D)................ 2,911,273 2,911,273
Market development..................................... 191,693 191,693
Depreciation and amortization.......................... 15,684 2,493,375 (11 2,509,059
--------------- --------------- ---------------
3,118,650 2,493,375 5,612,025
--------------- --------------- ---------------
Other:
Interest expense....................................... 131,540 18,097,500 (10 18,229,040
Financing expense...................................... -- 6,387,503(8) 6,387,503
Interest income........................................ (9,554) (2,370,050) 10) (2,379,604)
--------------- --------------- ---------------
121,986 22,114,953 22,236,939
--------------- --------------- ---------------
Pretax loss........................................ 3,234,843 24,608,328 27,843,171
Deferred tax benefit..................................... -- (794,325) 11) (794,325)
--------------- --------------- ---------------
Net loss........................................... $ 3,234,843 $ 23,814,003 $ 27,048,846
--------------- --------------- ---------------
--------------- --------------- ---------------
Pro forma net loss per share
of Common Stock (C)..................................... $ 0.30 $ 1.36
--------------- ---------------
--------------- ---------------
Pro forma weighted average number of shares of Common
Stock outstanding (C)................................... 10,912,338 19,846,172
--------------- ---------------
--------------- ---------------
</TABLE>
See the accompanying notes to unaudited pro forma condensed consolidated
financial statements.
F-4
<PAGE>
ADVANCED RADIO TELECOM CORP.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(A) Represents the historical consolidated balance sheet of the Company as of
September 30, 1996 and the consolidated statements of operations of the
Company for the year ended December 31, 1995 and the nine months ended
September 30, 1996.
(B) Pro forma adjustments:
(1)Issuance of 2,300,500 shares of Common Stock offered in the November 1996
Common Stock Offering based on the initial public offering price of
$15.00 per share, after deducting the estimated Underwriting discount and
related expenses of approximately $5,600,000.
(2)The November 1996 conversion of the serial preferred stock into shares of
Common Stock in connection with the Common Stock Offering.
(3)The receipt of the remaining $1,550,000 in October 1996 (out of a total
of $4,000,000) in cash from the September Bridge Financing in exchange
for the September Bridge Notes and September Bridge Warrants. The value
ascribed to the September Bridge Warrants issued after September 30, 1996
was $165,082 (out of a total of $426,019).
(4)Repayment in November 1996 of the March Bridge Notes, the CommcoCCC Notes
and the September Bridge Notes out of the net proceeds from the Common
Stock Offering and the reversal of the related interest expense. The
unamortized offering discount and deferred financing costs associated
with the March Bridge Financing, the CommcoCCC Financing and the
September Bridge Financing will result in an extraordinary loss of
approximately $1,340,000, which has been excluded from the pro forma
condensed consolidated statements of operations.
(5)The acquisition of the 50% ownership interest of ART West held by
Extended for $6,000,000 in cash of which $3,000,000 has been paid in
November 1996.
(6)The exercise by Ameritech of its Warrant to purchase 318,374 shares of
Common Stock.
(7)The acquisition of the CommcoCCC Assets, accounted for as a business
combination, in exchange for 6,000,000 shares of Common Stock based on an
assumed value of $11.25 per share, the recognition of the related
deferred tax liabilities and the estimated payment of related expenses of
$3,000,000 of which $600,000 was paid in December 1996.
(8)The fees and expenses related to the receipt of a commitment from certain
investors to borrow up to $50,000,000 of 12.5% Senior Secured Notes due
1998 (the "Senior Secured Notes") pursuant to financing arranged by CIBC
Wood Gundy Securities Corp. (the "CIBC Financing Commitment") which is
assumed to be replaced by the issuance of the Notes in the Offering. The
Company incurred approximately $1,900,000 in fees and issued warrants to
purchase 300,257 shares of Common Stock (representing 1.5% of the
outstanding shares of Common Stock of the Company on a fully diluted
basis after giving effect to the Common Stock Offering and the CommcoCCC
Acquisition) for a nominal amount. The value ascribed to the Initial CIBC
Warrants was $4,572,435. Assumes no draw down under the CIBC Financing
Commitment.
(9)Assumed gross proceeds of $125,000,000 from the issuance of the 125,000
Units (consisting of Notes and Warrants) in the Offering, the related
estimated underwriting discount and related expenses of approximately
$5,475,000 and the cash used for the purchase of Pledged Securities of
$44,300,000. The value ascribed to the Unit Warrants totaled
approximately $6,900,000 based on an assumed issuance of Warrants to
purchase an aggregate of 1,128,011 shares of
F-5
<PAGE>
Common Stock of the Company (representing approximately 5% of the Common
Stock outstanding on a fully diluted basis after giving effect to the
Common Stock Offering, the Offering and the CommcoCCC Acquisition).
(10)
Interest expense on the Notes, at an assumed coupon rate of 13.0%
(resulting in an effective interest rate of 14.04% on the Notes,
including the amortization of debt issuance costs and original issue
discount representing the value ascribed to the Warrants) as if the Notes
were issued as of the beginning of the respective periods. If the
interest rate on the Notes changed by 0.5%, interest expense would change
by approximately $625,000 and $468,750 for the year ended December 31,
1995 and for the nine months ended September 30, 1996, respectively.
Interest income of $1,777,537 for the nine months ended September 30,
1996 and $2,370,050 for the year ended December 31, 1995 on the Pledged
Securities at an assumed rate of 5.35%.
(11)
Depreciation and amortization expense related to the acquisition of the
CommcoCCC Assets and the 50% ownership interest in ART West and the
related deferred taxes.
(C) Pro forma net loss per share and the weighted average number of shares of
Common Stock reflect (i) the conversion of the serial preferred stock to
Common Stock; (ii) the issuance of potentially dilutive instruments issued
within one year prior to the Common Stock Offering at exercise prices below
the initial public offering price of $15.00 per share; (iii) the issuance of
2,300,500 shares of Common Stock in the Common Stock Offering; (iv) the
exercise of the Ameritech Warrant to purchase 318,374 shares of Common
Stock; and (v) the issuance of shares of Common Stock in connection with the
acquisition of the CommcoCCC Assets.
<TABLE>
<CAPTION>
As of As of
December 31, September 30,
1995 1996
--------------- ---------------
<S> <C> <C>
Weighted average number of shares of
Common Stock outstanding for primary
computation............................ 5,946,338(1) 6,580,627(1)
Issuances of shares of serial preferred
stock assumed converted into shares of
Common Stock........................... 3,720,253(2) 2,480,169(2)
Options and warrants issued and
outstanding............................ 605,195(2) 403,463(2)
Issuance of Common Stock ............... 640,552(3) 6,286(3)
--------------- ---------------
Historical pro forma weighted average
number of shares of Common Stock....... 10,912,338(2) 9,470,545(2)
Common Stock issued in the Common Stock
Offering............................... 2,300,500 2,300,500
Common Stock issued in connection with
the conversion of the serial preferred
stock and the exercise of the Ameritech
Warrant................................ 633,334(4) 633,334(4)
Common Stock issued in connection with
the acquisition of the CommcoCCC
Assets................................. 6,000,000 6,000,000
--------------- ---------------
Pro Forma weighted average number of
shares of Common Stock................. 19,846,172 18,404,379
--------------- ---------------
--------------- ---------------
</TABLE>
F-6
<PAGE>
<TABLE>
<S> <C>
------------------------
(1) The weighted average number of shares of Common Stock for primary computation
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 the Common Stock Offering at exercise
prices below the initial public offering price be treated as outstanding for the
entire periods presented in the Common Stock Offering prospectus. The pro forma
weighted average number of shares of Common Stock on a historical basis reflects
those potentially dilutive instruments based on the initial public offering price
of $15 per share in the Common Stock Offering. In measuring the dilutive effect,
the treasury stock method was used.
(3) Represents the issuance of Common Stock at prices below the initial public
offering price of $15 per share in the Common Stock Offering, presented as if such
shares were outstanding for the entire periods presented in the Common Stock
Offering prospectus to reflect potentially dilutive instruments.
(4) Included as potentially dilutive instruments in item (2) are the shares of Common
Stock issued in connection with the conversion of the preferred stock and the exercise
of the Ameritech Warrant. The additional shares of Common Stock are an adjustment
to the weighted average number of shares to eliminate the effect of the treasury
stock method for the conversion of the serial preferred stock and the exercise of
the Ameritech Warrant.
</TABLE>
(D) General and administrative expense includes non-recurring, non-cash
compensation expense of $802,002 and $6,795,514 for the year ended December
31, 1995 and for the nine months ended September 30, 1996, respectively,
associated with the release of Escrow Shares in 1995 and the termination of
the Escrow Shares arrangement in 1996.
(E) Market development expense for the nine months ended September 30, 1996
represents the value ascribed to the Ameritech Strategic Distribution
Agreement in connection with the February 1996 investment in the Company by
Ameritech.
F-7
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Advanced Radio Telecom Corp.:
We have audited the accompanying balance sheets of Advanced Radio Telecom
Corp. 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 and for the period from August 23, 1993 (date of
inception) to December 31, 1993. 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 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 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 Telecom Corp.
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.
COOPERS & LYBRAND L.L.P.
New York, New York
April 26, 1996, except for Note 5B as to which the date is
June 26, 1996, except for the second paragraph of Note 2A,
Note 2C and the second paragraph of Note 11A as to which the date is
October 11, 1996 and except for the fourth paragraph of Note 1A and Note 1C
as to which the date is November 12, 1996.
F-8
<PAGE>
ADVANCED RADIO TELECOM CORP.
BALANCE SHEETS (NOTE 1A)
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
-------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................................... $ 633,654 $ 5,133
Other current assets.............................................................. 52,325
-------------- ------------
Total current assets.......................................................... 685,979 5,133
Property and equipment, net......................................................... 3,581,561 3,448
Equity investment................................................................... 285,000
FCC licenses........................................................................ 4,235,734
Deferred financing costs, net....................................................... 778,897
Deposits............................................................................ 284,012
Other assets........................................................................ 25,376 34,030
-------------- ------------
Total assets.................................................................. $ 9,876,559 $ 42,611
-------------- ------------
-------------- ------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued liabilities.......................................... $ 3,694,489 $ 11,689
Note payable to related party..................................................... 70,000
-------------- ------------
Total current liabilities..................................................... 3,694,489 81,689
Convertible notes payable........................................................... 4,950,000
Note payable to EMI................................................................. 1,500,000
-------------- ------------
Total liabilities............................................................. 10,144,489 81,689
-------------- ------------
Redeemable preferred stock, $.01 par value, 1 share issued and outstanding at
December 31, 1995.................................................................. 44,930
-------------- ------------
Commitments and contingencies
Stockholders' deficit:
Serial preferred stock, $.001 par value, 488,492 shares issued and outstanding at
December 31, 1995................................................................ 488
Common Stock, $.001 par value, 6,529,975 and 2,141,830 shares issued and
outstanding...................................................................... 6,530 2,142
Additional paid-in capital........................................................ 3,050,179 93,994
Accumulated deficit............................................................... (3,370,057) (135,214)
-------------- ------------
Total stockholders' deficit................................................... (312,860) (39,078)
-------------- ------------
Total liabilities and stockholders' deficit................................. $ 9,876,559 $ 42,611
-------------- ------------
-------------- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-9
<PAGE>
ADVANCED RADIO TELECOM CORP.
STATEMENTS OF OPERATIONS (NOTE 1A)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
AND FOR THE PERIOD FROM AUGUST 23, 1993 (DATE OF INCEPTION)
TO DECEMBER 31, 1993
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 23,
YEARS ENDED (DATE OF
DECEMBER 31, INCEPTION) TO
-------------------------- DECEMBER 31,
1995 1994 1993
------------- ----------- -------------
<S> <C> <C> <C>
Service revenue....................................................... $ 5,793 $ $
Consulting revenue.................................................... 137,489
------------- ----------- -------------
Total revenue................................................... 5,793 137,489
------------- ----------- -------------
General and administrative expenses................................... 2,911,273 253,453 5,906
Market development expenses........................................... 191,693
Depreciation and amortization......................................... 15,684 8,281 688
------------- ----------- -------------
Total operating expenses........................................ 3,118,650 261,734 6,594
------------- ----------- -------------
Interest income....................................................... 9,554
Interest expense...................................................... 131,540 4,375
------------- ----------- -------------
Interest expense, net........................................... 121,986 4,375
------------- ----------- -------------
Net loss........................................................ $ 3,234,843 $ 128,620 $ 6,594
------------- ----------- -------------
------------- ----------- -------------
Pro forma net loss per share of Common Stock.......................... $ 0.30
-------------
-------------
Pro forma weighted average number of shares of Common Stock
outstanding.......................................................... 10,912,338
-------------
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-10
<PAGE>
ADVANCED RADIO TELECOM CORP.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (NOTE 1A)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
AND FOR THE PERIOD FROM AUGUST 23, 1993 (DATE OF INCEPTION)
TO DECEMBER 31, 1993
<TABLE>
<CAPTION>
PREFERRED STOCK
COMMON -----------------------------------------------------------
STOCK SERIES A SERIES B SERIES C SERIES D TOTAL
----------- --------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHARES
Net issuance of Common Stock for cash................. 1,070,915
-----------
Balance, December 31, 1993............................ 1,070,915
Issuance of Common Stock for cash..................... 1,070,915
-----------
Balance, December 31, 1994............................ 2,141,830
Issuance of Common Stock to ART West.................. 26,773
Issuance of Common Stock to existing shareholders..... 1,472,508
Issuance of Common Stock to Landover and affiliates
for cash............................................. 3,120,000
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................ 62,655 2,852 4,189 7,041
Redemption of Common Stock from Landover.............. (293,791)
----------- --------- ----------- ----- ----------- ---------
Balance, December 31, 1995............................ 6,529,975 334,943 86,507 5,402 61,640 488,492
----------- --------- ----------- ----- ----------- ---------
----------- --------- ----------- ----- ----------- ---------
</TABLE>
Continued
F-11
<PAGE>
ADVANCED RADIO TELECOM CORP.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (NOTE 1A), CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
AND FOR THE PERIOD FROM AUGUST 23, 1993 (DATE OF INCEPTION)
TO DECEMBER 31, 1993
<TABLE>
<CAPTION>
PAR VALUE
----------------------------------------------------------------------------------
PREFERRED STOCK ADDITIONAL
COMMON --------------------------------------------------------------------- PAID-IN
STOCK SERIES A SERIES B SERIES C SERIES D TOTAL CAPITAL
----------- ----------- ------------- ------------- ------------- ----- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
AMOUNTS
Net issuance of Common Stock
for cash...................... $ 1,071 $ 60,065
Net loss.......................
----------- -----------
Balance, December 31, 1993..... 1,071 60,065
Issuance of Common Stock for
cash.......................... 1,071 33,929
Net loss.......................
----------- -----------
Balance, December 31, 1994..... 2,142 93,994
Issuance of Common Stock to ART
West.......................... 27 24,973
Issuance of Common Stock to
existing shareholders......... 1,472 (1,472)
Conversion of note payable and
interest to paid-in capital... 75,250
Issuance of Common Stock to
Landover and affiliates for
cash.......................... 3,120 (2,100)
Issuance of preferred stock to
limited partnerships
affiliated with Landover for
cash:
Series A..................... $ 332 $ 332 1,006,268
Series B..................... $ 82 82 880,618
Series C..................... $ 5 5 112,695
Issuance of Series D preferred
stock for cash................ $ 62 62 1,999,938
Shares issued to reflect anti-
dilution...................... 63 3 4 7 (70)
Serial preferred stock issuance
costs......................... (229,814)
Redemption of Common Stock from
Landover...................... (294) (1,999,706)
Increase in additional paid-in
capital as a result of the
release of escrow shares...... 802,002
Accrued stock option
compensation.................. 287,603
Net loss.......................
--
----------- ----- --- --- ----- -----------
Balance, December 31, 1995..... $ 6,530 $ 335 $ 86 $ 5 $ 62 $ 488 $ 3,050,179
--
--
----------- ----- --- --- ----- -----------
----------- ----- --- --- ----- -----------
<CAPTION>
ACCUMULATED
DEFICIT TOTAL
------------- -----------
<S> <C> <C>
AMOUNTS
Net issuance of Common Stock
for cash...................... $ $ 61,136
Net loss....................... (6,594) (6,594)
------------- -----------
Balance, December 31, 1993..... (6,594) 54,542
Issuance of Common Stock for
cash.......................... 35,000
Net loss....................... (128,620) (128,620)
------------- -----------
Balance, December 31, 1994..... (135,214) (39,078)
Issuance of Common Stock to ART
West.......................... 25,000
Issuance of Common Stock to
existing shareholders.........
Conversion of note payable and
interest to paid-in capital... 75,250
Issuance of Common Stock to
Landover and affiliates for
cash.......................... 1,020
Issuance of preferred stock to
limited partnerships
affiliated with Landover for
cash:
Series A..................... 1,006,600
Series B..................... 880,700
Series C..................... 112,700
Issuance of Series D preferred
stock for cash................ 2,000,000
Shares issued to reflect anti-
dilution......................
Serial preferred stock issuance
costs......................... (229,814)
Redemption of Common Stock from
Landover...................... (2,000,000)
Increase in additional paid-in
capital as a result of the
release of escrow shares...... 802,002
Accrued stock option
compensation.................. 287,603
Net loss....................... (3,234,843) (3,234,843)
------------- -----------
Balance, December 31, 1995..... $(3,370,057) $ (312,860)
------------- -----------
------------- -----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-12
<PAGE>
ADVANCED RADIO TELECOM CORP.
STATEMENTS OF CASH FLOWS (NOTE 1A)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
AND FOR THE PERIOD FROM AUGUST 23, 1993 (DATE OF INCEPTION)
TO DECEMBER 31, 1993
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 23, 1993
YEARS ENDED (DATE OF
DECEMBER 31, INCEPTION)
---------------------------- TO DECEMBER 31,
1995 1994 1993
-------------- ------------ ------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss...................................................... $ (3,234,843) $ (128,620) $ (6,594)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Noncash interest expense...................................... 110,828
Depreciation and amortization................................. 15,684 8,281 688
Non-cash compensation expense................................. 1,089,605
Changes in operating assets and liabilities:
Accounts payable and accrued liabilities.................... 563,351 (8,282) 19,971
Other current assets........................................ (52,325)
Deposits.................................................... (4,012)
-------------- ------------ --------
Net cash provided by (used in) operating activities..... (1,511,712) (128,621) 14,065
-------------- ------------ --------
Cash flows from investing activities:
Additions to property and equipment........................... (621,364) (5,175)
Investment in ART West........................................ (255,000)
Acquisition of EMI licenses and property and equipment........ (3,023,971)
Acquisition of FCC licenses................................... (13,912)
Deposits on equipment......................................... (280,000)
Increase in other assets...................................... (41,272)
-------------- ------------ --------
Net cash used in investing activities................... (4,194,247) (5,175) (41,272)
-------------- ------------ --------
Cash flows from financing activities:
Proceeds from issuance of Common Stock........................ 1,020 35,000 61,136
Proceeds from loan and note payable........................... 8,500 70,000
Proceeds from issuance of preferred stock..................... 4,050,000
Advances from Landover and affiliates......................... 175,000
Proceeds from convertible notes payable....................... 4,950,000
Redemption of Common Stock.................................... (2,000,000)
Stock issuance costs.......................................... (213,884)
Repayment on loan............................................. (8,500)
Additions to deferred financing costs......................... (452,656)
Payments on advances from Landover and affiliates............. (175,000)
-------------- ------------ --------
Net cash provided by financing activities............... 6,334,480 105,000 61,136
-------------- ------------ --------
Net increase (decrease) in cash......................... 628,521 (28,796) 33,929
Cash, beginning of period....................................... 5,133 33,929
-------------- ------------ --------
Cash, end of period............................................. $ 633,654 $ 5,133 $ 33,929
-------------- ------------ --------
-------------- ------------ --------
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
Additional paid-in capital as a result of the release of
escrow shares............................................. $ 802,002
Accrued stock issuance costs................................ $ 21,000
Accrued deferred financing costs............................ $ 370,617
Issuance of stock and contribution of licenses to ART
West...................................................... $ 30,000
Conversion of note payable and interest to Common Stock..... $ 75,250
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-13
<PAGE>
ADVANCED RADIO TELECOM CORP.
NOTES TO FINANCIAL STATEMENTS
1. FORMATION OF THE COMPANY AND BASIS OF PRESENTATION:
A -- THE COMPANY
Advanced Radio Telecom Corp. ("ART" and, collectively with ART Licensing
Corp., the "Company"), formerly named Advanced Radio Technologies Corporation,
was organized as a Delaware corporation on August 23, 1993 to develop, market
and provide broadband wireless digital 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.
During 1995 the Company established a strategic alliance with Extended
Communications, Inc. ("Extended") to form the ART West joint venture. ART West
was formed on April 4, 1995 to develop and expand the Company's wireless digital
telecommunications services in various markets throughout the western United
States (see Note 5).
ART Licensing Corp. ("Telecom"), formerly named Advanced Radio Telecom Corp.
and Advanced Radio Technology Ltd., was organized by ART and Landover Holdings
Corporation ("Landover") on March 28, 1995, with one of its initial objectives
to acquire certain 38 GHz licenses in the northeastern United States from EMI
Communications, Corp. ("EMI") (see Note 6). Under the terms of a purchase
agreement between ART, Landover, and Telecom dated April 21, 1995, (the
"Purchase Agreement") Landover was obligated to purchase $7,000,000 of
securities of Telecom. Pursuant to the Purchase Agreement and a stockholders'
agreement between ART, Telecom and their respective shareholders dated May 8,
1995 (the "Stockholders' Agreement"), ART and Telecom were to merge once
approval from the Federal Communications Commission ("FCC") had been granted
(see Note 2).
On October 11, 1996, ART, Telecom and a wholly owned subsidiary of ART
("Merger Sub") entered into a revised merger agreement (see Note 2), which
provided for the merger of Merger Sub into Telecom (the "Merger"). The Merger
was completed on October 28, 1996 and Telecom, through the Merger, became a
wholly owned subsidiary of ART. The Merger was accounted for in a manner
consistent with a reorganization of entities under common control which is
similar to that of a pooling of interests and the financial statements of prior
periods have been restated. All transactions and balances between ART and
Telecom have been eliminated.
B -- INITIAL CAPITALIZATION
ART was formed on August 23, 1993 by two of its executives (the "Founding
Stockholders") by issuing 1,070,915 shares of Common Stock in exchange for
$1,136. During November 1993, ART redeemed 428,366 shares of Common Stock from
the Founding Stockholders and through a private placement issued 428,366 shares
of Common Stock to High Sky Limited Partnership ("High Sky") in exchange for
$60,000. During March 1994, High Sky II Limited Partnership ("High Sky II"), an
affiliate of High Sky (collectively referred to as the "High Sky Partnerships")
contributed $100,000 to ART in exchange for 214,183 shares of Common Stock and a
$70,000 Promissory Note. In connection with the High Sky II financing, ART
issued an additional aggregate of 856,732 shares to the Founding Stockholders
and High Sky whereby the Founding Stockholders and the High Sky Partnerships
would each own a 50% interest in ART. Additionally, during 1994, one of the
Founding Stockholders contributed an additional $5,000 for which contribution
there were no shares issued.
Pursuant to an agreement dated March 1, 1995, High Sky II agreed to assign
the $70,000 Promissory Note, plus accrued interest, to the Founding Stockholders
in exchange for two new Promissory Notes executed by the Founding Stockholders.
Concurrent with the exchange of the promissory notes, the Founding Stockholders
contributed the $70,000 Promissory Note plus accrued interest of $5,250 to ART,
for which contribution there were no additional shares issued.
F-14
<PAGE>
ADVANCED RADIO TELECOM CORP.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
1. FORMATION OF THE COMPANY AND BASIS OF PRESENTATION, CONTINUED:
C -- BASIS OF PRESENTATION
The financial statements have been prepared on the going concern basis of
accounting, which contemplates realization of assets and liquidation of
liabilities in the ordinary course of business. The Company has a substantial
working capital deficit, has incurred operating losses since inception and does
not expect to recognize material operating revenues until the further
development of its commercial services, which commenced in fiscal 1996. The
Company estimates that revenues in 1996 and 1997 will not be sufficient to fund
its operating expenses, capital expenditures and other working capital needs,
including consulting, service and purchase commitments set forth in Notes 5, 9,
10, 14 and 16. The Company's continued funding of its operating expenses,
capital expenditures, working capital needs and contractual commitments is
dependent upon its ability to raise financing. During November 1996, the Company
completed an initial public offering of equity securities, raising $34,500,000
before expenses. In connection with the initial public offering, the Company
obtained a commitment from certain investors to borrow up to $50,000,000 (the
"CIBC Financing Commitment"). The proceeds from the initial public offering were
used to repay certain indebtedness and partially fund the acquisition of the
remaining 50% interest in ART West. Management believes that, based upon its
current business plans, the funds received from the initial public offering and
available under the CIBC Financing Commitment are sufficient to enable the
Company to fund its operations at least through December 31, 1997. As a result,
the previous reference to the existence of substantial doubt regarding the
Company's ability to continue as a going concern is no longer required.
2. PURCHASE AGREEMENT:
A -- INITIAL CAPITALIZATION OF TELECOM
Pursuant to the Purchase Agreement, as its initial capitalization, an
aggregate of 3,120,000 shares of Class B and Class A common stock were issued by
Telecom to Landover and consultants to Landover, respectively, for an aggregate
cash consideration of $1,020. Such shares of Class B and Class A common stock
represented 64% and 2%, respectively, of the total number of shares of capital
stock of Telecom then outstanding. Concurrently, ART received 1,607,273 shares
of Class A common stock, representing 34% of the total number of shares of
capital stock of Telecom then outstanding in exchange for $340.
On February 2, 1996 and October 11, 1996, the Board of Directors of Telecom
authorized a 13 for 1 stock split and a 1 for 2.75 reverse stock split,
respectively. All of the references to shares of common stock of Telecom have
been adjusted to reflect the 13 for 1 stock split and the 1 for 2.75 reverse
stock split but are prior to the issuance of anti-dilutive shares described
below.
Under the Purchase Agreement, Landover agreed to invest or cause to be
invested $7,000,000 in ART, Telecom and their affiliates (the "Landover Funding
Commitment"). In consideration for this $7,000,000 investment, Telecom agreed to
issue preferred stock, the number of shares of which would be designated by
Landover. Under the anti-dilution provisions of the Class A common stock, in
respect of each such preferred stock issuance, Telecom agreed to issue, for no
consideration, additional shares of Class A common stock in number necessary to
maintain the 36% ownership interest in Telecom of the holders of Class A common
stock.
Under the Purchase Agreement, the individual shareholders of ART were
required to place 1,874,101 shares of Common Stock in escrow (the "Escrow
Shares") to be released upon the completion of the then pending EMI Asset
acquisition (see Note 6), Telecom's attainment of specific operating income
levels for the years 1997 through 1999 and the acquisition of interests in a
specified number of FCC license authorizations by April 30, 2000. As a result of
the consummation of the EMI Asset acquisition, in November 1995, 681,102 of the
Escrow Shares were released. The fair value of the Escrow Shares released in
1995, amounting to $802,002, has been recognized as additional paid-in
F-15
<PAGE>
ADVANCED RADIO TELECOM CORP.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
2. PURCHASE AGREEMENT, CONTINUED:
capital. Pursuant to the February 2, 1996 reorganization, the Escrow Shares
arrangement was terminated and all of the remaining Escrow Shares were released
to the stockholders of ART. The fair value of the remaining Escrow Shares
released, in the amount of approximately $6.8 million, will be accounted for in
the same manner during 1996.
B -- MERGER
Under the terms of the Purchase Agreement, ART and Telecom agreed 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, ART and Telecom
entered into an exclusive 20-year services agreement (the "Services Agreement")
for the construction, development and operation of systems in the Company's
markets.
On February 2, 1996, ART, Telecom and their respective shareholders agreed
to an amendment and restatement of the Stockholders' Agreement providing for (i)
termination effective on the closing of a public share offering, (ii) amendment
and restatement of the Certificate of Incorporation and reorganization of the
capital structure of Telecom; (iii) the exchange of the convertible notes
payable and one share of redeemable preferred stock for shares of serial
preferred stock of Telecom; (iv) revision of provisions for election of
directors; (v) amendment and restatement of ART's registration rights
agreements; (vi) release of shares escrowed in connection with the original
Stockholders' Agreement; and (vii) approval of a definitive merger agreement.
C -- AMENDED MERGER
The definitive merger agreement, as entered into on February 2, 1996 and
subsequently restated and amended on June 26, 1996 and October 11, 1996, (the
"Merger Agreement") provided for the merger of Merger Sub into Telecom subject
to certain conditions, including the receipt of FCC approval. Prior to the
Merger, each outstanding share of each series of Telecom's serial preferred
stock was converted into a share of a similar series of the Company's preferred
stock. Upon completion of the initial public offering, all shares of all series
of the Company's preferred stock (920,951) automatically convert into 4,353,587
shares of the Company's common stock. In the Merger, each outstanding share of
common stock of Telecom was exchanged for an equal number of shares of Common
Stock of ART. As a result, Telecom became a wholly owned subsidiary of ART. The
Merger Agreement also provided for the assignment of Telecom's interests in all
of its agreements, including the various services agreements, employment
agreements, equipment purchase agreements and purchase option agreements, to
ART. Further, the holders of warrants to purchase an aggregate of 924,413 shares
of Telecom common stock are entitled to purchase an equivalent number of shares
of ART's Common Stock. Employee stock options to purchase 816,970 shares of
Telecom's common stock were replaced by stock options to purchase an equal
number of shares of Common Stock of ART. The terms of the warrants and stock
options are similar except that the exercise price of the warrants and options,
and the number of shares subject thereto, have been adjusted on a proportional
basis to reflect the 1 for 2.75 reverse stock split.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
A -- DEVELOPMENT STAGE ENTERPRISE
Prior to July 1, 1996, the Company was considered a development stage
enterprise as defined in Statement of Financial Accounting Standards No. 7,
"Accounting and Reporting by Development Stage Enterprises." During the three
months ended September 30, 1996, the Company perfected substantially all of its
licenses and commenced commercial operations. Accordingly, the Company is no
longer considered to be in the development stage. Such change in classification
of the Company had no impact on the net loss or stockholders' equity (deficit)
for any periods presented.
F-16
<PAGE>
ADVANCED RADIO TELECOM CORP.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
B -- CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with remaining
maturities of three months or less to be cash equivalents.
C -- 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 equipment -- 3 years.
D -- EQUITY INVESTMENT
The Company accounts for its 50% interest in the ART West joint venture
under the equity method.
E -- FCC LICENSES
The Company has obtained radio spectrum rights under FCC issued
authorizations and licenses throughout the United States by petitioning the FCC
directly and through the purchase of such rights held by others. Such licenses
are issued for an initial term of six years and are renewable subject to review
by the FCC. The costs associated with the acquisition of such licenses are
capitalized and amortized on a straight-line basis over a 40-year period
beginning upon commencement of operations in the related market. The 40-year
period is based upon management's license renewal expectations.
F -- RECOVERABILITY OF LONG-LIVED ASSETS
The recoverability of property and equipment and capitalized FCC
authorizations and licenses is dependent upon the successful development of
systems in each of the respective markets, or through sale of such assets.
Management estimates that it will recover the carrying amount of those costs
from cash flow generated by the systems once they have been developed. However,
it is reasonably possible that such estimate will change in the near term as a
result of the failure to develop the FCC authorizations on a timely basis, or
technological, regulatory or other changes.
The Company's policy is to assess annually any impairment in value based
upon a comparison of projected operating cash flows from each market over its
expected period of operation, on an undiscounted basis, to the carrying amount
of the property and equipment, licenses and other capitalized costs related to
the market.
G -- 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.
H -- REVENUE RECOGNITION
Revenue from telecommunications services are recognized ratably over the
period such services are provided.
During 1994, the Company recognized income from consulting fees associated
with the application of FCC licenses on behalf of third parties, including
consulting fees of approximately $80,000 from Extended.
F-17
<PAGE>
ADVANCED RADIO TELECOM CORP.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
I -- 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.
K -- NET LOSS PER SHARE
Historical net loss per share is computed based on the loss for the period
divided by the weighted average number of shares of Common Stock outstanding
during each period. Historical net loss per share and the weighted average
number of shares of Common Stock outstanding are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------
<S> <C> <C> <C>
1995 1994 1993
------------- ------------- -------------
Net loss per share.............................. $ 0.54 $ 0.04 $ --
------------- ------------- -------------
------------- ------------- -------------
Weighted average number of shares of Common
Stock outstanding.............................. 5,946,338 3,337,685 1,820,555
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The Securities and Exchange Commission requires that potentially dilutive
instruments issued within one year prior to a proposed initial public offering
at exercise prices below the expected initial public offering price be treated
as outstanding for all periods presented. Accordingly, an additional 4,966,000
shares are reflected in the weighted average number of shares of Common Stock
outstanding in computing the unaudited pro forma net loss per share for the year
ended December 31, 1995.
L -- 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 expenses during the reporting period.
Actual results could differ from those estimates.
M -- CONCENTRATIONS OF CREDIT RISK
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. Deposits on equipment are financial
instruments which expose the Company to potential credit risk.
4. CONVERTIBLE NOTES PAYABLE:
The Company and several entities affiliated with Advent International Corp.
(collectively, the "Advent Group"), entered into a securities purchase agreement
(the "Advent Purchase Agreement") dated November 13, 1995 under which the Advent
Group agreed to acquire a 10% interest in the Company and certain specified
affiliates. The Company issued promissory notes (the "Advent Notes") with an
aggregate principal amount of $4,950,000 and one share of redeemable preferred
stock in exchange for $5,000,000 in cash.
The Advent Notes carried interest at a rate of 10% per annum and were
payable on demand at any time on or after May 13, 1997. The Advent Notes were
collateralized by certain assets of the Company. 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
F-18
<PAGE>
ADVANCED RADIO TELECOM CORP.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
4. CONVERTIBLE NOTES PAYABLE, CONTINUED:
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 the Advent Group's election.
At December 31, 1995, the Company accrued interest expense of $66,542 on the
Advent Notes, which has been included in accounts payable and accrued
liabilities.
On February 2, 1996, the Company and several entities affiliated with the
Advent Group entered into an exchange agreement under which the convertible
notes payable to the Advent Group, including accrued interest, and the one share
of redeemable preferred stock held by the Advent Group were exchanged for
232,826 shares of Series E preferred stock of Telecom and the notes payable to
the Advent Group were canceled.
5. EQUITY INVESTMENT:
A -- INVESTMENT IN ART WEST JOINT VENTURE
On April 4, 1995, ART entered into an agreement with Extended to form ART
West, a jointly controlled general partnership established to acquire, develop,
and operate radio systems using 38 GHz licenses in certain western states of the
U.S. The ART West joint venture will continue until December 31, 2055, unless
terminated earlier. The Company's initial capital contribution consisted of
$255,000 in cash, FCC licenses and related assets with a carrying value of
approximately $5,000, and 26,773 shares of Common Stock. Extended's initial
capital contribution consisted of $5,000 in cash and FCC licenses. The combined
systems are collectively referred to as the ART West Systems. Additionally,
Extended received distributions of $250,000 in cash and the 26,773 shares of
Common Stock contributed by the Company to ART West. As a result of these
contributions and distributions, the Company and Extended share equally in the
partnership interests of ART West. The Company recorded its investment in ART
West in the amount of $285,000. The excess of the Company's share of the
underlying net assets of ART West over the Company's recorded investment will be
amortized over the life of the ART West Systems.
On October 1, 1994, the Company entered into an exclusive services agreement
with Extended, whereby the Company is responsible for the construction,
operation and management of Extended's telecommunications systems. The term of
the services 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, the Company will incur all costs and
expenses related to construction, operation and management of the systems. As
compensation, the Company will receive all revenues generated by the systems
after deducting certain related direct expenses, less 45% which is to be paid to
ART West. Under the services agreement, title to the system assets purchased by
the Company and used to provide services in ART West's markets remains with the
Company upon termination of the services agreement. There have been no services
provided through December 31, 1995 under the services agreement. An officer of
the Company is also the President and a shareholder of Extended.
B -- ART WEST JOINT VENTURE ACQUISITION AND MANAGEMENT AGREEMENTS
In June 1996, the Company agreed to acquire Extended's 50% ownership
interest in ART West for $6,000,000 in cash upon consummation of public equity
and debt offerings with aggregate net proceeds of $125.0 million to the Company
and receipt of FCC approval. In addition, the Company entered into a ten-year
management agreement which, effective June 1, 1996, replaces the services
agreement referred to above with an arrangement whereby the Company agrees to
construct, operate and manage the ART West Systems in exchange for a license fee
equal to 10% of recurring operating revenues.
F-19
<PAGE>
ADVANCED RADIO TELECOM CORP.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
6. ACQUISITION OF ASSETS OF EMI:
On April 4, 1995, the Company entered into a purchase option agreement with
EMI to acquire EMI's interest in certain 38 GHz radio spectrum licenses and
related assets in the Northeastern United States (the "EMI Assets") in exchange
for $3,000,000 in cash and a three year non-negotiable promissory note in the
amount of $1,500,000. The FCC approved the transfer of the EMI licenses and the
Company acquired the EMI Assets in November 1995. The total purchase price,
including expenses, was allocated to the acquired assets as follows:
<TABLE>
<S> <C>
Property and equipment......................................... $ 297,150
FCC licenses................................................... 4,226,821
----------
$4,523,971
----------
----------
</TABLE>
The promissory note issued 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%, 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 amount later in
the same month.
7. PROPERTY AND EQUIPMENT:
At December 31, 1995, property and equipment comprises:
<TABLE>
<S> <C>
Wireless transmission equipment................................ $3,496,905
Office furniture and equipment................................. 93,414
----------
3,590,319
Accumulated depreciation....................................... (8,758)
----------
$3,581,561
----------
----------
</TABLE>
As of December 31, 1995, excluding the property and equipment acquired from
EMI (Note 6), the wireless transmission equipment acquired to date has not been
placed into service.
8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
At December 31, 1995, accounts payable and accrued liabilities comprise:
<TABLE>
<S> <C>
Accrued interest payable....................................... $ 87,254
Salaries and other employee related costs...................... 267,091
Trade accounts payable......................................... 673,514
Wireless transmission equipment payable........................ 2,666,630
----------
$3,694,489
----------
----------
</TABLE>
9. DCT AGREEMENTS:
SYSTEM PURCHASE AGREEMENT
On September 1, 1994, the Company entered into an agreement with DCT
Communications, Inc. ("DCT"), in which the Company obtained the option to
purchase certain FCC licenses (the "Systems") from DCT for $500,000 and shares
of Common Stock that represent 5% of its fully diluted equity as of the date of
transfer. The option is exercisable at any time after December 31, 1995 and up
to the date
F-20
<PAGE>
ADVANCED RADIO TELECOM CORP.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
9. DCT AGREEMENTS, CONTINUED:
that is three years after the FCC issues DCT's first license. At any time after
December 31, 1995, DCT may require that the Company purchase the Systems for
$50,000, plus reimbursement of certain costs defined in the agreement.
SERVICES AGREEMENT
On September 1, 1994, the Company entered into an exclusive services
agreement with DCT whereby the Company is responsible for the construction,
operation and management of DCT's Systems. The term of the Agreement is for five
years. Under the terms of the services agreement, the Company will incur all
costs and expenses related to construction, operation and management of the
systems. As compensation, the Company will receive all revenues generated by the
systems after deducting certain related direct expenses, less 45% which is to be
paid to DCT. Under the services agreement, title to the system assets purchased
by the Company and used to provide services in DCT's markets remains with the
Company upon termination of the services agreement. There have been no services
provided through December 31, 1995 under the services agreement.
CONSULTING AND LOAN AGREEMENT
On March 13, 1995, the Company entered into a consulting and loan agreement
(the "Consulting and Loan Agreement"). Under the terms of the Consulting and
Loan Agreement, DCT agreed to loan the Company $8,500, bearing interest at 9%
per annum. The loan, including interest of $431, was due and paid on August 31,
1995.
DCT PRELIMINARY AGREEMENT
On April 25, 1996, the Company entered into a preliminary agreement with DCT
to acquire DCT's interest in certain FCC authorizations and licenses in exchange
for $3.6 million in cash, subject to the completion of a definitive purchase
agreement and services agreement. The definitive purchase agreement will
supersede and replace all other existing agreements between DCT and the Company.
The definitive purchase agreement must be signed by June 28, 1996 and the
closing of the transaction is subject to FCC approval.
10. 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 initial non-cancelable equipment
purchase order amounts to $13,260,000. The Company has purchased and paid for
$522,812 of equipment under this contract through December 31, 1995. In
addition, a $280,000 deposit has been made 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 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.
F-21
<PAGE>
ADVANCED RADIO TELECOM CORP.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
10. COMMITMENTS, CONTINUED:
TELECOM ONE OPTION
On May 25, 1995, the Company entered into an agreement with TeleCom One
Incorporated ("TeleCom One") whereby the Company agreed to assist TeleCom One in
its applications for certain FCC licenses (the "TeleCom One Agreement"). Under
the terms of the TeleCom One Agreement, in exchange for its services, the
Company acquired options to purchase a 49% interest in each of the FCC licenses
obtained by TeleCom One at a price of $.0133 per person covered by the
geographical license area. The term of the TeleCom One Agreement is for five
years. The Company has not exercised any of its options.
On April 24, 1996, the Company entered into a services agreement to
construct, operate and manage the FCC licenses and related telecommunications
systems of TeleCom One in exchange for all revenues generated by the systems,
after deducting cerain expenses, less 10% which is paid to TeleCom One. Under
the services agreement, title to the system assets purchased by the Company and
used to provide services in TeleCom One's markets remains with the Company upon
termination of the services agreements.
EMPLOYMENT AND CONSULTING AGREEMENTS
On May 8, 1995, the Company 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 January 8, 1996, with an officer of the Company. 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 the Common Stock were awarded to this officer equivalent to 2.5% of
the outstanding capital stock of the Company (see Note 12). 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 also entered into employment agreements with other
executives that provide for annual base salaries and cash bonuses based on
achievement of specific performance goals. These contracts may be terminated at
any time by management.
FINANCING AGREEMENT
During 1994, the Company entered into an agreement with Southeast Research
Partners ("SERP"), a subsidiary of Josephthal, Lyons & Ross, a Florida broker
dealer, to procure additional financing for the Company in exchange for cash and
options to purchase capital stock of the Company. Pursuant to a letter agreement
dated July 12, 1995, the Company paid SERP $245,000 and the shareholders of ART
granted SERP options to purchase 114,041 shares of Common Stock directly from
the Founding Stockholders for an aggregate consideration of $210,000.
As of December 31, 1995, the Company 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
F-22
<PAGE>
ADVANCED RADIO TELECOM CORP.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
10. COMMITMENTS, CONTINUED:
costs related to the issuance of the Advent Notes (see Note 4) and the balance
of $70,000 has been recognized as an offset against the proceeds from the
issuance of the serial preferred stock of Telecom (see Note 11).
LEASES
The Company has entered into operating leases for office space and antenna
sites which expire between 1997 and 2001. Lease expense amounted to $16,044 for
1995. 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>
11. STOCKHOLDERS' DEFICIT:
A--ART
On April 5, 1994, the Board of Directors authorized a 5 for 1 stock split.
Subsequently, on April 5, 1995, the Board of Directors authorized a 1 for 5
reverse stock split and simultaneously issued an additional 1,472,508 shares of
Common Stock.
On May 30, 1996, the Board of Directors authorized a 29,450.16 for 1 stock
split, increased the number of authorized shares of preferred stock and Common
Stock to 10,000,000 and 100,000,000, respectively, and changed the par value per
share from $.01 to $.001. On October 11, 1996, the Board of Directors authorized
a 1 for 2.75 reverse stock split of shares of common stock issued and
outstanding. All references to the number of shares and per share amounts of
Common Stock in the accompanying financial statements have been restated to
reflect the 5 for 1 stock split, the 1 for 5 reverse stock split, the 29,450.16
for 1 stock split and the 1 for 2.75 reverse stock split, unless otherwise
indicated. All par value amounts have been restated to reflect the change in par
value to $.001 per share.
B--TELECOM
At December 31, 1995, Telecom's 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 of Telecom 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 Telecom to 70,000,000 shares of stock of all
classes, (iii) change the authorized common stock to 60,000,000 shares, (iv)
amend the terms of the preferred stock and each series thereof, (v) provide for
two new series of preferred stock designated as "Series E preferred stock" and
"Series F preferred stock," and (vi) effect a 13 for 1 stock split of each share
of Telecom common stock issued and outstanding.
F-23
<PAGE>
ADVANCED RADIO TELECOM CORP.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
11. STOCKHOLDERS' DEFICIT, CONTINUED:
The holders of Telecom Class A common stock had anti-dilution protection,
but in all other respects such shares were identical to the Telecom 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.
Each issuance of serial preferred stock pursuant to the Landover Funding
Commitment is a separate class and, as a class, has a liquidation preference
equal to the aggregate price paid for such class and an ownership interest
designated by Landover at issuance. The ownership interest of each outstanding
class of serial preferred stock was not to be diluted by subsequent issuances of
shares of other classes of serial preferred stock through the satisfaction of
the Landover Funding Commitment. As a result, additional shares of serial
preferred stock were issued to the existing holders upon the issuance of such
other shares so that each outstanding class maintained its designated aggregate
liquidation preference and aggregate ownership interest.
Each share of serial preferred stock outstanding at December 31, 1995 is
convertible into 4.7273 shares of Telecom common stock, subject to certain
anti-dilution adjustments. The holders of serial preferred stock have a vote,
and receive dividends or distributions, equivalent to the votes and amounts
which would be obtainable by them upon conversion of their shares into Telecom
common stock.
In partial satisfaction of the Landover Funding Commitment, during 1995,
Telecom issued 332,091 shares of Series A preferred stock, 82,318 shares of
Series B preferred stock and 5,402 shares of Series C preferred stock to three
separate limited partnerships of which an affiliate of Landover is the general
partner, for aggregate cash consideration of $2.0 million.
On November 9, 1995, Telecom issued 61,640 shares of Series D preferred
stock for cash of $2.0 million. The Series D preferred stock purchase agreement
provided that in the event that Telecom and ART on a combined basis did not
achieve an equity valuation of $225.0 million, as defined, on or before November
1, 1997, the holders of the Series D preferred stock had the option to purchase
additional shares of serial preferred stock for $0.001 per share up to a maximum
of 1.33% of the then outstanding capital stock of Telecom. The Series D
preferred stock purchase agreement was amended February 2, 1996 whereby the
option to purchase additional serial preferred stock was replaced with an option
to purchase 145,685 shares of Telecom common stock directly from Landover for
$0.001 per share in the event ART and Telecom on a combined basis does not
attain certain equity valuation objectives.
On November 13, 1995, the Advent Group executed a securities purchase
agreement with ART and Telecom. As a result of the exchange agreement dated
February 2, 1996, the Advent Group received 232,826 shares of Series E preferred
stock of Telecom (see Note 4).
The serial preferred stock transactions described above satisfied the
Landover Funding Commitment. As a result, the anti-dilution protection for the
Class A common stock and serial preferred stock terminated. As the actual cash
proceeds received were in excess of Landover's $7.0 million commitment, on
November 13, 1995, Telecom used the proceeds from the sale of Series D preferred
stock to redeem 293,791 shares of Class B common stock held by Landover.
The Series E and F preferred stock (see Note 16) are senior in liquidation
preference to the Series A, B, C and D preferred stock. The Series D preferred
stock is senior in liquidation preference to the Series A, B and C preferred
stock. At any time on or after November 13, 2000, the Series E and F preferred
stock may be redeemed at the option of the holders of such stock at a price
equal to the liquidation amount plus all accrued and unpaid dividends.
F-24
<PAGE>
ADVANCED RADIO TELECOM CORP.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
12. 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 909,091 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 297,175 and 85,455
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 $1.6244 and $4.5430
per share, respectively. The difference between the exercise price of the
options issued at $1.6244 and the deemed fair value of Common Stock of $3.30 per
share as determined on the measurement date, is recognized as compensation
expense over the respective vesting period. The options vest at various dates
during a 5-year period. At December 31, 1995, 131,558 options were vested and
compensation expense recognized amounted to $210,339. There were no options
exercised or canceled during 1995.
On February 15, 1996, options to purchase an aggregate of 52,727 shares of
Common Stock were granted to employees of the Company under the Plan at an
option price of $10.8350 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 72,727 shares. Under
the Directors Plan, options to acquire approximately 2,200 shares of common
stock are automatically granted to each non-employee director who is a director
on January 1 of each year. In addition, each non-employee director serving on
the Board of Directors effective on the date of an initial public offering, and
in the future each newly elected non-employee director on the date of his or her
first appointment or election to the Board of Directors will receive an
automatic grant of options to acquire approximately 2,600 shares of Common
Stock.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation". This statement encourages, but does not require, accounting for
stock compensation awards granted to employees based on their fair value at the
date the awards are granted. Companies may elect to continue to apply current
accounting requirements for employee stock compensation awards, which generally
will result in no compensation cost for most fixed stock option plans, such as
the 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.
13. INCOME TAXES:
As of December 31, 1995 and 1994, the Company has net operating loss
carry-forwards for income tax purposes of approximately $2.4 million and
$134,000, respectively, which will expire between 2008 and 2010. Deferred tax
assets of approximately $870,000 and $46,000 at December 31, 1995 and 1994,
F-25
<PAGE>
ADVANCED RADIO TELECOM CORP.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
13. INCOME TAXES, CONTINUED:
respectively, principally comprised of such net operating tax loss
carry-forwards and temporary differences arising from compensation expense
related to stock option plans, have been offset in full by a valuation
allowance.
14. RELATED PARTY TRANSACTIONS:
On May 8, 1995, the Company 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 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 for two
additional one year terms. The aggregate expense recognized by the Company under
this agreement during 1995 amounted to $70,000. The agreement also provides that
in the event Landover arranges financing, acquisitions or certain other
transactions for the Company and Landover will be paid a fee in accordance with
industry standards.
Pursuant to the Purchase Agreement, the Company paid Landover $391,750 for
expenses in connection with the Landover Funding Commitment, of which $250,000
has been capitalized as deferred financing costs and the balance of $141,750 has
been charged to paid-in capital.
In 1994, the Company shared office space with a law firm in which a
principal of the law firm was also one of the Founding Stockholders. The Company
paid rent in the amount of $6,353 to the law firm for the use of their office
space. The law firm also regularly provides legal services to the Company.
During 1995 and 1994, the Company incurred fees of $34,770 and $74,550,
respectively, for such services.
15. FAIR VALUES OF FINANCIAL INSTRUMENTS:
The carrying amounts and fair values of the Company's financial instruments
at December 31 were as follows:
<TABLE>
<CAPTION>
1995 1994
---------------------------- --------------------
<S> <C> <C> <C> <C>
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------------- ------------- --------- ---------
Cash and cash equivalents............... $ 633,654 $ 633,654 $ 5,133 $ 5,133
Notes payable........................... $ 4,950,000 $ 4,950,000 $ 70,000 $ 70,000
</TABLE>
Cash and cash equivalents: The carrying amount reported in the balance sheet
approximates fair value.
Notes Payable: The carrying amounts reported in the balance sheet
approximate fair values based upon interest rates that are currently available
to the Company for issuance of similar debt with similar terms and maturities.
16. SUBSEQUENT EVENTS:
AMERITECH FINANCING
On February 2, 1996, Telecom sold 48,893 shares of Series F preferred stock
for an aggregate purchase price of $2.5 million to Ameritech Development
Corporation ("Ameritech"). In addition, 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 318,959
shares of
F-26
<PAGE>
ADVANCED RADIO TELECOM CORP.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
16. SUBSEQUENT EVENTS, CONTINUED:
common stock at a nominal price per share, exercisable on February 2, 1996
through February 2, 2006. The Series F preferred stock and warrants are
collectively referred to as the Ameritech Securities. The strategic distribution
agreement provides for Ameritech to be the principal distributor of 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 Judgment in the
United States vs. AT&T Civil Action 82-0192 ("MFJ"). Telecom would be required
to repurchase the Ameritech Securities at a purchase price equal to the fair
market value on the date it is determined that the investment is in violation of
the MFJ.
BRIDGE FINANCING
On March 8, 1996, the Company issued a private placement of $5.0 million,
two year, 10% notes (the "Bridge Notes") and five year warrants to purchase up
to an aggregate of 400,000 shares of common stock at a price of $17.1875 per
share (the "Bridge Warrants") to certain holders of serial preferred stock. The
Bridge Warrants are exercisable on March 8, 1996 through March 8, 2001. In the
event of nonpayment of interest or default, the Company is required to issue
additional warrants to purchase shares of Common Stock.
EQUIPMENT FINANCING
On April 24, 1996, the Board of Directors approved the adoption of
resolutions necessary to complete a $2,445,000 equipment financing for the
purchase of wireless transmission equipment.
RESEARCH AND DEVELOPMENT ARRANGEMENTS
On January 26, 1996, 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 payable upon execution of the
agreement with the balance payable in monthly installments of principal and
interest commencing January 1, 1997.
F-27
<PAGE>
ADVANCED RADIO TELECOM CORP. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (NOTE 1)
SEPTEMBER 30, 1996 AND 1995
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------------
1996 1995
--------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................................... $ 752,368 $ 81,512
Accounts receivable............................................................ 78,645
Other current assets........................................................... 140,227
--------------- --------------
Total current assets....................................................... 971,240 81,512
Restricted cash.................................................................. 1,000,000
Property and equipment, net...................................................... 11,019,217 49,488
Equity investment................................................................ 285,000 212,500
FCC licenses, net................................................................ 4,276,780 175,000
Deferred financing costs, net.................................................... 2,343,087
Deposits......................................................................... 463,036
Other assets..................................................................... 183,637 29,703
--------------- --------------
Total assets............................................................... $ 20,541,997 $ 548,203
--------------- --------------
--------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities....................................... $ 11,154,608 $ 250,303
March Bridge Notes............................................................. 4,243,784
CommcoCCC Notes................................................................ 2,827,836
September Bridge Notes......................................................... 2,203,559
Current portion of long-term debt.............................................. 1,242,126
--------------- --------------
Total current liabilities.................................................. 21,671,913 250,303
Equipment financing note payable (net of current portion)........................ 927,796
Note payable to EMI (net of current portion)..................................... 937,500
--------------- --------------
Total liabilities.......................................................... 23,537,209 250,303
--------------- --------------
Stockholders' equity (deficit):
Serial preferred stock, $.001 par value, 920,951 and 123,545 shares issued and
outstanding, respectively.................................................... 921 124
Common Stock, $.001 par value, 6,586,958 and 6,761,111 shares issued and
outstanding, respectively.................................................... 6,587 6,761
Additional paid-in capital..................................................... 20,745,714 1,430,543
Accumulated deficit............................................................ (23,748,434) (1,139,528)
--------------- --------------
Total stockholders' equity (deficit)....................................... (2,995,212) 297,900
--------------- --------------
Total liabilities and stockholders' equity (deficit)..................... $ 20,541,997 $ 548,203
--------------- --------------
--------------- --------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-28
<PAGE>
ADVANCED RADIO TELECOM CORP. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (NOTE 1)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 AND
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- ----------------------------
<S> <C> <C> <C> <C>
1996 1995 1996 1995
--------------- -------------- -------------- ------------
Service revenue................................... $ 125,013 $ -- $ 63,493 $ --
--------------- -------------- -------------- ------------
Selling, general and administrative expenses...... 16,942,052 987,367 3,640,254 622,611
Market development expense........................ 1,053,000 -- -- --
Research and development expense.................. 666,406 -- 145,000 --
Depreciation and amortization..................... 504,462 15,407 226,087 9,353
--------------- -------------- -------------- ------------
Total operating expenses.................... 19,165,920 1,002,774 4,011,341 631,964
--------------- -------------- -------------- ------------
Interest income................................... (59,473) -- (19,584) --
Interest expense.................................. 1,396,943 1,539 778,249 664
--------------- -------------- -------------- ------------
Interest expense, net....................... 1,337,470 1,539 758,665 664
--------------- -------------- -------------- ------------
Net loss.................................... $ (20,378,377) $ (1,004,313) $ (4,706,513) $ (632,628)
--------------- -------------- -------------- ------------
--------------- -------------- -------------- ------------
Pro forma net loss per share of Common Stock...... $ (2.15)
---------------
---------------
Pro forma weighted average number of shares of
Common Stock outstanding......................... 9,470,545
---------------
---------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-29
<PAGE>
ADVANCED RADIO TELECOM CORP. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT (NOTE 1)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
SERIAL
COMMON PREFERRED
SHARES STOCK STOCK
- ----------------------------------------------------------------------------------------- ----------- ---------
<S> <C> <C>
Balance at December 31, 1995............................................................. 6,529,975 488,492
Issuance of Series E preferred stock..................................................... 232,826
Shares issued to reflect anti-dilution adjustments....................................... 56,983 150,740
Issuance of Series F preferred stock..................................................... 48,893
----------- ---------
Balance at September 30, 1996............................................................ 6,586,958 920,951
----------- ---------
----------- ---------
</TABLE>
<TABLE>
<CAPTION>
SERIAL ADDITIONAL
COMMON PREFERRED PAID-IN ACCUMULATED
AMOUNTS STOCK STOCK CAPITAL DEFICIT TOTAL
- ----------------------------------------- ----------- ----------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995............. $ 6,530 $ 488 $ 3,050,179 $ (3,370,057) $ (312,860)
Issuance of Series E preferred stock..... 233 4,672,953 4,673,186
Shares issued to reflect anti-dilution
adjustments............................. 57 151 (208)
Issuance of Series F preferred stock and
warrants in exchange for cash and the
Ameritech Strategic Distribution
Agreement, net of expenses of
$150,000................................ 49 3,402,951 3,403,000
Increase in additional paid-in capital as
a result of the release of escrow
shares.................................. 6,795,514 6,795,514
Value ascribed to the March Bridge
Warrants................................ 1,050,000 1,050,000
Value ascribed to the equipment financing
warrants................................ 484,937 484,937
Value ascribed to the CommcoCCC
Warrants................................ 319,514 319,514
Value ascribed to the September Bridge
Warrants................................ 260,937 260,937
Accrued stock option compensation........ 708,937 708,937
Net loss................................. (20,378,377) (20,378,377)
----------- ----- -------------- --------------- --------------
Balance at September 30, 1996............ $ 6,587 $ 921 $ 20,745,714 $ (23,748,434) $ (2,995,212)
----------- ----- -------------- --------------- --------------
----------- ----- -------------- --------------- --------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-30
<PAGE>
ADVANCED RADIO TELECOM CORP. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (NOTE 1)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
--------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net loss....................................................................... $ (20,378,377) $ (1,004,313)
--------------- --------------
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization................................................ 504,462 15,407
Noncash interest expense..................................................... 632,994
Noncash compensation expense................................................. 7,504,452
Noncash market development expense........................................... 1,053,000
Writeoff of deferred financing costs......................................... 1,248,000
Changes in operating assets and liabilities:
Other current assets....................................................... (87,902)
Accounts receivable........................................................ (78,645)
Accounts payable and accrued liabilities................................... 805,179 238,615
Deposits................................................................... (179,024)
--------------- --------------
Net cash used in operating activities.................................... (8,975,861) (750,291)
--------------- --------------
Cash flows from investing activities:
Additions to property and equipment............................................ (4,241,470) (57,120)
Restricted cash................................................................ (1,000,000)
Additions to FCC licenses...................................................... (112,131) (175,000)
Additions to other assets...................................................... (165,185)
Investment in ART West......................................................... (187,500)
--------------- --------------
Net cash used in investing activities.................................... (5,518,786) (419,620)
--------------- --------------
Cash flows from financing activities:
Proceeds from issuance of Common Stock......................................... 1,040
Proceeds from issuance of serial preferred stock............................... 2,500,000 1,311,616
Proceeds from issuance of March Bridge Notes................................... 5,000,000
Proceeds from issuance of the equipment financing note payable................. 2,445,000
Proceeds from issuance of CommcoCCC Notes...................................... 3,000,000
Proceeds from issuance of September Bridge Notes............................... 2,450,000
Principal payments made on the equipment financing note payable................ (437,407)
Stock issuance costs........................................................... (150,000) (66,366)
Additions to deferred financing costs.......................................... (194,232)
--------------- --------------
Net cash provided by financing activities................................ 14,613,361 1,246,290
--------------- --------------
Net increase in cash and cash equivalents........................................ 118,714 76,379
Cash and cash equivalents at beginning of period................................. 633,654 5,133
--------------- --------------
Cash and cash equivalents at end of period....................................... $ 752,368 $ 81,512
--------------- --------------
--------------- --------------
- ------------------------------------------------------------------------------------------------------------------
Supplemental cash flow information:
Interest paid.................................................................. $ 281,062
Noncash financing and investing activities:
Additions to property and equipment.......................................... 6,260,000
Exchange of Advent Notes for Series E preferred stock, net of deferred
financing costs............................................................ 4,673,186
Value ascribed to warrants reflected as paid-in capital...................... 2,115,388
Accrued deferred financing costs............................................. 1,784,300
Conversion of note payable and interest to Common Stock...................... $ 75,250
Investment in ART West....................................................... 25,000
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-31
<PAGE>
ADVANCED RADIO TELECOM CORP. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
1. THE COMPANY AND BASIS OF PRESENTATION:
THE COMPANY
Advanced Radio Telecom Corp. ("ART" and, collectively with its subsidiaries,
the "Company"), formerly named Advanced Radio Technologies Corporation, was
organized as a Delaware corporation on August 23, 1993 to develop, market and
provide broadband wireless digital 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.
ART Licensing Corp. ("Telecom"), formerly named Advanced Radio Telecom Corp.
and Advanced Radio Technology Ltd., was incorporated in Delaware on March 28,
1995, with one of its initial objectives to acquire certain 38 GHz licenses.
On October 11, 1996, ART, Telecom and a wholly owned subsidiary of ART
("Merger Sub") entered into a revised merger agreement, which provided for the
merger of Merger Sub into Telecom (the "Merger"). The Merger was completed on
October 28, 1996 and Telecom, through the Merger, became a wholly owned
subsidiary of ART (see Note 2). The Merger was accounted for as a reorganization
of entities under common control which is similar to that of a pooling of
interests, and the financial statements of prior periods have been restated. All
transactions and balances between ART and Telecom have been eliminated.
BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements included herein
have been prepared by the Company. The foregoing statements contain all
adjustments, consisting only of normal recurring adjustments which are, in the
opinion of the Company's management, necessary to present fairly the
consolidated financial position of the Company as of September 30, 1996 and the
consolidated results of its operations and its consolidated cash flows for the
nine and three months ended September 30, 1996 and 1995.
Certain information and footnote disclosures normally included in financial
statements have been condensed or omitted pursuant to the rules and regulations
of the Securities and Exchange Commission. These unaudited condensed
consolidated financial statements should be read in conjunction with the
December 31, 1995 audited financial statements of the Company and notes thereto.
The financial statements have been prepared on the going concern basis of
accounting, which contemplates realization of assets and liquidation of
liabilities in the ordinary course of business. The Company has limited
financial resources, incurred operating losses since inception and does not
expect to recognize material operating revenues until the further deployment of
its commercial services, which commenced in fiscal 1996. The Company estimates
that revenues in 1996 and 1997 will not be sufficient to fund its operating
expenses, capital expenditures and other working capital needs. The Company's
continued funding of its operating expenses, working capital needs and
contractual commitments is dependent upon its ability to raise financing. During
November 1996, the Company completed an initial public offering of equity
securities, raising $34,500,000 before expenses. In connection with the initial
public offering, the Company obtained a commitment to borrow up to $50,000,000
through the issuance of Senior Secured Notes (the "CIBC Financing Commitment")
(see Note 8). The proceeds from the initial public offering were used to repay
the March Bridge Notes, the CommcoCCC Notes and the September Bridge Notes and
partially fund the acquisition of the remaining 50% interest in ART West.
Management believes that, based upon its current business plans, the funds
received from the initial public equity offering and available under the CIBC
Financing Commitment are sufficient to enable the Company to continue as a going
concern at least through December 31, 1997.
F-32
<PAGE>
ADVANCED RADIO TELECOM CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
2. MERGER AND PUBLIC OFFERING:
In connection with the formation of Telecom, the stockholders of ART and
Telecom entered into a stockholders' agreement dated May 8, 1995 (the
"Stockholders' Agreement"), which provided for the merger of ART and Telecom
once approval from the Federal Communications Commission ("FCC") was granted. On
February 2, 1996, ART, Telecom and their respective stockholders agreed to an
amendment and restatement of the Stockholders' Agreement providing for (i)
termination effective on the closing of a public share offering, (ii) amendment
and restatement of the Certificate of Incorporation and reorganization of the
capital structure of Telecom; (iii) the exchange of the convertible notes
payable and one share of redeemable preferred stock for shares of serial
preferred stock of Telecom; (iv) revision of provisions for election of
directors; (v) amendment and restatement of ART's registration rights
agreements; (vi) release of shares escrowed in connection with the original
Stockholders' Agreement; and (vii) approval of the definitive merger agreement.
The definitive merger agreement, as entered into February 2, 1996, and
subsequently restated and amended on June 26, 1996 and October 11, 1996 (the
"Merger Agreement") provided for the merger of Merger Sub into Telecom subject
to certain conditions, including the receipt of FCC approval. FCC approval was
received and, on October 28, 1996, the Merger was completed. As a result,
Telecom became a wholly owned subsidiary of the Company. In connection with the
Merger, each outstanding share of each series of Telecom's serial preferred
stock was converted into a share of a similar series of the Company's preferred
stock. Upon completion of the initial public offering in November 1996, all
shares of all series of the Company's preferred stock (920,951) automatically
converted into 4,353,587 shares of the Company's common stock. The Merger
Agreement also provided for the assignment of Telecom's interests in all of its
agreements, including the various services agreements, employment agreements,
equipment purchase agreements and purchase option agreements, to the Company.
Further, the holders of warrants to purchase an aggregate of 924,413 shares of
Telecom common stock are entitled to purchase an equal number of shares of the
Company's common stock. Employee stock options to purchase 816,970 shares of
Telecom's common stock were replaced by stock options to purchase an equal
number of shares of common stock of the Company. The terms of the warrants and
stock options are similar except that the exercise price of the warrants and
stock options and the number of shares subject thereto, have been adjusted on a
proportional basis to reflect the 1 for 2.75 reverse stock split (see Note 9).
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CONSOLIDATION
The consolidated financial statements include all majority owned
subsidiaries in which the Company has the ability to exercise control. All
intercompany transactions have been eliminated in consolidation. During 1996,
the Company incorporated two wholly owned subsidiaries, Advanced Radio Telecom
AB and Advanced Radio Telecom Ltd. for its planned European operations in the
future. There have been no operations by these two subsidiaries to date.
FINANCING COSTS
Direct costs associated with obtaining financing are deferred and charged to
interest expense using the effective interest rate method over the term of the
debt or, in the case of equity, charged to additional paid-in capital. Deferred
costs associated with unsuccessful financings are charged to expense. The
Company charged approximately $1,248,000 to expense during the nine months ended
September 30, 1996 associated with its unsuccessful public debt offering.
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.
F-33
<PAGE>
ADVANCED RADIO TELECOM CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
The costs associated with the acquisition of such licenses, including the cost
of perfecting such licenses pursuant to FCC requirements, are capitalized and
amortized on a straight-line basis over a 40 year period upon commencement of
operations in the related market.
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. As of
September 30, 1996, approximately $1.4 million out of a total of $9.7 million of
wireless transmission equipment has been placed into service.
DEVELOPMENT STAGE ENTERPRISE
During the three months ended September 30, 1996, the Company perfected
substantially all of its licenses and commenced commercial operations.
Accordingly, the Company is no longer considered to be in the development stage.
Prior to July 1, 1996, the Company was considered to be in the development
stage. Such change in classification of the Company had no impact on net loss or
stockholders' deficit for any periods presented.
4. NET LOSS PER SHARE:
Historical net loss per share is computed based on the loss for the period
divided by the weighted average number of shares of Common Stock outstanding
during the period. Historical net loss per share and the weighted average number
of shares of Common Stock outstanding are as follows:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS FOR THE THREE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------ ------------------------
<S> <C> <C> <C> <C>
1996 1995 1996 1995
----------- ----------- ----------- -----------
Net loss per share......................................... $ 3.10 $ 0.18 $ 0.71 $ 0.09
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average number of shares of common stock
outstanding.............................................. 6,580,627 5,721,111 6,586,958 6,761,111
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The Securities and Exchange Commission requires that potentially dilutive
instruments issued within one year prior to an initial public offering at
exercise prices below the initial public offering price be treated as
outstanding for all periods presented in the public offering prospectus.
Accordingly, an additional 2,889,918 shares are reflected in the weighted
average number of shares of Common Stock outstanding in computing the unaudited
pro forma net loss per share for the nine months ended September 30, 1996.
5. CONVERTIBLE NOTES PAYABLE:
On February 2, 1996, the Company and several entities affiliated with Advent
International Corp. (collectively, the "Advent Group") entered into an exchange
agreement under which the convertible notes payable to the Advent Group,
including accrued interest, and the one share of ART's redeemable preferred
stock held by the Advent Group were exchanged for 232,826 shares of serial
preferred stock of Telecom (converted into 1,100,632 shares of Common Stock
concurrent with the initial public equity offering). As a result, the notes
payable by the Company to the Advent Group were canceled and the related
interest forgiven.
6. EQUITY INVESTMENT:
The Company accounts for its 50% interest in the ART West joint venture
under the equity method. In June 1996, the Company agreed to acquire the
remaining 50% ownership interest in ART West held
F-34
<PAGE>
ADVANCED RADIO TELECOM CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
6. EQUITY INVESTMENT, CONTINUED:
by Extended Communications Inc. ("Extended") for $6,000,000 in cash upon
consummation of public equity and debt offerings with aggregate net proceeds of
$125,000,000 and receipt of FCC approval. In addition, the Company entered into
a ten-year management agreement which, effective June 1, 1996, replaced the
services agreement with ART West with an arrangement whereby the Company agreed
to construct, operate, and manage the ART West systems in exchange for a license
fee equal to 10% of recurring operating revenues. During November 1996, upon
completion of its initial public offering, the Company made a $3,000,000
nonrefundable payment to Extended pursuant to the acquisition agreement.
7. COMMCOCCC ASSET ACQUISITION:
During July 1996, the Company entered into an agreement with CommcoCCC, Inc.
("CommcoCCC") to acquire CommcoCCC's interests in certain 38 GHz FCC
authorizations (the "CommcoCCC Assets") in exchange for 6,000,000 shares of
Common Stock of the Company. The acquisition of the CommcoCCC Assets is subject
to various conditions including (i) minimum population coverage of the
authorizations of the Company and CommcoCCC, (ii) receipt of final FCC and other
approvals, (iii) receipt by CommcoCCC of an opinion as to the tax-free nature of
the transaction, (iv) the accuracy of representations and warranties except for
breaches that do not have in the aggregate a material adverse effect, (v) no
pending or threatened material litigation, (vi) consummation of a public equity
offering and a debt offering on terms reasonably satisfactory to CommcoCCC, and
(vii) other customary closing conditions. Pending the completion of the
acquisition, the Company has agreed to construct, manage and operate the
CommcoCCC Assets. Under the management agreement, CommcoCCC is obligated to
reimburse the Company up to $100,000 of operating expenses, which obligation is
canceled upon consummation of the acquisition.
The Company has given a stockholder ("Commco LLC") of CommcoCCC an option
(the "Option") to purchase FCC authorizations in specified market areas in which
the Company will have more than one authorization. The Option is exercisable
only in the event that the CommcoCCC Acquisition is consummated and Commco LLC
receives authorizations pursuant to pending applications covering a minimum
specified population and expires in August 1997. The price of authorizations to
be purchased under the Option is based upon a formula that considers the market
price of the Common Stock on the date of exercise.
In connection with the agreement to acquire the CommcoCCC Assets, certain
stockholders of CommcoCCC loaned the Company $3,000,000 in cash in exchange for
notes due September 30, 1996 (the "CommcoCCC Notes") with interest at the prime
rate and received three year warrants to purchase 18,182 shares of Common Stock
at a price of $15.00 per share, as adjusted and after giving effect to anti-
dilution adjustments. As a result of a delay in the September 30, 1996
repayment, the Company obtained waivers from the lenders to extend the payment
terms. In exchange, the Company issued additional warrants to purchase 69,091
shares of the Common Stock at a price of $15.00 per share (as adjusted after
giving effect to anti-dilution adjustments) and increased the interest rate to
14.75%. During November 1996, the Company repaid the principal balance and
accrued interest with proceeds from the initial public offering.
8. FINANCINGS:
AMERITECH FINANCING
On February 2, 1996, Telecom sold 48,893 shares of serial preferred stock
(converted into 231,131 shares of Common Stock concurrent with the initial
public offering) for an aggregate purchase price of $2.5 million to Ameritech
Development Corporation ("Ameritech"). In addition, Telecom entered into a
F-35
<PAGE>
ADVANCED RADIO TELECOM CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
8. FINANCINGS, CONTINUED:
strategic distribution agreement with Ameritech Corp., the parent of Ameritech,
and, as partial consideration, granted warrants to Ameritech to purchase up to
318,959 shares of Common Stock at a nominal price per share, exercisable on
February 2, 1996 through February 2, 2006. The Company recorded the value of
$1,053,000 ascribed to the strategic distribution agreement as market
development expense in the first quarter of 1996. The Company incurred fees of
$150,000 in connection with this transaction. On December 5, 1996, Ameritech
surrendered its warrants to purchase 318,959 shares of Common Stock in full
exercise of the warrants and was issued 318,374 shares of Common Stock by the
Company.
MARCH BRIDGE FINANCING
On March 8, 1996, the Company issued in a private placement a portion of
which was issued to certain holders of serial preferred stock, $5,000,000 of two
year, 10% notes, interest payable on a semi-annual basis, and warrants to
purchase up to an aggregate of 400,000 shares of Common Stock at a price of
$17.1875 per share. During November 1996, the Company repaid the principal
balance and accrued interest with proceeds from the initial public offering.
EQUIPMENT FINANCING
On April 29, 1996, the Company completed a $2,445,000 equipment financing
for the purchase of wireless transmission equipment. The Company issued a
$2,445,000 promissory note, payable in 24 monthly installments of $92,694 with a
final payment of $642,305 due April 29, 1998. In connection with the equipment
financing, the Company issued five year warrants to purchase up to an aggregate
of 118,181 shares of Common Stock and paid $225,000 in fees to certain
stockholders to partially guarantee the equipment financing. In addition, the
Company was required to invest $1,000,000 in a certificate of deposit assigned
to the lender as collateral. The $1,000,000 is reflected as restricted cash in
the balance sheet.
SEPTEMBER BRIDGE FINANCING
During September and October, 1996, the Company issued in a private
placement, a portion of which was issued to certain stockholders, $4,000,000 in
notes due March 1998 with interest at 14.75%, payable quarterly, and warrants to
purchase 116,363 shares of Common Stock at a purchase price of $15.00 per share,
as adjusted after giving effect to anti-dilution adjustments. During November
1996, the Company repaid the principal balance and accrued interest with
proceeds from the initial public offering.
CIBC FINANCING COMMITMENT
During November 1996, the Company entered into agreements with certain
lenders which provide for the issuance of up to $50,000,000 of Senior Secured
Notes, at any time at the Company's option through February 10, 1997 (the "CIBC
Financing Commitment"). The initial interest rate on the Senior Secured Notes is
12.5%, which rate increases by 0.50% three months after the closing of the
initial public offering and by an additional 0.50% for each three-month period
thereafter. The Senior Secured Notes are due in full in November 1998.
The Senior Secured Notes are to be collateralized by a first priority
security interest in substantially all the assets of the Company, including a
pledge of the Company's stock in its subsidiaries. The Senior Secured Notes
contain covenants that restrict the ability of the Company to pay dividends and
make other restricted payments, to incur additional debt, guarantees and liens,
to sell its assets, to enter into mergers and consolidations, to conduct sale
and leaseback transactions and to enter into affiliate transactions, among other
restrictions.
Upon completion of the initial public offering, the Company delivered
warrants to purchase 300,257 shares of Common Stock at a nominal exercise price.
The Company also is committed to deliver
F-36
<PAGE>
ADVANCED RADIO TELECOM CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
8. FINANCINGS, CONTINUED:
additional warrants to purchase 1.5% of the fully diluted Common Stock upon the
first draw down of the Senior Secured Notes. If the Senior Secured Notes are
outstanding six months after the initial public offering, the Company shall
issue to the lenders additional warrants to purchase 3% of the fully diluted
Common Stock, and an additional 3% for each additional six month period such
notes are outstanding.
In connection with the CIBC Financing Commitment, the Company paid placement
and commitment fees and other expenses of approximately $1,900,000 and is
obligated to pay approximately $1,800,000 upon the drawdown of the Senior
Secured Notes.
9. STOCKHOLDERS' DEFICIT:
On May 30, 1996, the Board of Directors authorized a 29,450.16 for 1 stock
split, increased the number of authorized shares of preferred stock and Common
Stock to 10,000,000 and 100,000,000, respectively, and changed the par value of
common stock from $.01 to $.001. On October 11, 1996, the Board of Directors
authorized a 1 for 2.75 reverse stock split of shares of Common Stock issued and
outstanding. All references to the number of shares and per share amounts in the
accompanying financial statements have been restated to reflect the stock split
and the reverse stock split, unless otherwise indicated.
Pursuant to a February 2, 1996 reorganization, the terms of the escrow
shares arrangement were terminated and all of the remaining escrow shares
thereunder were released to the stockholders of the Company. The related
compensation expense of $6,795,514, based on the then estimated fair value of
the escrow shares was recognized, the effect of which was recorded as additional
paid-in capital.
10. RELATED PARTY TRANSACTION:
In November 1996, Landover Holdings Corporation ("LHC"), one of the
principal stockholders of the Company was paid an aggregate of approximately
$300,000 in conjunction with various services provided in connection with
certain acquisitions under the consulting agreement with LHC.
11. COMMITMENTS AND CONTINGENCIES:
DCT AGREEMENT
During April 1996, the Company entered into an agreement with DCT
Communications, Inc. ("DCT") (the "DCT Agreement") to acquire DCT's interest in
certain FCC authorizations and licenses in exchange for $3,600,000 in cash, of
which the Company paid a deposit of $100,000. DCT has alleged that the Company
has failed to satisfy a provision of the DCT Agreement which provides that if
the Company failed to obtain debt or equity proceeds by August 31, 1996 in an
amount at least equal to $3,600,000, the DCT Agreement would terminate and DCT
could retain the $100,000 deposit paid by the Company. The Company and DCT are
currently discussing a settlement under the DCT Agreement. There can be no
assurance as to the outcome of such dispute or settlement discussions and,
therefore, no assurance that the Company will be in a position to consummate the
acquisition of the DCT Systems, even if the Company wishes to do so. Although
the Company believes that it has satisfied such provision of the DCT Agreement
and is legally entitled to proceed to consummate the transactions contemplated
thereby, the Company does not currently plan to purchase the DCT Systems as
contemplated by the DCT Agreement.
F-37
<PAGE>
[INSIDE BACK COVER]
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>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON, OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM,
IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS
PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary............................................... 3
Risk Factors..................................................... 10
The Company...................................................... 27
Use of Proceeds.................................................. 28
Price Range of Common Stock and Dividend Policy.................. 29
Capitalization................................................... 30
Selected Historical Combined and Pro Forma Financial Data........ 31
Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................... 34
Business......................................................... 41
Management....................................................... 69
Principal Stockholders........................................... 79
Certain Transactions............................................. 81
Description of Units............................................. 86
Description of Notes............................................. 86
Description of Warrants.......................................... 114
Description of Capital Stock..................................... 117
Description of Certain Indebtedness.............................. 119
Certain Federal Income Tax Considerations........................ 121
Underwriting..................................................... 125
Legal Matters.................................................... 126
Experts.......................................................... 126
Available Information............................................ 126
Special Note Regarding Forward-Looking Statements................ 127
Glossary......................................................... 128
Index to Financial Statements.................................... F-1
</TABLE>
$125,000,000
[LOGO]
125,000 UNITS CONSISTING OF
% SENIOR NOTES DUE 2007
AND
125,000 WARRANTS TO PURCHASE
SHARES OF COMMON STOCK
-------------------
P R O S P E C T U S
-------------------
MERRILL LYNCH & CO.
CIBC WOOD GUNDY SECURITIES CORP.
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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............... $ 54,517
<S> <C> <C>
NASD filing fee................................................... 14,227
Accounting fees and expenses...................................... 450,000
Printing.......................................................... 250,000
Blue Sky fees and expenses (including counsel fees)............... 20,000
Legal fees and expenses........................................... 400,000
Warrant Agent fees and expenses................................... *
Trustee fees and expenses (including counsel fees)................ *
Miscellaneous expenses............................................ *
----------
TOTAL (estimated)................................................. $1,188,744
----------
----------
</TABLE>
- ------------------------
* To be filed by amendment.
II-1
<PAGE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of Delaware provides that a
corporation has the power to indemnify a director, officer, employee or agent of
the corporation and certain other persons serving at the request of the
corporation in related capacities against amounts paid and expenses incurred in
connection with an action or proceeding to which he is or is threatened to be
made a party be reason of such position. If such person shall have acted in good
faith and in a manner he reasonable believed to be in or not opposed to the best
interests of the corporation, and, in any criminal proceeding, if such person
had no reasonable cause to believe his conduct was unlawful; provided that, in
the case of actions brought by or in the right of the corporation, no
indemnification shall be made with respect to any matter as to which such person
shall have been adjudged to be liable to the corporation unless and only to the
extent that the adjudicating court determines that such indemnification is
proper under the circumstances.
Reference is made to Article Ninth of the Certificate of Incorporation of
the Registrant, Section 6.4 of the By-laws and each of the Indemnification
Agreements filed as Exhibits 10-5, 10-6, 10-7 and 10-8, respectively, to this
Registration Statement for information regarding indemnification of directors
and officers under certain circumstances.
The Registrant has agreed to indemnify the Underwriters and their
controlling persons, and the Underwriters have agreed to indemnify the
Registrant and its controlling persons, against certain liabilities, including
liabilities under the Securities Act of 1933, as amended (the "Act"). Reference
is made to the Underwriting Agreement filed as part of Exhibit 1-1 hereto.
For information regarding the Registrant's undertaking to submit to
adjudication the issue of indemnification for violation of the Act, see Item 17
hereof.
The Registrant's Certificate of Incorporation provides that every director,
officer or agent of the Company shall be entitled to be indemnified out of the
assets of the Company against all losses or liabilities which he or she may
sustain or incur in or about the execution of the duties of his or her office or
otherwise in relation thereto, including any liability incurred by him or her in
defending any proceedings, whether civil or criminal, in which judgment is given
in his or her favor or in which he or she is acquitted, and no director or other
officer shall be liable for any loss, damage or misfortune which may happen to
or be incurred by the Company in the execution of the duties of his or her
office or in relation thereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
TELECOM CLASS A AND B COMMON STOCK PRIVATE PLACEMENT
In April 1995, the Company and Landover Holdings Corporation ("LHC")
subscribed 340,000 shares of Telecom Class A common stock and 640,000 shares of
Telecom Class B common stock, respectively, for $0.001 per share, which, after
giving effect to anti-dilution adjustments and the February 1996 Reorganization,
currently are equivalent upon conversion prior to the Offering to 3,641,111
shares and 2,650,414 shares, respectively, of Common Stock. In addition,
Hedgerow Corporation of Maine ("Hedgerow") and Toro Financial Corp. ("Toro")
subscribed 15,000 shares and 5,000 shares, respectively, of Telecom Class A
common stock at the price of $0.001 per share, which, after giving effect to
anti-dilution adjustments and the February 1996 Reorganization currently are
equivalent upon conversion prior to the Offering to 160,637 shares and 53,546
shares of the Common Stock, respectively. The securities issued in the above
transactions were offered and sold in reliance upon the exemption from
registration under Section 4(2) of the Act. The recipients made certain
representations as to the nature of their investments and had adequacy of access
to information about the Registrant.
PREFERRED STOCK PRIVATE PLACEMENTS
Between May 8, 1995 and November 13, 1995, the LHC Stock was diluted by
purchases of series of Telecom preferred stock by E2-2, E2, E1 Holdings L.P.
("E1") and E2-3 Holdings, L.P. ("E2-3" and collectively with E1, E2 and E2-2,
the "Landover Partnerships"), each a limited partnership whose general partner
is controlled by LHC, in separate private placements. E2-2, which committed to
II-2
<PAGE>
purchase up to $3,500,000 of Telecom preferred stock matching other investors
under the LHC Purchase Agreement, purchased 405,880 shares of Telecom Series A
preferred stock (which converts into 1,918,705 shares of Common Stock upon
completion of this offering) for an aggregate of $946,600, and LHC purchased
35,873 shares of such Telecom Series A preferred stock from E2-2 for $1,050,000
pursuant to an option. E2 purchased an aggregate of 105,823 shares of Telecom
Series B preferred stock (which converts into 500,254 shares of Common Stock
upon completion of this offering) for an aggregate of $842,400. E1 purchased
13,797 shares of Telecom Series A preferred stock (which converts into 65,222
shares of Common Stock upon completion of this offering) for an aggregate of
$60,000 and 8,856 shares of Telecom Series B preferred stock (which converts
into 41,865 shares of Common Stock upon completion of this offering) for an
aggregate of $38,300. E2-3 purchased an aggregate of 7,363 shares of Telecom
Series C preferred stock (which converts into 34,807 shares of Common Stock upon
completion of this offering) for an aggregate of $112,700. All of the Landover
Partnerships will liquidate upon completion of this offering. The securities
issued in each of the foregoing transactions were offered and sold in reliance
on an exemption from registration under Regulation D promulgated under the Act.
On November 9, 1995, Telecom sold 61,640 shares of Telecom Series D
preferred stock (which convert into 291,390 shares of Common Stock upon
completion of this offering) for $2,000,000 in a private placement. Telecom
simultaneously redeemed 293,791 shares of Telecom common stock from LHC for
$2,000,000. In connection with the February 1996 Reorganization described below,
LHC granted to the holders of Telecom Series D preferred stock a contingent
option to purchase 145,685 shares of Telecom common stock at a nominal price
(the "Series D/LHC Option"), which option expires upon completion of this
offering.
On November 13, 1995, Global Private Equity II, L.P., Advent Partners
Limited Partnership and Advent International Investors II L.P. each a limited
partnership controlled by Advent International Corporation, (collectively,
"Advent") purchased for an aggregate of $5,000,000, (i) one share of ART's
Series A Redeemable Preferred Stock for a purchase price of $50,000 and (ii) the
Company's 10% Secured Convertible Demand Promissory Notes in the aggregate
principal amount of $4,950,000. In connection with the February 1996
Reorganization, Advent exchanged such Preferred Stock and Note for 232,826
shares of Telecom Series E preferred stock (which converts into 1,100,632 shares
of Common Stock upon completion of this Offering), $0.001 par value per share.
The securities issued in each of the foregoing transactions were offered and
sold in reliance on an exemption from registration under Regulation D
promulgated under the Act. Advent made certain representations as to the nature
of its investment and had adequate access to information about the Registrant.
On February 2, 1996, Ameritech Development Corp. ("Ameritech") purchased for
an aggregate of $2,500,000 48,893 shares of Telecom Series F preferred stock,
par value $0.001 per share, (the "Ameritech Financing") convertible into 231,131
shares of Common Stock upon completion of this offering. In addition, Telecom
entered into the Ameritech Strategic Distribution Agreement and in connection
therewith granted to Ameritech a ten-year warrant to purchase 318,959 shares of
Telecom common stock exercisable at a nominal price per share (the "Ameritech
Warrant"). The securities issued in each of the foregoing transactions were
offered and sold in reliance on an exemption from registration under Regulation
D promulgated under the Act. Ameritech made certain representations as to the
nature of its investment and had adequate access to information about the
Registrant.
MARCH BRIDGE NOTES
On March 8, 1996, Telecom issued in a private placement $5,000,000 principal
amount of two year, 10% unsecured notes (the "March Bridge Notes") and five-year
warrants to purchase up to an aggregate of 400,000 shares of Telecom common
stock at a price of $17.1875 per share (the "March Bridge Warrants") to
investors including: (i) affiliates of J.C. Demetree, Jr. and Mark Demetree,
directors of the Company; (ii) the Advent Partnerships; and (iii) Ameritech, who
invested $700,000, $725,000 and $750,000 in the March Bridge Notes and March
Bridge Warrants, respectively.
II-3
<PAGE>
EQUIPMENT FINANCING
On April 1, 1996, CRA, Inc. ("CRA") entered into a secured equipment
financing with Telecom (the "Equipment Financing") for the purchase from P-Com
of 38 GHz radio equipment. To evidence its obligations and the Equipment
Financing, Telecom issued in favor of CRA a $2,445,000 promissory note, payable
in 24 monthly installments of $92,694 with a final payment equal to $642,305 due
April 1, 1998. The securities issued in the foregoing transaction were offered
and sold in reliance on an exemption from registration under Regulation D
promulgated under the Act.
COMMCOCCC ACQUISITION
On July 3, 1996, the Company entered into the CommcoCCC Agreement to acquire
129 38 GHz wireless broadband authorizations from CommcoCCC, Inc. in exchange
for 6,000,000 shares of Common Stock. The stockholders of CommcoCCC
simultaneously loaned $3.0 million on a secured, subordinated basis bearing
interest at the prime rate and payable on September 30, 1996 and issued three-
year warrants to acquire 18,182 shares of Common Stock at $24.75 per share. In
connection with an October 1996 amendment to the CommcoCCC Agreement, the
Company modified the terms of such warrants, reduced the exercise price of such
warrants to $17.1875 per share and increased the number of shares issuable upon
exercise to 87,272 shares. The securities to be issued in the foregoing
transaction will be offered and sold in reliance on an exemption from
registration under Regulation D promulgated under the Act.
SEPTEMBER BRIDGE FINANCING
In August 1996, the Company received commitments for $3.0 million of 14.75%
unsecured notes due March 1998 (the "September Bridge Notes"). The September
Bridge Notes were funded from August 30, 1996 to October 1996. In October 1996,
the Company received an additional $1.0 millon of proceeds therefrom. The
Company also issued five-year warrants to purchase up to an aggregate of 116,364
shares of Common Stock at a price of $17.1875 per share (the "September Bridge
Warrants") to private investors including the Advent Partnerships, Ameritech,
LHC and affiliates of J.C. Demetree, Jr. and Mark C. Demetree. The securities
issued in the foregoing transaction were offered and sold in reliance on an
exemption from registration under Regulation D promulgated under the Act.
CIBC FINANCING COMMITMENT
The Company has entered into agreements with certain investors (the
"Noteholders") which provide for the issuance of $50.0 million of the Company's
$12.5% Senior Secured Notes due 1998 (the "Senior Secured Notes") at any time,
at the Company's option, until February 10, 1997 (the "CIBC Financing
Commitment"). The interest rate on the Senior Secured Notes will increase by
0.5% on February 12, 1997 and by an additional 0.5% for each three-month period
thereafter until such time as the Senior Secured Notes have been repaid. The
Company issued or will issue ten-year warrants at a nominal exercise price to
the Noteholders upon each of the following events: (i) the consummation of the
Common Stock Offering, (ii) the issuance of the Senior Secured Notes and (iii)
if the Senior Secured Notes continue to be outstanding six months on May 12,
1997, and, at various times thereafter. The Senior Secured Notes, if issued,
must be repaid with the proceeds of any future debt and equity financings,
including the Offering. The securities issued in the foregoing transaction were
offered and sold in reliance on an exemption from registration under Regulation
D promulgated under the Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
The following exhibits were delivered with this Registration Statement, or
will be delivered by amendment, for filing:
<TABLE>
<C> <S> <C>
1-1 Purchase Agreement.*
2-1 (a)Amended and Restated Certificate of Incorporation and Bylaws of Registrant
(superseded).**
(b) Amendment to Amended and Restated Certificate of Incorporation
(superseded).**
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S> <C>
(c) Second Amended and Restated Certificate of Incorporation and Restated and
Amended Bylaws of Registrant.**
4-1 Specimen of Common Stock Certificate.**
4-2 (a) Indenture*
(b) Specimen of Note*
(c) Collateral Pledge and Security Agreement*
4-3 (a) Form of Warrant Agreement*
(b) Specimen of Warrant Certificate*
4-4 Omitted
5-1 Opinion and Consent of Hahn & Hessen LLP, counsel for the Registrant, with
respect to the Registrant's Common Stock.*
9-1 (a) Voting Trust Agreement dated November 5, 1996.
(b) Form of Trustee Indemnification Agreement.**
(c) Cooperation Agreement dated November 5, 1996.
(d) Confidentiality Agreement dated November 5, 1996.
10-1 Employment and Consulting Agreements.
(a) Vernon L. Fotheringham, dated December 16, 1995.**
(b) Steven D. Comrie, dated February 2, 1996.**
(c) W. Theodore Pierson, Jr., dated May 8, 1995 and effective January 1, 1995.**
(d) I. Don Brown, dated February 16, 1996.**
(e) Charles Menatti, dated March 8, 1996.**
(f) James D. Miller, dated February 1, 1996.**
(g) Thomas A. Grina, dated April 26, 1996.**
10-2 Omitted
10-3 Form of Director Indemnification Agreement.**
10-4 (a) Registrant's Equity Incentive Plan, as amended.**
(b) Form of Stock Option Agreement.**
10-5 (a) Registrant's 1996 Non-Employee Directors Automatic Stock Option Plan.**
(b) Form of Non-Employee Directors Stock Option Agreement.**
10-6 Stock Option Agreements.
(a) Comrie Non-Qualified Stock Option Agreement.**
(b) Comrie Incentive Stock Option Agreement.**
(c) Grina Option Agreement.
10-7 Management Consulting Agreement with Landover Holdings Corporation, dated
November 13, 1995.**
10-8 (a) ART West Joint Venture Agreement dated April 4, 1995, with Extended
Communications, Inc.**
(b) Put/Call Agreement dated October 1, 1994, with Extended Communications,
Inc.**
(c) Services Agreement dated October 1, 1994, with Extended Communications,
Inc.**
(d) Amendment dated April 4, 1995 to the Put/Call Agreement dated October 1,
1994, with Extended Communications, Inc.**
(e) Asset Purchase Agreement dated June 24, 1996 with Extended Communications,
Inc.**
(f) Management Agreement dated June 1, 1996 with ART West Partnership.**
10-9 (a) Omitted
(b) Services Agreement dated September 1, 1994 with DCT Communications, Inc.**
(c) Omitted
(d) Purchase Agreement with DCT dated July 1, 1996.**
(e) Amendment to Services Agreement dated June 1996 with DCT.**
</TABLE>
II-5
<PAGE>
<TABLE>
<C> <S> <C>
10-10 (a) Asset Purchase Agreement dated April 4, 1995 with EMI Communications
Corporation.**
(b) $1,500,000 Nonnegotiable and Nontransferable Promissory Note.**
(c) Maintenance Agreement dated November 14, 1995 with EMI Communications
Corporation.**
(d) Agreement dated November 14, 1995 with EMI Communications Corporations.**
10-11 38 GHz Radio Links Purchase Agreement dated August 11, 1995 with P-Com, Inc.+**
10-12 (a) Omitted
(b) Services Agreement dated April 24, 1996 with TeleCom One.**
(c) Asset Purchase Agreement and Management Agreement with TeleCom One dated
June 27, 1996.**
10-13 Agreement dated April 25, 1996 with GTE.**
10-14 Software License Agreement dated March 29, 1996 with GTE.**
10-15 Agreement dated July 12, 1995 with Southeast Research Partners, Inc.**
10-16 Agreement dated March 1, 1995 with High Sky Limited Partnership, High Sky II
Limited Partnership, Vernon L. Fotheringham, W. Theodore Pierson, Jr., and F.
Thomas Tuttle.**
10-17 Stock Purchase Agreement dated May 8, 1995 with Vernon L. Fotheringham, W.
Theodore Pierson, Jr., High Sky Limited Partnership, High Sky II Limited
Partnership, and Extended Communications, Inc.**
10-18 (a) Purchase Agreement dated April 21, 1995 with Landover Holdings
Corporation.**
(b) Letter Agreement dated May 8, 1995 with the Demetrees, Telecom and Landover
Holdings Corporation.**
(c) Letter Agreement dated November 13, 1995 with Telecom, E2-2 Holdings, L.P.
and the Demetrees.**
10-19 Restated and Amended Stockholders' Agreement dated February 2, 1996 with Telecom
and the stockholders of each of Telecom and the Company.**
10-20 (a) Second Restated and Amended Registration Rights Agreement dated July 3, 1996
with Telecom and the stockholders of each of Telecom and the Company.**
(b) Amendment No. 1 to Registration Rights Agreement dated as of October 16,
1996.
10-21 Services Agreement dated May 8, 1995 with Telecom.**
10-22 Option Agreement dated February 2, 1996 with Telecom.**
10-23 (a) Securities Purchase Agreement dated November 13, 1995 with Telecom, Vernon
Fotheringham, W. Theodore Pierson, Jr., the stockholders of Telecom named
therein and the Advent Partnerships.**
(b) Exchange Agreement dated February 2, 1996 with Telecom and the Advent
Partnerships.**
10-24 (a) Securities Purchase Agreement dated February 2, 1996 with Telecom and
Ameritech Development Corporation ("Ameritech").**
(b) Warrant issued on February 2, 1996 to Ameritech.**
(c) Put/Call Agreement dated February 2, 1996 with Ameritech.**
10-25 Strategic Distribution Agreement dated April 29, 1996 with Ameritech.**
10-26 Second Restated and Amended Merger Agreement and Plan of Reorganization dated
October 11, 1996 between the Company, Merger Sub and Telecom.**
10-27 (a) $2,445,000 Promissory Note in favor of CRA, Inc. ("CRA").**
(b) Security Agreement with CRA.**
(c) Indemnity Agreement.**
(d) Form of Indemnity Warrant.**
10-28 Omitted.
10-29 (a) Purchase Agreement dated April 26, 1996 with Harris Corporation Farinon
Division ("Harris").**+
(b) PCS Marketing Agreement dated April 26, 1996 with Harris.**+
</TABLE>
II-6
<PAGE>
<TABLE>
<C> <S> <C>
10-30 Form of Subscription Agreement dated March 8, 1996, including Forms of Bridge
Note and Bridge Warrant.**
10-31 (a) Asset Acquisition Agreement and Plan of Reorganization dated July 3, 1996
with CommcoCCC, Inc.**
(b) Form of Note issued to Commco, L.L.C.**
(c) Form of Note issued to Columbia Capital Corporation.**
(d) Form of Warrant issued to Commco, L.L.C. (superseded)**
(e) Form of Warrant issued to Columbia Capital Corporation. (superseded)**
(f) Option Agreement dated July 3, 1996 with Commco, L.L.C.**
(g) Security Agreement dated June 27, 1996 with Columbia Capital Corporation.**
(h) Form of Noncompetition Agreement with CommcoCCC.**
(i) CommcoCCC Management Agreement dated July 3, 1996.**
(j) Right of First Offer Agreement dated July 3, 1996.**
(k) Engagement Letter with Montgomery Securities dated May 23, 1996.**
(l) Agreement to Lease between COMMCO, L.L.C. and Advanced Radio Technologies
Corporation.**
(m) Extension Agreement.**
(n) Amendment No. 1 to Asset Acquisition Agreement and Plan of Reorganization.**
10-32 Letter of Intent dated April 29, 1996 with Helioss Communications Inc.**
10-33 Omitted
10-34 (a) Consulting Agreement dated March 1, 1996 with Trond Johannesen.**
(b) Shareholders Agreement.**
(c) License and Support Agreement, dated September 30, 1996 (United Kingdom).**
(d) License and Support Agreement, dated September 30, 1996 (Sweden).**
10-35 (a) Form of September Bridge Note.
(b) Form of September Bridge Warrant.
10-36 Memorandum of Terms with Advantage Telecom, Inc.**
10-37 Installation Services Agreement dated October 2, 1996 with Teleport
Communications Group, Inc.**
10-38 (a) Omitted
(b) Form of Senior Secured Credit Agreement with CIBC.**
(c) Form of Senior Secured Notes.**
(d) Form of CIBC Warrants.**
(e) Form of Security Agreement.**
10-39 Master Service Agreements.
(a) Microwave Partners, d/b/a Astrolink Communications Inc., dated October 3,
1996.**
(b) American PCS, L.P., dated July 29, 1996.**
(c) Message Center Management, Inc., dated September 19, 1996.**
(d) NEXTLINK Communications, LLC, dated October 13, 1996.**
(e) GST Telecom, Inc., dated October 11, 1996.**
(f) CAIS, Inc., dated October 1996.**
(g) DIGEX, Incorporated, dated October 1996.**
(h) Brooks Fiber Properties, Inc. dated October 1996.**
(i) Public Interest Network, dated as of October 1, 1996.
(j) Comlink, Inc., dated as of October 28, 1996.
10-40 MFS Communications Company, Inc. Agreements.**
10-41 Services Agreement dated as of October 29, 1996 with ICG Telecom Group, Inc. and
Pacific & Eastern Digital Transmission Services, Inc.**
10-42 Services Agreement dated as of November 1, 1996 with Microwave Partners.
10-43 Carrier Resale Agreement dated October 22, 1996 with Chadwick Telephone.
</TABLE>
II-7
<PAGE>
<TABLE>
<C> <S> <C>
10-44 (a) Engagement Letter with CIBC Wood Gundy dated November 5, 1996.
(b) Engagement Letter with Merrill Lynch & Co. dated October 16, 1996.
10-45 Summary of Terms and Conditions with CIBC.
12 Computation of Ratio of Earnings to Fixed Charges.
21 Subsidiaries of the Registrant.**
23(a) Consent of the Registrant's Independent Accountants.
23(b) Consent of the Registrant's Counsel (Included in Exhibit 5-1).
25 Omitted
</TABLE>
- ------------------------
* To be filed by amendment.
** Previously filed with the Registration Statement on Form S-1 of the Company,
effective November 5, 1996 (SEC Reg. No. 333-04388) under the corresponding
Exhibit number.
+ Confidential treatment requested for the deleted portions of this document.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities under the Act may be permitted to
directors, officers and controlling person of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been advised that in the
opinion of the Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes to provide the Underwriters at
the closing specified in the Underwriting Agreement certificates in such
denomination and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4), or
497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement;
II-8
<PAGE>
(2) That, for the purpose of determining any liability under the Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this 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 , 1997.
Advanced Radio Telecom Corp.
By: /s/ THOMAS A. GRINA
-----------------------------------
Thomas A. Grina
EXECUTIVE VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER
<TABLE>
<C> <S> <C>
SIGNATURES TITLE DATE
- ------------------------------------------------------ ----------------------------------- --------------------
/s/ THOMAS A. GRINA
------------------------------------------- Executive Vice President and Chief January , 1997
Thomas A. Grina Financial Officer
</TABLE>
II-10
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby severally constitutes and appoints Vernon L. Fotheringham and
Thomas A. Grina, and each of them, his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement and all
documents relating thereto, including one or more registration statements that
may be filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act, and to file the same, with all exhibits hereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, full power and
authority to do and perform each and every act and thing necessary or advisable
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or his substitute or substitutes, may lawfully do
or cause to be done in virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<C> <S> <C>
SIGNATURES TITLE DATE
- ------------------------------------------------------ --------------------------------------- ----------------
/s/ VERNON L. FOTHERINGHAM
------------------------------------------- Chairman, Chief Executive Officer and , 1997
Vernon L. Fotheringham Director
/s/ STEVEN D. COMRIE
------------------------------------------- President, Chief Operating Officer and , 1997
Steven D. Comrie Director
/s/ JAMES C. COOK
------------------------------------------- Director , 1997
James C. Cook
/s/ MARK C. DEMETREE
------------------------------------------- Director , 1997
Mark C. Demetree
/s/ Andrew I. Fillat
------------------------------------------- Director , 1997
Andrew I. Fillat
/s/ ALAN Z. SENTER
------------------------------------------- Director , 1997
Alan Z. Senter
</TABLE>
II-11
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION PAGE
- ---------- ---------------------------------------------------------------------------------------- ---------
<C> <S> <C>
1-1 Purchase Agreement.
2-1 (a)Amended and Restated Certificate of Incorporation and Bylaws of Registrant
(superseded).**
(b) Amendment to Amended and Restated Certificate of Incorporation (superseded).**
(c) Second Amended and Restated Certificate of Incorporation and Restated and Amended
Bylaws of Registrant.**
4-1 Specimen of Common Stock Certificate.**
4-2 (a) Indenture
(b) Specimen of Note
(c) Collateral Pledge and Security Agreement
4-3 (a) Form of Warrant Agreement
(b) Specimen of Warrant Certificate
4-4 Omitted
5-1 Opinion and Consent of Hahn & Hessen LLP, counsel for the Registrant, with respect to
the Registrant's Common Stock.*
9-1 (a) Voting Trust Agreement dated November 5, 1996.
(b) Form of Trustee Indemnification Agreement.**
(c) Cooperation Agreement dated November 5, 1996.
(d) Confidentiality Agreement dated November 5, 1996.
10-1 Employment and Consulting Agreements.
(a) Vernon L. Fotheringham, dated December 16, 1995.**
(b) Steven D. Comrie, dated February 2, 1996.**
(c) W. Theodore Pierson, Jr., dated May 8, 1995 and effective January 1, 1995.**
(d) I. Don Brown, dated February 16, 1996.**
(e) Charles Menatti, dated March 8, 1996.**
(f) James D. Miller, dated February 1, 1996.**
(g) Thomas A. Grina, dated April 26, 1996.**
10-2 Omitted
10-3 Form of Director Indemnification Agreement.**
10-4 (a) Registrant's Equity Incentive Plan, as amended.**
(b) Form of Stock Option Agreement.**
10-5 (a) Registrant's 1996 Non-Employee Directors Automatic Stock Option Plan.**
(b) Form of Non-Employee Directors Stock Option Agreement.**
10-6 Stock Option Agreements.
(a) Comrie Non-Qualified Stock Option Agreement.**
(b) Comrie Incentive Stock Option Agreement.**
(c) Grina Option Agreement.
10-7 Management Consulting Agreement with Landover Holdings Corporation, dated November 13,
1995.**
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION PAGE
- ---------- ---------------------------------------------------------------------------------------- ---------
10-8 (a) ART West Joint Venture Agreement dated April 4, 1995, with Extended Communications,
Inc.**
<C> <S> <C>
(b) Put/Call Agreement dated October 1, 1994, with Extended Communications, Inc.**
(c) Services Agreement dated October 1, 1994, with Extended Communications, Inc.**
(d) Amendment dated April 4, 1995 to the Put/Call Agreement dated October 1, 1994, with
Extended Communications, Inc.**
(e) Asset Purchase Agreement dated June 24, 1996 with Extended Communications, Inc.**
(f) Management Agreement dated June 1, 1996 with ART West Partnership.**
10-9 (a) Omitted
(b) Services Agreement dated September 1, 1994 with DCT Communications, Inc.**
(c) Omitted
(d) Purchase Agreement with DCT dated July 1, 1996.**
(e) Amendment to Services Agreement dated June 1996 with DCT.**
10-10 (a) Asset Purchase Agreement dated April 4, 1995 with EMI Communications Corporation.**
(b) $1,500,000 Nonnegotiable and Nontransferable Promissory Note.**
(c) Maintenance Agreement dated November 14, 1995 with EMI Communications Corporation.**
(d) Agreement dated November 14, 1995 with EMI Communications Corporations.**
10-11 38 GHz Radio Links Purchase Agreement dated August 11, 1995 with P-Com, Inc.+**
10-12 (a) Omitted
(b) Services Agreement dated April 24, 1996 with TeleCom One.**
(c) Asset Purchase Agreement and Management Agreement with TeleCom One dated June 27,
1996.**
10-13 Agreement dated April 25, 1996 with GTE.**
10-14 Software License Agreement dated March 29, 1996 with GTE.**
10-15 Agreement dated July 12, 1995 with Southeast Research Partners, Inc.**
10-16 Agreement dated March 1, 1995 with High Sky Limited Partnership, High Sky II Limited
Partnership, Vernon L. Fotheringham, W. Theodore Pierson, Jr., and F. Thomas Tuttle.**
10-17 Stock Purchase Agreement dated May 8, 1995 with Vernon L. Fotheringham, W. Theodore
Pierson, Jr., High Sky Limited Partnership, High Sky II Limited Partnership, and
Extended Communications, Inc.**
10-18 (a) Purchase Agreement dated April 21, 1995 with Landover Holdings Corporation.**
(b) Letter Agreement dated May 8, 1995 with the Demetrees, Telecom and Landover Holdings
Corporation.**
(c) Letter Agreement dated November 13, 1995 with Telecom, E2-2 Holdings, L.P. and the
Demetrees.**
10-19 Restated and Amended Stockholders' Agreement dated February 2, 1996 with Telecom and the
stockholders of each of Telecom and the Company.**
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION PAGE
- ---------- ---------------------------------------------------------------------------------------- ---------
10-20 (a) Second Restated and Amended Registration Rights Agreement dated July 3, 1996 with
Telecom and the stockholders of each of Telecom and the Company.**
<C> <S> <C>
(b) Amendment No. 1 to Registration Rights Agreement dated as of October 16, 1996.
10-21 Services Agreement dated May 8, 1995 with Telecom.**
10-22 Option Agreement dated February 2, 1996 with Telecom.**
10-23 (a) Securities Purchase Agreement dated November 13, 1995 with Telecom, Vernon
Fotheringham, W. Theodore Pierson, Jr., the stockholders of Telecom named therein
and the Advent Partnerships.**
(b) Exchange Agreement dated February 2, 1996 with Telecom and the Advent
Partnerships.**
10-24 (a) Securities Purchase Agreement dated February 2, 1996 with Telecom and Ameritech
Development Corporation ("Ameritech").**
(b) Warrant issued on February 2, 1996 to Ameritech.**
(c) Put/Call Agreement dated February 2, 1996 with Ameritech.**
10-25 Strategic Distribution Agreement dated April 29, 1996 with Ameritech.**
10-26 Second Restated and Amended Merger Agreement and Plan of Reorganization dated October
11, 1996 between the Company, Merger Sub and Telecom.**
10-27 (a) $2,445,000 Promissory Note in favor of CRA, Inc. ("CRA").**
(b) Security Agreement with CRA.**
(c) Indemnity Agreement.**
(d) Form of Indemnity Warrant.**
10-28 Omitted.
10-29 (a) Purchase Agreement dated April 26, 1996 with Harris Corporation Farinon Division
("Harris").**+
(b) PCS Marketing Agreement dated April 26, 1996 with Harris.**+
10-30 Form of Subscription Agreement dated March 8, 1996, including Forms of Bridge Note and
Bridge Warrant.**
10-31 (a) Asset Acquisition Agreement and Plan of Reorganization dated July 3, 1996 with
CommcoCCC, Inc.**
(b) Form of Note issued to Commco, L.L.C.**
(c) Form of Note issued to Columbia Capital Corporation.**
(d) Form of Warrant issued to Commco, L.L.C. (superseded)**
(e) Form of Warrant issued to Columbia Capital Corporation. (superseded)**
(f) Option Agreement dated July 3, 1996 with Commco, L.L.C.**
(g) Security Agreement dated June 27, 1996 with Columbia Capital Corporation.**
(h) Form of Noncompetition Agreement with CommcoCCC.**
(i) CommcoCCC Management Agreement dated July 3, 1996.**
(j) Right of First Offer Agreement dated July 3, 1996.**
(k) Engagement Letter with Montgomery Securities dated May 23, 1996.**
(l) Agreement to Lease between COMMCO, L.L.C. and Advanced Radio Technologies
Corporation.**
(m) Extension Agreement.**
(n) Amendment No. 1 to Asset Acquisition Agreement and Plan of Reorganization.**
10-32 Letter of Intent dated April 29, 1996 with Helioss Communications Inc.**
10-33 Omitted
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION PAGE
- ---------- ---------------------------------------------------------------------------------------- ---------
10-34 (a) Consulting Agreement dated March 1, 1996 with Trond Johannesen.**
<C> <S> <C>
(b) Shareholders Agreement.**
(c) License and Support Agreement, dated September 30, 1996 (United Kingdom).**
(d) License and Support Agreement, dated September 30, 1996 (Sweden).**
10-35 (a) Form of September Bridge Note.
(b) Form of September Bridge Warrant.
10-36 Memorandum of Terms with Advantage Telecom, Inc.**
10-37 Installation Services Agreement dated October 2, 1996 with Teleport Communications
Group, Inc.**
10-38 (a) Omitted
(b) Form of Senior Secured Credit Agreement with CIBC.**
(c) Form of Senior Secured Notes.**
(d) Form of CIBC Warrants.**
(e) Form of Security Agreement.**
10-39 Master Service Agreements.
(a) Microwave Partners, d/b/a Astrolink Communications Inc., dated October 3, 1996.**
(b) American PCS, L.P., dated July 29, 1996.**
(c) Message Center Management, Inc., dated September 19, 1996.**
(d) NEXTLINK Communications, LLC, dated October 13, 1996.**
(e) GST Telecom, Inc., dated October 11, 1996.**
(f) CAIS, Inc., dated October 1996.**
(g) DIGEX, Incorporated, dated October 1996.**
(h) Brooks Fiber Properties, Inc. dated October 1996.**
(i) Public Interest Network, dated as of October 1, 1996.
(j) Comlink, Inc., dated as of October 28, 1996.
10-40 MFS Communications Company, Inc. Agreements.**
10-41 Services Agreement dated as of October 29, 1996 with ICG Telecom Group, Inc. and Pacific
& Eastern Digital Transmission Services, Inc.**
10-42 Services Agreement dated as of November 1, 1996 with Microwave Partners.
10-43 Carrier Resale Agreement dated October 22, 1996 with Chadwick Telephone.
10-44 (a) Engagement Letter with CIBC Wood Gundy dated November 5, 1996.
(b) Engagement Letter with Merrill Lynch & Co. dated November 1996.
10-45 Summary of Terms and Conditions with CIBC.
12 Computation of Ratio of Earnings to Fixed Charges.
21 Subsidiaries of the Registrant.
23(a) Consent of the Registrant's Independent Accountants.
23(b) Consent of the Registrant's Counsel (Included in Exhibit 5-1).
25 Omitted
</TABLE>
- ------------------------
* To be filed by amendment.
** Previously filed with the Registration Statement on Form S-1 of the Company,
effective November 5, 1996 (SEC Reg. No. 333-04388) under the corresponding
Exhibit number.
+ Confidential treatment requested for the deleted portions of this document.
<PAGE>
Exhibit 9-1(a)
VOTING TRUST AGREEMENT
AGREEMENT, made this 5th day of November, 1996, among Landover Holdings
Corp. ("LHC"), Kimberly Zimmerman ("KZ") and Zachary Tyler Zimmerman Trust (the
"Z Trust"), each a stockholder of Advanced Radio Telecom Corp. (formerly
Advanced Radio Technologies Corporation) (the "Company") a corporation organized
and existing under the laws of the State of Delaware, and Vernon L.
Fotheringham, Andrew I. Fillat and Mark C. Demetree, who are hereinafter called
the Trustees.
WHEREAS, a subsidiary of the Company has merged (the "Merger") with ART
Licensing Corp. (formerly Advanced Radio Telecom Corp.); and
WHEREAS, the Company on the date hereof is making an underwritten initial
public offering (the "IPO") of its Common Stock, par value $0.001 per share (the
"Common Stock") and, in connection therewith, the Company and LHC deem it to be
in the best interests of the Company and its stockholders that the Company
obtain a listing of the Common Stock on the Nasdaq National Market ("Nasdaq") in
order to improve the liquidity and marketability of the Common Stock; and
WHEREAS, after giving effect to the Merger, LHC owns 2,936,938 shares, KZ
owns 36,364 shares and the Z Trust owns 36,364 shares (collectively, the
"Current Shares") of the Common Stock including 16,545 shares of Common Stock
issuable upon exercise of warrants, but not including 107,086 shares, 500,254
shares, and 34,807 shares of Common Stock held by E1 Holdings, L.P.,
E2 Holdings, L.P. and E2-3 Holdings, L.P., respectively, each a limited
partnership which was controlled by LHC but dissolved on the date hereof; and
WHEREAS, Laurence S. Zimmerman ("Zimmerman") controls LHC; and
WHEREAS, in order to assist the Company to obtain such listing on Nasdaq,
LHC, KZ and Z Trust have agreed to enter into this Agreement and to deposit the
LHC Securities (as defined below) into the trust created hereby; and
WHEREAS, pursuant to the Cooperation Agreement dated as of November 5, 1996
by and between LHC, Zimmerman and the Company, Zimmerman and LHC have agreed to
deposit, or cause the deposit into the trust created hereby of, the Current
Shares and any other shares of capital stock of the Company (the "Other Shares")
that may hereafter be acquired or beneficially owned by LHC, Zimmerman, KZ, Z
Trust, members of Zimmerman's immediate family or any entity(ies) in which any
of LHC, Zimmerman, KZ, Z Trust or members of Zimmerman's immediate family have,
directly or indirectly, a controlling interest or more than 10% of such entity's
equity or debt (the "LHC Affiliates", acting as a group or severally as the
context requires), including without limitation any shares of capital stock of
the Company that may be issued upon exercise of any rights, warrants or options
to purchase or otherwise acquire,
<PAGE>
or other securities convertible into, Common Stock, and any rights, warrants or
options to purchase or otherwise acquire, or other securities convertible into
such capital stock (collectively, with the Current Shares and Other Shares, the
"LHC Securities"); and
WHEREAS, in order to induce the Trustees to act hereunder the Company has
agreed to indemnify the Trustees for any costs relating to their services
hereunder; and
WHEREAS, 145,685 of the Current Shares, issuable upon consummation of the
Merger, (the "Option Shares") are held by Pierson & Burnett L.L.P. (the "Escrow
Agent") pursuant to an escrow agreement (the "Escrow Agreement") subject to an
option agreement, each dated February 2, 1996 among LHC, the holders of Series D
Preferred Stock of the Company, and, in the case of the Escrow Agreement, the
Escrow Agent; and
WHEREAS, in the interests of all the stockholders of the Company, the
parties hereto are desirous of creating a trust;
NOW THEREFORE the parties hereby agree as follows:
1. (a) The LHC Affiliates shall forthwith, and from time to time in the
future if any of the LHC Affiliates acquires additional LHC Securities, indorse
in blank and assign and deliver to the Trustees all certificates for the LHC
Securities (other than the Option Shares) and shall do all things necessary for
the transfer of the LHC Securities (other than the Option Shares) to the
Trustees on the books of the Company and shall become parties hereto to the
extent they are not previously parties hereto. The Trustees shall issue and
deliver in exchange therefor voting trust certificates for the LHC Securities so
transferred to the Trustees in substantially the form attached hereto as
APPENDIX I.
(b) LHC shall use its best efforts to cause the Escrow Agreement to
be amended to provide that any Option Shares that may be otherwise released to
LHC under the Escrow Agreement shall be assigned and delivered to the Trustees,
indorsed in blank, as LHC Securities subject to this Voting Trust Agreement.
2. (a) The Trustees shall hold the LHC Securities so transferred to them
in trust hereunder for the benefit of LHC, under the terms and conditions set
forth herein.
(b) Notwithstanding any provision hereof, each of the LHC Affiliates
shall have the right to sell, assign, transfer or pledge any or all of the LHC
Securities to third parties and the Trustees shall use their reasonable efforts
to cause any LHC Securities so sold, assigned, transferred or hypothecated to be
transferred promptly to the purchaser, assignee, transferee or pledgee thereof
against delivery of the voting trust certificates representing the LHC
Securities; provided in the case of a pledge that the pledgee shall not have any
right to vote the LHC Securities. LHC Securities sold, assigned, transferred or
hypothecated to an affiliate of any of the LHC Affiliates shall
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<PAGE>
remain in trust hereunder subject to the terms of this Agreement. LHC
Securities sold or transferred to third parties not affiliated with the LHC
Affiliates shall be released from the trust upon such sale or transfer. A third
party shall be deemed "affiliated" for purposes of this Section 2(b) if such
third party is controlled by, controls or under common control with LHC,
Zimmerman or a member of the immediate family of Zimmerman, is retained by LHC,
Zimmerman or a member of the immediate family of Zimmerman as a consultant
generally operating at the direction of such person, is employed, directly or
indirectly, by such person, or has made substantial business investments of any
nature in any entity with LHC, Zimmerman or a member of the immediate family of
Zimmerman. The term "substantial business investments" refers to investments by
a third party comprising more than 5% of the equity or debt of a company,
partnership or joint venture in which any of the LHC Affiliates or an affiliate
of any of the LHC Affiliates has an investment of at least 5%.
3. The Trustees shall surrender to the proper officers of the Company for
cancellation all certificates of stock which shall be assigned and delivered to
them as hereinbefore provided, and in their stead shall procure new certificates
to be issued to them as Trustees under this Agreement.
4. (a) The Trustees shall have only the powers set forth in this
Agreement.
(b) With respect to all LHC Securities held in trust by the Trustees
hereunder, the LHC Affiliates shall severally retain the entire economic and
beneficial ownership rights therein, including without limitation the right to
receive dividends and distributions on the LHC Securities and the right to
direct the Trustees in any order whatsoever to sell, assign, transfer, encumber
or grant any option therein to or in favor of any person other than LHC or an
affiliate of LHC or agree to do any such thing, except that the Trustees shall
have the exclusive and absolute right in respect of such LHC Securities to vote
(in person, by proxy, by written consent or otherwise) the LHC Securities at all
times during the term of this Agreement, including without limitation the right
to vote at any election of directors and in favor of or in opposition to any
resolution, any dissolution, liquidation, merger or consolidation of the
Company, any sale of all or substantially all the Company's assets, any issuance
or authorization of securities, or any action of any character whatsoever which
may be presented at any meeting or require the consent of stockholders of the
Company. In exercising the Trustees' powers and duties hereunder, the Trustees
shall at all times vote in respect of any action as follows: (i) if the matter
concerned is the election of directors, then the Trustees shall vote the whole
number of shares held by the trust created hereunder for each director (or
nominee for director) for which such shares are eligible to vote by multiplying
the total number of votes held by the trust by a fraction, the numerator of
which is the number of votes cast in respect of shares of the Company other than
LHC Securities (the "Nonaffiliated Votes") for such person and
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<PAGE>
the denominator of which is the sum of the total number of Nonaffiliated Votes
represented by all shares casting any votes in the election of such directors;
(ii) where the matter under Delaware law or the Certificate of Incorporation of
the Company requires an absolute majority (but not a supermajority) of all
outstanding shares of common stock of the Company in order to be effected, then
the Trustees shall vote all of the LHC Securities in same manner as the majority
of all Nonaffiliated Votes are cast for or against the matter; and (iii) on all
other matters, including without limitation any amendment of this Agreement for
which a stockholders vote is required under Section 9 hereof, the Trustees shall
at all times vote all of the LHC Securities for, against the matter, or shall
abstain or cause to have the same effect as broker non-votes, in the same
proportion in favor of, in opposition to, or in abstention or as broker
non-votes with respect to, such matter as Nonaffiliated Votes are cast for,
against, or in abstention or are broker non-votes with respect to, the matter.
If any calculation of votes under the preceding sentence would require a
fractional vote, the Trustees shall vote the next lower number of whole shares.
The Trustees shall use all reasonable commercial efforts to ensure, with respect
to the LHC Securities held in trust by the Trustees hereunder, that all of the
LHC Securities are counted as being present for the purposes of any quorum
required for stockholder action of the Company and to vote as set forth above.
(c) The Trustees may vote with respect to all the LHC Securities held
hereunder in person or by such person or persons as it may from time to time
select as their PROXY provided that the Trustees shall at all times do so in
conformity with the provisions of Section 4(b) hereof.
(d) The Trustees shall have no authority to sell or otherwise dispose
of or to pledge, encumber or hypothecate, any of the stock deposited pursuant to
the provisions of this Agreement, unless directed to do so by the LHC Affiliates
as provided in Section 2(b) above.
5. To the fullest extent permitted by law, the Trustees shall not be
liable for any vote cast, or consent given by them, or for any other action
hereunder taken or omitted by them hereunder, in good faith, or in the absence
of gross negligence or willful misconduct. To the fullest extent permitted by
law, the Trustees shall not be liable in acting on any notice, request, consent,
certificate, instruction, or other paper or document or signature reasonably
believed to be genuine and to have been signed by the proper party. The Trustees
may consult with legal counsel (reasonably competent for the purpose) and, to
the fullest extent permitted by law, any act or omission undertaken by the
Trustees in good faith in accordance with the opinion of such legal counsel
shall not result in any liability of the Trustees.
6. The Trustees shall collect and receive all dividends that may accrue
upon the shares of stock subject to this trust, and shall distribute the same to
the LHC Affiliates in accordance with
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<PAGE>
their respective ownership, except that dividends payable in stock of the
Company shall be held in trust as additional LHC Securities hereunder.
7. In the event of any Trustee ceasing to serve as a director of the
Company, dying or resigning or refusing or becoming unable to act (any of which
is deemed incapacity), the surviving or other Trustees or Trustee shall appoint
a Trustee or Trustees from among the directors of the Company to fill the
vacancy or vacancies, and any person so appointed shall thereupon be vested with
all the duties, powers, and authority of a Trustee hereunder as if originally
named herein. No successor Trustee shall be liable for actions or omissions of
the other Trustees or any other successor Trustee.
8. This Agreement and the trust created herein shall be effective upon
completion of the Merger and shall terminate (a) if the IPO fails to close by
December 1, 1996 or (b) upon the earlier to occur of (i) the death of Zimmerman,
(ii) November 1, 2006, (iii) the sale of all the LHC shares and (iv) prior to
July 15, 2006 in the event that a business combination occurs in which (A)
holders of ART Common Stock receive common equity securities in the new company
representing less than 50% of the voting power of the new company, (B) less than
half of the directors of the new company on a going-forward basis are former ART
directors, and (C) the LHC Affiliates' equity represents less than 5% of the
voting power of the new company. However, notwithstanding any of the foregoing,
this Agreement shall not terminate if its continued existence is required by a
third party regulatory agency, for example, as a condition to continued listing
of the Company's (or any acquiring company's) equity securities on the Nasdaq
National Market System or other principal trading market for such equity
securities. Upon the termination of this Agreement the Trustees shall assign
and transfer to LHC or its designee(s) all the LHC Securities remaining in trust
hereunder.
9. The Company and its stockholders are hereby expressly made third party
beneficiaries of this Agreement, and accordingly, to the fullest extent
permitted by law, this Agreement may not be amended without the prior written
consent of the Company, acting by unanimous vote of its Board of Directors, and
approval of the Company's stockholders acting by the affirmative vote of
two-thirds of the total voting power of the capital stock of the Company
generally entitled to vote on matters submitted to a stockholder vote; provided,
however, that the parties hereto may enter into any amendment of this Agreement,
without regard to this Section 9, and the LHC Affiliates agree to enter into any
such amendment, if such amendment is in the opinion of legal counsel to the
Company necessary or appropriate to maintain compliance of this agreement with
the laws of the State of Delaware.
10. The Trustees are expressly authorized to incur and pay such reasonable
expenses and charges, to employ and pay such agents, attorneys and counsel, and
to incur and pay such other charges and expenses as the Trustees may deem
reasonably necessary and proper for administering this Agreement.
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<PAGE>
11. (a) All of the covenants and agreements contained in this Agreement
shall be binding upon, and inure to the benefit of, the respective parties and
their successors, assigns, heirs, executors, administrators and other legal
representatives, as the case may be.
(b) This Agreement, and the rights of the parties hereto, shall be
governed by and construed in accordance with the laws of the State of Delaware.
(c) This Agreement may be executed in one or more counterparts, each
of which will be deemed an original but all of which together shall constitute
one and the same instrument.
(d) If any provision of this Agreement shall be declared void or
unenforceable by any court or administrative board of competent jurisdiction,
such provision shall be deemed to have been severed from the remainder of the
Agreement and this Agreement shall continue in all respects to be valid and
enforceable. Each of the parties hereto shall take any and all actions
necessary for the enforceability of this Agreement under Delaware Law, including
without limitation any necessary filings or actions required by Section 218 of
the General Corporation Law of Delaware.
(e) Whenever the context of this Agreement shall so require, the use
of the singular number shall include the plural and the use of the gender shall
include all genders.
IN WITNESS WHEREOF, the subscribers have hereunto set their hands and
seals, and set opposite their respective signatures the number of shares held by
them respectively, and the Trustees, in token of their acceptance of the trust
hereby created, have hereunto set their hands and seals.
TRUSTEES: ______________________________
Vernon L. Fotheringham
______________________________
Andrew I. Fillat
______________________________
Mark C. Demetree
LHC: LANDOVER HOLDINGS CORPORATION
By:___________________________
Laurence S. Zimmerman
KZ: ______________________________
Kimberly Zimmerman
Z Trust: ZACHARY TYLER ZIMMERMAN TRUST
By:___________________________
Kimberly Zimmerman, Trustee
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<PAGE>
APPENDIX I
VOTING TRUST CERTIFICATE
ADVANCED RADIO TELECOM CORP.
VOTING TRUST CERTIFICATE
No. __________ __________ SHARES
This is to certify that ___________________ is the owner of __________
shares of capital stock, or rights, warrants or options to purchase, or other
securities convertible into ___ shares of Capital Stockof Advanced Radio Telecom
Corp., held by the undersigned as Trustee subject and pursuant to the terms,
conditions and stipulations of a Voting Trust Agreement dated November, 1996, a
copy of which Agreement is on file in the registered office of the Company in
Delaware, reference being had thereto as to all the terms, conditions, and
requirements of said Agreement.
This certificate is transferable only on the books of the Trustees by the
holder thereof in person or by attorney upon the surrender of this certificate
properly endorsed.
IN WITNESS WHEREOF, the Trustee have caused this certificate to be signed
this ____ day of __________, 1996.
________________________, Trustee
________________________, Trustee
________________________, Trustee
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<PAGE>
Exhibit 9-1(c)
COOPERATION AGREEMENT
This Cooperation Agreement (the "Agreement") is made as of the 5th day of
November, 1996 by and between Landover Holdings Corp. ("LHC"), Laurence S.
Zimmerman ("Zimmerman") and Advanced Radio Technologies Corporation, a Delaware
corporation (the "Company").
RECITALS
WHEREAS, a subsidiary of the Company has merged (the "Merger") with
Advanced Radio Telecom Corp. ("Telecom"), and the Company also implemented a one
for 2.75 reverse stock split; and
WHEREAS, after the Merger the Company changed its name to Advanced Radio
Telecom Corp.; and
WHEREAS, the Company is preparing to make an underwritten initial public
offering (the "IPO") of its Common Stock, par value $0.001 per share (the
"Common Stock") and, in connection therewith, the Company and LHC deem it to be
in the best interests of the Company and its stockholders that the Company
obtain a listing of the Common Stock on the Nasdaq National Market ("Nasdaq") in
order to improve the liquidity and marketability of the Common Stock; and
WHEREAS, LHC is controlled by Zimmerman; and
WHEREAS, after giving effect to the Merger and the conversion of the
Company's preferred stock into Common Stock as a consequence of the IPO, LHC
owns 2,936,938 shares and affiliates of LHC, including Kimberly Zimmerman ("KZ")
and Zachary Tyler Zimmerman Trust ("Z Trust"), own 72,727 shares (collectively,
the "Current Shares"), of the Common Stock, including (i) 2,892,455 shares of
Common Stock and (ii) 16,545 shares of Common Stock issuable upon exercise of
warrants, but (iii) not including 107,086 shares, 500,254 shares and 34,807
shares of Common Stock held by E1 Holdings, L.P., E2 Holdings, L.P. and E2-3
Holdings, L.P., respectively, each a limited partnership which is controlled by
LHC but which will dissolve on consummation of the IPO; and
WHEREAS, for purposes of this Agreement, the term "LHC Affiliates" shall
mean LHC, Zimmerman, KZ, Z Trust, members of Zimmerman's immediate family or any
entity(ies) in which any of LHC, Zimmerman, KZ, Z Trust or members of
Zimmerman's immediate family have, directly or indirectly, a controlling
interest or more than 10% of such entity's equity or debt; and
WHEREAS, in order to assist the Company to obtain such listing and for
other consideration, LHC has agreed to enter into, and LHC and Zimmerman have
agreed to cause KZ and Z Trust to enter into, a Voting Trust Agreement (the
"Voting Trust") on the date of the IPO, with Mark C. Demetree, Andrew I. Fillat,
and Vernon L. Fotheringham (the "Trustees") and to deposit, or to
<PAGE>
cause to be deposited (i) the Current Shares, (ii) any other shares of capital
stock of the Company (the "Other Shares") that may hereafter be acquired or
beneficially owned by any LHC Affiliates, including without limitation any
shares of capital stock of the Company that may be issued upon exercise of any
rights, warrants or options to purchase, or other securities convertible into,
Common Stock and (iii) any rights, warrants or options to purchase, or other
securities convertible into such capital stock (collectively, with the Current
Shares and Other Shares, the "LHC Securities") into the trust created thereby;
and
WHEREAS, the Voting Trust provides that the Trustees shall vote the LHC
Securities in the manner specified therein; and
WHEREAS, in order for the Trustees to act thereunder the Company has agreed
to indemnify the Trustees for any costs relating to their services thereunder;
and
WHEREAS, 145,685 of the Current Shares, issuable upon consummation of the
Merger, (the Option Securities") are held by Pierson & Burnett, L.L.P. (the
"Escrow Agent") pursuant to an escrow agreement (the "Escrow Agreement") subject
to an option agreement, each dated February 2, 1996 among LHC, the holders of
Series D Preferred Stock of the Company, and, in the case of the Escrow
Agreement, the Escrow Agent;
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
LHC, Zimmerman and the Company hereby agree as follows:
1. EFFECTIVENESS. This Agreement shall become effective, and the Voting
Trust shall be executed, upon the date of execution of the underwriting
agreement for the IPO.
2. EXECUTION OF VOTING TRUST.
(a) Each of LHC and Zimmerman hereby agrees that in the event the
Voting Trust terminates by reason of the incapacity (as defined therein) of each
Trustee, LHC will execute, and LHC and Zimmerman will cause any LHC Affiliates
that own or acquire LHC Securities to execute, a voting trust, substantially in
the form and with the effect of the Voting Trust, appointing another person or
entity reasonably acceptable to the Board of Directors of the Company to act in
the same capacity as the Trustees under the Voting Trust.
(b) In the event any LHC Affiliate acquires any LHC Securities during
the term of the Voting Trust, LHC and Zimmerman agree (i) to deposit, or to use
their best efforts to cause the deposit of, such LHC Securities in trust
pursuant to the Voting Trust, (ii) to become subject to the obligations imposed
on persons holding LHC Securities deposited under the Voting Trust and (iii) to
cause the persons holding such LHC Securities to become parties to the Voting
Trust. LHC and
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<PAGE>
Zimmerman further agree to take, or cause to be taken, any additional actions
requested by the Company or the Trustees to confirm the obligations of such LHC
Affiliate under the Voting Trust.
3. TERMINATION OF AGREEMENT. Notwithstanding the provisions of paragraph
2 above, this Agreement shall terminate (a) if the IPO fails to close by
December 1, 1996 or (b) upon the earlier to occur of (i) the death of Zimmerman,
(ii) November 1, 2006, (iii) the sale or transfer to third parties not
affiliated with LHC of all the LHC Securities and (iv) the consummation of a
business combination in which (A) holders of ART Common Stock receive common
equity securities in the new company representing less than 50% of the voting
power of the new company, (B) less than half of the directors of the new company
on a going-forward basis are former ART directors, and (C) equity held by the
LHC Affiliates represents in the aggregate less than 5% of the voting power of
the new company. However, notwithstanding any of the foregoing, this Agreement
shall not terminate if its continued existence is required by a third party
regulatory agency, for example, as a condition to continued listing of the
Company's (or any acquiring company's) equity securities on the Nasdaq National
Market System or other principal trading market for such equity securities.
4. REPRESENTATIONS OF LHC AND ZIMMERMAN. LHC and Zimmerman hereby
represent and warrant to the Company that each of LHC, KZ and Z Trust, as the
case may be, (a) owns and has the right to vote the LHC Securities, (b) has full
power to enter into this Agreement and (c) will not take any action inconsistent
with the purposes and provisions of this Agreement.
5. SALE OF LHC SECURITIES. No provision of this Agreement or the Voting
Trust shall in any way limit right or ability of any of the LHC Affiliates to
sell, transfer, assign or pledge any or all of the LHC Securities to a third
party; except that LHC and Zimmerman will enter into, and cause KZ and Z Trust
to enter into, any lock-up agreements requested by the underwriters of the IPO
and entered into by other principal stockholders of the Company; and provided
that LHC Securities sold, assigned, transferred or hypothecated to an affiliate
of LHC shall remain in trust under the terms of the Voting Trust. LHC
Securities sold or transferred to third parties not affiliated with LHC shall be
released from the trust upon such sale or transfer. For purposes of this
Section 5, a third party shall be deemed "affiliated" if such third party is
controlled by, controls or is under common control with LHC, Zimmerman or a
member of the immediate family of Zimmerman, is retained by LHC, Zimmerman or a
member of the immediate family of Zimmerman as a consultant generally operating
at the direction of such person, is employed directly or indirectly by such
person or has made substantial investments of any nature with LHC, Zimmerman or
any member of the immediate family of Zimmerman. The term "substantial
investments" refers to investments by a third party comprising more than 5% of
the equity or debt of a company,
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<PAGE>
partnership or joint venture in which LHC, Zimmerman or an affiliate of LHC or
Zimmerman has an investment of at least 5%.
6. TERMINATION OF MANAGEMENT CONSULTING AGREEMENT. The Management
Consulting Agreement, dated as of November 13, 1996, between the Company and LHC
shall terminate upon consummation of the IPO (unless sooner terminated in
accordance with its terms), and LHC shall receive at the closing of the IPO all
amounts otherwise due through November 13, 1996 at the rate of $35,000 per month
as provided in such agreement. Other than compensation aggregating $300,000 for
merger and acquisition advisory services relating to the acquisitions of certain
assets of DCT Communications, Inc. and Extended Communications, Inc., and
documented related expenses, no other amounts are due or may be claimed under
such agreement in respect of services performed during the term of such
agreement or transactions initiated or agreed to during the term of this
agreement.
7. CONFIDENTIALITY. The Company, acting by a majority of its directors,
may from time to time, in its discretion, invite Zimmerman to attend meetings of
the Board of Directors; provided that Zimmerman enters into the Confidentiality
Agreement in the form attached hereto as Exhibit A as such agreement may be
amended from time to time in accordance with its terms (the "Confidentiality
Agreement"). LHC hereby guarantees Zimmerman's performance under the
Confidentiality Agreement.
8. THE TRUSTEES. The Trustees are expressly authorized to incur and pay
such reasonable expenses and charges, to employ and pay such agents, attorneys
and counsel, and to incur and pay such other charges and expenses as the
Trustees may deem reasonably necessary and proper for administering this
Agreement. The Company agrees to reimburse the Trustees for any such expense and
charges.
9. ENFORCEABILITY; VALIDITY. The Company, LHC and Zimmerman shall take
any and all actions necessary for the enforceability of this Agreement and the
Voting Trust under Delaware Law, including without limitation any necessary
filings or actions required by Section 218 of the General Corporation Law of
Delaware. Each of LHC and Zimmerman expressly agrees that this Agreement shall
be specifically enforceable in any court of competent jurisdiction in accordance
with its terms.
10. GENERAL PROVISIONS.
(a) Except as provided in paragraph 3 above, all of the covenants and
agreements contained in this Agreement shall be binding upon, and inure to the
benefit of, the respective parties and their successors, assigns, heirs,
executors, administrators and other legal representatives, as the case may be.
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<PAGE>
(b) This Agreement, and the rights of the parties hereto, shall be
governed by and construed in accordance with the laws of the State of Delaware.
(c) This Agreement may be executed in one or more counterparts, each
of which will be deemed an original but all of which together shall constitute
one and the same instrument.
(d) If any provision of this Agreement shall be declared void or
unenforceable by any court or administrative board of competent jurisdiction,
such provision shall be deemed to have been severed from the remainder of the
Agreement and this Agreement shall continue in all respects to be valid and
enforceable.
(e) Whenever the context of this Agreement shall so require, the use
of the singular number shall include the plural and the use of any gender shall
include all genders.
(f) The Company's stockholders are hereby expressly made third party
beneficiaries of this Agreement, and accordingly, to the fullest extent
permitted by law, this Agreement may not be amended without the prior written
consent of the Company, acting by unanimous vote of its Board of Directors, and
approval of the Company's stockholders acting by the affirmative vote of
two-thirds of the total voting power of the capital stock of the Company
generally entitled to vote on matters submitted to a stockholder vote; provided,
however, that the parties hereto may enter into any amendment of this Agreement,
and LHC and Zimmerman agree to enter into any such amendment, without regard to
this Section 11(f) if such amendment is in the opinion of legal counsel to the
Company necessary or appropriate to maintain compliance of this Agreement with
the laws of the State of Delaware.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
LANDOVER HOLDINGS CORPORATION ADVANCED RADIO TECHNOLOGIES
CORPORATION
By:_______________________ By:_________________________
Laurence S. Zimmerman, Name:
President Title:
__________________________
Laurence S. Zimmerman
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<PAGE>
Exhibit 9-1(d)
CONFIDENTIALITY AGREEMENT
AGREEMENT entered into as of November 5, 1996 by and between Laurence S.
Zimmerman ("Zimmerman"), residing at 11 East 68th Street, New York, New York
10021, and Advanced Radio Telecom Corp. (the "Company"), located at 500 108th
Ave., N.E., Suite 2600, Bellevue, Washington 98004.
WHEREAS, the Company by action of a majority of its directors in their sole
discretion may from time to time invite Zimmerman as an observer to meetings of
its Board of Directors and provide to him information concerning the Company;
and
WHEREAS, in connection therewith, the Company may, in its sole discretion,
disclose to Zimmerman and his affiliates, consultants, attorneys and advisors
(collectively, "Representatives") certain material confidential information
relating to the Company's business, performance and prospects, which may
include, without limitation, the Company's books and records, the Company's
trade secrets, the Company's operational practices, the identity of the
Company's customers, the Company's plans and information concerning potential
and actual acquisitions, dispositions and business combinations, the identity of
the Company's affiliates, any of the Company's customers confidential
information, the identity of the Company's suppliers and prospective suppliers,
the identity of the Company's creditors and financial backers, the Company's
know how, the Company's designs, the Company's inventions, the Company's
methods, the Company's processes, the Company's techniques and skills (whether
devised, developed or used by or for the Company), the Company's estimating and
costing procedures and the cost and gross prices charged by the Company for its
products and services, the prices or other consideration charged to or required
of the Company by any of its suppliers or potential suppliers and the Company's
sales and promotional policies (such information, including analyses,
compilations, studies and other material prepared by Zimmerman or his
Representatives based in whole or in part on such information, being hereinafter
referred to collectively as "Confidential Information"); and
WHEREAS, the Company has adopted a policy concerning insider trading in the
form attached hereto as Appendix 1 (as amended by the Company in its discretion
from time to time and provided promptly in writing to Zimmerman, the "Insider
Trading Policy");
NOW, THEREFORE, the parties hereto agree as follows:
1. Zimmerman (i) shall not disclose Confidential Information (ii) shall
keep such information confidential and (iii) shall not use Confidential
Information in any manner or for any purpose that reduces the benefits the
Company may derive from
<PAGE>
that information; provided, however, that Zimmerman may disclose Confidential
Information to Representatives; provided further that such Representatives will
be informed by Zimmerman of this Agreement and any such Representative (other
than counsel) will agree in writing to treat any such Confidential Information
in accordance with the terms and conditions of this Agreement applicable to
Zimmerman, including without limitation complying with the Insider Trading
Policy. Nothing in this Agreement shall impinge on or restrict Zimmerman's
ability to consult with counsel. Notwithstanding any other provisions of this
Agreement, this Agreement shall not operate to preclude Zimmerman or his
Representatives from disclosing any of the Confidential Information or any
information relating to their opinion, judgment or recommendations concerning
the Company developed after receipt of the Confidential Information, if
Zimmerman or his Representatives are compelled (by deposition, interrogatory,
request for documents, subpoena, civil investigatory demand or similar process)
to do so. Zimmerman hereby agrees to notify the Company promptly if he or his
Representatives are compelled to disclose information in such circumstances, so
that the Company may seek a protective order or other appropriate remedy. The
Company hereby agrees to pay in full, and to advance payment for, any expenses,
including legal fees, relating to steps taken by the Company or taken by
Zimmerman or his Representatives at the request of the Company to seek a
protective order or other remedy.
2. If at any time the Company shall so request, Zimmerman will promptly
deliver to the Company all written Confidential Information and will cause all
copies thereof to be returned or destroyed. Zimmerman will confirm such return
or destruction in writing to the Company.
3. The term "Confidential Information" does not include information
which:
(i) is in or subsequently comes into the public domain other
than as a result of a disclosure by Zimmerman or the Representatives
in breach of this Agreement; or
(ii) is otherwise legally acquired by Zimmerman from a third
party not in breach of any confidentiality obligation to the Company;
or
(iii) is disclosed by the Company to Zimmerman, his
Representatives or to any third party on a non-confidential basis; or
(iv) is brought to the Company by Zimmerman or his
Representatives; or
(v) is not information which would generally be expected to be
Confidential Information and has not been expressly identified to
Zimmerman or his Representatives by one of the
-2-
<PAGE>
Company's directors, or officers, representatives or agents as
"Confidential Information".
For purposes of clause (v) above, the following are among the information
generally expected to be Confidential Information: financial reports,
projections, business plans or acquisition plans.
4. Zimmerman agrees that, during times when he is in possession of
Confidential Information, he is subject to and will comply with all the terms of
the Insider Trading Policy. The Company agrees to give Zimmerman notice of all
actions and determinations by the Company pursuant to the Insider Trading
Policy.
5. Zimmerman shall indemnify and hold the Company harmless from and
against any and all losses, liabilities, damages, deficiencies, costs or
expenses resulting from (a) the breach by Zimmerman of this Agreement, (b) the
disclosure by any Representative (whether or not intentional, negligent or
otherwise) of any Confidential Information disclosed to the Representative
directly or indirectly by Zimmerman, (c) the use by Zimmerman or his
Representatives of the Confidential Information in any manner or for any purpose
that reduces the benefits the Company may derive from that information and (d)
any and all actions, suits, proceedings, claims, remands, assessments,
judgments, costs and expenses (including attorneys' fees) incident to any of the
matters set forth in this Section 5, including those incurred in connection with
actions brought to recover from Zimmerman pursuant to this Section 5. However,
Zimmerman shall not be required to indemnify or hold harmless the Company
against any or all losses, liabilities, damages, deficiencies, costs or expenses
resulting from the gross negligence or willful misconduct of the Company or any
of its directors, officers or employees.
6. Except for the obligations set forth in Section 7 below, all
obligations hereunder shall expire on the second anniversary of the last date on
which Zimmerman attends a Board meeting of the Company or receives Confidential
Information from the Company.
7. Zimmerman agrees that he will not, and will use his best efforts to
ensure that persons retained as consultants (and generally operating at his
direction) or employed directly or indirectly by him, during the period of such
employment or retention, or members of his immediate family will not, serve as
directors, officers, employees or consultants of the Company during the term of
the Cooperation Agreement, dated the date hereof, between the Company, Zimmerman
and Landover Holdings Corporation. The Company's stockholders are hereby
expressly made third party beneficiaries of Section 7 of this Agreement, and
accordingly, to the fullest extent permitted by law this Section 7 may not be
amended without the prior written consent of the Company, acting by unanimous
vote of its Board of Directors, and approval of the Company's stockholders
acting by the
-3-
<PAGE>
affirmative vote of two-thirds of the total voting power of the capital stock of
the Company generally entitled to vote on matters submitted to a stockholder
vote. However, notwithstanding any of the foregoing, this Section 7 shall not
be amended to terminate or modify any provision hereof if the continued
existence of such provision without such modification or termination is required
by a third party regulatory agency, for example, as a condition to continued
listing of the Company's (or any acquiring company's) equity securities on the
Nasdaq National Market System or other principal trading market for such equity
securities.
8. Nothing in this Agreement shall operate to preclude or restrict
Zimmerman or his Representatives from providing to third parties information
(other than Confidential Information), including but not limited to investment,
acquisition or merger opportunities, that Zimmerman or his Representatives also
have provided to the Company.
9. This Agreement sets forth the entire understanding of the parties with
respect to the subject matter hereof and supersedes and replaces all prior
discussions, writings or understandings between the parties on such matter.
10. Zimmerman recognizes that a breach of this Agreement may cause
irreparable harm to the Company and accordingly, without limiting any other
remedies available in equity or at law, agrees to the granting of injunctive
relief to prevent a breach or the continuing breach of this Agreement.
11. (a) All of the covenants and agreements contained in this Agreement
shall be binding upon, and inure to the benefit of, the respective parties and
their successors, assigns, heirs, executors, administrators and other legal
representatives, as the case may be.
(b) This Agreement, and the rights of the parties hereto, shall be
governed by and construed in accordance with the laws of the State of Delaware.
(c) This Agreement may be executed in one or more counterparts, each
of which will be deemed an original but all of which together shall constitute
one and the same instrument.
(d) If any provision of this Agreement shall be declared void or
unenforceable by any court or administrative board of competent jurisdiction,
such provision shall be deemed to have been severed from the remainder of the
Agreement and this Agreement shall continue in all respects to be valid and
enforceable.
(e) Whenever the context of this Agreement shall so require, the use
of the singular number shall include the plural and the use of the gender shall
include all genders.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
ADVANCED RADIO TELECOM CORP.
By:___________________________
Name:
Title:
ADVANCED RADIO TECHNOLOGIES
CORPORATION
By:___________________________
Name:
Title:
______________________________
Laurence S. Zimmerman
-5-
<PAGE>
Exhibit 10-6(c)
ADVANCED RADIO TELECOM CORP.
STOCK OPTION AGREEMENT
(Non-Qualified Stock Options)
THIS AGREEMENT, made and entered into as of the 26th day of April,
1996 between ADVANCED RADIO TELECOM CORP. (formerly Advanced Radio
Technology, Ltd.), a Delaware corporation (herein called the "Optionee").
W I T N E S S E T H:
WHEREAS, under the terms and conditions hereinafter stated, the
Corporation hereby grants to the Optionee on the date hereof (the "Date of
Grant") pursuant to the Corporation's 1995 Stock Option Plan (as amended from
time to time, the "Plan") options (the "Options") to purchase 300,000 shares
of the Corporation's common stock, $.001 par value per share ("Common Stock")
at an exercise price of $6.25 per share, subject to adjustment as provided in
Paragraph 8 hereof (the "option price").
NOW, THEREFORE, the Corporation and the Optionee agree as follows:
1. TERM. Each Option shall terminate at 5:00 P.M., E.S.T., on the
fifth anniversary of the date of vesting of such Option.
2. EXERCISE. The Option may be exercised in whole or in part in
accordance with the following schedule: up to 100,000 shares upon and after
the Date of Grant, and up to an additional 200,000 shares (the "Additional
Shares") upon and after April 26, 1999, provided that the corporation may
provide for earlier vesting of Additional Shares in accordance with Schedule
1 attached hereto. The method for exercise desribed in this Paragraph shall
be the sole method of such exercise. The Optionee may exercise the Options
by delivery to the Corporation of written notice providing: (i) the name of
the Optionee; (ii) the address to which Common Stock certificates are to be
mailed; (iii) an identification of the Options being exercised by reference
to the date first written above; and (iv) the number of shares of Common
Stock subject to such Options. Such notice shall be accompanied by a
certified check payable to the Corporation in the amount of the product of
the option price times the number of shares with respect to which the Options
are being exercised, and shall be delivered in person or shall be sent by
registered mail, return receipt requested, to the President of the
Corporation. The Options shall be considered exercised on the date the notice
and payment are delivered to the President of the Corporation or deposited in
the mail, as the case may be. As promptly as practicable after receipt of
such notice and payment, the Corporation shall deliver to the Optionee a
certificate or certificates for the number of shares of Common Stock with
<PAGE>
respect to which the Options have been so raised, issued in the Optionee's
name. Such delivery shall be deemed effected for all purposes when a stock
transfer agent of the Corporation shall have deposited such certificate or
certificates in the United States mail, addressed to the Optionee, at the
address specified in the notice.
3. TRANSFERABILITY OF OPTIONS. The Options shall not be
transferable by the Optionee otherwise than by will or under the laws of
descent and distribution. The Options shall be exercisable during the
lifetime of the Optionee only by the Optionee, the Optionee's guardian or the
Optionee's legal representative.
4. TERMINATION OF AFFILIATION; CHANGE OF CONTROL.
(a) If Optionee ceases to be an employee of the Corporation
while an Option remains outstanding and unexercised, then the Option term
shall terminate in the manner prescribed in the Plan. In no event, however,
may any Option be exercised after the Expiration Date of such Option.
(b) All Options shall vest immediately upon the merger of the
Corporation with other than an affiliated corporation, the sale of a
controlling interest of the Corporation in other than a public offering, the
sale of substantially all of the assets of the Corporation, or a Change of
Control of the Corporation as defined in the Plan, as amended from time to
time.
5. REQUIREMENTS OF LAW. The Corporation shall not be required to
sell or issue Common Stock under the Options if the issuance of such Common
Stock would constitute a violation by the Optionee or the Corporation of any
provisions of any state or federal law, rule or regulation. In addition, in
connection with the Securities Act of 1933 (as now in effect or hereafter
amended), upon exercise of the Options, the Corporation shall not be required
to issue such Common Stock unless the Corporation has received evidence
satisfactory to it to the effect that the Optionee will not transfer such
shares except pursuant to a registration statement in effect under such Act,
or unless an opinion of counsel to the Corporation has been received by the
Corporation to the effect that such registration is not required. Any
determination in this connection by the Corporation shall be final, binding
and conclusive. In the event the shares issuable on exercise of the Options
are not registered under the Securities Act of 1933, the Corporation may
imprint the following legend or any other legend which counsel for the
Corporation consideres necessary or advisable to comply with the Securities
Act of 1933:
"The shares of stock represented by this certificate have
not been registered under the Securities Act of 1933 or under the
securities laws of any state and may not be sold or transferred
except
<PAGE>
upon such registration or upon receipt by the Corporation of
an opinion of counsel satisfactory to the Corporation, in form and
substance satisfactory to the Corporation, that registration is not
required for such sale or transfer."
The Corporation may, but shall in no event be obligated to,
register any securities covered hereby pursuant to the Securities Act of
1933 (as now in effect or as hereafter amended); and in the event any shares
are so registered the Corporation may remove any legend on certificates
representing such shares. The Corporation shall not be obligated to take any
other affirmative action in order to cause the exercise of the Option or the
issuance of shares pursuant thereto to comply with any state or federal law,
rule or regulation.
6. NO RIGHTS AS STOCKHOLDER. The Optionee shall have no rights
as a stockholder with respect to Common Stock covered by the Options until
the date of issuance to the Optionee of a stock certificate for such Common
Stock; and, except as otherwise provided in Paragraph 8 hereof, no adjustment
for dividends or otherwise shall be made if the record date thereof is prior
to the date of issuance of such certificate.
7. EMPLOYMENT OBLIGATION. The granting of the Options shall
not impose upon the Corporation any obligation to employ or become affiliated
with or continue to employ or be affiliated with the Optionee. The right of
the Corporation to terminate the employment of or its affiliation with the
Optionee or any other person shall not be diminished or affected by reason of
the fact that the Options have been granted to the Optionee.
8. CHANGES IN THE CORPORATION'S CAPITAL STRUCTURE. The
existence of the Options shall not affect in any way the right or power of
the Corporation or its stockholders to make or authorize any or all
adjustments, recapitalization, reorganizations or other changes in the
Corporation's capital structure or its business, or any merger or
consolidation of the Company, or any issue of bonds, debentures, preferred or
prior preference stock ahead of or affecting Common Stock or the rights
thereof, or the dissolution or liquidation of the Corporation, or any sale or
transfer of all or any part of its assets or business or any other corporate
act or proceeding, whether of a similar character or otherwise. Except as
hereinafter expressly provided, the issuance by the Corporation of shares of
Common Stock of any class, for cash or property, or for labor or services,
either upon direct sale or upon the exercise of rights or warrants to
subscribe therefor, or upon conversion of shares or obligations of the
Corporation convertible into such shares or other securities, shall not
affect, and no adjustment by reason thereof shall be made with respect to,
the number, class or price of shares of Common Stock then subject to the
Options.
(a) CAPITAL READJUSTMENTS. If the Corporation affects a
subdivision or consolidation of shares or other capital
<PAGE>
readjustment, the payment of a stock dividend, or other increase or reduction
of the number of shares of Common Stock outstanding, without receiving
compensation therefor in money, services or property, the number, class and
per share option price of Common Stock subject to the Options hereunder shall
be appropriately adjusted in such a manner as to entitle the Optionee to
receive upon exercise of the Options, for the same aggregate cash
consideration, the same total number and class of shares as the Optionee would
have received had the Optionee exercised the Options in full immediately prior
to the event requiring the adjustment.
(b) MERGERS, ETC. If (i) the Corporation is a party to a
merger, consolidation or similar transaction (whether or not the Corporation
is the surviving corporation), or the Corporation is liquidated, or the
Corporation sells or otherwise disposes of substantially all its assets, and
(ii) in such transaction the holders of Common Stock exchange their Common
Stock for shares of stock or for other securities (the "Transaction
Securities") of the Corporation or another corporation, receive additional
Common Stock or other securities, or surrender a portion of their Common
Stock, then:
(1) Except as provided in Paragraph 8 (b)(2) hereof,
the Optionee shall be entitled, in lieu of the Options, to an option or
options to purchase Transaction Securities in an amount (if any) equal to the
Transaction Securities that the Optionee would have received if the Optionee
had exercised the Options in full and held the shares of Common Stock to
which the Options related at the time of such transaction. The option price
per share or other unit of such Transaction Securities shall be determined by
dividing the option price per share of Common Stock subject to the Options by
the number of shares or other units (or the fraction of a share or other
unit) of Transaction Securities into which each share of Common Stock is
converted or for which Common Stock is exchanged in such transaction.
(2) Notwithstanding any other provision hereof, the
Board of Directors of the Corporation may cancel the Options as of the
effective date of any transaction described in clause (i) of this Paragraph
8(b); provided that (A) notice of such cancellation shall have been given to
the Optionee at least thirty (30) days before the effective date of such
transaction, and (B) the Optionee shall have the right to exercise the
Options in full during the thirty (30) day period immediately preceding the
effective date of such transaction.
9. WITHHOLDING AND REPORTING. The Corporation's obligation to
deliver shares of Common Stock or to make any payment upon the exercise of
the Options shall be subject to applicable federal, state and local tax
withholding and reporting requirements.
<PAGE>
10. SUBJECT TO PLAN. The Options are subject to all the terms,
conditions, limitations and restrictions contained in the Plan, as amended
from time to time, which shall be controlling in the event of any conflicting
or inconsistent provisions.
11. INTERPRETATION OF AGREEMENT; GOVERNING LAW. The Options
granted pursuant hereto are not intended to be an "incentive stock option"
within the meaning of the Internal Revenue Code of 1986, as amended. This
Agreement shall be construed and enforced in accordance with, and governed by,
the laws of the State of Washington.
ADVANCED RADIO TELECOM CORP.
By: /s/ Steven D. Comrie
----------------------
The optionee hereby accepts and agrees to be bound by all terms
and conditions hereof.
/s/ Thomas A. Grina
- ----------------------------------
Thomas A. Grina
Date: 7-26-96
-----------------------------
<PAGE>
SCHEDULE 1
The Options shall be sooner exercisable to purchase the Additional
Shares as follows: up to an additional 100,000 of the Additional Shares on
each of April 26, 1997 and 1998 based upon achievement of financial
performance goals, which goals are to be determined in a mutually agreed upon
business plan to be developed by management of the Employer and approved by
the Board of Directors of the Employer.
<PAGE>
Exhibit 10-6(c)
ADVANCED RADIO TELECOM CORP.
STOCK OPTION AGREEMENT
THIS AGREEMENT, made and entered into as of the 14th day of
October, 1996 between ADVANCED RADIO TELECOM CORP., a Delaware corporation
(herein called the "Corporation"), and THOMAS A. GRINA (herein called the
"Optionee").
W I T N E S S E T H:
WHEREAS, under the terms and conditions hereinafter stated, the
Corporation hereby grants to the Optionee on the date hereof (the "Date of
Grant") pursuant to the Corporation's Restated Equity Incentive Plan (as
amended from time to time, the "Plan") an option (the "Option") to purchase
200,000 shares of the Corporation's common stock, $.001 par value per share
("Common Stock") at an exercise price of $6.25 per share, subject to
adjustment as provided in Paragraph 8 hereof (the "option price").
NOW, THEREFORE, the Corporation and the Optionee agree as
follows:
1. DEFINITIONS. All capitalized terms not otherwise
defined herein shall have the meanings given to them in the Plan.
2. TERM. The term of the Option shall commence on
October 14, 1996 and shall terminate at 5:00 P.M., P.S.T., on October 14, 2001
("Expiration Date").
3. EXERCISE. The Option may be exercised in whole or in
part in accordance with the following schedule: up to 40,000 shares upon and
after the Date of Grant, and up to an additional 40,000 shares upon and after
the first, second, third and fourth anniversary of the Date of Grant, for an
aggregate of 200,000 shares. The method for exercise described in this
Paragraph shall be the sole method of such exercise. The Optionee may
exercise the Options by delivery to the Corporation of written notice
accompanied by payment of the option price as provided in the Plan. The
Option shall be considered exercised on the date the notice and payment are
delivered to the President of the Corporation or deposited in the mail, as
the case may be.
4. TRANSFERABILITY OF OPTIONS. The Option shall not be
transferable by the Optionee otherwise than by will or under the laws of
descent and distribution. The Option shall be exercisable during the
lifetime of the Optionee only by the Optionee, the Optionee's guardian or the
Optionee's legal representative.
5. TERMINATION OF AFFILIATION. If Optionee ceases to be
an employee of the Corporation while an Option remains outstanding and
unexercised, then the Option term shall terminate and the Option shall cease
to be outstanding in accordance with the Plan. In no event, however, may any
Option be exercised after the Expiration Date of such Option.
6. REQUIREMENTS OF LAW. The Corporation shall not be
required to sell or issue Common Stock under the Option if the issuance of
such Common Stock would constitute a violation by the Optionee or the
Corporation of any provisions of any state or federal law, rule or
regulation. In addition, in connection with the Securities Act of 1933 (as
now in effect or hereafter amended), upon exercise of the Option, the
Corporation shall not be required to issue
<PAGE>
such Common Stock unless the Corporation has received evidence satisfactory to
it to the effect that the Optionee will not transfer such shares except
pursuant to a registration statement in effect under such Act, or unless an
opinion of counsel to the Corporation has been received by the Corporation to
the effect that such registration is not required. Any determination in this
connection by the Corporation shall be final, binding and conclusive. In the
event the shares issuable on exercise of the Option are not registered under
the Securities Act of 1933, the Corporation may imprint the following legend
or any other legend which counsel for the Corporation considers necessary or
advisable to comply with the Securities Act of 1933.
"The shares of stock represented by this certificate have not been
registered under the Securities Act of 1933 or under the securities
laws of any state and may not be sold or transferred except upon
such registration or upon receipt by the Corporation of an opinion
of counsel satisfactory to the Corporation, in form and substance
satisfactory to the Corporation, that registration is not required
for such sale or transfer."
The Corporation may, but shall in no event be obligated to,
register any securities covered hereby pursuant to the Securities Act of 1933
(as now in effect or as hereafter amended); and in the event any shares are
so registered the Corporation may remove any legend on certificates
representing such shares. The Corporation shall not be obligated to take any
other affirmative action in order to cause the exercise of the Option or the
issuance of shares pursuant thereto to comply with any state or federal law,
rule or regulation.
7. NO RIGHTS AS STOCKHOLDER. Except as otherwise provided
in the Plan, the Optionee shall have no rights as a stockholder with respect
to Common Stock covered by the Option until the date of issuance to the
Optionee of a stock certificate for such Common Stock.
8. EMPLOYMENT OBLIGATION. The granting of the Option shall
not impose upon the Corporation any obligation to employ or become affiliated
with or continue to employ or be affiliated with the Optionee. The right of
the Corporation to terminate the employment of or its affiliation with the
Optionee or any other person shall not be diminished or affected by reason of
the fact that the Option has been granted to the Optionee.
9. WITHHOLDING AND REPORTING. The Corporation's obligation
to deliver shares of Common Stock or to make any payment upon the exercise
of the Option shall be subject to applicable federal, state and local tax
withholding and reporting requirements.
10. SUBJECT TO PLAN. The Option is subject to all the
terms, conditions, limitations and restrictions contained in the Plan, as
amended from time to time, which shall be controlling in the event of any
conflicting or inconsistent provisions.
11. INTERPRETATION OF AGREEMENT; GOVERNING LAW. The Option
granted pursuant hereto is intended to be an "incentive stock option"
within the meaning of the Internal Revenue Code of
<PAGE>
1986, as amended. This Agreement shall be construed and enforced in accordance
with, and governed by, the laws of the State of Washington.
ADVANCED RADIO TELECOM CORP.
By: /s/ Steven D. Comrie
--------------------------
Name: Steven D. Comrie
--------------------------
Title: President & COO
--------------------------
The optionee hereby acknowledges that he has received and reviewed
a copy of the Plan and accepts and agrees to be bound by all terms and
conditions hereof and thereof.
/s/ Thomas A. Grina
----------------------
Thomas A. Grina
Date: 10-29-96
----------------------
<PAGE>
EXHIBIT 10-20(b)
AMENDMENT TO REGISTRATION RIGHTS AGREEMENT
BACKGROUND: Advanced Radio Technologies Corporation ("ART") plans to
acquire Advanced Radio Telecom Corp. ("Telecom"), and the resulting merged
company intends to raise substantial additional capital through public or
private offerings of its equity and debt (a "Major Financing"). The proposed
initial public offering (the "IPO") of the Company pursuant to the registration
statement filed with the Securities Exchange Commission Is currently scheduled
for the end of October, 1996, although there can be no assurance that it will be
completed. Each of the undersigned represents that the undersigned has received
and had an opportunity to review the preliminary prospectus included in such
registration statement, as amended through October 15, 1996, (the "Prospectus").
The proposed merger of a subsidiary of ART into Telecom (the "Merger") pursuant
to which the holders of Telecom securities will receive or be entitled to
receive ART securities has been approved by the FCC and will take place after
approval thereof by the Stockholders of ART and Telecom. The Merger, when
completed, will effect a 1 for 2.75 reverse stock split by ART (the "Split").
The numbers of shares and exercise prices set forth in this Amendment are
subject to revision to give effect to the split. Capitalized terms have the
same meaning as defined in the Registration Rights Agreement (as defined below)
and the Prospectus.
ART has undertaken a bridge financing in which it sold $4,000,000 in short
term notes of ART and Telecom (the "September Bridge Notes") in units with
warrants to purchase an aggregate of 320,000 shares of ART Common Stock at $6.25
(the "Unit Warrants"). In the event the September Bridge Notes are not prepaid
within 90 days of issuance, ART will issue to holders thereof additional
warrants to purchase an aggregate of 320,000 shares of ART Common Stock at the
same price as the Unit Warrants (the "Additional Warrants"). In the event of
default under the September Bridge Notes, ART will issue to holders thereof
additional such five year warrants (the "Default Warrants") exercisable to
purchase an aggregate of 800,000 shares at a price of $3.00 per share.
AGREEMENT: For good and valuable consideration, receipt of which is hereby
acknowledged, the undersigned parties to the Restated and Amended Registration
Rights Agreement (the "Registration Rights Agreement") among Telecom, ART, the
security holders of Telecom and the security holders of ART, dated February 2,
1996, hereby consent and agree to
<PAGE>
(a) the admission as parties to the Registration Rights Agreement
(i) with the rights and obligations of New Unaffiliated
Stockholders thereunder of all persons, not previously parties
thereto, who acquire Unit Warrants, Additional Warrants, Default
Warrants or CIBC Warrants;
(ii) with the rights and obligations of Existing ART
Stockholders, (A) Southeast Research Partners, Inc. and its designees
(the "SERP Optionees") who have options (the "SERP Options") to
acquire an aggregate of 313,612 shares of ART Common Stock from Vernon
L. Fotheringham, W. Theodore Pierson, Jr., High Sky Partners, L.P. and
High Sky Partners II, L.P. (collectively, the "SERP Optionees") and
(B) Bournemouth Holdings Corporation ("Bournemouth"), a Permitted
Transferee of William Weinstein; and
(iii) each partner of each partnership that is a party to the
Registration Rights Agreement (each, a "Stockholders Partnership"),
upon dissolution thereof, as parties with the rights and obligations
of such partner's Stockholders Partnership;
provided such persons agree to be bound by the provisions of the
Registration Rights Agreement; and
(b) the waiver of any preemptive or other rights of the undersigned to
acquire any of the September Bridge Notes, Unit Warrants, Additional
Warrants or Default Warrants, CIBC Warrants or Senior Secured Notes;
(c) (i) defining the "New Bridge Warrants" to include the warrants to
purchase 50,000 shares of ART Common Stock issued to stockholders
of CommcoCCC (formerly called New Bridge Warrants in the
Registration Rights Agreement) together with the additional
190,000 warrants issued to such stock holders in October 1996 and
any additional warrants issuable under the secured bridge notes
due 1998 to the shareholders of CommcoCCC, Inc., the Unit
Warrants, the Additional Warrants, if issued, the Default
Warrants, if issued, and the CIBC Warrants, if issued;
(ii) defining (A) "Telecom Warrant" to include Bridge Warrants and
Indemnity Warrants (as defined in the Registration Rights
Agreement), but not the Warrant to purchase shares of Telecom
Common Stock issued on February 2, 1996, held by Ameritech (as
defined therein), and (B) "Telecom Warrant Holders" to mean
holders of Telecom Warrants; and
-2-
<PAGE>
(iii) amending Section 3(a)(1) of the Registration Rights
Agreement to provide that the number of outstanding shares
of Common Stock referred to is 30,086,498 shares with the
effect that the number of Registrable Shares that Demand
Holders must beneficially own in order to be entitled to a
demand registration right under such Section 3(a)(1) shall
be 1,805,190 shares;
(d) the execution of this instrument constitutes execution and delivery of
the Registration Rights Agreement, as amended hereby; and
(e) authorizing the Company after consummation of the IPO to grant
registration rights in its discretion without further amendment of the
Registration Rights Agreement.
In witness whereof, the undersigned executed this instrument as of the 16th
day of October, 1996.
___________________________
-3-
<PAGE>
Exhibit 10.35(a)
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THE
SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT IN CONNECTION
WITH THE RESALE THEREOF UNDER THE ACT OR APPLICABLE STATE SECURITIES LAWS OR AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND APPLICABLE STATE
SECURITIES LAWS WHICH, IN THE OPINION OF COUNSEL SATISFACTORY TO THE COMPANY, IS
AVAILABLE. THIS NOTE MAY BE SUBJECT TO ORIGINAL ISSUE DISCOUNT.
PROMISSORY NOTE
Due: March 8, 1998
$ 1996
FOR VALUE RECEIVED, ADVANCED RADIO TECHNOLOGIES CORPORATION, a Delaware
corporation (the "Maker") having an office at 500 108th Avenue, N.E., Bellevue,
Washington 98004, hereby promises to pay in cash on March 8, 1998 to the order
of ____________ (the "Payee") the principal sum of ____________ DOLLLARS
together with interest in cash at the rate of fourteen and seventy-five one
hundredths percent (14.75%) per annum, based on the actual number of days
elapsed over a 360-day year, as provided herein, with interest payable in
arrears, on December 8, March 8, June 8, and September 8, of each year.
Notwithstanding the foregoing, the outstanding principal sum together with
interest thereon shall be due and payable upon the consummation of an initial
public offering or private placement of the Maker's securities that results in
aggregate gross proceeds to the Maker of at least $60,000,000.
This Note is one of the Notes (the "Notes") of like tenor issued between
September 6 and October 16, 1996 in the aggregate principal amount of
$4,000,000.
In consideration for the indebtedness evidenced by this Note, the Maker
shall issue warrants exercisable to purchase certain shares of Common Stock of
the Maker (the "Unit Warrants") as more particularly described in that certain
Common Stock Purchase Warrant executed by the Maker in favor of the Payee on the
date hereof.
The following shall be deemed events of default hereunder:
1. If any payment shall not be made within ten (10) days when the
same shall become due and payable;
2. If the Maker shall (i) apply for or consent to the appointment of
a receiver, trustee or liquidator
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of a substantial part of its assets or property; (ii) make a general
assignment for the benefit of creditors; (iii) be adjudicated a bankrupt;
(iv) file a voluntary petition in bankruptcy or petition or an answer
seeking reorganization, or make a plan with creditors or take advantage of
any bankruptcy, reorganization, insolvency, readjustment of debt,
dissolution or liquidation law or statute now or hereafter in effect or an
answer admitting the material allegations of any petition filed against it
in any proceeding under any such law or statute; or (v) admit in writing
the Maker's inability to pay the Maker's debts as they become due;
3. If any proceeding against the Maker seeking reorganization,
arrangement, composition, adjustment, liquidation, dissolution or similar
relief under the present or any future Federal Bankruptcy Act or other
applicable Federal or state statute, law or regulation shall remain
undismissed or continue unstayed and in effect for a period of sixty (60)
days; or
4. If a court of competent jurisdiction shall enter an order,
judgment or decree appointing a receiver for a substantial part of the
assets or properties of the Maker and such order, judgment or decree shall
continue unvacated or unstayed and in effect for a period of sixty (60)
days.
Unless the Payee otherwise elects, in the Payee's sole discretion, this
Note shall automatically become immediately due and payable, without further
notice or demand, upon the occurrence of any event of default hereinabove
described. Upon the acceleration of the entire or any portion of the unpaid
balance of this Note, the holder, without prejudice to any other rights, is
authorized to proceed against the Maker and shall not be required to have
recourse to any security given for payment of this Note.
In the event this Note is not prepaid by December 31, 1996, the Maker will
issue to holders thereof additional five-year warrants, in substantially the
same form as the Unit Warrants, effective as of the date of issuance of the Unit
Warrants, exercisable to purchase an aggregate of 320,000 shares of the Maker's
Common Stock at the exercise price per share then in effect under the Unit
Warrants.
In the event of a default on the Notes, the Maker shall (a) pay interest,
quarterly in arrears, on the sum of (i) the principal amount thereof and (ii)
any accrued and unpaid interest thereon, at the rate of twenty-two percent (22%)
per annum, based on the actual number of days elapsed over a 360-day year from
the date of default and (b) grant to the holder of each $100,000 principal
amount thereof an additional five-year warrant, in a
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form substantially similar to that of the Unit Warrants (except that Section
7.1(a) and (b) and the first 12 words of Section 7.1(c) shall be deleted in such
additional warrant), exercisable as of the date of such default to purchase
20,000 shares of Common Stock of the Maker at the exercise price per share of
$3.00.
This Note shall be unsecured and shall rank senior to all other
indebtedness for money borrowed including interest thereon ("Funded
Indebtedness") of the Maker incurred after the date hereof (other than existing
Funded Indebtedness of Advanced Radio Telecom Corp. ("Telecom"), giving effect
to the proposed merger (the "Merger") of a subsidiary of the Maker into
Telecom); provided that with the written consent of holders of at least 80% of
the outstanding principal amount of the Notes outstanding, the Maker may incur
additional Funded Indebtedness either senior or PARI PASSU with this Note. This
Note shall rank junior in rights of payment and liquidation to all existing
Funded Indebtedness of the Maker or of Telecom (after giving effect to the
Merger), and the Maker shall be obligated (after giving effect to the Merger) to
make payment in full of all Funded Indebtedness of Telecom existing on the date
of this Note prior to payment of this Note.
At the option of the Maker, the unpaid balance of this Note may be prepaid
in whole or in part, from time to time, without penalty or premium.
Except as otherwise expressly provided herein, the Maker, sureties,
guarantors and endorsers of this Note hereby severally waive presentment, demand
for payment, dishonor, notice of dishonor, protest and notice of protest, and
any and all other requirements necessary to hold them liable as the Maker.
The liability of the Maker hereunder shall be unconditional. No act,
failure or delay by the holder hereof to declare a default as set forth herein
or to exercise any right or remedy it may have hereunder, or otherwise, shall
constitute a waiver of its rights to declare such default or to exercise any
such right or remedy at such time as it shall determine in its sole discretion.
Each of the Maker, surety, guarantor and endorser further agrees, jointly
and severally, to pay all costs of collection, including reasonable attorney's
fees and all costs of levy or appellate proceedings or review, in case the
principal or any interest thereon is not paid at the respective maturity
thereof, or in case it becomes necessary to protect the security hereof, whether
suit be brought or not.
Any and all notices or other communications required or permitted to be
given under this Note shall be in writing and shall be deemed to have been duly
given upon personal delivery or the mailing thereof by certified or registered
mail (a) if to the Maker, at its address set forth above; and (b) if to the
Payee,
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addressed to it or at such other address any person or entity entitled to
receive notices may specify by written notice given as aforesaid.
This Note may not be changed or terminated orally.
This Note shall be binding upon the Maker, its legal representatives,
successors or assigns and shall inure to the benefit of the Payee and its
successors, endorsers, assigns or holder(s) in due course.
This Note shall be governed by and construed in accordance with the laws of
the State of Delaware, without giving effect to principles of conflicts of law.
By signing below, the Maker hereby irrevocably submits to the jurisdiction of
such state and to service of process by certified or registered mail at the
Maker's last known address. No provision of this Note may be changed unless in
writing signed by the Payee.
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IN WITNESS WHEREOF, the Maker has caused this Note to be executed by its
duly authorized representative as of the date and year first above written.
ADVANCED RADIO TECHNOLOGIES CORPORATION
By:_________________________
Payment of the above Note is hereby guaranteed.
ADVANCED RADIO TELECOM CORP.
By:_________________________
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Exhibit 10.35(b)
Void after October 16, 2001
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THIS
WARRANT AND SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE
OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT. THIS
WARRANT AND SUCH SHARES MAY NOT BE TRANSFERRED EXCEPT UPON THE
CONDITIONS SPECIFIED HEREIN AND IN THE SUBSCRIPTION AGREEMENT, DATED
AS OF THE DATE HEREOF (AS AMENDED AND MODIFIED FROM TIME TO TIME), AND
NO TRANSFER OF THIS WARRANT OR SUCH SHARES SHALL BE VALID OR EFFECTIVE
UNLESS AND UNTIL SUCH CONDITIONS SHALL HAVE BEEN COMPLIED WITH.
ADDITIONALLY, THE TRANSFER OF THIS WARRANT AND SUCH SHARES IS SUBJECT TO
THE CONDITIONS SPECIFIED IN THE SECOND RESTATED AND AMENDED REGISTRATION
RIGHTS AGREEMENT DATED JULY 3, 1996 (THE "REGISTRATION RIGHTS AGREEMENT"),
EACH BY AND AMONG ADVANCED RADIO TELECOM CORP. ("TELECOM"), ADVANCED RADIO
TECHNOLOGIES CORPORATION, AND CERTAIN OTHER SIGNATORIES THERETO, AND NO
TRANSFER OF THIS WARRANT OR SUCH SHARES SHALL BE VALID OR EFFECTIVE UNTIL
SUCH CONDITIONS HAVE BEEN FULFILLED. UPON THE FULFILLMENT OF CERTAIN OF
SUCH CONDITIONS, ADVANCED RADIO TECHNOLOGIES CORPORATION AND TELECOM HAVE
AGREED TO DELIVER TO THE HOLDER HEREOF A NEW CERTIFICATE, NOT BEARING THIS
LEGEND, FOR THIS WARRANT REGISTERED IN THE NAME OF SUCH HOLDER. COPIES OF
SUCH AGREEMENTS MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE
HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF ADVANCED RADIO
TECHNOLOGIES CORPORATION.
ADVANCED RADIO TECHNOLOGIES CORPORATION
COMMON STOCK PURCHASE WARRANT
ADVANCED RADIO TECHNOLOGIES CORPORATION, a Delaware corporation (the
"Company") having its principal office at 500 108th Ave., N.E., Bellevue, WA
98004 hereby certifies that, for value received, _______________ or assigns, is
entitled, subject to the terms set forth below, to purchase from the Company
commencing on October 16, 1997 and terminating at 5:00 P.M., New York City time,
on October 16, 2001 (the "Expiration Date") ________________ fully paid and
non-assessable shares of Common Stock (as defined), at the price per share (the
"Purchase Price") of $6.25. The number and character of such shares of Common
Stock and the Purchase Price are subject to adjustment as provided herein.
This Warrant is one of the Common Stock Purchase Warrants (the "Warrants")
originally issued in units with 14.75% promissory notes (the "Notes") as of the
Original Issue Date
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(as defined) and evidencing the right to purchase an aggregate of 320,000 shares
of Common Stock subject to the adjustments as provided herein.
As used herein the following terms, unless the context otherwise requires,
have the following respective meanings:
(a) The term "Company" includes any corporation which shall
succeed to or assume the obligations of the Company hereunder.
(b) The term "Common Stock" means the Common Stock, $.001 par
value, of the Company.
(c) The "Original Issue Date" is ___________, 1996 the date as
of which the Warrants were first issued.
(d) The term "Other Securities" refers to stock (other than
Common Stock) and other securities of the Company or any other person (corporate
or otherwise) which the holders of the Warrants at any time shall be entitled to
receive, or shall have received, upon the exercise of the Warrants, in lieu of
or in addition to Common Stock, or which at any time shall be issuable or shall
have been issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 6 hereof or otherwise.
(e) The term "Purchase Price" shall be the then applicable
exercise price for one share of Common Stock.
(f) The terms "registered" and "registration" refer to a
registration effected by filing a registration statement in compliance with the
Securities Act, to permit the disposition of Common Stock (or Other Securities)
issued or issuable upon the exercise of Warrants, and any post-effective
amendments and supplements filed or required to be filed to permit any such
disposition.
(g) The term "Securities Act" means the Securities Act of 1933
as the same shall be in effect at the time.
1. REGISTRATION, ETC. The Company shall have the same obligations to the
holder of the Warrant as it has to the New Bridge Warrant Holders of the Company
as set forth in the Second Restated and Amended Registration Rights Agreement
dated July 3, 1996 by and among the Company, Telecom and certain other
signatories thereto, subject to the consent of the other parties thereto, if
required.
2. SALE OR EXERCISE WITHOUT REGISTRATION. If, at the time of any
exercise, transfer or surrender for exchange of a Warrant or of Common Stock (or
Other Securities) previously issued upon the exercise of Warrants, such Warrant
or Common Stock (or Other Securities) shall not be registered under the
Securities Act, the Company may require, as a condition of allowing such
exercise, transfer or exchange, that the holder or transferee of such Warrant or
Common
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Stock (or Other Securities), as the case may be, furnish to the Company a
satisfactory opinion of counsel to the effect that such exercise, transfer or
exchange may be made without registration under the Securities Act and any
applicable state securities laws, provided that nothing contained in this
Section 2 shall relieve the Company from complying with any request for
registration pursuant to Section 1 hereof.
3. EXERCISE OF WARRANT; PARTIAL EXERCISE; EXERCISE BY SURRENDER.
3.1. EXERCISE IN FULL. Subject to the provisions hereof, this Warrant
may be exercised in full by the holder hereof by surrender of this Warrant, with
the form of subscription attached hereto as SCHEDULE I duly executed by such
holder, to the Company at its principal office accompanied by payment, in cash
or by certified or official bank check payable to the order of the Company, in
the amount obtained by multiplying the number of shares of Common Stock called
for on the face of this Warrant (without giving effect to any adjustment
therein) by the Purchase Price.
3.2. PARTIAL EXERCISE. Subject to the provisions hereof, this Warrant
may be exercised in part by surrender of this Warrant in the manner and at the
place provided in Section 3.1 except that the amount payable by the holder upon
any partial exercise shall be the amount obtained by multiplying (a) the number
of shares of Common Stock (without giving effect to any adjustment therein)
designated by the holder in the form of subscription by (b) the Purchase Price.
Upon any such partial exercise, the Company at its expense will forthwith issue
and deliver to or upon the order of the holder hereof a new Warrant or Warrants
of like tenor, in the name of holder hereof or as such holder (upon payment by
such holder of any applicable transfer taxes) may request, calling in the
aggregate on the face or faces thereof for the number of shares of Common Stock
equal (without giving effect to any adjustment therein) to the number of such
shares called for on the face of this Warrant minus the number of such shares
designated by the holder in the form of subscription at the end hereof.
3.3. EXERCISE BY SURRENDER OF WARRANT. In addition to the method of
payment set forth in Sections 3.1 and 3.2 and in lieu of any cash payment
required thereunder, the holder(s) of the Warrants shall have the right at any
time and from time to time to exercise the Warrants in full or in part by
surrendering the Warrants in the manner specified in Section 3.1 as payment of
the aggregate Purchase Price. The number of Warrants to be surrendered in
payment of the aggregate Purchase Price for the Warrant to be exercised shall be
determined by multiplying the number of Warrants to be exercised by the Purchase
Price, and then dividing the product thereof by an amount equal to the Market
Price (as defined below). Solely for the purposes of this paragraph, Market
Price shall be calculated as the average of the Market Prices for each of the
ten (10) trading days preceding the date which the form of election attached
hereto is deemed to have been sent to the Company ("Notice Date").
3.4. DEFINITION OF MARKET PRICE. As used herein, "Market Price" at
any date shall be deemed to be (i) if the principal trading market for such
securities is an exchange, the last reported sale price, or, in case no such
reported sale takes place on such date, the average of the last reported sale
prices for the last three (3) trading days, in either case as officially
reported on any consolidated tape, (ii) if the principal market for such
securities is the over-the-counter
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market, the high bid price on such date as set forth by Nasdaq or, if the
security is not quoted on Nasdaq, the high bid price as set forth in the
National Quotation Bureau sheet listing such securities for such day.
Notwithstanding the foregoing, if there is no reported closing price or high bid
price, as the case may be, on the date next preceding the event requiring an
adjustment hereunder, then the Market Price shall be determined as of the latest
date prior to such day for which such closing price or high bid price is
available, or if the securities are not quoted on Nasdaq, as determined in good
faith by the Board of Directors of the Company, based on the best information
available to it.
3.5. COMPANY TO REAFFIRM OBLIGATIONS. The Company will, at the time
of any exercise of this Warrant, upon the request of the holder hereof,
acknowledge in writing its continuing obligation to afford to such holder any
rights (including, without limitation, any right to registration of the Common
Stock or Other Securities issued upon such exercise) to which such holder shall
continue to be entitled after such exercise in accordance with the provisions of
this Warrant, PROVIDED that if the holder of this Warrant shall fail to make any
such request, such failure shall not affect the continuing obligation of the
Company to afford such holder any such rights.
4. DELIVERY OF STOCK CERTIFICATES, ETC., ON EXERCISE. As soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within ten (10) days thereafter, the Company at its expense (including the
payment by it of any applicable issue taxes) shall cause to be issued in the
name of and delivered to the holder hereof, or as such holder (upon payment by
such holder of any applicable transfer taxes) may direct, a certificate or
certificates for the number of full paid and non-assessable shares of Common
Stock (or Other Securities) to which such holder shall be entitled upon such
exercise, plus, in lieu of any fractional share to which such holder would
otherwise be entitled, cash equal to such fraction multiplied by the then
current market value of one full share, together with any other stock or other
securities and property (including cash, where applicable) to which such holder
is entitled upon such exercise pursuant to Section 5 hereof or otherwise.
5. ADJUSTMENT FOR DIVIDENDS IN OTHER STOCK, PROPERTY, ETC.;
RECLASSIFICATION, ETC. In case at any time or from time to time after the
Original Issue Date the holders of Common Stock shall have received, or (on or
after the record date fixed for the determination of stockholders eligible to
receive) shall have become entitled to receive, without payment therefor
(a) other or additional stock or other securities or property
(other than cash) by way of dividend, or
(b) any cash paid or payable (including, without limitation, by
way of dividend), except out of earned surplus of the Company, or
(c) other or additional (or less) stock or other securities or
property (including cash) by way of spin-off, split-up, reclassification,
recapitalization, combination of shares or similar corporate rearrangement,
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then, and in each such case, the holder of this Warrant, upon the exercise
hereof as provided in Section 3, shall be entitled to receive the amount of
stock and other securities and property (including cash in the cases referred to
in subdivisions (b) and (c) of this Section 5 which such holder would hold on
the date of such exercise if on the Original Issue Date it had been the holder
of record of the number of shares of Common Stock called for on the face of this
Warrant and had thereafter, during the period from the Original Issue Date to
and including the date of such exercise, retained such shares and all such other
or additional (or less) stock and other securities and property (including cash
in the cases referred to in subdivisions (b) and (c) of this Section 5)
receivable as aforesaid during such period, giving effect to all adjustments
called for during such period by Sections 6 and 7 hereof.
6. REORGANIZATION, CONSOLIDATION, MERGER, ETC.
In case the Company after the Original Issue Date shall (a) effect a
reorganization, (b) consolidate with or merge into any other person, or (c)
transfer all or substantially all of its properties or assets to any other
person under any plan or arrangement contemplating the dissolution of the
Company, then, in each such case, the holder of this Warrant, upon the exercise
hereof as provided in Section 3 at any time after the consummation of such
reorganization, consolidation or merger or the effective date of such
dissolution, as the case may be, shall be entitled to receive (and the Company
shall be entitled to deliver), in lieu of the Common Stock (or Other Securities)
issuable upon such exercise prior to such consummation or such effective date,
the stock and other securities and property (including cash) to which such
holder would have been entitled upon such consummation or in connection with
such dissolution, as the case may be, if such holder had so exercised this
Warrant immediately prior thereto, all subject to further adjustment thereafter
as provided in Sections 5 and 7 hereof.
7. OTHER ADJUSTMENTS.
7.1. GENERAL. In any case to which Sections 5 and 6 hereof are not
applicable,
(a) where the Company shall sell shares of its Common Stock on
or prior to December 31, 1996 at a price per share (the "New Purchase
Price") less than $6.25 (except where such shares are sold pursuant to the
exercise of any warrant or option issued prior to the Original Issue Date),
the Purchase Price in effect hereunder shall be reduced to the New Purchase
Price; PROVIDED that where the Company shall sell shares of Common Stock at
varying prices per share less than $6.25, the New Purchase Price shall be
equal to the lowest price per share received by the Company in connection
with such sales;
(b) where the Company fails to acquire additional financing or
financings with aggregate gross proceeds in excess of $30 million on or
prior to December 31, 1996, and the Company shall sell shares of its Common
Stock (except where such shares are sold pursuant to the exercise of any
warrant or option issued prior to the Original Issue Date or in connection
with any debt financing of the Company with gross proceeds of $15 million
or more) thereafter, at a price per share
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(the "Equity Financing Price") less than $6.25, the Purchase Price in
effect hereunder shall be reduced to the Equity Financing Price; PROVIDED
that where the company shall sell shares of Common Stock at varying prices
per share less than $6.25, the Equity Financing Price shall be equal to the
lowest price per share received by the Company in connection with such
sales; PROVIDED FURTHER that the number of shares of Common Stock which may
be purchased upon exercise of this Warrant shall be increased to a number
equal to the principal amount of the Note issued in a unit with this
Warrant divided by the New Purchase Price; and
(c) where subdivisions (a) and (b) of this Section 7.1 are not
applicable and the Company shall issue or sell shares of its Common Stock
after the Original Issue Date without consideration or for a consideration
per share less than the Purchase Price in effect pursuant to the terms of
this Warrant at the time of issuance or sale of such additional shares
(except where such shares are issued or sold pursuant to the exercise of
any warrant or option or issued prior to the Original Issue Date or in
connection with any debt financing of the Company with gross proceeds of
$15 million or more), then the Purchase Price in effect hereunder shall
simultaneously with such issuance or sale be reduced to a price determined
by dividing (i) an amount equal to (A) the total number of shares of Common
Stock outstanding immediately prior to such issuance or sale multiplied by
the Purchase Price in effect hereunder at the time of such issuance or
sale, plus (B) the consideration, if any, received by the Company upon such
issuance or sale, by (ii) the total number of shares of Common Stock
outstanding immediately after issuance or sale of such additional shares.
7.2. CONVERTIBLE SECURITIES. In case the Company shall issue or sell
any securities convertible into Common Stock of the Company ("Convertible
Securities") after the Original Issue Date, there shall be determined the price
per share for which Common Stock is issuable upon the conversion or exchange
thereof, such determination to be made by dividing (a) the total amount received
or receivable by the Company as consideration for the issue or sale of such
Convertible Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the conversion or exchange
thereof, by (b) the maximum number of shares of Common Stock of the Company
issuable upon the conversion or exchange of all of such Convertible Securities.
If the price per share so determined shall be less than the
applicable Purchase Price, then such issue or sale shall be deemed to be an
issue or sale for cash (as of the date of issue or sale of such Convertible
Securities) of such maximum number of shares of Common Stock at the price per
share so determined, PROVIDED that, if such Convertible Securities shall by
their terms provide for an increase or increases, with the passage of time, in
the amount of additional consideration, if any, to the Company, or in the rate
of exchange, upon the conversion or exchange thereof, the adjusted Purchase
Price shall, forthwith upon any such increase becoming effective, be readjusted
to reflect the same, and PROVIDED, FURTHER, that upon the expiration of such
rights of conversion or exchange of such Convertible Securities, if any thereof
shall not have been exercised, the adjusted Purchase Price shall forthwith be
readjusted and thereafter be the price which it would have been had an
adjustment been made on the basis that the only shares of Common Stock so issued
or sold were issued or sold upon the conversion or
<PAGE>
exchange of such Convertible securities, and that they were issued or sold for
the consideration actually received by the Company upon such conversion or
exchange, plus the consideration, if any, actually received by the Company for
the issue or sale of all of such Convertible Securities which shall have been
converted or exchanged.
7.3. RIGHTS AND OPTIONS. In case the Company shall grant any rights
or options to subscribe for, purchase or otherwise acquire Common Stock (other
than rights or options granted under the Company's Equity Incentive Plan and
1996 Non-Employee Directors Automatic Stock Option Plan or in connection with
any debt financing of the Company with gross proceeds of $15 million or more),
there shall be determined the price per share for which Common Stock is issuable
upon the exercise of such rights or options, such determination to be made by
dividing (a) the total amount, if any, received or receivable by the Company as
consideration for the granting of such rights or options, plus the minimum
aggregate amount of additional consideration payable to the Company upon the
exercise of such rights or options, by (b) the maximum number of shares of
Common Stock of the Company issuable upon the exercise of such rights or
options.
If the price per share so determined shall be less than the
applicable Purchase Price, then the granting of such rights or options shall be
deemed to be an issue or sale for cash (as of the date of the granting of such
rights or options) of such maximum number of shares of Common Stock at the price
per share so determined, PROVIDED that, if such rights or options shall be their
terms provide for an increase or increases, with the passage of time, in the
amount of additional consideration, if any, payable to the Company upon the
exercise thereof, the adjusted purchase price per share shall, forthwith upon
any such increase becoming effective, be readjusted to reflect the same, and
PROVIDED, FURTHER, that upon the expiration of such rights or options, if any
thereof shall not have been exercised, the adjusted Purchase Price shall
forthwith be readjusted and thereafter be the price which it would have been had
an adjustment been made on the basis that the only shares of Common Stock so
issued or sold were those issued or sold upon the exercise of such rights or
options, and that they were issued or sold for the consideration actually
received by the Company upon such exercise, plus the consideration, if any,
actually received by the Company for the granting of all such rights or options,
whether or not exercised.
8. FURTHER ASSURANCES. The Company will take all such action as may be
necessary or appropriate in order that the Company may validly and legally issue
fully paid and non-assessable shares of stock upon the exercise of all Warrants
from time to time outstanding.
9. ACCOUNTANTS' CERTIFICATE AS TO ADJUSTMENTS. In each case of any
adjustment or readjustment in the shares of Common Stock (or Other Securities)
issuable upon the exercise of the Warrants, the Company at its expense will
promptly cause the Company's regularly retained auditor to compute such
adjustment or readjustment in accordance with the terms of the Warrants and
prepare a certificate setting forth such adjustment or readjustment and showing
in detail the facts upon which such adjustment or readjustment is based, and the
number of shares of Common Stock outstanding or deemed to be outstanding. The
Company will forthwith mail a copy of each such certificate to each holder of a
Warrant.
10. NOTICES OF RECORD DATE, ETC. In the event of
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(a) any taking by the Company of a record of the holders of any
class of securities for the purpose of determining the holders thereof who
are entitled to receive any dividend (other than a cash dividend payable
out of earned surplus of the Company) or other distribution, or any right
to subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities or property, or to receive any other right,
or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or
any transfer of all or substantially all the assets of the Company to, or
consolidation or merger of the Company with or into any other person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company, or
(d) any proposed issue or grant by the Company of any shares of
stock of any class or any other securities, or any right or option to
subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities (other than the issue of Common Stock on the
exercise of the Warrants), then and in each such event the Company will
mail or cause to be mailed to each holder of a Warrant a notice specifying
(i) the date on which any such record is to be taken for the purpose of
such dividend, distribution or right, and stating the amount and character
of such dividend, distribution or right, (ii) the date on which any such
reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding-up is to take
place, and the time, if any, as of which the holders of record of Common
Stock (or Other Securities) shall be entitled to exchange their shares of
Common Stock (or Other Securities) for securities or other property
deliverable upon such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding-up,
and (iii) the amount and character of any stock or other securities, or
rights or options with respect thereto, proposed to be issued or granted,
the date of such proposed issue or grant and the persons or class of
persons to whom such proposed issue or grant and the persons or class of
persons to whom such proposed issue or grant is to be offered or made.
Such notice shall be mailed at least twenty (20) days prior to the date
therein specified.
11. RESERVATION OF STOCK, ETC., ISSUABLE ON EXERCISE OF WARRANTS. The
Company will at all times reserve and keep available, solely for issuance and
delivery upon the exercise of the Warrants, all shares of Common Stock (or Other
Securities) from time to time issuable upon the exercise of the Warrants.
12. LISTING ON SECURITIES EXCHANGES; REGISTRATION. If the Company at any
time shall list the Common Stock on any national securities exchange and shall
register the Common Stock under the Securities Exchange Act of 1934 (as then in
effect, or any similar statute then in effect), the Company will, at its
expense, simultaneously list on such exchange, upon official notice of issuance
upon the exercise of the Warrants, and maintain such listing of all shares of
<PAGE>
Common Stock from time to time issuable upon the exercise of the Warrants; and
the Company will so list on any national securities exchange, will so register
and will maintain such listing of, any Other Securities if and at the time that
any securities of like class or similar type shall be listed on such national
securities exchange by the Company.
13. EXCHANGE OF WARRANTS. Subject to the provisions of Section 2 hereof,
upon surrender for exchange of any Warrant, properly endorsed, to the Company,
the Company at its own expense will issue and deliver to or upon the order of
the holder thereof a new Warrant or Warrants of like tenor in the name of such
holder or as such holder (upon payment by such holder of any applicable transfer
taxes) may direct calling in the aggregate on the face or faces thereof for the
number of shares of Common Stock called for on the face or faces of the Warrant
or Warrants so surrendered.
14. REPLACEMENT OF WARRANTS. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Warrant and, in the case of any such loss, theft or destruction, upon delivery
of an indemnity agreement reasonably satisfactory in form and amount to the
Company or, in the case of any such mutilation, upon surrender and cancellation
of such Warrant, the Company at its expense will execute and deliver, in lieu
thereof, a new Warrant of like tenor.
15. WARRANT AGENT. The Company may, by written notice to each holder of a
Warrant, appoint an agent having an office in New York, New York, for the
purpose of issuing Common Stock (or Other Securities) upon the exercise of the
Warrants pursuant to Section 3, exchanging Warrants pursuant to Section 13,
replacing Warrants pursuant to Section 14, and thereafter any such issuance,
exchange or replacement, as the case may be, shall be made at such office by
such agent.
16. REMEDIES. The Company stipulates that the remedies at law of the
holder of this Warrant in the event of any default or threatened default by the
Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate, and that such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise.
17. NEGOTIABILITY, ETC. This Warrant is issued upon the following terms,
to all of which each holder or owner hereof by the taking hereof, consents and
agrees:
(a) subject to the provisions hereof, title to this Warrant may
be transferred by endorsement (by the holder hereof executing the form of
assignment attached hereto as SCHEDULE III) and delivery in the same manner
as in the case of a negotiable instrument transferable by endorsement and
delivery;
(b) subject to the foregoing, any person in possession of this
Warrant properly endorsed is authorized to represent himself as absolute
owner hereof and is empowered to transfer absolute title hereto by
endorsement and delivery hereof to a bona fide purchaser hereof for value;
each prior taker or owner waives and renounces all of his equities or
rights in this Warrant in favor of each such bona fide
<PAGE>
purchaser and each such bona fide purchaser shall acquire absolute title
hereto and to all rights represented hereby; and
(c) until this Warrant is transferred on the books of the
Company, the Company may treat the registered holder hereof as the absolute
owner hereof for all purposes, notwithstanding any notice to the contrary.
18. NOTICES, ETC. All notices and other communications from the Company
to the holder of this Warrant shall be mailed by first class registered or
certified mail, postage prepaid, at such address as may have been furnished to
the Company in writing by such holder, or, until an address is so furnished, to
and at the address of the last holder of this Warrant who has so furnished an
address to the Company.
19. MISCELLANEOUS. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. This Warrant is being delivered in the State of New York and shall
be construed and enforced in accordance with and governed by the laws of such
State. The headings in this Warrant are for purposes of reference only, and
shall not limit or otherwise affect any of the terms hereof.
20. ASSIGNABILITY. Subject to the transfer conditions referred to in the
legend endorsed hereon, this Warrant is fully assignable at any time upon
surrender of this Warrant with a properly executed form of assignment at the
principal office of the Company.
Dated:
ADVANCED RADIO TECHNOLOGIES
CORPORATION
By
--------------------------
[Corporate Seal]
Attest:
- -----------------------------
Secretary
<PAGE>
SCHEDULE I
FORM OF SUBSCRIPTION
(To be signed only upon exercise of the Warrant)
To: ADVANCED RADIO TECHNOLOGIES CORPORATION
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, _____* shares of Common Stock of ADVANCED RADIO
TECHNOLOGIES CORPORATION, and herewith makes payment of
$ therefor, and requests that the certificates for such shares be
issued in the name of, and delivered to, , whose address is
Dated:
--------------------------------------------
(Signature must conform in all respects to
name of the holder as specified on the face
of the Warrant)
--------------------------------------------
(Address)
- ------------------------
* Insert here the number of shares called for on the face of the Warrant (or,
in the case of a partial exercise, the portion thereof as to which the
Warrant is being exercised), in either case without making any adjustment
for additional shares of Common Stock or any other stock or other
securities or property or cash which, pursuant to the adjustment provisions
of the Warrant, may be deliverable upon exercise.
<PAGE>
SCHEDULE II
FORM OF ELECTION
(To be signed only upon exercise by surrender of the Warrant)
To: ADVANCED RADIO TECHNOLOGIES CORPORATION
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase in accordance with Section 3.3 thereunder, _____* shares of Common
Stock of ADVANCED RADIO TECHNOLOGIES CORPORATION, and requests that the
certificates for such shares be issued in the name of, and delivered to, ,
whose address is
In payment therefor, a number of Warrants (included in the within
Warrant) is hereby surrendered in accordance with Section 3.3 hereof.
Dated:
------------------------------------------
(Signature must conform in all respects to
name of the holder as specified on the face
of the Warrant)
------------------------------------------
(Address)
- ------------------------
* Insert here the number of shares to be issued upon surrender of Warrants,
without making any adjustment for additional Common Stock or any other
stock or other securities or property or cash which, pursuant to the
adjustment provisions of the Warrant, may be deliverable upon exercise.
<PAGE>
SCHEDULE III
FORM OF ASSIGNMENT
(To be signed only upon transfer of the Warrant)
For value received, the undersigned hereby sells, assigns and transfers
unto the right
represented by the within Warrant to purchase shares of Common
Stock of [_____________] to which the within Warrant relates, and appoints
Attorney to transfer such right on the books of
[_________________] with full power of substitution in the premises. The
Warrant being transferred hereby is one of an aggregate of [___________] Common
Stock Purchase Warrants issued by [______________] as of [_______________], 19__
Dated:
------------------------------------------
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant)
------------------------------------------
(Address)
- ---------------------------------
Signature guaranteed by a Bank
or Trust Company having its
principal office in New York City
or by a Member Firm of the New
York or American Stock Exchange
<PAGE>
MASTER SERVICE AGREEMENT
ADVANCED RADIO TELECOM
&
PUBLIC INTEREST NETWORK
OCTOBER 1, 1996
<PAGE>
MASTER SERVICE AGREEMENT
THIS MASTER SERVICE AGREEMENT (this "Agreement") is entered into as of the
1st day of October 1996 (the "Effective Date") between ADVANCED RADIO TELECOM
CORP., a Delaware corporation with its principal place of business at 500-108th
Avenue, N.E., Suite 2600, Bellevue, Washington 98004 ("ART"), and Public
Interest Network (PIN), ("Purchaser"), with its principal place of business at
50 W l7th Street, NY, NY.
RECITALS:
WHEREAS, ART provides broadband wireless local telecommunications services
in certain geographic areas throughout the United States, and its primary
service offering uses 38 GHz millimetric facilities;
WHEREAS, Purchaser desires to use the services provided by ART, and
WHEREAS, ART and Purchaser desire to enter into an agreement providing for
the furnishing of broadband wireless services by ART.
NOW, THEREFORE, in consideration of the promises and the mutual
representations, warranties, covenants and agreements hereinafter set forth, ART
and Purchaser, intending to be legally bound, agree as follows:
1. Definitions
Definitions are contained in Attachment A.
2. Term of Agreement
The term of this Agreement shall begin on the effective Date and shall continue
in effect for three (3) year(s) thereafter. The Agreement shall renew for
successive periods of one (1) year unless one of the parties gives written
notice not to renew no later than sixty (60) days prior to the scheduled date of
expiration of the initial period or any subsequent renewal period.
3. Scope of Agreement
ART shall provide to Purchaser domestic interstate and interstate Services
pursuant to this Agreement and, where applicable, to ART's tariffs ("Tariffs")
governing certain of the Services on file with the Federal Communications
Commission ("FCC") and various regulatory commissions. This Agreement
incorporates the relevant Tariff provisions as they may be amended from time to
time in accordance with law. The Tariffs shall control the furnishing of service
under this Agreement in the event of any conflict between this Agreement and the
Tariffs but to the extent that the Tariffs are required to control by operation
of law. Capitalized terms not otherwise defined in this Agreement shall have the
meanings assigned to them in the Tariffs.
<PAGE>
4. Services Provided By Art
4.1 38 GHz Transmission Services
ART shall provide transmission services over authorized 38 GHz facilities in
authorized areas, which services (the "Services") shall consist of the
Equipment, as defined below, and all aspects of path engineering, spectrum
usage, spectrum assignment, spectrum management, frequency coordination, and
network monitoring (collectively, "Spectrum Services"). Additional services may
be added, from time to time, by amendment to this Agreement in the form of the
Service Order, the current version of which is attached hereto as Attachment B.
Payment by Purchaser for the Services shall be in accordance with Section 11.
4.2 Equipment
4.2.1 Equipment Supplied. In connection with the provision of Services
under this Agreement, it will be necessary for ART to install certain equipment
on the premises of Purchaser and/or other locations controlled by third parties
and related to the provision of the Services (collectively "Sites"). Equipment
to be installed on each Link includes Outdoor Units ("ODU's"), Indoor Units
("IDU's"), monitoring equipment, power supplies, associated hardware and
cabling, and other materials necessary to complete the installation process (the
"Equipment").
4.2.2 Title and Interest. Purchaser acknowledges and agrees that the
Equipment is, and at all times shall remain, the property of ART, and that
Purchaser shall have no right, title or interest in or to the Equipment. The
Equipment is, and at all times shall remain, personal property notwithstanding
that it may now be or hereafter become in any manner embedded in, affixed or
attached to real property or any building thereon. Purchaser covenants and
agrees to maintain the Equipment free and clear of all liens, charges, security
interests and encumbrances (except any placed thereon by or with the written
consent of ART).
4.2.3 Security of Equipment. Reseller and its End Users shall take all
appropriate measures to secure the equipment on premises that it owns or
controls from loss, destruction or damage including but not limited to: physical
security, including without limit barriers, limited and locked access, posted
warning and training of those with access; electronic security including without
limit periodic audits of its telecommunications systems and passwords;
environmental controls; and suitable power supplies.
4.2.4 Equipment Alternations. Purchaser acknowledges that ART shall
have complete discretion to furnish the Services using any equipment it chooses,
so long as the Services are designed to satisfy the Performance Expectations.
ART shall use reasonable efforts to notify Purchaser of any changes in
Equipment that appear likely or materially affect Purchaser's equipment or
services prior to making any such changes.
5. Service Ordering Procedures
5.1 Service Order Processing
In order to initiate the processing of an order for the Services, Art and
Purchaser shall develop a Pre-Qualification Work Sheet ("Work Sheet"). ART shall
examine the Work Sheet for completeness and will
<PAGE>
work with the Purchaser for any additional information. Purchaser shall exercise
reasonable efforts to work with ART to complete the Work Sheet with ART within
three (3) business days of receipt of order. Purchaser and ART shall execute a
Service Order, which shall become an integral part of this Agreement. ART may
elect to conduct a detailed site survey and shall deliver to Purchaser a Firm
Order Confirmation, including a mutually agreeable target schedule ("Target
Service Date"). ART shall exercise reasonable efforts to complete the detailed
site survey and the Firm Order Confirmation within ten (10) business days of
receipt of the completed Work Sheet. The Target Service Date shall be set forth
in the Firm Order Confirmation, and may be amended from time to time by
amendments to the Firm Order Confirmation.
5.2 Service Order Modification or Cancellation
Purchaser may modify or cancel its Service Order at any time prior to the
Service Commencement Date, as hereinafter defined, provided that Purchaser shall
be responsible for all internal costs incurred by ART, including, without
limitation, performance of additional Detailed Site Surveys, and for all direct
charges incurred to the date of cancellation that are payable to third parties.
The charges Set forth in this Section 5.2 are subject to Section 5.3.
Cancellations and modifications by Purchaser will not be accepted unless
confirmed in writing by Purchaser and signed by an authorized representative of
Purchaser.
5.3 Timing
ART shall exercise reasonable efforts to install the Equipment and commence
delivering the Services by the Target Service Date but only in situations where
arrangements to obtain access to and use of the Site have been completed prior
to execution of the Service Order. ART's Field Services Department or
subcontractors, at ART's sole option, shall perform all installations in
connection with this Agreement. Purchaser expressly acknowledges that time is
not of the essence with regard to this Section 5 and that it shall not be
considered a breach of this Agreement if ART fails to commence Spectrum Services
by the Target Service Date or fails to expeditiously process an order, provided
that, notwithstanding the provisions of Section 5.2, Purchaser, as its sole
remedy for ART's failure to commence Spectrum Services by the Target Service
Date, may cancel a Service Order without incurring any charges, following Notice
to ART and ten (10) additional days to complete installation.
5.4 Commencement of Service
The Spectrum Services shall commence and Purchaser shall be responsible for
charges for the Services on the date that (i) ART installs the Equipment,
performs any testing ART deems necessary, and Notifies Purchaser (the
"Completion Notice") that ART is ready to commence the Spectrum Services, or
(ii) a later date mutually agreed upon in writing by ART and Purchaser (the
"Service Commencement Date").
5.5 Minimum Period of Service
The minimum period for the Services to be provided to Purchaser shall be one
year from the Service Commencement Date for each Link ordered by Purchaser and
installed by ART. Purchaser shall have the option to request ART to redeploy the
Link to any geographic area chosen by Purchaser for which ART holds a license as
a 38 GHz provider, provided: (i) Purchaser pays all costs to ART, including,
without limitation, a reasonable allocation of overhead, as determined by ART,
and all charges to third parties associated with deinstallation and
reinstallation of the Equipment at the new Link location ("Redeployment"); (ii)
the location chosen is completely suitable, in ART's sole discretion, for the
provision of the Services under the terms of this Agreement, and (iii)
Redeployment at the location chosen
<PAGE>
does not interfere, as determined by ART, with existing or planned services by
ART or third parties.
6. Related Support Services Provided by ART
ART shall supply certain services set forth in this Section 6 in support of the
Services (the "Related Support Services"). Except as expressly provided herein
or in the event ART completes the Pre-Qualification Work Sheet and/or obtains
Site access rights, there shall be no additional charges for the Related Support
Services and they shall be included in the charges for the Services as set forth
in Section 11.
6.1 Site Surveys
As set forth in Section 10.3.1, Purchaser shall, as part of completing the Work
Sheet, conduct a Preliminary Site Survey with Art staff, if required. Detailed
Site Surveys (the "Detailed Site Surveys") shall be conducted by ART's Field
Services Department, ART's subcontractors, or, if mutually agreed, Purchaser.
The primary purpose of the Detailed Site Survey is to obtain engineering
information to validate the feasibility of using 38 GHz millimetric wave
circuits and the suitability of the Site and to identify in advance the optimal
installation methods to be used and the obstruction obstacles to be overcome.
6.2 Frequency Coordination
It is necessary to "coordinate" the frequencies to be used on the paths to be
activated with other potentially interfering frequencies used either by ART or
by third parties, and engineer the path layouts, in order to optimize path
performance. ART's Engineering Department shall be responsible for all Spectrum
Semces. In addition, ART shall maintain, or cause to be maintained, databases
and systems to support coordination with other 38 GHz service providers.
Frequency coordination information and engineering databases shall remain the
property of ART and shall be considered Confidential Information by Purchaser
and subject to the provisions of Section 6.
6.3 Maintenance and Restoral
6.3.1 Outage Restoral. Except as agreed otherwise, ART shall set goals
of and exercise reasonable efforts to achieve dispatch of field service
personnel within thirty (30) minutes and Service restoral within four (4) hours
or less, provided that Purchaser expressly acknowledges that it is not possible
for the Services to be restored within four (4) hours in all instances and that
it shall not be a breach of this Agreement for Outages to exceed four (4) hours
by any amount, except that, as its sole remedy, Purchaser shall be entitled to a
credit of one (1) month's Service for all Outages within a given month for a
given Circuit if the total Outages exceed four (4) hours. The Outage credit
under this Section 6.3.1. is in lieu of and not cumulative with the Outage
credits pursuant to Section 12.2. If ART determines that the cause for an Outage
is not within the control of ART or if ART responds to an Outage report by
Purchaser and no such Outage exists, then Purchaser shall not be entitled to an
Outage Credit and shall be responsible for all costs and charges for the
response to the service call at ARTs then current standard hourly rates.
6.3.2 Scheduled Maintenance. ART or its subcontractors, at ART's sole
option, shall perform routine maintenance and adds moves and changes at
reasonable times to be chosen by ART, for which ART shall give reasonable notice
<PAGE>
6.3.3 Limitations on ART's Obligation to Maintain and Restore. ART's
obligations under Section 6.3.1. exclude each of the following as determined
solely by ART; (i) Service that would be unsafe or impractical because of
alterations to the Equipment not approved by ART, or its connection to equipment
or devices not furnished or approved by ART or which connection would for any
reason render Service impossible; (ii) Service using Equipment located in an
unsafe or hazardous environment, (iii) Service that cannot be restored because
of elements external to the Equipment and not under the control of ART
including, but not limited to, adverse environmental conditions or inadequate
power that are not within the manufacturer's or ART's specifications; (iv)
Service resulting from any accident, neglect, alterations improper use or misuse
of the Equipment by personnel not under the control of ART; (v) Service in
connection with relocation not approved by ART of any of the Equipment; and (vi)
the inability of ART to access the premises of Purchaser in order to perform
installation, maintenance and repair.
6.4 Network Operations Management
The ART Network Operations Center ("NOC") will provide the following services:
(i) Link alarm monitoring; (ii) Link performance monitoring; (iii) Link
performance reporting; (iv) Link performance data; (v) remote Link diagnosis;
(vi) Link restoral; and (vii) coordination and testing to the extent feasible
with operations centers operated by third parties. The NOC operates on a seven
(7) day per week, twenty-four (24) hour basis to monitor all ART Circuits. The
NOC provides continuous supervisory control and data acquisition ("SCADA"). The
NOC services to be provided under this Agreement are subject to change from time
to time without Notice and in the sole discretion of ART.
6.5 Customer Service Department
ART's Customer Service Department shall be available to assist Purchaser with
Service complaints and other problems without charge, provided that the requests
for assistance are reasonable. ART shall maintain a "help" desk twenty-four (24)
hours per day seven 7 days per week. ART shall exercise reasonable efforts to
resolve all Purchaser service issues with twenty-four (24) hours. ART shall
establish a system of its own choosing for either reporting all inquiries to
Purchaser or enabling Purchaser to access an ART database, such as an electronic
bulletin board to retrieve information concerning such inquiries and their
resolution.
6.6 ART Point of Contact
ART shall assign a person as a primary point of contact for inquiries and
customer support for Purchaser, which person shall be reachable during the
business day, 8am until 6pm PT, and shall provide an escalation procedure for
resolving differences. The initial contact person shall be Jean Johns.
7. Post Termination Support Services
In the event of a termination of this Agreement by either party ART shall, if
requested by Purchaser, continue to provide on-going service, support,
maintenance and restoral in accordance with the terms of this Agreement for all
Circuits in service pursuant to this Agreement and prior to its termination,
provided that Purchaser continues to pay the applicable charges, which charges
may be changed by ART following thirty (30) days Notice to Purchaser.
<PAGE>
8. Use of Subcontractors
Purchaser expressly agrees that ART may use any subcontractor that it chooses
without prior approval for installation, maintenance, restoral and other field
service functions, and for any other ART obligations under this Agreement;
provided that the use of subcontractors shall not relieve ART of any of its
obligations hereunder.
9. Performance
9.1 Performance Expectations
Based upon its standard engineering evaluations, Link analysis, expected weather
patterns for the Link to be installed, manufacturer's Equipment specifications,
anticipated site environment and ART's experience, ART expects to provide the
Services, with a Bit Error Rate of better than 10-13 over each Circuit in
unfaded conditions, and Service over each Circuit that has an Availability of
better than 99.995% in the aggregate during each month: Purchaser expressly
acknowledges that: (i) this Section sets forth the parties' expectations only;
(ii) ART is not obligated to meet the Performance Expectations of this Section
9.1.; (iii) that such failure shall not constitute a breach of this Agreement,
provided that ART is exercising reasonable efforts to meet these expectations;
and (iv) Purchaser is entitled only to Outage credits as specified in Section 12
for any failure by ART to meet the Performance Expectations of this Section 9.1.
9.2 Limitations on ART's Duty to Perform
ART's obligation to meet the Performance Expectations in Section 9.1. shall not
require ART to provide Service or Related Support Services: (i) that would be
unsafe or impractical because of alterations to the Equipment not approved by
ART, or its connection to equipment or devices not furnished or approved by ART
or which connection would for any reason render Service impracticable; (ii) that
uses Equipment located in an unsafe or hazardous environment; (iii) that cannot
be restored because of elements external to the Equipment and not under the
control of ART, including, but not limited to, adverse environmental conditions
or inadequate power that are not within the manufacturer's or ART's
specifications; (iv) to restore service that was out due to any accident,
neglect, alterations, improper use or misuse of the Equipment by personnel not
under the control of ART; and (v) in connection with a relocation not approved
by ART of any of the Equipment. In addition, ART shall not be liable for ART's
failure to meet the Performance Expectations in Section 9.1 in the event that
such failure is due to: (a) Purchaser's failure to follow procedures for use of
the Services and Equipment as provided by ART or the manufacturer from time to
time; b) repair, modification, maintenance or relocation of the Equipment by
personnel other than ART personnel or ART-designated representatives, without
the express written consent of ART; (c) abuse, misuse, or negligence by
Purchaser or third parties affecting the Services and/or Equipment so as to
impede ART's ability to provide the Services; or (d) the inability of ART to
access the premises of Purchaser in order to perform installation, maintenance
and repair due to limitations or restrictions imposed by Purchaser due to any
violations of Section 10.4 of this Agreement.
10. Purchaser's Responsibilities
10.1 Payment
Purchaser shall pay all applicable charges and taxes in accordance with Section
11.2.
<PAGE>
10.2 Conduct
Purchaser shall not represent that it is an agent or otherwise a representative
of ART, without ART's prior written permission Purchaser and ART each pledge to
each other that they will conduct their business affairs at all times with the
highest standards of honesty, fair dealing and ethics.
10.3 Sites
10.3.1 Pre-Qualification Work Sheet and Preliminary Site Survey. The
primary purpose of the Preliminary Site Survey is to provide preliminary
technical and administrative information so that ART Field Services and
Engineering can make an initial determination of whether a proposed radio link
is feasible and whether a Detailed Site Survey is required. A Preliminary Site
Survey shall be performed by Purchaser or ART personnel or agents as part of the
Work Sheet, when such personnel or agents are authorized and certified by ART to
perform such surveys. ART or Purchaser shall bear the entire expense of such
Preliminary Site Survey, including, without limitation, direct and indirect
personnel expenses. Purchaser's designated Site Survey persons shall undertake
training and certification at reasonable times and places chosen by ART. The
personnel performing the Preliminary Site Survey shall properly complete and
promptly forward to ART the results of the Survey in such form as ART shall
designate from time to time. In the event that the information on the
Preliminary Site Survey is incorrect and that inaccuracy causes ART to expend
additional resources in correcting the information or in taking action on the
basis of incorrect information, Purchaser shall be responsible for paying all
costs, including personnel costs at ART's then current standard hourly charges.
10.3.2 Site Acquisition and Access. Purchaser shall be responsible for
all Site Use Charges related to originating or terminating locations, associated
with acquisition of Sites for the installation of the Equipment, use of the
Sites by ART for the provision of the Services and access to those Sites in
connection therewith including but not limited to (i) acquiring the necessary
zoning, permits and other municipal approvals for installation of the Equipment
and use of the Site, (ii) paying any taxes or fees associated therewith and
(iii) obtaining access during the normal business day for installation and
routine maintenance and twenty-four (24) hour emergency access to the Site to
maintain and restore the Services.
10.4 Access to Purchaser's Premises and Service-Related Equipment
During the term of this Agreement, Purchaser shall arrange for ART or its
representatives to have access to the Sites for the purpose of installation,
testing, preventive maintenance and Service restoral. Where the nature of the
visit permits advance notice, ART shall give reasonable advance notice and shall
schedule the visits during business hours. Where the nature of the visit does
not permit an advance scheduling, including but not limited to, emergency or
restoral situations, Purchaser shall arrange for ART or its representatives to
have immediate access to the Sites and all Equipment located therein, and fully
assist and cooperate with ART in remedying the emergency or Outage. In addition,
Purchaser shall (i) exercise reasonable efforts to protect the Site and
equipment from damage or loss; and to prevent any obstructions that would
interfere with line of sight along the Link and (ii) promptly report any
developments including but not limited to activities or planned activities,
including without limitation new antenna masts or buildings or other structures,
that obstruct or might obstruct line of sight along the Link.
10.5 Purchaser Point of Contact
Purchaser shall appoint a person, who shall be the primary point of contact for
ART, which person shall be reachable during the Purchaser's normal business day
(9AM-5PM) using the time standard in effect at
<PAGE>
Purchaser address first listed above and an emergency point of contact, if
different. The initial contact person for the business day by name and title
shall be Ron Frazier. The initial contact person for other than business hours
by name and title shall be Steve Gelmis.
11. Pricing
11.1 Wholesale Pricing
ART will from time to time establish its Standard Price List for Service at
retail rates ("Retail Pricing"). Purchaser shall pay ART at the Retail Pricing
in effect at the time of the Services minus a wholesale discount based on volume
purchasing and the length of the term ("Wholesale Pricing") as set forth in
Section 11.1.2(B) and (C) below. ART shall have the option to increase or
decrease its Retail Pricing at any time and with regard to any Service Area;
provided that ART provides Notice of such change to Purchaser thirty (30) days
before the effective date of the price change. The Retail Pricing in effect at
the time of the execution of this Agreement are set forth in Attachment D and
shall remain in effect for PIN for the term of this Agreement. Price increases
for circuits ordered and installed during the tern of the Agreement are limited
to increases based upon a COLA (Cost of Living Adjustment) which shall only be
applied after the end of this Agreement. The subsections immediately following
set forth the structure of the Retail Rates. The pricing set forth below and on
the Attachments does not include taxes, where applicable.
11.1.1 Installation Charges. Installation is charged on a per DS-1 or
DS-3 Circuit basis, with differing charges depending on the capacity and type of
the Equipment installed and the environment of the Site. The rate may be
decreased, at ART's sole option, for additional DS-1's is for the same
Purchaser between the same two points. The charge for installation may vary by
state and by city. Purchaser shall pay a non-recurring charge, as set forth on
Attachment D, for a Standard Installation, which charge represents a portion of
the actual cost of installation. Such Standard Installation charge assumes
reasonable access to the Equipment locations and that the locations meet ART's
Minimal Acceptable Site Criteria. The Equipment that is part of a Standard
Installation is listed in Attachment E. On a case-by-case basis, ART will quote
Installation and any special construction charges to PIN. If the installation
takes longer than one continuous eight hour period or the construction required
is non-standard, as determined by ART, due to circumstances beyond the
reasonable control of ART, either ART or the Purchaser shall be responsible for
all additional costs at ART's then current standard hourly rates and the cost of
the additional materials. PIN shall have, at all times, the option to procede
with or cancel an order based upon quoted charges.
11.1.2 Service Charges
(A) Basic Charges
(1) Circuits which will range in capacity from DS-1s to
DS-3s shall be charged on a monthly basis. In some cases the monthly rate may
not be mileage sensitive and a single recurring rate element may apply. For
rates that are mileage sensitive the recurring charge shall include two rate
elements, the "first mile" and "additional miles". The rates may be decreased
for additional Circuits between the same two points of a Link for the same
Purchaser. The charge for Circuits may vary by state and by city. Purchaser must
provide an unrestricted POTS line either near the IDU at one end of the link or
at one mutually-agreeable point in a network of connected links at no charge to
ART.
(2) If the rate is mileage sensitive, a "first mile" rate
element will be
<PAGE>
charged for each Circuit. Mileage is based on air miles between the two ODUs.
The "additional miles" rate element, if applicable, will be charged per Circuit
for each mile of the link or part of a mile after the first mile.
(B) Term Discounts. Term discounts for Circuits will be provided
based on the length of the commitment. The discounts shall be applicable to a
two year commitment and may increase for each year of commitment up to five
years. The amount of term discount may vary by state and by city. If Purchaser
terminates a Circuit other than in accordance with Section 17.1, then Purchaser
shall be liable for termination payments equal to the difference between the
charges that would have applied, calculating term discounts as of the actual
term elapsed, and the charges that Purchaser actually paid.
(C) Volume Discounts. Purchaser will be eligible for volume
purchase discounts based on projected "target" quotas. The projected sales
quotas and applicable discounts are set forth in Attachment C. The Level 1
discounts set forth therein will apply to the first and each succeeding Link in
the year in which they are installed for the term of the Agreement; provided
however, if the Level 1 "target" sales quotas are exceeded in any year, then the
discounts for the entire following year shall be based upon the sales level
actually achieved in such previous year. Volume purchase discounts shall only
apply to monthly recurring Circuit charges. Non-recurring charges shall not be
subject to discount. Non-recurring charges include, but are not limited to,
installation, de-installation, re-location, Site acquisition support, frequency
coordination, and other services. Volume discounts are calculated based upon the
anniversary of the Effective Date, not (unless coinciding) a calendar year. The
volume purchase discount level for the first year of this Agreement shall be as
set forth in Section 18.23.
(D) Special Pricing. Both parties may, at times, consider the
development of special pricing or customized pricing structures on a case-by-
case basis to meet the needs of the market or address a technical requirement.
Nothing in this Agreement precludes or limits the parties from developing
special pricing that may be used in lieu of ART Basic Charges. The terms of such
special pricing may conform to or vary from the terms of this Agreement, as may
be agreed to at the time of the special pricing by ART and PIN.
11.2 Timing of Payments
Except for recurring Site Use Charges and other similar costs which Purchaser
shall assume and be responsible for ART shall invoice Purchaser each month for
applicable recurring Site Use Charges and other similar costs which have not yet
been assumed by Purchaser, non-recurring Site Use Charges, Non-Standard
installation Costs, Spectrum Services charges and any other applicable charges
hereunder. All payments shall be due within thirty (30) days of the date of
receipt of the invoice. Payments shall be forwarded to the address stated on the
face of the invoice. ART shall have the option, without notice, to impose a late
payment charge of one and one-half percent (.5%) per month or the maximum amount
allowable by law on any past due charges, whichever is higher Purchaser agrees
to pay all costs, including reasonable attorney's fees, expended in collecting
past due charges. All invoices shall be conclusively presumed to be accurate
unless Purchaser gives Notice to ART to the contrary. Purchaser shall attempt
to give Notice to Art within thirty (30) days of the receipt of any accurate
invoice, except where the incorrectness could not have been discovered with due
diligence within that period.
<PAGE>
12. Outages
12.1 ART's Liability for Outages
All liability of ART for interruptions, errors, omissions, Outages or defects
occurring in the course of furnishing the Services and not caused by actions of
Purchaser or third parties shall be strictly limited to Outage credits against
sums paid or to be paid in an amount determined in accordance with Section 12.2
("Credit"). Credit for Outages shall be allowed only when Outages are caused by
or occur in the facilities or the Services provided by, operated or serviced by
ART. No Credit shall be allowed for Outages due to the failure of facilities,
services or equipment not provided, operated or serviced by ART or the acts or
omissions of Purchaser or third parties. No Credit shall be given for any
Outages caused by testing or emergency interruptions, or by routine maintenance
provided that ART has given Purchaser advance notice of such maintenance.
Purchaser must promptly notify ART of any Outages and include details of such
Outages, including, without limitation, time the Outage occurred, duration and
cause, if known.
12.2 Determination of Outage Credits
Outages will be deemed to start upon the earlier of either the time upon which
ART receives Notice from Purchaser that an Outage has commenced or the time that
ART becomes aware of the Outage, provided that, if ART is informed or becomes
aware of the Outage within two hours of its commencement, the Outage will be
deemed to have commenced at the first of the Severely Errored Seconds. The
Outage will be deemed to cease when a Circuit performance demonstrates ten (10)
consecutive seconds of service with no Severely Errored Seconds. Outage Credits
will be given for each day ("Credit Day") during which there is greater than
thirty (30) Severely Errored Seconds. Credits will be given against the monthly
recurring charges on the basis of a thirty day assumed month, at the rate of
each Credit Day being l/3Oth of the recurring charge. In any month in which
there are three successive Credit Days or five total Credit Days, Purchaser
shall be given credit for the entire month for that Circuit. Credits will only
be given on a Circuit by Circuit basis for a Circuit in which an Outage occurs.
13. Licensing & Regulatory Matters
13.1 License Authorization
ART shall be responsible for obtaining or for maintaining in good standing
appropriate authorizations from the Federal Communications Commission ("FCC")
(i) as a licensee in the millimetric wave frequencies at 38 Ghz, and (ii) to
construct and operate (or permit others to construct and operate) radio
equipment necessary to provide service to Purchaser under this Agreement;
provided that nothing in this Agreement shall be construed to require ART to
continue to prosecute any pending authorization applications file for any
additional authorizations after the Effective Data or seek modifications in the
technical or other parameters of its Authorizations.
13.2 Common Carrier Authorizations
Subject to Section 13.1, ART and Purchaser each shall be responsible for
obtaining common carrier or other appropriate authorizations from the FCC and
state utility commissions and, to the extent required, to file tariffs wherever
necessary to provide the services contemplated by each under this Agreement;
provided that each party shall have complete discretion as to the terms and
conditions of its Authorizations and tariffs except to the extent compelled to
do otherwise by this Agreement.
<PAGE>
13.3 Municipal and Local Government Regulatory Compliance
ART and Purchaser shall be responsible for complying with zoning, environmental,
and other rules and regulations imposed by municipal or other local governmental
agencies with respect to the Services and Equipment. Purchaser shall be
responsible for ensuring that the location of the Equipment is suitable for
ART's operations and that there are no impediments to full, continuous and safe
operation of ART's Equipment.
14. Intellectual Property Rights
14.1 Trademarks, Tradenames and Branding
The execution of this Agreement does not waive either party's common law or
statutory rights in its respective trademarks and tradenames. Each party shall
request prior approval for use of the other party's trademarks, tradenames,
logos, logotype, fictitious name and corporate name in any promotional,
marketing, reporting, materials, including but not limited to hard copy, video,
and electronic media, with a likelihood of public distribution. All Services
sold by Purchaser hereunder shall carry Purchaser's tradename, unless otherwise
directed in writing by Purchaser and agreed to in writing by ART.
14.2 Inventions, Patent Rights, Copyrights, Trade Secrets and Know-How
Each party shall retain all rights in patents, inventions, copyrights, trade
secrets, and technical know-how existing prior to the Effective Date or
independently developed after the Effective Date. Use, implementation, transfer
or other disclosure of either party's intellectual property in support of or in
connection with this Agreement, whether indirect or direct, shall not affect the
intellectual property rights of the originating party. Rights to mutually
developed intellectual property will be negotiated in good faith independent of
the terms and conditions of this Agreement.
14.3 Software and Firmware
Any software or firmware provided to Purchaser under this Agreement shall be
licensed to Purchaser to install and use on Equipment provided by ART under this
Agreement: Purchaser covenants and agrees to use such software or firmware
provided to it only for the purposes contemplated by this Agreement, and
Purchaser retains no right; implied or otherwise, to use, transfer such software
or firmware to any other equipment and covenants and agrees not to permit such
software or firmware to be copied or disclosed to third parties without the
express, prior written consent of ART. Upon the termination of this Agreement,
Purchaser agrees to return all copies of such software and firmware to ART
within thirty (30) days of such termination.
15. Limitation of Liabilities
ART MAKES NO WARRANTIES OF ANY KIND WITH RESPECT TO ANY OF THE EQUIPMENT,
SERVICES AND RELATED SUPPORT SERVICES, WHETHER EXPRESS OR IMPLIED, INCLUDING BUT
NOT LIMITED TO IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE OR CONFORMITY TO ANY REPRESENTATION OR DESCRIPTION. EXCEPT AS EXPRESSLY
PROVIDED HEREIN, ART SHALL NOT BE LIABLE FOR ANY CLAIMS OF ANY KIND, INCLUDING,
BUT NOT LIMITED TO, ACTIONS, DAMAGES, DEMANDS, JUDGMENTS, LOSSES, COSTS,
EXPENSES, LIABILITIES, AND LOSS OF MONIES ARISING OUT OF THIS
<PAGE>
AGREEMENT OR THE PERFORMANCE, 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 PURCHASER FOR
DAMAGES.
16. Confidentiality
In connection with this Agreement, each party may disclose or otherwise make
available certain data or information to the other party, which data or
information the disclosing party considers to be confidential and proprietary.
As used herein, "Confidential Information," means any non-public information,
including Vendor lists, business plans and proposals financial information,
marketing information, problem solving methods, implementation steps, know-how,
technology, trade secrets and drawings and renderings related to each party's
ongoing and proposed businesses, products and services which is being provided
or which has been provided to the receiving party by the disclosing party, or
which is obtained by the receiving party from its meetings and contacts with the
disclosing party, or any information derived by receiving party from information
so provided or obtained. Confidential Information includes all written or
electronically recorded materials identified 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 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 ion and of the terms of
this Agreement; to promptly return to the disclosing party (Or its designees),
upon the disclosing party's request, all Confidential Information and all copies
thereof and to delete from electronic memory such Confidential Information.
The parties agree to keep confidential the terms of this Agreement, including
but not limited to information relating to the prices charged and services
provided by ART. The parties further agree that any disclosures concerning this
Agreement or the terms and conditions shall require the mutual written consent
of ART and Purchaser, except as to such disclosures that may be required to
comply with securities laws, court order or similar order of an administrative
or regulatory agency, and in connection with relevant government agency
communications. Notwithstanding the foregoing, either party shall be entitled to
disclose this Agreement and the terms and conditions to its potential and actual
financing sources, and to its auditors, attorneys and other agents to the extent
necessary to enforce such party's right or perform its obligations pursuant to
this Agreement; provided that such financing sources, auditors, attorneys and
other agents keep such information confidential.
<PAGE>
17. Termination
17.1 Termination for Default
Either party may terminate this Agreement immediately on the occurrence of any
of the following events; (i) failure to perform a material obligation under this
Agreement, or a material breach of this Agreement, and failure to cure such
breach within thirty (30) days following delivery of Notice to such defaulting
party of the breach; provided that (a) if the cause of such breach is a Force
Majeure condition as defined in Section 18.10, the period for remedying such
breach shall be extended by the time measured by any delay from the Force
Majeure condition, except that, notwithstanding the foregoing, either party may
terminate if the Force Majeure condition extends beyond ninety (90) days
following Notice and (b) if the breach by its nature cannot be cured within
thirty (30) days, the period for remedying such breach shall be extended for
ninety (90) days from Notice provided that the breaching party has exercised its
best efforts to cure the breach within thirty (30) days of the Notice; or (ii)
if the other party becomes insolvent or makes an assignment for the benefit of
its creditors, or if a committee of creditors or other representative is
appointed to represent its business, or if a voluntary or involuntary petition
under any section of a bankruptcy or similar act shall be filed by or against
such other party and that party fails within ninety (90) days following the
appointment of such committee or representative or the filing of any such
involuntary petition to cause the discharge of such committee or representative
or the dismissal of such involuntary petition.
17.2 Effect of Termination
17.2.1 Accrued Rights. No termination of this Agreement shall affect
any accrued rights or obligations of any party, including, without limitation,
those specified under Section 5.5, as of the effective date of such termination
nor shall it affect any rights or obligations of any party which are intended by
the parties to survive any such termination.
17.2.2 Not Exclusive Remedy. The right of any party to terminate this
Agreement is not an exclusive remedy, and any party shall be entitled,
alternatively or cumulatively, to other remedies permitted under the terms of
this Agreement or by law.
17.2.3 Return of Materials. Upon termination or expiration of this
Agreement, each party promptly shall: (a) remove and return to the other party,
or obliterate, at the providing party's option, any material supplied by that
party and provide the other party with access during business hours, or other
mutually agreeable times, to collect and retrieve any and all equipment
installed pursuant to this Agreement; (b) notify and arrange for all
publishers and others who may identify, list or publish the other party's name
as a marketer, promoter or supporter of Services including, but not limited to,
publishers of telephone directories, yellow pages, and other business
directories, to discontinue these listings within six months of the termination
date of this Agreement or before the publication of a subsequent version of the
directory, whichever may occur earliest; (c) describe in detail all work in
process under this Agreement; and (d) certify' to the other party that the first
party acted in accordance with (a), (b) and (c) of this subsection.
17.2.4 Payments Due. Purchaser shall pay in full to ART any and all
amounts then due and owing within thirty (30) days of termination of this
Agreement.
<PAGE>
18. General Provisions
18.1 Assignment and Security Interest
18.1.1 Assignment by Purchaser. Purchaser shall not assign or transfer
any of its rights or obligations hereunder without the prior written consent of
ART, which consent shall not be withheld if the assignee or transferee (i)
expressly assumes in writing the terms and conditions of this Agreement and (ii)
satisfies ART's requirements concerning the assignee's/transferee's human
resources to satisfy' its obligations under this Agreement, financial condition,
creditworthiness and general business reputation. Any attempted assignment in
violation of the terms of this Section 18.1 will be void
18.1.2 Assignment by ART. ART may assign its rights and obligations
under this Agreement (i) without notice or consent, to any Affiliate that agrees
in writing to be bound by the terms hereof or (ii) to any other entity that
expressly assumes in writing the terms and conditions of this Agreement upon
prior consent from Purchaser, which consent shall not be unreasonably withheld.
Notwithstanding the foregoing, ART may assign its rights and obligations under
this Agreement without notice or consent in connection with any sale, transfer,
conveyance of assignment of all or substantially all of ART's assets or stock.
ART may, without notice or consent, transfer or assign its interest hereunder,
or grant a security interest in all or any part of this Agreement, the Equipment
and/or sums payable hereunder as collateral security for any loans or advances
made or to be made to ART by a financing or other institution ("Secured Party").
In such event, Purchaser upon receipt of notice of any such transfer, assignment
or grant and instructions from ART, shall pay its obligations hereunder or
amounts equal thereto to such assignee or the Secured Party in the manner
specified in said instructions. In the event that ART notifies Purchaser of its
intention to transfer, assign, or grant a security interest in all or any part
of this Agreement, the Equipment and/or sums payable hereunder, as aforesaid,
Purchaser agrees to execute such documents as may be reasonably necessary to
secure and/or complete such transfer, assignment or grant and to perfect the
assignee's or Secured Parties interest therein.
18.2 Benefit/Binding Nature
This Agreement shall inure to the benefit of and shall be binding upon the
parties and their successors and assigns.
18.3 No Third Party Beneficiaries
This Agreement is made solely for the benefit of the parties hereto and their
respective successors and assigns.
18.4 Authority and Acknowledgment
Each party represents and warrants that it has full power and authority to enter
into and perform under this Agreement and that the person signing this Agreement
has been properly authorized to do so. Each party further acknowledges that it
has had an adequate opportunity to consult counsel, that it has carefully read
each provision of this Agreement and understands this Agreement and that it
agrees to be bound by all of its terms, conditions and provisions.
18.5 Controlling Law
All questions concerning the validity and operation of this Agreement and the
performance of the
<PAGE>
obligations imposed on the parties under this Agreement shall be interpreted and
construed in accordance with the domestic laws of the New York State even if its
choice of law provisions or statutes are in conflict with this requirement.
18.6 Regulatory Approval
This Agreement is subject to any regulatory approvals which may be required and
may be terminated by either party if any governmental or regulatory agency
imposes rules or regulations materially affecting the relationship between the
parties, provided that the imposition of such rules or regulations shall not be
construed to relieve the party affected by such rules or regulations from any
duty under Sections 10.1, 10.2, 14 and 16 and from being considered in breach
for failure to carry out that obligation.
18.7 Dispute Resolution and Consent to Jurisdiction and Forum Selection
The parties agree that all disputes, claims or controversies between them
arising out of or relating to this Agreement shall be settled by arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association ("AAA"). Decisions of the arbitration panel shall be based upon New
York State law. The Site of such arbitration shall be in New York, New York, or
the closest other site agreed to by the parties. This choice of venue is
intended by the parties to be mandatory and permissive in nature and each party
waives any right it has to assert the doctrine of forum non-convenience or
similar doctrine or otherwise object to venue as stated herein. The arbitration
panel shall consist of three arbitrators, one arbitrator to be selected by each
party and the third arbitrator to be selected by the other two arbitrators. Any
decision rendered by the arbitration panel pursuant to this provision shall be
concurred in by a majority of the members of the panel. Judgment may be entered
by any court of competent jurisdiction. Arbitration pursuant to this section
shall be the exclusive means of resolving any dispute, claim or disagreement
arising hereunder. The prevailing party in the arbitration shall be entitled to
reimbursement from the other party for all costs of the arbitration including
but not limited to fees and expenses paid to the AAA and its own reasonable
attorneys fees and costs.
18.8 Relationship of the Parties; No Agency or Partnership
The relationship between the parties under this Agreement is solely that of
independent Purchaser and service provider. It is agreed and understood that
neither party is an agent, employee or legal representative of the other, and
has no authority to bind the other in any way. Nothing in this Agreement shall
be deemed to constitute ART and Purchaser as partners, joint venture partners,
or otherwise associated in or with the business of the other, and neither party
shall be liable for the debts, accounts, obligations or other liabilities of the
other party, its agents or employees. Neither party is authorized to incur debts
or other obligations of any kind on the part of or as agent for the other.
18.9 Publicity
Neither party shall make any press release or other public announcement of or
otherwise publicly disclose this Agreement, its contents, or the transactions
herein contemplated without the prior written approval of the other party unless
required by law, regulation, court order or rule of any securities exchange, in
which case the disclosing party shall promptly inform the other party of such
disclosure and shall permit it to intervene to object if such is permitted. The
foregoing shall not prohibit either party from disclosing this Agreement or its
contents to its attorneys, accountants or other advisors provided they are
informed of and bound by this Section 18.9 and Section 16.
<PAGE>
18.10 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, OBSTRUCTION OF LINE
OF SIGHT BETWEEN SITES, FIRE, FLOOD, EPIDEMIC, EARTHQUAKE, ACT OF GOD,
LIGHTNING, PUBLIC POWER FAILURE OR SURGE, EXPLOSION, STRIKE OR OTHER LABOR
DISPUTE, RIOT OR CIVIL DISTURBANCE, WAR OR ARMED CONFLICT, OR ANY OTHER SIMILAR
OCCURRENCE NOT WITHIN ITS CONTROL (AN "EVENT OF FORCE MAJEURE"), PROVIDED
HOWEVER, THAT UPON THE OCCURRENCE OF AN EVENT OF FORCE MAJEURE, THE DELAYED
PARTY SHALL SO NOTIFY THE OTHER PARTY PROMPTLY.
18.11 Insurance
Upon request, either party shall provide proof of insurance or self-insurance
during the term of the Agreement for Worker's Compensation insurance and
comprehensive general liability. The liability insurance policies shall insure
against loss or damage on account of claims for bodily injuries, death or
property damage suffered by a person or persons in connection with each party's
performance of this Agreement and shall be in the combined limit amount of Two
Million Dollars ($2,000,000) for each occurrence. Each party shall cause to have
the other party named as an additional insured on all insurance policies under
this Section 18.11.
18.12 Indemnification
18.12.1 Indemnification of ART by Purchaser. Purchaser shall indemnify
ART against, and hold ART harmless from all liabilities, demands, claims,
damages, losses, demands, costs, judgments and expenses (including reasonable
attorneys' fees) arising out of or in connection with this Agreement for
personal injury or damage to tangible property of ART caused by the acts or
omissions of Purchaser or Purchaser's employees, agents or invitees. In no event
shall ART's employees, agents or invitees be deemed to be employees, agents or
invitees of Purchaser.
18.12.2 Indemnification of Purchaser by ART. ART shall indemnify
Purchaser against, and hold Purchaser harmless from all liabilities, demands,
claims, damages, losses, demands, costs, judgments and expenses (including
reasonable attorneys' fees) arising out of or in connection with this Agreement
for personal injury or damage to tangible property of Purchaser caused by the
acts or omissions of ART or ART's employees, agents or invitees. In no event
shall Purchaser's employees, agents or invitees be deemed to be employees,
agents or invitees of ART
18.12.3 Duty to Notify and Assist. If it appears that the other party
may be obligated to provide indemnification as a result of such claim, the other
party, in its discretion, may settle or compromise the claim or retain counsel
of its own choosing and control and prosecute the defense against such claim. In
no event shall the party against whom the claim is asserted have the right to
pay, settle or compromise such claim without the prior written consent of the
party who may be obligated to indemnify under this Section 18.12.3, and the
parties hereto agree that they will not unreasonably withhold consent to such
payment, settlement or compromise. The party against whom the claim is asserted
shall provide the other party such assistance as may be reasonable in the
defense and disposition of such claim. If any claim arises to which the
provisions of this Section 18.12.3 may be applicable, the party against
<PAGE>
whom such claim is made shall notify the other party immediately upon learning
of the claim.
18.13 Notices
All notices, requests, demands and other communications under this Agreement
must be in writing and will be deemed duly given, unless otherwise expressly
indicated to the contrary in this Agreement, (i) when personally delivered, (ii)
upon receipt of a telephonic facsimile transmission with a confirmed telephonic
transmission answer back; provided that such notice, request, demand or other
communication is also sent by a nationally recognized overnight courier, (iii)
three (3) days after having been deposited in the United States mail, certified
or registered, return receipt requested, postage prepaid, or (iv) one (1)
business day after having been dispatched by a nationally recognized overnight
courier service, addressed to the parties or their permitted assigns at the
following addresses (or at such other address or number as is given in writing
by either party to the other) as follows:
If to ART: If to Purchaser:
Steven D. Comrie Steve Gelmis
President President
500-108th Ave. NE, Ste. 2600 50 W 17th Street
Bellevue, WA 98004 New York, NY
Tel: 206-688-8700 Tel: 212-479-1700
Fax: 206-688-0703 Fax: 212-479-1799
with copy to: with copy to
General Counsel's Office ___________________
500-108th Ave. NE, Ste. 2600 ___________________
Bellevue, WA 98004 ___________________
Attn.: Thomas M. Walker, Esq. ___________________
Tel: 206-688-8700 ___________________
Fax: 206-688-0703 ___________________
18.14 Period of Limitation
Any claim arising from or in connection with this Agreement must be brought to
the attention of the other party in writing within ninety (90) days of the event
alleged as giving rise to an action, and any action arising from or in
connection with this Agreement must be brought within six (6) months after the
cause of action arises under this Agreement.
18.15 Section Headings
All Section Headings used in this Agreement are for convenience or reference
only and are not intended to define or limit the scope of any provisions of this
Agreement
18.16 Survival
Sections 7, 14, 15, 16, 18.7 and 18.12 of this Agreement that by their nature
and context are intended to survive the execution, delivery, performance and
termination of this Agreement, shall so survive and shall continue in force and
effect until the applicable limitations period has expired.
<PAGE>
18.17 Waiver
No waiver of any right or remedy in respect to any occurrence or event on one
occasion shall be deemed a waiver of such right or remedy in respect of such an
occurrence or event on any other occasion.
18.18 Severability
If any portion of this Agreement is held to be invalid by a court of competent
jurisdiction that provision shall become ineffective and unenforceable. The
parties agree that such invalidity shall not affect the validity of the
remaining portions of this Agreement and they further agree to substitute for
the invalid provision a valid provision that most closely approximates the
effect and intent of the invalid provision.
18.19 Interpretation
The words and phrases used herein shall have the meaning generally understood in
the telecommunications industry and the microwave radio industry. This Agreement
shall be construed in accordance with its fair meaning and not for or against
either party because of the identity of the party drafting or proposing a
provision.
18.20 Offsets
The payments required under this Agreement shall be due on time and neither
party may offset any such payment because of any claim hereunder.
18.21 Counterparts
This Agreement may be executed in any number of counterparts, each of which
shall, when executed, be deemed to be an an original, but all of which together
shall constitute one and the same instrument. This Agreement may be executed and
deemed effective and binding if executed and exchanged by facsimile, provided
that promptly thereafter original signatures are exchanged.
18.22 Integration
This Agreement and all Attachments hereto constitute the entire agreement
between the parties hereto and supersedes all prior representations, agreements,
understandings and arrangements, oral or written, between the parties with
respect to the subject matter. This Agreement allocates the risks of loss among
the parties according to their express agreement, which allocation is reflected
in the charges and terms and conditions set forth herein. Except as otherwise
provided for herein, this Agreement may not be released, discharged, amended, or
modified in any way except by a writing that expressly refers to this Agreement
and is executed by all parties hereto.
18.23 First Year Discount Level
THE PARTIES HERETO AGREE THAT THE "TARGET" QUOTA DISCOUNT LEVEL FOR THE 1st YEAR
COMMENCING AS OF THE EFFECTIVE DATE AND TERMINATING THREE YEARS THEREAFTER SHALL
BE Level I.
<PAGE>
IN WITNESS WHEREOF, and intending to be legally bound, the undersigned parties
have duly executed this Agreement effective as of the date first above written
ADVANCED RADIO TELECOM, PUBLIC INTEREST NETWORK SERVICES, INC.
CORP., a Delaware Corporation a New York Corporation
By: /s/ [illegible] By: /s/ Steve Gelmis
------------------- -------------------
Name: /s/ [illegible] Name: /s/ Steve Gelmis
----------------- -----------------
Title: /s/ [illegible] Title: /s/ President
---------------- ----------------
10/21/96 10/22/96
<PAGE>
ATTACHMENTS
A. Definitions
B. Current Form of Service Order
C. Quota Discount Structure
D. DS-1 and DS-3 Retail Pricing
E. Standard Equipment and Materials
<PAGE>
ATTACHMENT A
Definitions
<PAGE>
ATTACHMENT A
As used in this Agreement, the following terms shall have the following
meanings.
"Affiliates" shall mean any corporation or other entity which, directly or
indirectly, owns or controls, either de facto or de jure, the first entity, or
is directly or indirectly owned or controlled, either de facto or de jure, by
the first entity.
"Agreement" shall mean each initialed page of this agreement, each of its
Attachments and each amendments if executed by each party.
"Availability of 99.995%" shall mean a Circuit that, for a defined period of
time, the number of Severely Errored Seconds is less than .005% of the total
seconds in the period.
"Bit Error Rate" shall mean the number of bits unintentionally changed in the
course of transmission relative to a specific quantity of bits transmitted,
usually expressed as a number referenced to a power of 10.
"CAP" shall mean a Competitive Access Provider and is synonymous with the term
CLEC.
"Circuit" shall mean any individual DS-0, DS-1, DS-3 or other data transmission
service provided in total or in part by ART.
"CLEC" shall mean a company that is not the traditional LEC and furnishes local
exchange service pursuant to state authorization using primarily fiber optic
cable
"Demarcation Point" shall mean the interface between the portion of a circuit
provided by ART and any portion of the circuit not provided by ART.
"DS-0" shall mean a Digital Signal Zero, which is a circuit with a bandwidth of
64 kilobits per second, which is the capacity necessary to carry a single voice
conversation.
"DS-1" shall mean Digital Signal One, which is a circuit with a bandwidth of
1.544 megabits per second, roughly 24 times that of DS-0. ADS-i is also known as
a T-i.
"DS-3" shall mean Digital Signal Three, which is a circuit with a bandwidth of
45 megabits per second. A D-3 is also known as a T-3.
"Force Majeure" shall mean the factors set forth in Section 18.10.
"IDU" shall mean the Indoor Unit, consisting of electronics that are part of
the ART-supplied 38 GHz radio transceiver, which is located typically within a
building on the Purchaser's Premises and is connected to the ODU by coaxial
cable, usually RG 8.
"Link" shall mean radio path between two transceivers A radio path may consist
of one or more Links.
"Minimal Acceptable Site Criteria" shall mean 110 volts commercial power is
available, the Site is reasonably accessible, baseband cable runs can be
installed using no more than half a man-day in labor,
<PAGE>
and easy rooftop installation for pipe-mounts or tripods.
"Notice" shall mean the notice provisions set forth in Section 18.13.
"ODU" shall mean the Outdoor Unit, consisting of an antenna, antenna mount or
mast and electronics that are part of the ART-supplied 38 GHz radio transceiver
and which is located typically on the roof of a building or tower, but which may
be mounted inside of a window and which is connected to the IDU by coaxial
cable, usually RG 8.
"Outage" shall mean service interruptions in excess often (JO) consecutive
Severely Errored Seconds.
"POTS" shall mean Plain Old Telephone Service, which is an acronym for basic
voice telephone service, including dial tone.
"Preliminary Site Surveys" shall mean the initial survey of the Site.
"PT" shall mean either standard clock Pacific Time or daylight Pacific clock
Time whichever is applicable.
"Service Area" shall mean the area within which ART provides Service.
"Service Order" shall mean the order for Service executed by Purchaser in the
form of Attachment B.
"Severely Errored Seconds" shall mean those seconds in which the Bit Error Rate
is greater than
"Site" shall mean location of the IDU, ODU, the connecting cabling and ancillary
equipment to be used for furnishing Service to the Purchaser. Each Link shall
consist of two or more Sites.
"Site Use Charge" shall mean any non-recurring or recurring finder's, access,
rental, permit, approval or other fee, cost or charge associated with a Site.
"Site Surveys" shall mean the surveys of potential Sites for acceptability for
the location of Equipment and furnishing of Service.
"Standard Installation" shall mean an installation where both radios are roof
mounted, no core boring penetrations are necessary, access is unrestricted
during normal business hours, and the installation can be accomplished in one
concurrent eight (8) hour period.
Tariff shall mean the rates and related terms and conditions of Service filed by
ART with federal and state regulatory commissions and in effect at the time of
Service.
"Writing" shall mean any recordation whether on paper or its equivalent or in a
decipherable electronic medium, except that where a writing must be signed under
the terms of this Agreement it shall be on paper.
"38 GHz" shall mean the millimetric wave frequencies between 37.0 GHz and 40.0
GHz allocated to point-to-point and other services by the FCC.
<PAGE>
MASTER SERVICE AGREEMENT
THIS MASTER SERVICE AGREEMENT (this "Agreement") is entered into as of the
28th day of October, 1996 (the "Effective Date") between ADVANCED RADIO TELECOM
CORP., a Delaware corporation with its principal place of business at 500-108th
Avenue, N.E., Suite 2600, Bellevue, Washington 98004 ("ART"), and COMLINK, INC.,
a Indiana Corporation ("Purchaser"), with its principal place of business at
4515 South High School Rd., Indianapolis, IN 46241-7650.
RECITALS:
WHEREAS, ART is a common carrier providing broadband wireless local
telecommunications services in certain geographic areas throughout the United
States, and its primary service offering uses 38 GHz milimetric facilities;
WHEREAS, Purchaser desires to use the services by ART; and
WHEREAS, ART and Purchaser desire to enter into an agreement providing for
the furnishing of broadband wireless services by ART.
NOW, THEREFORE, in consideration of the promises and the mutual
representations, warranties, covenants and agreements hereinafter set forth, ART
and Purchaser, intending to be legally bound, agree as follows:
1. Definitions
Definitions are contained in Attachment A.
2. Term of Agreement
The term of this Agreement shall begin on the Effective Date and shall continue
in effect for three (3) year(s) thereafter. The Agreement shall renew for
successive periods of one (1) year unless one of the parties gives written
notice not to renew no later than sixty (60) days prior to the scheduled date of
expiration of the initial period or any subsequent renewal period.
3. Scope of Agreement
ART shall provide to Purchaser domestic interstate and intrastate Services
pursuant to this Agreement and to ART's tariffs ("Tariffs") governing certain of
the Services on file with the Federal Communications Commission ("FCC") and
various state regulatory commissions. This Agreement incorporates the relevant
Tariff provisions as they may be amended from time to time in accordance with
law. The Tariffs shall control the furnishing of service under this Agreement in
the event of any conflict between this Agreement and the Tariffs but only to the
extent that the Tariffs are required to control by operation of law; provided
that ART agrees not to seek to amend its Tariffs if the effect is to invalidate
provisions of this Agreement except where this Agreement expressly permits such
amendment or with the consent of Purchaser. Capitalized terms not otherwise
defined in this Agreement shall have the meanings assigned to them in the
Tariffs.
<PAGE>
4. Services Provided by ART
4.1 38 GHz Transmission Services
ART shall provide transmission services over authorized 38 GHz facilities in
authorized areas, which services (the "Services") shall consist of the
Equipment, as hereinafter defined, and all aspects of path engineering, spectrum
usage, spectrum assignment, spectrum management, frequency coordination, and
network monitoring. Additional services may be added, from time to time, by
amendment to this Agreement in the form of the Service Order, the current
version of which is attached hereto as Attachment B. Payment by Purchaser for
the Services shall be in accordance with Section 10.
4.2 Equipment
4.2.1 Equipment Supplied
In connection with the provision of Services under this Agreement, it will be
necessary for ART to install certain equipment on the premises of Purchaser
and/or other locations controlled by third parties and related to the provision
of the Services (collectively "Sites"). Equipment to be installed on each Link
includes Outdoor Units ("ODU's"), Indoor Units ("IDU's"), antennas and antenna
mounts, monitoring equipment, power supplies, associated hardware and cabling,
and other materials necessary to complete the installation process (the
"Equipment").
4.2.2 Title and Interest
Purchaser acknowledges and agrees that the Equipment is, and at all times shall
remain, the property of ART, and that Purchaser shall have no right, title or
interest in or to the Equipment. The Equipment is, and at all times shall
remain, personal property notwithstanding that it may now be or hereafter become
in any manner embedded in, affixed or attached to real property or any building
thereon. Purchaser covenants and agrees to maintain the Equipment free and clear
of all liens, charges, security interests and encumbrances (except any placed
thereon by or with the consent of ART.
4.2.3 Risk of Loss
Purchaser shall take all appropriate measurers to secure the Equipment from
loss, destruction or damage, and prevent the possibility that the Equipment
might create environmental hazards, including but not limited to: physical
security, including, without limitation, barriers, limited and locked access,
posted warnings and training of those with access; electronic security including
without limit periodic audits of its telecommunications systems and passwords;
environmental controls; and suitable power supplies. Purchaser shall bear the
entire risk of loss, theft, destruction or damage of the Equipment or any
portion of it from any cause whatsoever (other than as caused by ART, its
employees and agents). The total or partial destruction of any Equipment or the
total or partial loss of use or possession by Purchaser (other than losses not
within their control) shall not release or relieve Purchaser from the duty to
pay the charges provided herein. Purchaser shall insure all Equipment located on
its respective premises and shall include ART and/or ART's creditors as a payee
under its comprehensive loss or similar policy, which shall be kept in force
continually for the term of this Agreement, including any renewal term. The
insurance requirements under this Section 4.2.3 shall be in addition to those of
Section 17.11.
<PAGE>
4.2.4 Equipment Alterations
Purchaser acknowledges that ART shall have complete discretion to furnish the
Services using any equipment it chooses, so long as the Services are designed to
satisfy the Performance Expectations. ART shall use reasonable efforts to notify
Purchaser of any changes in Equipment that appear likely to materially affect
Purchaser's equipment or services prior to making any such changes.
5. Service Ordering Procedures
5.1 Service Order Processing
In order to initiate the processing of an order for the Services, Purchaser
shall submit to ART a Request for Service ("RFS). ART shall examine the RFS for
completeness and may return the RFS to Purchaser for additional information.
Purchaser shall exercise reasonable efforts to complete and return the RFS to
ART within three (3) business days of receipt. ART may elect to conduct a
detailed site survey. ART shall exercise reasonable efforts to complete the
detailed site survey within ten (10) business days of receipt of the completed
RFS. Purchaser and ART shall execute a Service Order, which shall become an
integral part of this Agreement. The Service Order shall contain, among other
things, pricing for the Circuit, including all installation charges. Following
execution of the Service Order, ART shall deliver to Purchaser a Firm Order
Confirmation which shall contain, among other things, a mutually agreeable
target installation schedule ("Target Service Date"). The Target Service Date
may be amended from time to time by amendments to the Firm Order Confirmation.
5.2 Service Order Modification or Cancellation
Purchaser may modify or cancel its Service Order at any time (i) prior to the
installation of the Equipment without charge except that Purchaser shall be
responsible for all direct charges incurred to the date of cancellation that are
payable to third parties and (ii) after installation of Equipment but prior to
the Service Commencement Date, as hereinafter defined, provided that Purchaser
shall be responsible for all charges incurred by ART and for all direct charges
incurred to the date of cancellation that are payable to third parties. The
charges set forth in this Section 5.2 are subject to Section 5.3. Cancellations
and modifications by Purchaser will not be accepted unless confirmed in writing
by Purchaser and signed by an officer of Purchaser.
5.3 Timing
ART shall exercise reasonable efforts to install the Equipment and commence
delivering the Services by the Target Service Date but only in situations where
arrangements to obtain access to and use of the Site have been completed prior
to execution of the Service Order. Purchaser expressly acknowledges that time is
not of the essence with regard to this Section 5 and that it shall not be
considered a breach of this Agreement if ART fails to commence Service by the
Target Service Date or fails to expeditiously process an order; provided that,
notwithstanding the provisions of Section 5.2, Purchaser may cancel a Service
Order without incurring any charges, following notice to ART and ten (10)
additional days to complete installation, if ART fails to commence the Services
by the Target Service Date.
5.4 Commencement of Service
The Services shall commence and Purchaser shall be responsible for charges
therefore on the date that (i) ART installs the Equipment, performs any testing
ART deems necessary, and
<PAGE>
notifies Purchaser that ART is ready to commence the Services, or (ii) a later
date mutually agreed upon in writing by ART and Purchaser (the "Service
Commencement Date").
5.5 Minimum Period of Service
The minimum period for the Services to be provided to Purchaser shall be one
year from the Service Commencement Date for each Link ordered by Purchaser and
installed by ART. Purchaser shall have the option to request ART to redeploy the
Link to any geographic area chosen by Purchaser for which ART holds a license as
a 38 GHz provider, provided: (i) Purchaser pays all costs to ART, including,
without limitation, a reasonable allocation of overhead, as determined by ART,
and all charges to third parties associated with deinstallation and
reinstallation of the Equipment at the new Link location ("Redeployment"); (ii)
the location chosen is completely suitable, in ART's sole discretion, for the
provision of the Services under the terms of this Agreement; and (iii)
Redeployment at the location chosen does not interfere, as determined by ART,
with existing or planned services by ART.
6. Related Support Services Provided by ART
ART shall supply certain services set forth in this Section 6 in support of the
Services (the "Related Support Services"). There shall be no additional charges
for the Related Support Services and they shall be included in the charges for
the Services as set forth in Section 10, except for installation fees set forth
in Section 6.3.
6.1. Site Surveys
Detailed Site Surveys (the "Detailed Site Surveys") shall be conducted by ART's
Field Services Department or ART's subcontractors in the event that ART, in its
sole discretion, determines that such surveys are necessary. The primary purpose
of the Detailed Site Survey is to obtain engineering information to validate the
feasibility of using 38 GHz millimetric wave circuits and the suitability of the
Site and to identify in advance the optimal installation methods to be used and
the obstruction obstacles to be overcome.
6.2. Frequency Coordination
It is necessary to "coordinate" the frequencies to be used on the paths to be
activated with other potentially interfering frequencies used either by ART or
by third parties, and engineer the path layouts, in order to optimize path
performance. ART's Engineering Department shall be responsible for all frequency
coordination, spectrum management, path engineering and transmission engineering
in connection with the Services. In addition, ART shall maintain, or cause to be
maintained, databases and systems to support coordination with other 38 GHz
service providers. Frequency coordination information and engineering databases
shall remain the property of ART and shall be considered confidential
information by Purchaser and subject to the provisions of Section 15.1.
6.3. Installation
ART's Field Services Department or subcontractors, at ART's sole option, shall
perform all installations in connection with this Agreement. The charges for
installation as of the date of this Agreement are set forth in Section 10.
<PAGE>
6.4. Maintenance and Restoral
6.4.1 Outage Restoral
Except as agreed otherwise, ART shall set goals of, and exercise reasonable
efforts to achieve: dispatch of field service personnel within thirty (30)
minutes and Service restoral within four (4) hours or less; provided that
Purchaser expressly acknowledges that it is not possible for the Services to be
restored within four (4) hours in all instances and that it shall not be a
breach of this Agreement for Outages to exceed four (4) hours by any amount,
except that, as its sole remedy, Purchaser shall be entitled to a credit of one
(1) month's Service for all Outages within a given month for a given Circuit if
the total Outages exceed four (4) hours. The Outage credit under this Section
6.4.1. is in lieu of and not cumulative with the Outage credits pursuant to
Section 11.2. If ART determines that the cause for an Outage is not within the
control of ART or if ART responds to an Outage report by Purchaser and no such
Outage exists, then Purchaser shall not be entitled to an Outage Credit and
shall be responsible for all costs and charges for the response to the service
call at ART's then-current standard hourly rates.
6.4.2 Scheduled Maintenance
ART or its subcontractors, at ART's sole option, shall perform routine
maintenance and adds, moves, and changes at reasonable times to be chosen by
ART, for which ART shall give advance notice and shall exercise reasonable
efforts to restore the Services as quickly as possible in accordance with ART's
standard escalation procedures.
6.4.3 Limitations on ART's Obligation to Maintain and Restore
ART's obligations under Section 6.4.1. exclude each of the following, as
determined solely by ART: (i) Service that would be unsafe or impractical
because of alterations to the Equipment not approved by ART, or its connection
to equipment or devices not furnished or approved by ART or which connection
would for any reason render Service impossible; (ii) Service using Equipment
located in an unsafe or hazardous environment; (iii) Service that cannot be
restored because of elements external to the Equipment and not under the control
of ART, including, but not limited to, adverse environmental conditions or
inadequate power that are not within the manufacturer's or ART's specifications;
(iv) Service resulting from any accident, neglect, alterations, improper use or
misuse of the Equipment by personnel not under the control of ART; (v) Service
in connection with relocation not approved by ART of any of the Equipment; and
(vi) the inability of ART to access the premises of Purchaser in order to
perform installation, maintenance and repair.
6.5 Network Operations Management
The ART Network Operations Center ("NOC") will provide the following services:
(i) Link alarm monitoring; (ii) Link performance monitoring; (iii) Link
performance reporting; (iv) Link performance data; (v) remote Link diagnosis;
(vi) Link restoral; and (vii) coordination and testing to the extent feasible
with operations centers operated by third. The NOC operates on a seven (7) day
per week, twenty-four (24) hour basis to monitor all ART Circuits. The NOC
provides continuous supervisory control and data acquisition ("SCADA"). The NOC
services to be provided under this Agreement are subject to change from time to
time without Notice and in the sole discretion of ART. Any failure to provide
the NOC services set forth in this Section 6.5 shall not be deemed a breach of
this Agreement.
<PAGE>
6.6 Customer User Service
ART's Customer Service Department shall be available to assist Purchaser with
Service complaints and other problems without charge, provided that the requests
for assistance are reasonable. ART shall maintain a "help" desk twenty-four (24)
hours per day, seven (7) days per week. ART shall exercise reasonable efforts to
resolve all Purchaser service issues within twenty-four (24) hours. ART shall
establish a system of its own choosing for either reporting all inquiries to
Purchaser or enabling Purchaser to access an ART database, such as an electronic
bulletin board, to retrieve information concerning such inquiries and their
resolution.
6.7 Post Termination Support Services
In the event of a termination of this Agreement by either party, ART shall, if
requested by Purchaser, continue to provide on-going service, support,
maintenance and restoral in accordance with the terms of this Agreement for all
Circuit's in service pursuant to this Agreement and prior to its termination,
provided that Purchaser continues to pay the applicable charges.
7. Use of Subcontractors
Purchaser expressly agrees that ART may use any subcontractor that it chooses
without prior approval for installation, maintenance, restoral and other field
service functions, and for any other ART obligations under this Agreement;
provided that the use of subcontractors shall not relieve ART of any of its
obligations hereunder.
8. Performance
8.1 Performance Expectations
Based upon its standard engineering evaluations, Link analysis, expected weather
patterns for the Link to be installed, manufacturer's Equipment specifications,
anticipated site environment and ART's experience, ART expects to provide the
Services, with a Bit Error Rate of better than 10^(-13) over each Circuit in
unfaded conditions, and Service over each Circuit that has an Availability of
better than 99.995% in the aggregate during each month. Purchaser expressly
acknowledges that: (i) this Section sets forth the parties' expectations only;
(ii) ART is not obligated to meet the Performance Expectations of this Section
8.1.; (iii) that such failure shall not constitute a breach of this Agreement,
provided that ART is exercising reasonable efforts to meet these expectations;
and (iv) Purchaser is entitled only to Outage credits as specified in Section 11
for any failure by ART to meet the Performance Expectations of this Section 8.1.
8.2 Limitations on ART's Duty to Perform
ART's obligation to meet the Performance Expectations in Section 8.1. shall not
require ART to provide Service or Related Support Services: (i) that would be
unsafe or impractical because of alterations to the Equipment not approved by
ART, or its connection to equipment or devices not furnished or approved by ART
or which connection would for any reason render Service impracticable; (ii) that
uses Equipment located in an unsafe or hazardous environment; (iii) that cannot
be restored because of elements external to the Equipment and not under the
control of ART, including, but not limited to, adverse environmental conditions
or inadequate power that are not within the manufacturer's or ART's
specifications; (iv) to restore service that was out due to any accident,
neglect, alterations, improper use or misuse of the Equipment by personnel not
under the control of ART; and (v) in connection with a relocation not approved
by ART of any of the Equipment. In addition, ART shall not be liable for ART's
failure to meet the Performance
<PAGE>
Expectations in Section 8.1 in the event that such failure is due to: (a)
Purchaser's failure to follow procedures for use of the Services and Equipment
as provided by ART or the manufacturer from time to time; (b) repair,
modification, maintenance or relocation of the Equipment by personnel other than
ART personnel or ART-designated representatives, without the express written
consent of ART; (c) abuse, misuse, or negligence by Purchaser or third parties
affecting the Services and/or Equipment so as to impede ART's ability to provide
the Services; or (d) the inability of ART to access the premises of Purchaser in
order to perform installation, maintenance and repair due to limitations or
restrictions imposed by Purchaser due to any violations of Section 9.4 of this
Agreement.
9. Purchaser's Responsibilities
9.1 Payment
ART shall invoice Purchaser for the applicable charges and taxes each month. All
payments shall be due within thirty (30) days of the date stated on the face of
the invoice. Payments shall be forwarded to the address stated on the face of
the invoice. ART shall have the option, without notice, to impose a late payment
charge of one and one-half percent (1.5%) per month or the maximum amount
allowable by law on any past due charges, whichever is higher. Purchaser agrees
to pay all costs, including reasonable attorney's fees, expended in collecting
past due charges. All invoices shall be conclusively presumed to be accurate
unless Purchaser notifies ART to the contrary within thirty (30) days of the
receipt of the invoice, except where the incorrectness could not have been
discovered with due diligence within that period.
9.2 Conduct
Purchaser shall not represent that it is an agent or otherwise a representative
of ART, without ART's prior written permission. Purchaser and ART each pledge to
each other that they will conduct their business affairs at all times with the
highest standards of honesty, fair dealing and ethics.
9.3 Site Acquisition and Access
Purchaser shall be responsible for all costs and charges, recurring and
non-recurring, associated with acquisition of Sites for the installation of the
Equipment, use of the Sites by ART for the provision of the Services and access
to those Sites in connection therewith including but not limited to (i)
acquiring the necessary zoning, permits and other municipal approvals for
installation of the Equipment and use of the Site, (ii) paying any taxes or fees
associated therewith and (iii) obtaining access during the normal business day
for installation and routine maintenance and twenty-four (24) hour emergency
access to the Site to maintain and restore the Services. At Purchaser's request,
ART shall provide its Site Acquisition Services at ART's standard rates plus
reasonable travel expenses from, at ART's sole option, ART's headquarters or the
nearest staging area.
9.4 Access to Purchaser's Premises and Service-Related Equipment
During the term of this Agreement, Purchaser shall arrange for ART or its
representatives to have access to Purchaser's premises or other premises in
control of third parties where the Equipment is located ("Equipment Premises")
for the purpose of installation, testing, preventive maintenance and Service
restoral. Where the nature of the access permits advance notice, ART shall give
reasonable advance notice and shall schedule the visits during business hours.
Where the nature of the does not permit an advance scheduling, including but not
limited to, emergency or restoral situations, Purchaser shall arrange for ART or
its representatives to have immediate
<PAGE>
access to the Equipment Premises and all Equipment located therein, and fully
assist and cooperate with ART in remedying the emergency or Outage. In addition,
Purchaser shall (i) exercise reasonable efforts to protect the Site and
equipment from damage or loss; and to prevent any obstructions that would
interfere with line of sight along the Link and (ii) promptly report any
developments including but not limited to activities or planned activities,
including without limitation new antenna masts or buildings or other structures,
that obstruct or might obstruct line of sight along the Link.
9.5 Purchaser Point of Contact
Purchaser shall appoint a person, who shall be the primary point of contact for
ART, which person shall be reachable during the business day, from 8am until
6pm, using the time standard in effect at Purchaser address first listed above
and an emergency point of contact, if different. The initial contact person for
the business day by name and title shall be Scott DeCoursey, Gen. Mgr. The
initial contact person for other than business hours by name and title shall be
Mike Calderhead, Director Radio Field Services.
10. Wholesale Pricing
ART will from time to time establish its Standard Price List for Service at
retail rates ("Retail Pricing"). Purchaser shall pay ART at the Retail Pricing
in effect at the time of the Services minus a wholesale discount based on volume
purchasing and the length of the term ("Wholesale Pricing"). ART shall have the
option to increase or decrease its Retail Pricing at any time and with regard to
any Service Area; provided that ART provides notice of such change to Purchaser,
in writing and thirty (30) days before the effective date of the price change.
The Retail Pricing in effect at the time of the execution of this Agreement are
set forth in Attachment D and shall remain in effect for the purposes of this
Agreement until further notice. The subsections immediately following set forth
the structure of the Retail Rates
10.1 Installation Charges
Installation is charged on a per DS-l or DS-3 Circuit basis, with differing
charges depending on the capacity and type of the Equipment installed and the
environment of the Site. The rate may be decreased, at ART's sole option, for
additional DS-1s for the same Purchaser between the same two points. The charge
for installation may vary by state and by city. Purchaser shall pay a
non-recurring charge, as set forth on Attachment D, for a Standard Installation,
which charge represents a portion of the actual cost of installation. Such
Standard Installation charge assumes reasonable access to the Equipment
locations and that the locations meet ART's minimal acceptable site criteria.
The Equipment that is part of a Standard Installation is listed in Attachment E.
If the installation takes longer than one concurrent eight hour period or the
construction required is non-standard, as determined by ART, due to
circumstances beyond the reasonable control of ART, Purchaser shall be
responsible for all additional costs at ART's standard hourly rates and the cost
of the additional materials, including ART's overhead.
10.2 Service Charges
10.2.1 Basic Charges.
(i) Circuits which will range in capacity from DS-ls to DS-3s shall
be charged on a monthly basis. In some cases the monthly rate may not be mileage
sensitive and a single recurring rate element may apply. For rates that are
mileage sensitive the recurring charge shall include two rate elements, the
"first mile" and "additional miles". The rates may be decreased
<PAGE>
for additional Circuits between the same two points of a Link for the same
Purchaser. The charge for Circuits may vary by state and by city. The Purchaser
must provide an unrestricted POTS line either near the IDU at one end of the
link or at one mutually-agreeable point in a network of connected links at no
charge to ART.
(ii)If the rate is mileage sensitive, a "first mile" rate element
will be charged for each Circuit. Mileage is based on air miles between the two
ODUs. The "additional miles" rate element, if applicable, will be charged per
Circuit for each mile of the link or part of a mile after the first mile.
10.2.2 Term Discounts
Term discounts for Circuits will be provided based on the length of the
commitment. The discounts shall be applicable to a two year commitment and may
increase for each year of commitment up to five years. The amount of term
discount may vary by state and by city. If Purchaser terminates this Agreement
without cause, as determined by ART, then Purchaser shall be liable for
termination payments equal to the difference between the charges that would have
applied, calculating term discounts as of the actual term elapsed, and the
charges that Purchaser actually paid.
10.2.3 Volume Discounts
Purchaser will be eligible for volume purchase discounts based on projected
quotas. The projected sales quotas and applicable discounts are set forth in
Attachment C. The discounts set forth therein will apply to the first and each
succeeding Link in the year in which they are installed; provided, however, if
the sales quotas are not met in any year, then the discounts for the entire
following year shall be based upon the sales level actually achieved in such
previous year. Volume purchase discounts shall only apply to monthly recurring
charges. Non-recurring charges shall not be subject to discount. Non-recurring
charges include, but are not limited to, installation, de-installation,
re-location, Site acquisition support, frequency coordination, and other
services. Volume discounts are calculated based upon the anniversary of the
Effective Date, not (unless coinciding) a calendar year. The volume purchase
discount level for the first year of this Agreement shall be as set forth in
Section 17.23.
11. Outages
11.1 ART's Liability for Outages
All liability of ART for interruptions, errors, omissions, Outages or defects
occurring in the course of furnishing the Services and not caused by actions of
Purchaser or third parties shall be strictly limited to Outage credits against
sums paid or to be paid in an amount determined in accordance with Section 11.2
("Credit"). Credit for Outages shall be allowed only when Outages are caused by
or occur in the facilities or the Services provided by, operated or serviced by
ART. No Credit shall be allowed for Outages due to the failure of facilities,
services or equipment not provided, operated or serviced by ART or the acts or
omissions of Purchaser or third parties. No Credit shall be given for any
Outages caused by testing or emergency interruptions, or by routine maintenance
provided that ART has given Purchaser advance notice of such maintenance.
Purchaser must promptly notify ART of any Outages and include details of such
Outages on forms to be supplied by ART.
<PAGE>
11.2 Determination of Outage Credits
Outages will be deemed to start upon the earlier of either the time upon which
ART receives Notice from Purchaser that an Outage has commenced or the time that
ART becomes aware of the Outage; provided that, if ART is informed or becomes
aware of the Outage within two hours of its commencement, the Outage will be
deemed to have commenced at the first of the Severely Errored Seconds. The
Outage will be deemed to cease when the Service is restored to the performance
standards set forth in this Section 11.2. Outage Credits will be given for each
day ("Credit Day") during which there is greater than thirty (30) Severely
Errored Seconds. Credits will be given against the monthly recurring charges on
the basis of a thirty day assumed month, at the rate of each Credit Day being
1/30th of the recurring charge. In any month in which there are three successive
Credit Days or five total Credit Days, Purchaser shall be given credit for the
entire month for that Circuit. Credits will only given on a Circuit by Circuit
basis.
12. Licensing & Regulatory Matters
12.1 License Authorization
ART shall be responsible for obtaining or for maintaining in good standing
appropriate authorizations from the Federal Communications Commission ("FCC")
(i) as a licensee in the millimetric wave frequencies at 38 GHz, and (ii) to
construct and operate (or permit others to construct and operate) radio
equipment necessary to provide service to Purchaser under this Agreement;
provided that nothing in this Agreement shall be construed to require ART to
continue to prosecute any pending authorization applications or file for any
additional authorizations after the Effective Date.
12.2 Common Carrier Authorizations
Subject to Section 12.1, ART and Purchaser each shall be responsible for
obtaining common carrier or other appropriate authorizations from the FCC and
state utility commissions and, to the extent required, to file tariffs wherever
necessary to provide the services contemplated by each under this Agreement;
provided that each party shall have complete discretion as to the terms and
conditions of its tariffs and geographies except to the extent compelled to do
otherwise by this Agreement.
12.3 Municipal and Local Government Regulatory Compliance
Purchaser shall be responsible for complying with zoning, environmental, and
other rules and regulations imposed by municipal or other local governmental
agencies with respect to the Services and Equipment. ART shall be responsible
for ensuring the Equipment operates within any applicable environmental and
safety standards; provided however, that Purchaser shall be responsible for
ensuring that the location of the Equipment is suitable for ART's operations and
that there are no impediments to full, continuous and safe operation of ART's
Equipment.
13. Intellectual Property Rights
13.1 Trademarks, Tradenames and Branding
The execution of this Agreement does not waive either party's common law or
statutory rights in its respective trademarks and tradenames. Each party shall
request prior approval for use of the other party's trademarks, tradenames,
logos, logotype and corporate name in any promotional, marketing, reporting,
materials, including but not limited to hard copy, video, and electronic
<PAGE>
media, with a likelihood of public distribution. Such approval shall not be
unreasonab]y withheld. All Services sold by Purchaser hereunder shall carry
Purchaser is tradename, unless otherwise directed in writing by Purchaser and
agreed to in writing by ART.
13.2 Inventions, Patent Rights, Copyrights, Trade Secrets and Know-How
Each party shall retain all rights in patents, inventions, copyrights, trade
secrets, and technical know- how existing prior to the Effective Date or
independently developed after the Effective Date. Use, implementation, transfer
or other disclosure of either party's intellectual property in support of or in
connection with this Agreement, whether indirect or direct, shall not affect the
intellectual property rights of the originating party. Rights to mutually
developed intellectual property will be negotiated in good faith independent of
the terms and conditions of this Agreement.
13.3 Software and Firmware
Any software or firmware provided to Purchaser under this Agreement shall be
licensed to Purchaser to install and use on Equipment provided by ART under this
Agreement. Purchaser covenants and agrees to use such software or firmware
provided to it only for the purposes contemplated by this Agreement, and
Purchaser retains no right, implied or otherwise, to transfer such software or
firmware to any other equipment and covenants and agrees not to permit such
software or firmware to be copied or disclosed to third parties without the
express, prior written consent of ART. Upon the termination of this Agreement,
Purchaser agrees to return all copies of such software and firmware to ART
within thirty (30) days of such termination.
14. Limitation of Liabilities
ART MAKES NO WARRANTIES OF ANY KIND WITH RESPECT TO ANY OF THE EQUIPMENT,
SERVICES AND RELATED SUPPORT SERVICES, WHETHER EXPRESS OR IMPLIED, INCLUDING BUT
NOT LIMITED TO IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE OR CONFORMITY TO ANY REPRESENTATION OR DESCRIPTION. 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, 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 PURCHASER FOR DAMAGES.
15. Confidentiality
In connection with this Agreement, each party may disclose or otherwise make
available certain data or information to the other party, which data or
information the disclosing party considers to be confidential and proprietary.
As used herein, "Confidential Information," means any non-public information,
including Vendor lists, business plans and proposals, financial information,
marketing information, problem solving methods, implementation steps, know-how,
technology, trade secrets and drawings and renderings related to each party's
ongoing and proposed businesses, products and services which is being provided
or which has been provided
<PAGE>
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 to the receiving party by the disclosing party; information that was
developed independently by the receiving party's employees, which employees have
had no access to the Confidential Information; (d) information that is disclosed
to the receiving party by a third party under no obligation of confidentiality
to the disclosing party and without violation of this Agreement by the receiving
party; or (e) is authorized by the disclosing party in writing for disclosure or
release by the receiving party.
The parties agree: (a) to treat and keep as confidential and proprietary all
Confidential Information disclosed by the other party; (b) to advise each
employee to whom any Confidential Information is to be made available of the
confidential nature of such Confidential Information and of the terms of this
Agreement; to promptly return to the disclosing party (or its designees), upon
the disclosing party's request, all Confidential Information and all copies
thereof and to delete from electronic memory such Confidential Information.
The parties agree to keep confidential the terms of this Agreement, including
but not limited to information relating to the prices charged and services
provided by ART. The parties further agree that any disclosures concerning this
Agreement or the terms and conditions shall require the mutual written consent
of ART and Purchaser, except as to such disclosures that may be required to
comply with securities laws, court order or similar order of an administrative
or regulatory agency, and in connection with relevant government agency
communications. Notwithstanding the foregoing, either party shall be entitled to
disclose this Agreement and the terms and conditions to its financing sources,
and to its auditors, attorneys and other agents to the extent necessary to
enforce such party's right or perform its obligations pursuant to this
Agreement; provided that such financing sources, auditors, attorneys and other
agents keep such information confidential.
16. Termination
16.1 Termination for Default
Either party may terminate this Agreement immediately on the occurrence of any
of the following events: (i) failure to perform a material obligation under this
Agreement, or a material breach of this Agreement, and failure to cure such
breach within thirty (30) days following delivery to such defaulting party of a
written notice of the breach ("Notice"); provided that (a) if the cause of such
breach is a Force Majeure condition as defined in Section 17.10, the period for
remedying such breach shall be extended by the time measured by any delay from
the Force Majeure condition, except that, notwithstanding the foregoing, either
party may terminate if the Force Majeure condition extends beyond ninety (90)
days following Notice and (b) if the breach by its nature cannot be cured within
thirty (30) days, the period for remedying such breach shall
<PAGE>
be extended for ninety (90) days from Notice provided that the breaching party
has exercised its best efforts to cure the breach from the Notice; or (ii) if
the other party becomes insolvent or makes an assignment for the benefit of its
creditors, or if a committee of creditors or other representative is appointed
to represent its business, or if a voluntary or involuntary petition under any
section of a bankruptcy or similar act shall be filed by or against such other
party and that party fails within ninety (90) days following the appointment of
such committee or representative or the filing of any such involuntary petition
to cause the discharge of such committee or representative or the dismissal of
such involuntary petition.
16.2. Effect of Termination.
16.2.1 Accrued Rights
No termination of this Agreement shall effect any accrued rights or obligations
of any party as of the effective date of such termination nor shall it affect
any rights or obligations of any party which are intended by the parties to
survive any such termination.
16.2.2 Not Exclusive Remedy
The right of any party to terminate this Agreement is not an exclusive remedy,
and any party shall be entitled, alternatively or cumulatively, to other
remedies permitted under the terms of this Agreement or by law.
16.2.3 Return of Materials
Upon termination or expiration of this Agreement, each party promptly shall: (a)
remove and return to the other party, or obliterate, at the providing party's
option, any material supplied by that party and provide the other party with
access upon business hours, or other mutually agreeable times, to collect and
retrieve any and all equipment installed pursuant to this Agreement; (b) notify
and arrange for all publishers and others who may identify, list or publish the
other party's name as a marketer, promoter or supporter of Services including,
but not limited to, publishers of telephone directories, yellow pages, and other
business directories, to discontinue these listings within six months of the
termination date of this Agreement or before the publication of a subsequent
version of the directory, whichever may occur earliest; and (c) certify to the
other party and describe in detail all work in process under this Agreement.
16.2.4 Payments Due
Purchaser shall pay in full to ART any and all amounts then due and owing within
thirty (30) days of termination of this Agreement, except that the payments due
under Section 10.2.2 shall be due according to the terms of that Section.
17. General Provisions
17.1 Assignment and Security Interest
17.1.1 Assignment by Purchaser
Purchaser shall not assign or transfer any of its rights or obligations
hereunder without the prior written consent of ART, which consent shall not be
withheld if the assignee or transferee (i) expressly assumes in writing the
terms and conditions of this Agreement and (ii) satisfies ART's requirements
concerning the assignee's/transferee's human resources to satisfy its
obligations under this Agreement, financial condition, creditworthiness and
general business reputation.
<PAGE>
Any attempted assignment in violation of the terms of this Section 17.1 will be
void.
17.1.2 Assignment by ART
ART may assign this Agreement (i) without notice or consent, to any Affiliate
that agrees in writing to be bound by the terms hereof or (ii) to any other
entity that expressly assumes in writing the terms and conditions of this
Agreement upon prior consent from Purchaser, which consent shall not be
unreasonably withheld. Nothwithstanding the foregoing, ART may assign its rights
and obligations under this Agreement without notice or consent in connection
with any sale, transfer, conveyance or assignment of all or substantially all of
ART's assets or stock. ART may, without notice or consent, transfer or assign
its interest hereunder, or grant a security interest in all or any part of this
Agreement, the Equipment and/or sums payable hereunder as collateral security
for any loans or advances made or to be made to ART by a financing or other
institution ("Secured Party"). In such event, Purchaser upon receipt of notice
of any such transfer, assignment or grant and instructions from ART, shall pay
its obligations hereunder or amounts equal thereto to such assignee or the
Secured Party in the manner specified in said instructions. In the event that
ART notifies Purchaser of its intention to transfer, assign, or grant a security
interest in all or any part of this Agreement, the Equipment and/or sums payable
hereunder, as aforesaid, Purchaser agrees to execute such documents as may be
reasonably necessary to secure and/or complete such transfer, assignment or
grant and to perfect the assignee's or Secured Parties interest therein.
17.2 Benefit/Binding Nature
This Agreement shall inure to the benefit of and shall be binding upon the
parties and their successors and assigns.
17.3 No Third Party Beneficiaries
This Agreement is made solely for the benefit of the parties hereto and their
respective successors and assigns.
17.4 Authority and Acknowledgment
Each party represents and warrants that it has full power and authority to enter
into and perform under this Agreement and that the person signing this Agreement
has been properly authorized to do so. Each party further acknowledges that it
has had an adequate opportunity to consult counsel, that it has carefully read
each provision of this Agreement and understands this Agreement and that it
agrees to be bound by all of its terms, conditions and provisions.
17.5 Controlling Law
All questions concerning the validity and operation of this Agreement and the
performance of the obligations imposed on the parties under this Agreement shall
be interpreted and construed in accordance with the domestic laws of the State
of Washington even if its choice of law provisions or statutes are in conflict
with this requirement.
17.6 Regulatory Approval
This Agreement is subject to any regulatory approvals which may be required and
may be terminated by either party if any governmental or regulatory agency
imposes rules or regulations materially affecting the relationship between the
parties, provided that the imposition of such rules or regulations shall not be
construed to relieve the party affected by such rules or
<PAGE>
regulations from any duty under Sections 9.1, 9.2, 13 and 15 and from being
considered in breach for failure to carry out that obligation.
17.7 Dispute Resolution and Consent to Jurisdiction and Forum Selection
The parties agree that all disputes, claims or controversies between them
arising out of or relating to this Agreement shall be settled by arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association ("AAA"). Decisions of the arbitration panel shall be based upon
Washington State law. The Site of such arbitration shall be in the King County,
Washington, or the closest other site of agreed to by the AAA. This choice of
venue is intended by the parties to be mandatory and permissive in nature and
each party waives any right it have to assert the doctrine of forum
non-convenience or similar doctrine or otherwise object to venue as stated
herein. The arbitration panel shall consist of three arbitrators, one arbitrator
to be selected by each party and the third arbitrator to be selected by the
other two arbitrators. Any decision rendered by the arbitration panel pursuant
to this provision shall be concurred in by a majority of the members of the
panel. Judgment may be entered by any court of competent jurisdiction.
Arbitration pursuant to this section shall be the exclusive means of resolving
any dispute, claim or disagreement arising hereunder. The prevailing party in
the arbitration shall be entitled to reimbursement from the other party for all
costs of the arbitration including but not limited to fees and expenses paid to
the AAA and its own reasonable attorneys' fees.
17.8 Relationship of the Parties; No Agency or Partnership
The relationship between the parties under this Agreement is solely that of
independent Purchaser and service provider. It is agreed and understood that
neither party is an agent, employee or legal representative of the other, and
has no authority to bind the other in any way. Nothing in this Agreement shall
be deemed to constitute ART and Purchaser as partners, joint venture partners,
or otherwise associated in or with the business of the other, and neither party
shall be liable for the debts, accounts, obligations or other liabilities of the
other party, its agents or employees. Neither party is authorized to incur debts
or other obligations of any kind on the part of or as agent for the other.
17.9 Publicity
Neither party shall make any press release or other public announcement of or
otherwise disclose this Agreement, its contents, or the transactions herein
contemplated without the prior written approval of the other party unless
required by law, regulation, court order or rule of any securities exchange, in
which case the disclosing party shall promptly inform the other party of such
disclosure and shall permit it to intervene to object if such is permitted. The
foregoing shall not prohibit either party from disclosing this Agreement or its
contents to its attorneys, accountants or other advisors provided they are
informed of and bound by this Section 17.9 and Section 15.
Nothing contained in this Agreement shall preclude disclosures necessary to
comply with accounting and Securities and Exchange Commission ("SEC") disclosure
obligations and other disclosure obligations imposed by law, and in that regard
ART may file with the SEC reports, including, without limitation, SEC
registration statements or amendments thereto under the Securities Act of 1933,
as amended, which include a prospectus containing any information required to be
included therein and thereafter distribute said prospectus. Purchaser will
cooperate with ART and provide such information and documents as may be required
in connection with any such filings.
<PAGE>
17.10 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, OBSTRUCTION OF LINE
OF SIGHT BETWEEN SITES, FIRE, FLOOD, EPIDEMIC, EARTHQUAKE, ACT OF GOD,
LIGHTNING, PUBLIC POWER FAILURE OR SURGE, EXPLOSION, STRIKE OR OTHER LABOR
DISPUTE, RIOT OR CIVIL DISTURBANCE, WAR OR ARMED CONFLICT, OR ANY OTHER SIMILAR
OCCURRENCE NOT WITHIN ITS CONTROL.
17.11 Insurance
Both parties shall provide proof of insurance or self-insurance during the term
of the Agreement for Worker's Compensation insurance and comprehensive general
liability. The liability insurance policies shall insure against loss or damage
on account of claims for bodily injuries, death or property damage suffered by a
person or persons in connection with each party's performance of this Agreement
and shall be in the combined limit amount of Two Million Dollars ($2,000,000)
for each occurrence. Each party shall cause to have the other party named as an
additional insured on all required and necessary insurance policies.
Certificates of Insurance shall be issued to each party by the other party
within sixty (60) days following the Execution Date.
17.12 Indemnification
17.12.1 Indemnification of ART by Purchaser
Purchaser shall indemnify ART against, and hold ART harmless from all
liabilities, demands, claims, damages, losses, demands, costs, judgments and
expenses (including reasonable attorneys' fees) arising out of or in connection
with this Agreement for personal injury or damage to tangible property of ART
caused by the acts or omissions of Purchaser or Purchaser's employees, agents or
invitees. In no event shall ART's employees, agents or invitees be deemed to be
employees, agents or invitees of Purchaser.
17.12.2 Indemnification of Purchaser by ART
ART shall indemnify Purchaser against, and hold Purchaser harmless from all
liabilities, demands, claims, damages, losses, demands, costs, judgments and
expenses (including reasonable attorneys' fees) arising out of or in connection
with this Agreement for personal injury or damage to tangible property of
Purchaser caused by the acts or omissions of ART or ART's employees, agents or
invitees. In no event shall Purchaser's employees, agents or invitees be deemed
to be employees, agents or invitees of ART.
17.12.3 Duty to Notify and Assist
If it appears that the other party may be obligated to provide indemnification
as a result of such claim, the other party, in its discretion, may settle or
compromise the claim or retain counsel of its own choosing and control and
prosecute the defense against such claim. In no event shall the party against
whom the claim is asserted have the right to pay, settle or compromise such
claim without the prior written consent of the party who may be obligated to
indemnify under this Section 17.12.3, and the parties hereto agree that they
will not unreasonably withhold consent to such payment, settlement or
compromise. The party against whom the claim is asserted shall
<PAGE>
provide the other party such assistance as may be reasonable in the defense and
disposition of such claim. If any claim arises to which the provisions of this
Section 17.12.3 may be applicable, the party against whom such claim is made
shall notify the other party immediately upon learning of the claim.
17.13 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 firrnished 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:
Steven D. Comrie
President
500-108th Ave NE, Ste. 2600
Bellevue, WA 98004
206-688-8700
Fax 206-688-0703
with copy to:
General Counsel's Office
500 108th Avenue N.E., Suite 2600
Bellevue, Washington 98004
Attn: Thomas M. Walker, Esq.
Phone: 206-688-8700
Fax: 206-688-0703
If to Purchaser
Andrew Thimlar
ComLink, Incorporated
4515 South High School Road
Indianapolis, IN 46241
17.14 Period of Limitations
Any claim arising from or in connection with this Agreement must be brought to
the attention of the other party in writing within sixty (60) days of the event
alleged as giving rise to an action, and any action arising from or in
connection with this Agreement must be brought within six (6) months after the
cause of action arises under this Agreement.
<PAGE>
17.15 Section Headings
All Section Headings used in this Agreement are for convenience or reference
only and are not intended to define or limit the scope of any provisions of this
Agreement
17.16 Survival
Sections 6.8, 13, 14, 15, 17.7 and 17.12 of this Agreement that by their nature
and context are intended to survive the execution, delivery, performance and
termination of this Agreement, shall so survive and shall continue in force and
effect until the applicable limitations period has expired.
17.17 Waiver
No waiver of any right or remedy in respect to any occurrence or event on one
occasion shall be deemed a waiver of such right or remedy in respect of such an
occurrence or event on any other occasion.
17.18 Severability
If any portion of this Agreement is held to be invalid by a court of competent
jurisdiction, that provision shall become ineffective and unenforceable. The
parties agree that such invalidity shall not affect the validity of the
remaining portions of this Agreement and they further agree to substitute for
the invalid provision a valid provision that most closely approximates the
effect and intent of the invalid provision.
17.19 Interpretation
The words and phrases used herein shall have the meaning generally understood in
the telecommunications industry and the microwave radio industry. This Agreement
shall be construed in accordance with its fair meaning and nor for or against
either party because of the identity of the party drafting or proposing a
provision.
17.20 No Offsets
The payments required under this Agreement shall be due on time and neither
party may offset any such payment because of any claim hereunder.
17.21 Counterparts
This Agreement may be executed in any number of counterparts, each of which
shall, when executed, be deemed to be an original, but all of which together
shall constitute one and the same instrument. This Agreement may be executed and
deemed effective and binding if executed and exchanged by facsimile, provided
that promptly thereafter original signatures are exchanged.
17.22 Integration
This Agreement and all Attachments hereto constitute the entire agreement
between the parties hereto and supersedes all prior representations, agreements,
understandings and arrangements, oral or written, between the parties with
respect to the subject matter. This Agreement allocates the risks of loss among
the parties according to their express agreement, which allocation is reflected
in the charges and terms and conditions set forth herein. Except as otherwise
provided for herein, this Agreement may not be released, discharged, amended, or
modified in any way except by a writing that expressly refers to this Agreement
and is executed by all parties hereto.
<PAGE>
17.23 First Year Discount Level
THE PARTIES HERETO AGREE THAT THE QUOTA DISCOUNT LEVEL FOR THE YEAR COMMENCING
AS OF THE EFFECTIVE DATE AND TERMINATING ONE YEAR THEREAFTER SHALL BE LEVEL O.
IN WITNESS WHEREOF, and intending to be legally bound, the undersigned parties
have duly executed this Agreement effective as of the date first above written.
ADVANCED RADIO TELECOM, COMLINK, INC.
CORP., a Delaware Corporation a Indiana Corporation
By: /s/ Steven D. Comrie By: /s/ Andrew Thimlar
------------------------- ------------------------
Name: Steven D. Comrie Name: Andrew Thimlar
----------------------- ----------------------
Title: President & COO Title: President
---------------------- ---------------------
<PAGE>
ATTACHMENTS
A. Definitions
B. Current Form of Service Order
C. Quota Discount Structure
D. DS-l and DS-3 Pricing
E. Standard Installation Equipment and Materials
<PAGE>
ATTACHMENT A
As used in this Agreement, the following terms shall have the following
meanings:
"Affiliates" shall mean any corporation or other entity which, directly or
indirectly, owns or controls, either de facto or de jure, the first entity, or
is directly or indirectly owned or controlled, either de facto or de jure, by
the first entity.
"Agreement" shall mean each initialed page of this agreement, each of its
Attachments and each amendments if executed by each party.
"Availability of 99.995%" shall mean a Circuit that, for a defined period of
time, the number of Severely Errored Seconds is less than .005% of the total
seconds in the period.
"Bit Error Rate" shall mean the number of bits unintentionally changed in the
course of transmission relative to a specific quantity of bits transmitted;
usually expressed as a number referenced to a power of 10.
"CAP" shall mean a Competitive Access Provider and is synonymous with the term
CLEC.
"Circuit" shall mean any individual DS-0, DS-1, DS-3 or other data transmission
service provided in total or in part by ART.
"CLEC" shall mean a company that is not the traditional LEC and furnishes local
exchange service pursuant to state authorization using primarily fiber optic
cable.
"Demarcation Point" shall mean the interface between the portion of a circuit
provided by ART and any portion of the circuit not provided by ART.
"DS-0" shall mean a Digital Signal Zero, which is a circuit with a bandwidth of
64 kilobits per second, which is the capacity necessary to carry a single voice
conversation.
"DS-1" shall mean Digital Signal One, which is a circuit with a bandwidth of
1.544 megabits per second, roughly 24 times that of DS-0. A DS-1 is also known
as a T-1.
"DS-3" shall mean Digital Signal Three, which is a circuit with a bandwidth of
45 megabits per second. A D-3 is also known as a T-3.
"Equipment" shall mean the equipment installed by ART and set forth in the Link
Inventory List.
"Force Majeure" shall mean the factors set forth in Section 17.10 that are
considered to excuse performance.
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"IDU" shall mean the Indoor Unit, consisting of electronics that are part of the
ART-supplied 38 GHz radio transceiver, which is located typically within a
building on the Purchaser's Premises and is connected to the ODU by coaxial
cable, usually RG 8.
"Link" shall mean radio path between two transceivers. A radio path may consist
of one or more Links.
"Notice" shall mean the notice provisions set forth in Section 17.13.
"ODU" shall mean the Outdoor Unit, consisting of an antenna, antenna mount or
mast and electronics that are part of the ART-supplied 38 GHz radio transceiver
and which is located typically on the roof of a building or tower, but which may
be mounted inside of a window and which is connected to the IDU by coaxial
cable, usually RG 8.
"Outage" shall mean service interruptions in excess often (10) consecutive
Severely Errored Seconds.
"POTS" shall mean Plain Old Telephone Service, which is an [ ]acronym for the
simple, no vertical services, dial tone service, [ ] which is the basic voice
telephone service.
"Preliminary Site Surveys" shall mean the initial survey of the Site.
"PT" shall mean either standard clock Pacific Time or daylight Pacific clock
Time whichever is applicable.
"Retail Rates" shall mean the rates charged to Purchasers by ART.
"Purchaser" shall mean the carrier to whom ART sells Service at Wholesale rates
and which in turn provides Service to the Purchaser.
"Services" shall mean the services provided by ART pursuant to the terms of this
Agreement. "Service Area" shall mean the area within which ART provides Service.
"Service Order" shall mean the order for Service executed by Purchaser in the
form of Attachment C.
"Severely Errored Seconds" shall mean those seconds in which the Bit Error Rate
is greater than 10^(-3).
"Site" shall mean location of the IDU, ODU, the connecting cabling and ancillary
equipment to be used for furnishing Service to the Purchaser. Each Link shall
consist of two or more Sites.
"Site Surveys" shall mean the surveys of potential Sites for acceptability for
the location of Equipment and furnishing of Service.
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"Standard Installation" shall mean an installation where both radios are roof
mounted, no core boring penetrations are necessary, access is unrestricted
during normal business hours, and the installation can be accomplished in one
concurrent eight (8) hour period.
"Tariff" shall mean the rates and related terms and conditions of Service filed
by ART with federal and state regulatory commissions and in effect at the time
of Service.
"Wholesale Rates" shall mean the rates charged to Purchaser by ART.
"Writing" shall mean any recordation whether on paper or its equivalent or in an
decipherable electronic medium, except that where a writing must be signed under
the terms of this Agreement it shall be on paper.
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SERVICES AGREEMENT
THIS SERVICES AGREEMENT (this "Agreement"), entered into as of the 1st day of
November, 1996, by and between MICROWAVE PARTNERS, a general partnership
operating under the laws of the District of Columbia ("Licensee"), with
principal offices at 4214 50th Street N.W., Washington, D.C. and ADVANCED RADIO
TECHNOLOGIES CORPORATION, a Delaware corporation ("ART"), with principal offices
at Suite 2600, 500 108th Avenue N.E., Bellevue, Washington 98004.
WHEREAS, Licensee has been granted authorizations for certain 38GHZ microwave
systems by the Federal Communications Commission ("FCC");
WHEREAS, ART desires to obtain access to and use of the Authorizations, as
hereinafter defined, for its 38GHZ business, and
WHERAS, Licensee desires to grant ART, in accordance with the FCC's rules and
policies, use of the Authorizations immediately and a right of first refusal to
purchase the Authorizations.
NOW THEREFORE, the parties, intending to be legally bound, in consideration of
the promises and respective covenants, representations and warranties contained
herein, hereby agree as follows:
ARTICLE I
DEFINITIONS
"Affiliate" shall mean as to any Person (as hereinafter defined) any other
Person whom the first Person controls, is controlled by or is under direct
common control with the other Person.
"Authorizations" shall mean the authorizations for 38GHZ systems granted to
Licensee by the FCC listed in Exhibit 1 to this Agreement.
"Business Days" shall mean the days of the week from Monday through Friday,
excluding federal holidays and holidays for ART and/or Licensee employees.
"Business Hours" shall mean the hours between 9AM and 5PM, Pacific Time, during
Business Days.
"Circuit" shall mean a transmission path between two Customer connection points
consisting of any individual DS-1 or DS-3 provided in total or in part by ART.
"Construction Requirements" shall mean those build-out requirements imposed from
time to time by the FCC to avoid a forfeiture of the license.
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"Customer" shall mean the Person who receives Services from ART and is
responsible for payment to ART for Services.
"Datarate" shall mean the transmission rate of a Circuit, phrased in mbps or the
surrogate for certain datarates, such as DS-1 or DS-3.
"DS-1" shall mean a Circuit having a Datarate of 1,544 mbps.
"DS-3" shall mean a Circuit having a Datarate of 45 mbps.
"Equipment" shall mean the ODU, antenna, mounting apparatus, the IDU, connecting
cables and all ancillary equipment such as modems and multiplexing equipment
that is part of the Service and is on ART's side of the interface with the
Customer.
"Final Order" shall mean an order of a government agency or court that is no
longer subject to reconsideration or to review or appeal by a higher authority.
"IDU" shall mean the indoor unit, usually located on the Customer's premises and
consisting of the electronics that are not housed within the ODU, capable of
receiving from or transmitting to the ODU over connecting cable.
"Licensed Operation" shall mean that ART has installed and placed into Operation
sufficient facilities in an authorized service area to satisfy the then-existing
construction requirements.
"Licenses" shall mean those Authorizations currently or hereafter granted to
Licensee in the 38GHz band.
"Notice" shall mean notices as set forth in Section 15.11 hereof.
"ODU" shall mean the outdoor unit, usually located on a roof or tower, but
sometimes on the inside of a window, and consisting typically of an antenna,
mounting devices, such as a pole or tripod, and associated electronics, capable
of receiving from or transmitting to the IDU over connecting cable.
"Operation" shall mean, in the case of a Circuit, that the Circuit is
transporting data from one point of connection to a Customer to another point of
connection to a Customer.
"Parties" shall mean ART and Licensee.
"Person" shall mean an individual or business entity, including without
limitation a corporation, partnership, limited liability company, association or
joint venture.
"Service" shall mean each of the services permitted by FCC rules and policies to
be provided from time to time using the Authorizations.
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"Service Area" shall mean the geographic area covered by the Authorization.
"Site" shall mean the location of the radio transreceiver, antenna and
associated equipment that is one end of a Circuit.
"Term" shall have the meaning ascribed it in Article IX.
"Use" shall mean the right to use transmission capacity to provide Services
under the Authorizations in accordance with the rules and policies of the FCC
and the terms and conditions stated therein, including without limitation the
right to provide Services throughout the Service Areas to Affiliates or third
parties to the maximum extent permitted by the FCC and to engage in all
activities ancillary, complementary or supportive of the authorized Services,
including without limitation sales and marketing.
"38 GHZ" shall mean the millimetric wave frequencies between 37.0 GHZ and 40.0
GHZ allocated to point-to-point and other services by the FCC.
ARTICLE II
LIMITED EXCLUSIVE RIGHT OF USE
2.1 Subject to Section 2.7 below, Licensee hereby grants ART the exclusive right
as against third parties to Use the Authorizations for broadband millimetric
wave services during the Term of this Agreement; provided that Licensee shall at
all times retain its right to use the Authorizations to provide Services to its
customers.
2.2 ART's right of Use shall at all times be subordinate to the control of
Licensee to the maximum extent required by the FCC. The licensee shall have the
right to order ART to cease transmission over any Circuit if (i) there has been
a material breach of this Agreement by ART, ART has received Notice of the
breach from Licensee and ART has failed to cure the breach within the time
frames set forth for cure in Section 10.1 hereof ("Cure Time"); (ii) a Final
Order has been issued by the FCC or another governmental agency or court with
jurisdiction that requires Licensee or ART to cease transmission, or (iii)
Licensee receives a Final Order, for any reason whatsoever, to cease operation
of a Circuit or Circuits sold by ART or its agents, or (iv) as deemed reasonably
necessary by Licensee to retain control over the Authorizations as required by
FCC rules and policies. ART shall be required to cease transmission on the date
that the Cure Time elapses, that the Final Order becomes effective, or
immediately under subsection (iv) of this Section 2.2.
2.3 Subject to Section 2.1, Licensee shall not grant to any third party any
rights of any kind that would interfere with or lessen the value of ART's
exclusive right to Use.
2.4 ART shall maintain a database of all Circuits operated by it ("Use
Database"). The Use Database shall contain (i) the name, address and contact
numbers (voice, facsimile and e-mail) of the Customer; (ii) latitude and
longitude and location address of each Site, including such information for the
IDU and the ODU if they are not co-located; (iii) the Datarate of the Circuit;
(iv)
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the date that the Circuit became Operational; (v) the date that the Circuit was
taken out of operation, if applicable; and (vi) technical information concerning
the transmissions facilities sufficient to enable Licensee to file such reports
that are required to be filed by the FCC and by any other governmental agency,
including without limitation the brand, model number and ART identification
number of the radio transceiver at each Site. Licensee shall have the right to
obtain additional information from ART concerning the operation of the Circuits
to the extent that such additional information is readily available and the
request is otherwise reasonable including without limitation considerations of
scope, expense and time for responding. Licensee shall have an absolute right to
obtain any additional information from ART necessary to comply with the FCC's
rules and policies, or a direct request for information from the FCC.
2.5 ART shall deliver to Licensee in a mutually-agreeable format within thirty
(30) days of the end of each month a certified report listing: (i) the Circuits
installed in that month; (ii) the Circuits that were operational in all or part
of the month; (iii) the amount of payment due to Licensee for each such Circuit
for that month ("Monthly Use Report").
2.6 Licensee shall take all appropriate measures to secure the Equipment on
premises it owns or controls from loss, destruction or damage, including but not
limited to: physical security, including without limit barriers, limited and
locked access, posted warnings and training of those with access; electronic
security including without limit periodic audits of its telecommunications
systems and passwords; environmental controls; and suitable power supplies.
2.7 The Parties agree that they will take all appropriate steps to ensure that
each Party and their customers are protected from unacceptable interference in
accordance with the FCC's interference standards and that the first Party to
install a Circuit along a path shall be protected against interference from all
subsequent Circuits.
ARTICLE III
LIMITED CONSTRUCTION SERVICES
3.1 ART shall subject to Licensee's review, supervision, oversight and control,
place Circuits and/or 38 GHZ facilities ("Facilities") into Licensed Operation
in each of the Service Areas in a timely manner in accordance with (i) the FCC's
Construction Requirements at the time of such installation and (ii) criteria to
be mutually-agreed upon from time to time by the Parties based upon good faith
negotiations. ART shall place Facilities in Licensed Operation so as to satisfy
the FCC's Construction Requirements at the time of such installation, subject
only to any acts of Licensee that prevent ART from meeting such Construction
Requirements and to Section 15.10 hereof. ART acknowledges that the intent of
this Section 3.1 is to ensure that there is substantially no risk that any of
Licensee's Authorizations will be forfeited due to failure to satisfy the FCC's
Construction Requirements.
3.2 In consideration for ART's exclusive right to use and right of first refusal
under this Agreement, ART shall perform the limited construction services under
Section 3.1 at ART's
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reasonable cost and expense. Licensee shall not be responsible for the cost of
construction of any Facilities to provide Service to an ART Customer.
3.3 ART will notify Licensee prior to commencement of construction of any
Facilities, which notice will include the name and address of the Customer, the
location of the Sites, the proposed Datarate of the Circuits, and such other
information as Licensee may reasonably request. ART will keep Licensee informed
as to the progress of construction of such Facilities.
3.4 Each Party (the "Sending Party") will notify the other in writing at least
five (5) business days in advance of any pending Circuit activation to ensure
interference free communications between the customers of the Parties. The
notification will include location of the Circuit link, frequency channel plan,
and the type of radio equipment installed. The other Party will supply the
Sending Party with written notification of acceptance within two (2) business
days of the pending installation, or shall supply the Sending Party with written
notification of a potential interference to the pending installation. If the
other Party does not provide written notification of acceptance within two (2)
business days of the pending installation, the Sending Party will deem its
notice as accepted. If a Party timely notifies the other Party of a potential
interference to a proposed installation, the Parties shall negotiate in good
faith to resolve such potential interference.
ARTICLE IV
PAYMENT
4.1 ART shall pay to Licensee as full consideration for each Circuit that it
places into Operation pursuant to Article II a monthly fee of: (i) the greater
of $25 or fifteen percent (15%) of gross monthly recurring revenues for
transmitting the equivalent of DS-1 on a Circuit, provided that in no event
shall such fees exceed $200; and (ii) the greater of $200 or fifteen percent
(15%) of gross monthly recurring revenues for each Circuit using a DS-3 radio.
The fees under subsection (i) of this Section 4.1 are not dependent upon the
capacity of the Equipment (for example, if only the equivalent of two DS-1's are
transmitted using a 4DS-1 radio, the monthly fee would be $50). Repeaters used
to extend a Circuit beyond the normal transmission range and traversing more
than one link will be treated as a single Circuit.
4.2 Payment shall be due within thirty (30) days after the end of each month
("Payment Due Date").
ARTICLE V
RIGHT OF FIRST REFUSAL
5.1 Subject to FCC approval, in the event that Licensee, at any time during the
term of this Agreement, shall receive from any third party (i) a bona fide offer
to purchase or transfer the Authorizations at a price and upon terms acceptable
to Licensee, or (ii) an acceptance of any offer made by Licensee to sell or
transfer the Authorizations (which offer must be subject to the rights of ART
contained in this Article V) Licensee shall give written notice thereof to ART.
For purposes of this Article V, the term "transfer" shall include the sale,
transfer, assignment or other disposition
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(whether by merger or operation of law or otherwise) of any Authorization. Such
notice shall set forth the name and address of the proposed buyer and the
material terms upon which the sale or transfer is to be made and the
consideration to be paid by the proposed buyer. A copy of the offer, if in
writing, or a written summary of the terms of the offer if the offer is not in
writing, shall be attached to the notice. ART shall have the right and option
(but not any obligation) to purchase the Authorizations, at its election, upon
the equivalent price and material terms and conditions as set forth in the
offer, but giving Licensee written notice of its election to purchase within
thirty (30) days following receipt of such notice. If ART elects to acquire the
Authorizations, Licensee shall sell, and ART shall buy, the Authorizations for
the equivalent price and material terms and conditions contained in the notice.
ART shall have one hundred eighty (180) days from receipt by Licensee of ART's
notice of its election to purchase the Authorizations to consummate the purchase
transaction, unless a longer period is provided in the terms and conditions of
the offer received by Licensee or due to FCC regulations, policy or approval.
The parties shall execute such documents as may be reasonably necessary to
effectuate the sale or transfer.
5.2 If ART elects not to exercise its rights under this Article V, either in
writing or by its failure to make the election within the thirty (30) day
period, Licensee shall have the right to sell or otherwise transfer the
Authorizations to the proposed buyer identified in the notice given ART on the
same terms and conditions disclosed to ART. If any of the material terms or
conditions of the offer are changed prior to the sale or transfer to the
proposed buyer, Licensee shall repeat this right of first refusal procedure,
setting forth all the modified terms.
5.3 Notwithstanding the provisions of this Article V or any other provisions
contained in this Agreement, the provisions of Section 5.1 shall not apply to
any assignment or transfer of control of any Licensee to Astrolink
Communications, Inc., a Delaware corporation.
ARTICLE VI
ART'S REPRESENTATIONS AND WARRANTIES
In addition to any express agreements of ART contained herein, the following
constitute representations and warranties of ART to Licensee:
6.1 ART has all requisite corporate power and authority, and as of the date
hereof will have taken all requisite corporate action to execute, deliver and
perform this Agreement.
6.2 This Agreement has been duly authorized, executed and delivered by ART and
constitutes the legal, valid and binding obligations of ART, enforceable in
accordance with its terms.
6.3 All requisite action (corporate, trust, partnership or otherwise) has been
taken by ART in connection with the entering into this Agreement, the
instruments referenced herein, and the consummation of the transactions
contemplated hereby. No consent of any partner, shareholder, creditor, investor,
judicial or administrative body, governmental authority or other party is,
required.
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6.4 ART has sufficient staff and sufficient industry experience to perform its
obligations hereunder, including without limitation prior frequency coordination
and radio frequency engineering to ensure operations that are free of
unacceptable interference, in accordance with FCC rules and industry standards,
on a timely basis.
6.5 Neither the execution and delivery of this Agreement, nor the incurrence of
the obligations set forth herein, nor the consummation of the transactions
herein contemplated, nor compliance with the terms of this Agreement conflict
with or result in the material breach of any terms, conditions or provisions of,
constitute a default under, any agreements or instruments to which ART is a
party.
6.6 No representation, warranty or statement of ART in this Agreement or in any
document, certificate or exhibit furnished to Licensee pursuant to Licensee
pursuant hereto contains any untrue statement of a material fact or omits to
state a material fact necessary to make the statements or facts contained
therein not misleading.
ARTICLE VII
LICENSEE'S REPRESENTATIONS AND WARRANTIES
In addition to any express agreements of Licensee contained herein, the
following constitute representations and warranties of Licensee to ART:
7.1 Licensee has all requisite partnership power and authority, and as of the
date hereof has taken all requisite partnership action, to execute, deliver and
perform this Agreement.
7.2 This Agreement has been duly authorized, executed and delivered by Licensee
and constitutes the legal, valid and binding obligations of Licensee,
enforceable in accordance with its terms.
7.3 All requisite partnership action has been taken by Licensee in connection
with the entering into this Agreement, the instruments referenced herein, and
the consummation of the transactions contemplated hereby by Licensee. No consent
of any partner, shareholder, creditor, investor, judicial or administrative
body, governmental authority or other party is, required on the part of
Licensee.
7.4 The information contained in Exhibit 1 is true and correct to the best
knowledge of Licensee. Licensee has full right and authority to hold the
Authorizations and is fully qualified under FCC rules and policies to hold the
Authorizations.
7.5 The Authorizations (i) were duly issued by the FCC to Licensee, or if to a
predecessor of Licensee authority for transfer to Licensee has been duly given,
(ii) are in full force and effect, and (iii) contain no conditions other than
those set forth in the Authorizations or contained in the rules and policies of
the FCC and the Communication Act of 1934, as amended.
7.6 Licensee has filed, on a timely basis, all reports required by the FCC and
all material reports required by other governmental agencies. There are no
pending or, to Licensee's knowledge,
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threatened actions, orders or claims that would invalidate, void, cancel or
rescind the Authorizations or that would materially interfere with or restrict
ART's Use of the Authorizations.
7.7 Licensee has no knowledge of any reason or of any action or inaction or any
threat of action that would interfere with ART's exercise of each of its rights
under this Agreement to Use of the Authorizations.
7.8 Licensee has not granted any other rights or entered into any other
agreements that would interfere with or restrict ART's Use of the
Authorizations, including, without limitation, any other contracts for the right
to use or sale of the Authorizations, rights of first refusal or options to
purchase the Authorizations.
7.9 Neither the execution and delivery of this Agreement, nor the incurrence of
the obligations set forth herein, nor the consummation of the transactions
herein contemplated, nor compliance with the terms of this Agreement conflict
with or result in the material breach of any terms, conditions or provisions of,
or constitute a default under, any agreements or instruments to which Licensee
is a party.
7.10 To the best of Licensee's knowledge, there are no violations of
governmental regulations relating to the Authorizations. To the best of
Licensee's knowledge, ART's use of the Authorizations will not violate any
Governmental Regulations.
7.11 Licensee shall promptly notify ART of any changes in any conditions or
status with respect to the Authorizations or of any event or circumstance of
which Licensee becomes aware, which makes any representations or warranty of
Licensee under this Agreement materially untrue or misleading, or would
materially interfere with ART's Use of the Authorizations or ART's performance
of its obligations under this Agreement, it being understood that Licensee's
obligation to provide notice to ART shall in no way relieve Licensee of any
liability for a breach by Licensee of any of its representations, warranties or
covenants under this Agreement.
7.12 No representation, warranty or statement of Licensee in this Agreement or
in any document, certificate or exhibit furnished to ART pursuant hereto
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the statements or facts contained therein not misleading.
ARTICLE VIII
GOVERNMENTAL FILINGS
8.1 Licensee shall bear ultimate responsibility for, and shall bear all costs
for filings required to be made by Licensee with: (i) the FCC, including without
limitation Form 494As, (ii) state utility commissions and (iii) any other
governmental body that requires Licensee to be the filer (collectively "Official
Filings"). ART shall fully cooperate with Licensee's Official Filings by
supplying all information that is in the possession of ART or that can be
readily obtained by ART and that is not in the possession of Licensee.
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8.2 ART shall be responsible for, and shall bear all costs for all filings that
are caused by the provision of Services to itself or its Customers through ART's
right to Use under Article II, including without limitation local permits that
are necessary to install or operate the 38 GHZ facilities.
8.3 Licensee shall exercise reasonable efforts to seek renewal of each of its
Licenses in accordance with FCC rules and to protect the validity of its
Authorizations provided that Licensee shall not be obligated to seek
reinstatement of its Authorizations should they expire or to seek reinstatement
of its Authorizations should they be revoked rescinded by a Final Order.
ARTICLE IX
TERM
The initial term of this Agreement shall be five (5) years from the date of
execution ("Initial Term"). This Agreement shall automatically renew for a three
(3) year term at the end of the Initial term ("First Successor Term") unless
either Party gives Notice of termination no less than one hundred twenty (120)
days in advance of the end of the Initial Term. This Agreement shall
automatically renew for a two (2) year term at the end of the First Successor
Term unless either Party gives Notice of termination no less than one hundred
twenty (120) days in advance of the end of the First Successor Term.
ARTICLE X
TERMINATION
10.1 Either party shall have the rigt to terminate this Agreement in the event
that the other Party commits a material breach of this Agreement and the breach
remains uncured for a period of thirty (30) days following Notice from the
non-breaching Party of the breach ("Initial Cure Period") in sufficient detail
to alert the breaching Party of the nature of the breach, provided that a longer
cure period shall be provided if the nature of the alleged breach does not
permit cure within the Initial Cure Period.
10.2 Licensee shall have the right to terminate ("Licensee's Termination Right")
this Agreement in the event that ART is found to have violated any rule, policy
or Final Order of the FCC, any state utility commission, any local or municipal
agency or other governmental or judicial body with jurisdiction. The Licensee's
Termination Right shall arise by virtue either of a court or other governmental
authority of competent jurisdiction finding such violation by Final Order.
Licensee shall have the right to terminate this Agreement immediately if the
FCC's rules and policies concerning Licensee control, or the Communications Act,
or an order of a court or other governmental authority of competent jurisdiction
which has not been stayed, so require.
10.3 Except in the event of a violation of an FCC rule, regulation or Final
Order, in the event that this Agreement is terminated pursuant to Sections 10.1
or 10.2. ART shall be granted the option to continue to provide Service to those
Customers that were being served on the date of the termination,
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under the provisions of this Agreement, for a period of up to one-hundred twenty
(120) days following the effective date of the termination, provided that ART
shall discontinue any Service that is required to be terminated at such earlier
date by the Final Order, or if Licensee is so ordered by the FCC.
10.4 Subject to Section 15.2, in the event that this Agreement is found by a
Final Order of the FCC or by a court of competent jurisdiction to be invalid or
illegal, Licensee has the right to terminate this Agreement and require ART
immediately to cease operations.
10.5 In the event that this Agreement is terminated by Notice not to renew in
accordance with Article IX, ART shall be granted the option to continue to
provide Service to those Customers that were being served on the date of the
expiration of this Agreement and to add Circuits to those Cutomers if the
Circuits are co-terminus with Circuits for such Customers in effect as of the
termination date, under the provisions of this Agreement, for a period of up to
two (2) years following the effective date of the termination.
10.6 The remedy provided in this section for a breach is not exclusive and the
Party asserting the breach may avail itself of all other remedies available at
law or equity.
10.7 In the event Licensee sells, transfers, assigns or otherwise disposes
(which sale, transfer, assignment or disposition is not in breach of Article V)
of the Authorizations to a Person other than ART, this Agreement shall remain in
full force and effect and shall be binding upon such other Person. In connection
with such sale, transfer, assignment or disposition, Licensee shall disclose
this Agreement to such other Party and require such other Person to execute an
assignment and assumption agreement.
ARTICLE XI
CONFIDENTIAL INFORMATION
11.1 In connection with this Agreement, each party may disclose or otherwise
make available certain data or information to the other party, which data or
information the disclosing party considers to be confidential and proprietary.
As used herein, "Confidential Information" means any non-public information,
including vendor lists, business plans and proposals, financial information,
marketing information, problem solving methods, implementation steps, know-how,
technology, trade secrets and drawings and renderings related to each party's
ongoing and proposed businesses, products and services which is being provided
or which has been provided to the receiving party by the disclosing party, or
which is obtained by the receiving party from its meetings and contacts with the
disclosing party, or any information derived by receiving party from information
so provided or obtained. Confidential Information includes all written or
electronically recorded materials identified and marked as confidential or
proprietary or which on their face appear to be confidential 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.
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11.2 Confidential Information does not include any of the following: (a)
information that is or becomes part of the public domain without violation of
this Agreement by the receiving party; (b) information that was known to or in
the possession of the receiving party on a non-confidential basis prior to the
disclosure to the receiving party by the disclosing party; (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.
11.3 The parties agree: (a) to treat and keep as confidential and proprietary
all Confidential Information disclosed by the other party; (b) to advise each
employee to whom any Confidential Information is to be made available of the
confidential nature of such Confidential Information and of the terms of this
Agreement; to promptly return to the disclosing party (or its designees), upon
the disclosing party's request, all Confidential Information and all copies
thereof and to delete from electronic memory such Confidential Information.
11.4 The parties agree to keep confidential the terms of this Agreement,
including but not limited to information relating to the prices charged and
services provided by ART. The parties further agree that any disclosures
concerning this Agreement or the terms and conditions shall require the mutual
written consent of ART and Licensee, except as to such disclosures that may be
required to comply with securities laws, court order or similar order of an
administrative or regulatory agency, and in connection with relevant
governmental agency communications. Notwithstanding the foregoing, either party
shall be entitled to disclose this Agreement and the terms and conditions to its
financing sources, and to its auditors, attorneys and other agents to the extent
necessary to enforce such party's right or perform its obligations pursuant to
this Agreement, provided that such financing sources, auditors, attorneys and
other agents keep such information confidential.
11.5 The obligations of the Parties under this Article XI are intended to
survive the execution, delivery, performance and termination of this Agreement,
and shall so survive and shall continue in force and effect until the applicable
limitations period has expired.
ARTICLE XII
INDEMNIFICATION
12.1 Licensee hereby agrees to indemnify ART against, and to hold ART harmless
from, all losses, damages, costs and expenses, including without limitation
reasonable legal fees and disbursements, incurred by ART arising from acts,
occurrences or matters the existence or occurrence of which constitute a
violation of one or more representations, warranties or covenants of Licensee
hereunder, and do not relate to obligations or liabilities expressly assumed by
ART hereunder; provided, however, nothing contained herein shall obligate
Licensee with respect to, or negate or modify any liability of ART for breach of
ART's representations, warranties and covenants in this Agreement.
11
<PAGE>
12.2 ART hereby agrees to indemnify Licensee against, and to hold Licensee
harmless from, all losses, damages, costs and expenses, including without
limitation legal fees and disbursements, incurred by Licensee arising from acts,
occurrences or matters the existence or occurrence of which constitute a
violation of one or more representations, warranties or covenants of ART
hereunder, and do not relate to obligations or liabilities expressly assumed by
Licensee hereunder; provided, however, nothing contained herein shall obligate
ART with respect to, or negate or modify any liability of Licensee for breach of
Licensee's representations, warranties and covenants in this Agreement.
ARTICLE XIII
OTHER LICENSEE AUTHORIZATIONS
ART's exclusive right to Use under Article II and rights of first refusal under
Article V shall be limited to those Authorizations listed on Exhibit 1. The
parties agree to discuss whether an agreement can be reached that provides (i)
that in the event Datasync, Inc. does not consummate the purchase of Licensee's
Authorizations listed on Exhibit 2 by a mutually agreeable date, ART shall have
an exclusive right to Use of such Authorizations as provided under Article II
and rights of first refusal as provided under Article V, and (ii) that in the
event any other Authorizations, including any or all of those listed on Exhibit
3, are granted to Licensee, ART shall have an exclusive right to Use of such
Authorizations as provided under Article II and rights of first refusal as
provided under Article V. This Article XIII, however, shall not be deemed an
agreement in principle with respect to such manners and shall create no
obligation upon either Party other than to conduct preliminary discussions
regarding such matters.
ARTICLE XIV
LIMITATION ON ART's LIABILITIES
EXCEPT AS EXPRESSLY SET FORTH HEREIN, ART MAKES NO WARRANTIES OF ANY KIND WITH
RESPECT TO ANY OF THE EQUIPMENT, SERVICES AND RELATED SUPPORT SERVICES, WHETHER
EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO IMPLIED WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR CONFORMITY TO ANY
REPRESENTATION OR DESCRIPTION.
ARTICLE XV
MISCELLANEOUS
15.1 ART expressly acknowledges that Licensee is required by FCC rules to
maintain ultimate control over, and to have unfettered access to, the Facilities
used to provide Service. Licensee shall at all times maintain such ultimate
control and access as required from time to time by FCC rules and policies.
Nothing in this Agreement shall be construed to limit such control or access by
Licensee to have ceded such control in any way to ART. ART shall have no rights
of use or control over the Authorizations except for the right to Use the
Authorizations as set forth in this Agreement.
12
<PAGE>
15.2 If any agency, including without limitation the FCC or a state public
utility commission, or a judicial body, with jurisdiction, issues a Final Order
invalidating or voiding any part of this Agreement, then the parties shall
negotiate in good faith to amend the Agreement to substitute a valid provision
or provisions that most closely approximate the invalidated provision(s).
15.3 All questions concerning the validity and operation of this Agreement and
the performance of the obligations imposed on the parties under this Agreement
shall be interpreted and construed in accordance with the domestic laws of the
State of Washington even if its choice of law provisions or statutes are in
conflict with this requirement.
15.4 Licensee expressly agrees that ART may use any subcontractor that it
chooses without prior approval for installation, maintenance, restoral and other
field service functions, and for any other ART obligations under this Agreement,
provided that the use of subcontractors shall not relieve ART of any of its
obligations hereunder.
15.5 Either Party may assign this Agreement (i) without notice or consent, to
any Affiliate that agrees in writing to be bound by the terms hereof or (ii) to
any other entity that expressly assumes in writing the terms and conditions of
this Agreement upon prior written consent from the other Party, which consent
shall not be unreasonably withheld.
15.6 This Agreement is made solely for the benefit of, and shall be binding
upon, the parties hereto and their respective successors and assigns.
15.7 The parties agree that all disputes, claims or controversies between them
arising out of or relating to this Agreement shall be settled as set forth in
this section 15.7. For the period of 15 days after Notice from either party, the
parties shall attempt in good faith to resolve the dispute by direct negotiation
of non-lawyer representatives of the parties. If the parties do not resolve the
dispute within such 15 day period, either party may submit the matter to a
professional mediation service selected by the parties. If the parties do not
resolve the dispute through mediation within an additional 30 day period, either
party may file a claim in a court of competent jurisdiction or otherwise pursue
all applicable legal remedies. If the parties do not otherwise agree on a
mediation service, such services shall be provided pursuant to the
JAMS/ENDISPUTE Rules and Procedures. The cost of mediation, including the fees
and expenses of the mediator, shall be paid equally by the parties.
15.8 It is agreed and understood that neither party is an agent, employee or
legal representative of the other, and has no authority to bind the other in any
way. Nothing in this Agreement shall be deemed to constitute ART and Licensee as
partners, joint venture partners, or otherwise associated in or with the
business of the other, and neither party shall be liable for the debts,
accounts, obligations or other liabilities of the other party, its agents or
employees. Neither party is authorized to incur debts or other obligations of
any kind on the part of or as agent for the other.
15.9 Neither party shall make any press release or other public announcement of
or otherwise disclose this Agreement, its contents, or the transactions herein
contemplated without the prior
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<PAGE>
written approval of the other party unless required by law, regulation or court
order, in which case the disclosing party shall promptly inform the other party
of such disclosure and shall permit it to intervene to object if such is
permitted. The foregoing shall not prohibit either party from disclosing this
Agreement or its contents to its attorneys, accountants or other advisors
provided they are informed of and bound by this Section 15.9 and Article XI.
Nothing contained in this Agreement shall preclude disclosures necessary to
comply with accounting and Securities and Exchange Commission ("SEC") disclosure
obligations and other disclosure obligations imposed by law, and in that regard
ART may file with the SEC reports, including, without limitation, SEC
registration statements or amendments thereto under the Securities Act of 1933,
as amended, which include a prospectus containing any information required to be
included therein and thereafter distribute said prospectus. Licensee will
cooperate with ART and provide such information and documents as may be required
in connection with any such filings.
15.10 NEITHER PARTY SHALL BE LIABLE FOR DELAYS IN PERFORMANCE, OR FAILURE TO
PERFORM THIS AGREEMENT OR ANY OBLIGATIONS HEREUNDER, WHICH ARE ATTRIBUTABLE TO
CAUSES BEYOND ITS REASONABLE CONTROL, INCLUDING BUT NOT LIMITED TO, OBSTRUCTION
OF LINE OF SIGHT BETWEEN SITES, FIRE, FLOOD, EPIDEMIC, EARTHQUAKE, ACT OF GOD,
LIGHTNING, PUBLIC POWER FAILURE OR SURGE, EXPLOSION, STRIKE OR OTHER LABOR
DISPUTE, RIOT OR CIVIL DISTURBANCE, WAR OR ARMED CONFLICT, OR ANY OTHER SIMILAR
OCCURRENCE NOT WITHIN ITS REASONABLE CONTROL.
15.11 All notices, requests, demands and other communications under this
Agreement must be in writing and will be deemed duly given, unless otherwise
expressly indicated to the contrary in this Agreement, (i) when personally
delivered, (ii) upon receipt of a telephonic facsimile transmission with a
confirmed telephonic transmission answer back, (iii) three (3) days after having
been deposited in the United States mail, certified or registered, return
receipt requested, postage prepaid, or (iv) one (1) business day after having
been dispatched by a nationally recognized overnight courier service, addressed
to the parties or their permitted assigns at the following addresses (or at such
other address or number as is given in writing by either party to the other) as
follows:
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<PAGE>
If to ART: If to Licensee:
Steven D. Comrie John P. Erlick
President General Partner
500-108th Ave NE, Ste. 2600 1925 Federal Avenue East
Bellevue, WA 98004 Seattle, WA 98102
Tel: 206-688-8700 Tel: 206-340-1000
Fax: 206-688-0703 Fax: 206-621-8783
with copy to: with copy to:
General Counsel's Office Paul Hastings Janofsky & Walker, LLP
500 108th Ave, NE, Suite 2600 1299 Pennsylvania Ave, N.W.
Bellevue, WA 98004 Washington, D.C., 20004
Attn: Thomas M. Walker, Esq. Attn: David D. Burns
Tel: 206-688-8700 Tel: 202-508-9500
Fax: 206-688-0703 Fax: 202-508-9700
15.12 All Section Headings used in this Agreement are for convenience or
reference only and are not intended to define or limit the scope of any
provisions of this Agreement.
15.13 No waiver of any right or remedy in respect to any occurrence or event on
one occasion shall be deemed a waiver of such right or remedy in respect of such
an occurrence or event on any other occasion.
15.14 Except as provided in Section 15.2, if any portion of this Agreement is
held to be invalid by a court of competent jurisdiction, that provision shall
become ineffective and unenforceable. The parties agree that such invalidity
shall not affect the validity of the remaining portions of this Agreement and
they further agree to substitute for the invalid provision a valid provision
that most closely approximates the effect and intent of the invalid provision.
15.15 The words and phrases used herein shall have the meaning generally
understood in the telecommunications industry and the microwave radio industry.
This Agreement shall be construed in accordance with its fair meaning and nor
for or against either party because of the identity of the party drafting or
proposing a provision.
15.16 This Agreement may be executed in any number of counterparts, each of
which shall, when executed, be deemed to be an original, but all of which
together shall constitute one and the same instrument. This Agreement may be
executed and deemed effective and binding if executed and exchanged by
facsimile, provided that promptly thereafter original signatures are exchanged.
15.17 This Agreement and all Attachments hereto constitute the entire agreement
between the parties hereto and supersedes all prior representations, agreements,
understandings and
15
<PAGE>
arrangements, oral or written, between the parties with respect to the subject
matter, except for that certain agreement between the parties dated June 13,
1996 covering KVOS-TV. This Agreement allocates the risks of loss among the
parties according to their express agreement, which allocation is reflected in
the charges and terms and conditions set forth herein. Except as otherwise
provided for herein, this Agreement may not be released, discharged, amended or
modified in any way except by a writing that expressly refers to this Agreement
and is executed by all parties hereto.
IN WITNESS WHEREOF, and intending to be legally bound, the undersigned parties
have duly executed this Agreement effective as of the date first above written.
ART: LICENSEE:
ADVANCED RADIO TECHNOLOGIES MICROWAVE PARTNERS,
CORPORATION, a Delaware a general partnership under the laws
of the District of Columbia
By: /s/ Steven D. Comrie By: /s/John P. Erlick
--------------------------- -------------------------
Name: Steven D. Comrie John P. Erlick
Title: President & COO General Partner
By: ___________________________
James Eaton
General Partner
16
<PAGE>
EXHIBIT 1
Microwave Partners
Service Areas
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Location State FCC File Number Call Sign Latitude/Longitude Block
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Palm Springs CA 9506285 WPJD368 33-40-15N/34-20-00W 116-00-00N/117-00-00W
- ----------------------------------------------------------------------------------------------
Bellingham WA 9506294 WPJD371 48-15-00N/49-00-00W 121-45-00N/122-45-00W
- ----------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT 2
Microwave Partners
Additional Service Areas
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Location State FCC File Number Call Sign Latitude/Longitude Block
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Biloxi MS 9506291 WPJD369 30-00-00N/31-00-00W 87-55-10N/89-20-10W
- ----------------------------------------------------------------------------------------------
Baton Rouge LA 9506293 WPJD370 30-00-00N/31-00-00W 90-55-00N/91-55-00W
- ----------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT 3
Microwave Partners
Pending Service Areas
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Location State FCC File Number Call Sign Latitude/Longitude Block
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
West Palm Beach FL 9506284 N/A 26-22-30N/27-00-00W 79-58-00N/81-00-00W
- ----------------------------------------------------------------------------------------------
Fargo ND 9506286 N/A 46-15-00N/47-15-00W 96-00-00N/97-00-00W
- ----------------------------------------------------------------------------------------------
Sacramento CA 9506287 N/A 38-15-00N/39-08-00W 120-47-00N/121-41-01W
- ----------------------------------------------------------------------------------------------
Sacramento CA 9506287 N/A 38-15-00N/39-08-00W 120-47-00N/121-41-01W
- ----------------------------------------------------------------------------------------------
Greenville SC 9506288 N/A 34-20-00N/35-20-00W 81-30-00N/82-45-00W
- ----------------------------------------------------------------------------------------------
Columbus OH 9506289 N/A 39-30-00N/40-30-00W 82-30-00N/83-29-00W
- ----------------------------------------------------------------------------------------------
Austin TX 9506290 N/A 29-45-20N/30-50-15W 97-09-35N/98-18-49W
- ----------------------------------------------------------------------------------------------
Monterey CA 9506292 N/A 36-00-00N/37-47-27W 121-30-00N/122-00-00W
- ----------------------------------------------------------------------------------------------
Santa Barbara CA 9506295 N/A 34-00-00N/35-00-00W 119-10-00N/120-00-00W
- ----------------------------------------------------------------------------------------------
Santa Fe NM 9506296 N/A 35-50-00N/36-50-00W 105-30-00N/106-30-00W
- ----------------------------------------------------------------------------------------------
Anchorage AK 9506297 N/A 61-45-55N/60-00-00W 148-00-00N/149-30-00W
- ----------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
arrangements, oral or written, between the parties with respect to the subject
matter, except for that certain agreement between the parties dated June 13,
1996 covering KVOS-TV. This Agreement allocates the risks of loss among the
parties according to their express agreement, which allocation is reflected in
the charges and terms and conditions set forth herein. Except as otherwise
provided for herein, this Agreement may not be released, discharged, amended or
modified in any way except by a writing that expressly refers to this Agreement
and is executed by all parties hereto.
IN WITNESS WHEREOF, and intending to be legally bound, the undersigned parties
have duly executed this Agreement effective as of the date first above written.
ART: LICENSEE:
ADVANCED RADIO TECHNOLOGIES MICROWAVE PARTNERS,
CORPORATION, a Delaware a general partnership
Corporation under the laws
of the District of Columbia
By: ______________________
John [Illegible]
Title: General Partner
By: /s/ James S [Illegible]
-------------------------
James [Illegible]
11/1/96
General Partner
<PAGE>
CARRIER RESALE AGREEMENT
THE PARTIES:
This Carrier Resale Agreement ("Agreement") is entered into this 22 of October,
1996 between Advanced Radio Technologies Corporation, ("ART") and its
affiliates, a Delaware Corporation with its principal place of business at 500
108th Avenue, NE, Suite 2600, Bellevue, Washington 98004, and Chadwick
Telephone, ("Reseller") and its affiliates, a Pennsylvania partnership, with its
principal place of business at 3 Bethlehem Plaza, Bethlehem, PA 18018-5798.
RECITALS:
WHEREAS, ART is a common carrier providing broadband wireless local
telecommunications services in certain geographic areas throughout the United
States, and its primary service offering uses 38 GHz milimetric facilities;
WHEREAS, Reseller is in the business of providing long distance and/or
local telecommunications services to end users;
and
WHEREAS, ART and Reseller desire to enter into an agreement providing for
the furnishing of broadband wireless services by ART to Reseller to be
integrated into Reseller's services to end users.
NOW, THEREFORE, in consideration of the promises and the mutual
representations, warranties, covenants and agreements hereinafter set forth, ART
and Reseller, intending to be legally bound, agree as follows:
1. Definitions
Definitions are contained in Attachment A.
2. Term of Agreement
The term of this Agreement shall begin on the Effective Date and shall continue
in effect for five(5) year(s) thereafter. The Agreement shall renew for
successive periods of one (1) year unless one of the parties gives written
notice not to renew no later than ninety (90) days prior to the scheduled date
of expiration of the initial period or any subsequent renewal period. 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.
3. Scope of Agreement
<PAGE>
ART shall provide to Reseller domestic interstate and intrastate Services
pursuant to this Agreement and to ART's tariffs ("Tariffs") governing certain of
the Services on file with the Federal Communications Commission ("FCC") and
various state regulatory commissions. This Agreement incorporates the relevant
Tariff provisions as they may be amended from time to time in accordance with
law. The Tariffs shall control the furnishing of service under this Agreement in
the event of any conflict between this Agreement and the Tariffs but only to the
extent that the Tariffs are required to control by operation of law; provided
that ART expressly agrees not to seek to amend its Tariffs if the effect is to
invalidate provisions of this Agreement except where this Agreement expressly
permits such amendment.
Capitalized terms not otherwise defined in this Agreement shall have the
meanings assigned to them in the Tariffs.
4. Services Provided by ART
4.1 38 GHz Transmission Services
ART shall provide transmission services over authorized 38 GHz facilities in
authorized areas, which services shall consist of the equipment, circuits and
connection facilities specified in the Equipment Supplement (the "Services").
Additional services may be added, from time to time, by amendment to this
Agreement in the form of the Service Order, the current version of which is
Attachment B. Payment for ART's Services by Reseller shall be in accordance with
Section 10.
4.2 Equipment
4.2.1 Equipment Supplied
In connection with the provision of Services under this Agreement, it will be
necessary for ART to install certain equipment on the premises of Reseller, the
customer of the Reseller ("End User") and/or other locations controlled by third
parties and related to the provision of Services (collectively "Sites").
Equipment to be installed on each Link includes the Outdoor Units ("ODU's"),
Indoor Units ("IDU's"), antenna and antenna mounts, monitoring equipment, power
supplies, associated hardware and cabling, and other materials necessary to
complete the installation process ("Equipment"). This Agreement also can be used
for the installation of equipment using frequencies other than 38 GHz.
4.2.2 Title and Interest
Reseller acknowledges and agrees, and shall secure the acknowledgment and
agreement of its End Users, that the Equipment is, and at all times shall
remain, the property of ART, and that the Reseller and its End Users shall have
no right, title or interest in or to the Equipment except as may be expressly
set forth in this Agreement. The Equipment is, and at all times shall remain,
2
<PAGE>
personal property notwithstanding that it may now be or hereafter become in any
manner embedded in, affixed or attached to real property or any building
thereon. Reseller shall require its End Users to agree to keep and maintain the
Equipment free and clear of all liens, charges, security interests and
encumbrances (except any placed thereon by or with the written consent of ART).
This Section 4.2.2. shall not be interpreted to require Reseller to be
responsible for the actions of third parties.
4.2.3 Security of Equipment
Reseller and its End Users shall take all appropriate measures to secure the
Equipment from loss, destruction or damage, and prevent the possibility that the
Equipment might create environmental hazards, including but not limited to:
physical security, including without limit barriers, limited and locked access
and training of those with access; electronic security including without limit
periodic audits of its telecommunications systems and passwords; environmental
controls; and suitable power supplies.
4.2.4 Equipment Alterations
Reseller acknowledges that ART shall have complete discretion to furnish
Service using any equipment that it chooses, so long as the Services are
designed to satisfy the Performance Specifications. ART shall use reasonable
efforts to notify Reseller of any changes in Equipment that appear likely to
effect Reseller's or Customers' equipment or services prior to making any such
changes.
5. Service Ordering Procedures
5.1 Service Order Processing
In order to initiate the processing of an order for Service, the Reseller shall
submit to ART a Request for Service ("RFS"), accompanied by a Preliminary Site
Survey. ART shall examine the RES for completeness and may return the RFS to the
Reseller for additional information. Reseller shall exercise reasonable efforts
to complete and return the RES to ART within three (3) business days of receipt.
ART may elect to conduct a Detailed Site Survey and shall deliver to Reseller a
firm quote. ART shall exercise reasonable efforts to complete the Detailed Site
Survey if it is deemed necessary and the firm quote within ten (10) business
days of receipt of the completed RFS. The Reseller and ART shall execute a
Service Order, including a firm quote, which shall become an integral part of
this Agreement. ART shall exercise reasonable efforts to process the Service
Order expeditiously and in accordance with a mutually-agreeable target schedule
("Targeted Service Date").
5.2 Service Order Modification or Cancellation
3
<PAGE>
The Reseller may modify or cancel its Service Order at any time (i) prior to the
installation of the Equipment without charge except that the Reseller shall be
responsible for all direct charges incurred to the date of cancellation that are
payable to third parties and (ii) after installation of Equipment but prior to
Service Commencement provided that Reseller shall be responsible for all charges
incurred by ART and for all direct charges incurred to the date of cancellation
that are payable to third parties. The charges set forth in this Section 5.2 are
subject to Section 5.3. Cancellations and modifications will not be accepted
unless confirmed in writing and signed by a person with authority.
5.3 Timing
ART shall exercise reasonable efforts to install the Equipment and commence
delivering Service by the Targeted Service Date but only in situations where
arrangements to obtain access to and use of the Site have been completed prior
to execution of the Service Order. Reseller expressly acknowledges that time is
not of the essence with regard to this Section 5 and that it shall not be
considered a breach of this Agreement if ART fails to commence Service by the
Service Date or fails to expeditiously process an order; provided that,
notwithstanding the provisions of Section 5.2, the Reseller may cancel a Service
Order without incurring any charges if ART fails to commence Service by the
Targeted Service Date.
5.4 Commencement of Service
Service shall commence and the Reseller shall be responsible for charges
therefore on the date that the Reseller states in writing that it has accepted
the Service in accordance with the Acceptance Criteria ("Acceptance Statement");
provided that it will be conclusively presumed that the Reseller has accepted
the Service and agrees to the commencement of charges if the Reseller has not
stated in writing, and set forth in sufficient detail its reasons therefore
which reasons shall demonstrate that the Acceptance Criteria were not met, that
the Service does not satisfy the Acceptance Criteria within five (5) business
days after the Targeted Service Date ("Service Commencement Date"). In the event
that the Reseller states that the Service does not meet the Acceptance Criteria,
ART shall have thirty (30) days ("Correction Period") within which to meet the
Acceptance Criteria. In the event that ART fails to meet the acceptance criteria
within the Correction Period, the Reseller may cancel the Service Order without
any charges or further obligation but only with regard to the Link effected. The
Targeted Service Date shall be set forth in the Service Order, and may be
amended from time to time by amendments to the Service Order. The Acceptance
Criteria are set forth in the Definitions in Attachment A hereto.
5.5 Minimum Period of Service
The minimum period for Service to be provided to the Reseller shall be one year
for each Link ordered and installed. The Reseller shall have the option to
redeploy the Link to any geographic area chosen by it for which ART holds a
license as a 38 GHz provider, provided: (i) the Reseller pays all costs to ART
including a reasonable allocation of overhead and all charges to third parties
associated with deinstallation and reinstallation of the Equipment at the Link
4
<PAGE>
("Redeployment"); (ii) the location chosen is completely suitable for the
provision of Service under the terms of this Agreement; and (iii) Redeployment
at the location chosen does not interfere with existing or planned services by
ART. The Reseller agrees that ART's conclusions with regard to conditions (ii)
and (iii) in this Section 5.5 shall be deemed to be conclusive on the parties.
6. Related Support Services Provided by ART
ART shall supply the services set forth in this Section 6 in support of its
transmission Services ("Related Support Services"). There shall be no additional
charges for Related Support Services and they shall be included in the charges
for the Services as set forth in Section 10, except where additional charges are
set forth in this Section 6.
6.1 Site Surveys
Preliminary surveys of the Sites at which the Equipment is to be installed are
the responsibility of the Reseller as set forth in Section 9.3.1. Detailed Site
Surveys shall be conducted by ART's Field Services Department or ART's
subcontractors in the event that ART, in its sole discretion, determines that
such surveys are necessary. The primary purpose of the Detailed Site Survey is
to obtain engineering information to validate the feasibility of using 38 GHz
millimetric wave circuits and the suitability of the Site and to identify in
advance the optimal installation methods to be used and the obstruction
obstacles to be overcome.
6.2 Frequency Coordination
It is necessary to "coordinate" the frequencies to be used on the paths to be
activated with other potentially interfering frequencies used either by ART or
by third parties, and engineer the path layouts, in order to optimize path
performance. ART's Engineering Department shall be responsible for all frequency
coordination, spectrum management, path engineering and transmission engineering
in connection with the Service. In addition, ART shall maintain databases and
systems to support coordination with other 38 GHz service providers. Frequency
coordination information and engineering databases shall remain the property of
ART and shall be considered confidential information.
6.3 Installation
ART's Field Services Department or subcontractors, at ART's sole option, shall
perform all installations in connection with this Agreement. The charges for
installation are set forth in Section 10 and on Attachment C.
6.4 Maintenance and Restoral
6.4.1 Maintenance and Restoral
5
<PAGE>
ART or subcontractors, at ART's sole option, (i) shall perform routine
maintenance and adds, moves, and changes at times to be chosen by ART, for which
ART shall give reasonable advance Notice and (ii) shall exercise reasonable
efforts to restore Service as quickly as possible in accordance with the
escalation procedures. Escalation procedures for restoring service are set forth
in Attachment D. Except as agreed otherwise, ART shall set goals of, and
exercise reasonable efforts to achieve: dispatch of field service personnel
within thirty (30) minutes and Service restoral within four (4) hours or less;
provided that the Reseller expressly acknowledges that it is not possible for
Service to be restored within four (4) hours in all instances and that it shall
not be a breach of this Agreement for Service Outages to exceed four (4) hours
by any amount, except that, as its sole remedy, Reseller shall be entitled to a
credit of one (1) month's Service for all outages within a given month for a
given Link if the total Outages exceed four (4) hours. The Outage credit under
this Section 6.4.1. is in lieu of and not cumulative with the Outage credits
pursuant to Section 11.2. If ART responds to an outage report by Reseller or End
User and no such Outage exists, then the Reseller shall be responsible for all
charges for the response to the service call at ART's current standard hourly
rates.
6.4.2 Limitations on ART's Obligation to Maintain and Restore
ART' obligations under Section 6.4.1 exclude each of the following: (i) Service
that would be unsafe or impractical because of alterations to the Equipment not
approved by ART, or its connection to equipment or devices not furnished or
approved by ART or which connection would for any reason render Service
impossible; (ii) Service using Equipment located in an unsafe or hazardous
environment; (iii) Service that cannot be restored because of elements external
to the Equipment and not under the control of ART, including, but not limited
to, adverse environmental conditions or inadequate power that are not within the
manufacturer's or ART's specifications; (iv) Service resulting from any
accident, neglect, alterations, improper use or misuse of the Equipment by
personnel not under the control of ART; (v) Service in connection with
relocation not approved by ART of any of the Equipment; and (vi) the inability
of ART to access the premises of Reseller or the End user in order to perform
installation, maintenance and repair due to limitations or restrictions imposed
by Reseller or the End User.
6.5 Network Operations Management
The ART Network Operations Center ("NOC") will provide the following services:
(i) Link alarm monitoring; (ii) Link performance monitoring; (iii) Link
performance reporting; (iv) Link performance data; (v) remote Link diagnosis;
(vi) Link restoral; and (vii) coordination and testing to the extent feasible
with operations centers operated by third parties. The NOC operates on a seven
(7) day per week twenty-four (24) hour basis to monitor all ART circuits. The
NOC provides continuous supervisory control and data acquisition (SCADA). The
NOC services to be provided under this Agreement are subject to change from time
to time, as a result of changing customer needs, without Notice and in the sole
discretion of ART.
6.6 End User Service
ART's Customer Service Department shall be available to assist End Users with
Service
6
<PAGE>
complaints and other problems without charge, provided that the requests for
assistance are reasonable. ART shall maintain a "help" desk twenty-four (24)
hours per day, seven (7) days per week. ART shall exercise reasonable efforts to
resolve all End User service issues within twenty-four (24) hours. ART shall
establish a system of its own choosing for either reporting all End User
inquiries to Reseller or enabling the Reseller to access an ART database, such
as an electronic bulletin board, to retrieve information concerning such
inquiries and their resolution.
6.7 ART Point of Contact
ART shall assign a person as a primary point of contact for inquiries and
customer support for the Reseller, which person shall be reachable during the
business day, 8am until 6pm PT, and shall provide an escalation procedure for
resolving differences. The initial contact person shall be Evans K. Anderson,
Director of Sales NE Region.
6.8 Post Termination Support Services
In the event of a termination of this Agreement by either party, if requested by
Reseller, ART shall continue to provide ongoing service, support, maintenance
and restoral in accordance with the terms of this Agreement for all End Users
with active contracts that were sold by Reseller pursuant to this Agreement and
prior to its termination, provided that Reseller continues to pay the applicable
charges. The parties agree to cooperate to provide transition services for the
End Users with the goal of minimizing End User disruption and inconvenience.
7. Use of Subcontractors
Reseller expressly agrees that ART may use any subcontractor that it chooses
without prior approval for installation, maintenance, restoral and other field
service functions, and for any other ART obligations under this Agreement;
provided that the use of subcontractors shall not relieve ART of any of its
obligations hereunder.
8. Performance
8.1 Reseller's Right to Cancel for Non-performance
Based upon its standard engineering evaluations, Link analysis, expected weather
patterns for the Link to be installed, manufacturer's Equipment specifications,
anticipated site environment and ART's experience, except where agreed otherwise
on Attachment E, ART intends to engineer each Link to provide Service, with a
Bit Error Rate of less than 10^(-13) over each Circuit in unfaded conditions,
and Service over each Circuit that has an Availability of better than 99.995% in
the aggregate during each month. In the event that in any month the Availability
over a Link fails to meet the 99.995% goal in the aggregate during the month the
Reseller may cancel the provision of Service over that Link provided that (i)
Notice is given during the first ten (10) days of the Immediately Following
Month and (ii) the Availablity during the Immediately
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Following Month also falls below 99.995%, which cancellation shall be effective
with the first day of the second month following the date that Notice of
cancellation is given. The Reseller shall remain fully obligated with respect to
other Service under the terms of this Agreement. The Reseller's sole remedy with
respect to performance failures of any kind shall be the right to cancel a Link
as set forth in this Section 8.1 or the Outage credits as set forth in Section
11 of this Agreement.
8.2 Limitations on ART's Duty to Perform
ART's obligation to meet the Performance Standards in Section 8.1 shall not
require ART to provide Service or Related Support Services: (i) that would be
unsafe or impractical because of alterations to the Equipment not approved by
ART, or its connection to equipment or devices not furnished or approved by ART
or which connection would for any reason render Service impossible; (ii) that
uses Equipment located in an unsafe or hazardous environment; (iii) that cannot
be restored because of elements external to the Equipment and not under the
control of ART, including, but not limited to, adverse environmental conditions
or inadequate power that are not within the manufacturer's or ART's
specifications; (iv) to restore service that was out due to any accident,
neglect, alterations, improper use or misuse of the Equipment by personnel not
under the control of ART; and (v) in connection with relocation not approved by
ART of any of the Equipment. In addition, ART shall not be liable for ART's
failure to meet the Performance Standards in Section 8.1 in the event that such
failure is due to: (a) Reseller or the End user's failure to follow procedures
for use of the Service and Equipment as provided by ART or the manufacturer from
time to time; (b) repair, modification, maintenance or relocation of the
Equipment by personnel other than ART personnel or ART designated
representatives, without the express written consent of ART; (c) abuse, misuse,
or negligence by Reseller, the End user or third parties affecting the service
and/or equipment so as to impede ART's ability to provide service; or (d) the
inability of ART to access the premises of Reseller or the End User in order to
perform installation, maintenance and repair due to limitations or restrictions
imposed by Reseller or the End User or due to any violations of Section 9.3.2 of
this Agreement.
9. Reseller's Responsibilities
9.1 Payment
ART shall invoice Reseller for the applicable charges and taxes each month. All
payments shall be due within thirty (30) days of the date stated on the face of
the invoice. Payments shall be forwarded to the address stated on the face of
the invoice. Reseller may at its option arrange for electronic forwarding of the
invoice and electronic transfer of funds ("EFT"), and shall receive a discount
of two (2) percent of the total amount of said invoice if the EFT is effective
within seventy-two (72) hours of date on the face of the invoice. ART shall
have the option without notice to impose a late payment charge of one and
one-half percent (1.5%) per month or the maximum amount allowable by law on any
past due charges. The Reseller agrees to pay all costs, including reasonable
attorney's fees, expended in collecting past due charges. All invoices shall be
conclusively presumed to be accurate unless the Reseller notifies ART to the
contrary within sixty (60) days of the receipt of the invoice, except where the
incorrectness could not have
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been discovered with due diligence within that period. Reseller shall not be
relieved of its responsibility for timely payment because of any conduct or
nonpayment by the End User.
9.2 Conduct
Reseller shall not represent that it is an agent or otherwise a representative
of ART, without ART's prior written permission. Reseller and ART each pledge to
each other that they will conduct their business affairs at all times with the
highest standards of honesty, fair dealing and ethics.
9.3 Sites
9.3.1 Preliminary Site Survey
The primary purpose of the Preliminary Site Survey is to provide preliminary
technical and administrative information so that ART Field Services and
Engineering can make an initial determination of whether a proposed radio link
is feasible and whether a Detailed Site Survey is required. A Preliminary Site
Survey shall be performed by Reseller personnel or agents, when such personnel
or agents are authorized and certified by ART to perform such surveys. The
Reseller shall bear the entire expense of such preliminary site survey,
including direct and indirect personnel expenses. The Reseller's designated site
survey persons shall undertake training and certification at ART's expense and
at reasonable times and places chosen by ART. The personnel performing the
Preliminary Site Survey shall complete and promptly forward to ART the results
of the survey in such form as ART shall designate from time to time.
9.3.2 Site Acquisition and Access
Reseller shall be responsible for all costs and charges, recurring and
nonrecurring, associated with acquisition of Sites for the installation of the
Equipment, use of the Sites by ART for the provision of its Service and access
to those Sites in connection therewith, with the provision of Services by ART,
including but not limited to (i) acquiring the necessary zoning, permits and
other municipal approvals for the installation of the Equipment and use of the
site, (ii) paying any annual taxes or fees associated therewith and (iii)
obtaining twenty-four (24) hour emergency access to the Site to install,
maintain and restore Service and access during the normal business day for
installation and routine maintenance. ART shall exercise reasonable efforts to
assist the Reseller in its site acquisition efforts. At Reseller's request, ART
shall provide its Site Acquisition Services at standard rates plus reasonable
travel expenses from, at ART's sole option, ART's headquarters or the nearest
staging area.
9.4 Access to End User Premises and Service-Related Equipment
During the term of this Agreement, the Reseller shall arrange for ART or its
representatives to have access to the End User premises or other premises in
control of third parties where the Equipment is located ("Equipment Premises")
for the purpose of installation, testing, preventive maintenance and Service
restoral. Where the nature of the access permits advance notice, ART
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shall give reasonable advance notice and shall schedule the visits during
business hours. Where the nature of the does not permit an advance scheduling,
including but not limit to emergency or restoral situations, the Reseller shall
arrange for ART or its representatives to have immediate access where possible
to the Equipment Premises and all Equipment located therein, and fully assist
and cooperate with ART in remedying the emergency or Outage.
9.5 Reseller Point of Contact
The Reseller shall appoint a person, who shall be the primary point of contact
for ART, which person shall be reachable during the business day, from 8am until
6pm, using the time standard in effect at the Reseller address first listed
above. The initial contact person by name and title shall be R. Chadwick Paul,
Jr., President.
9.6 End User Contacts and Billing
Reseller shall perform all End User contacts, selling, marketing and billing at
Reseller's sole expense. Reseller shall negotiate service orders with the End
User and notify ART for service order fulfillment. Conduct and operations of the
End Users shall be the sole responsibility of the Reseller.
9.7 End User Performance
Reseller shall enter into an agreement with each of its End Users that requires
the End User to perform all obligations imposed upon the End Users by this
Agreement. In addition the Reseller shall ensure that the End User (i) exercises
reasonable efforts to protect the Site and equipment from damage or loss; and to
prevent any obstructions that would interfere with line of sight along the Link
and (ii) promptly reports any developments including but not limited to
activities or planned activities, including without limitation new antenna masts
or buildings or other structures, that obstruct or might obstruct line of sight
along the Link.
10. Wholesale Pricing
ART shall have the option to increase or decrease its Wholesale Pricing at any
time and with regard to any Service Area; provided that ART provides notice of
such change to the Reseller, in writing and ninety (90) days before the
effective date of the price change. The Wholesale Rates in effect at the time of
the execution of this Agreement are set forth in Attachment C and shall remain
in effect for the purposes of this Agreement until further Notice in accordance
with this Section 10. No increase in rates under the terms of this Section 10
shall apply to any Circuits that had been the subject of a Service Order on the
date that ART notifies Reseller of an increase.
10.1 Installation Charges
Installation is charged on a per DS1 or DS3 circuit basis, with differing
charges depending on the capacity and type of the Equipment actually installed
and the environment of the Site. The rate may be decreased, at ART's sole
option, for additional DS1s for the same end user between the same two points.
The charge for installation may vary by state and by city. The Standard
Installation Charge is for a Standard Installation and assumes reasonable access
to the Equipment
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locations and that the locations meet Minimal Acceptable Site Criteria. The
Equipment that is part of a Standard Installation is listed in Attachment F. The
charges for a Standard Installation are set forth in Attachment C. If the
installation requires the purchase and installation of Additional Equipment or
additional labor, there will be an additional charge as set forth in Attachment
G or as stated by ART when an order is accepted.
10.2 Service Charges
The charges for Service are set forth in Attachment C.
11. Outages
11.1 ART's Liability for Outages
All liability of ART for interruptions, errors, omissions, outages or defects
occurring in the course of furnishing Service and not caused by actions of the
Reseller or third parties ("Outages") shall be strictly limited, at the sole
option of the Reseller, either to (i) termination without further liability of
Service over the Link on which the Outage occurred or (ii) Outage credits
against sums paid or to be paid in an amount determined in accordance with
Section 11.2 ("Credit"). Reseller must elect either remedy (i) or (ii) but not
both. Credit for Outages shall be allowed only when Outages are caused by or
occur in the facilities or Services provided by, operated or serviced by ART. No
Credit shall be allowed for Outages due to the failure of facilities, services
or equipment not provided, operated or serviced by ART or the acts or omissions
of Reseller, End User or third parties. No Credit shall be given for any Outages
caused by testing or emergency interruptions, or by routine maintenance provided
that ART has given Reseller appropriate advance notice of such maintenance. The
Reseller or End User must promptly notify ART of any Outages and include details
of such Outages.
11.2 Determination of Outage Credits
An Outage will be deemed to occur at the beginning of any period of time when
performance falls below the following standard: there are ten consecutive
seconds ("Severely Errored Seconds") when the bit error rate over the Circuit is
greater than 10^(-3) for each second ("Errored Period"). Outages will be deemed
to start upon the earlier of either the time upon which ART receives Notice from
the Reseller or the End User that an Outage has commenced or the time that ART
becomes aware of the Outage; provided that, if ART is informed or becomes aware
of the Outage within two hours of its commencement, the Outage will be deemed to
have commenced at the first of the Severely Errored Seconds. The Outage will be
deemed to cease when the Service is restored to the performance standards set
forth in this Section 11.2. Outage Credits will be given for each day ("Credit
Day") during which there are at least two Errored Periods that are not
consecutive or three consecutive Errored Periods. Credits will be given against
the monthly recurring charges on the basis of a thirty day assumed month, at the
rate of each Credit Day being 1/30th of the recurring charge. In any month in
which there are three successive Credit Days or five total Credit Days, the
Reseller shall be given credit for the entire month. Credits will only be given
on a Circuit by Circuit basis.
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12. Licensing & Regulatory Matters
12.1 Good Standing; Future License Acquisition
ART shall be responsible for obtaining from others or for maintaining in good
standing appropriate authorizations from the Federal Communications Commission
("FCC") as a licensee in the millimetric wave frequencies at 38 GHz to construct
and operate (or permit others to construct and operate) radio equipment
necessary to provide service to end users under this Agreement; provided that
nothing in this Agreement shall be construed to require ART to continue to
prosecute any pending authorization applications or file for any additional
authorizations after the Effective Date.
12.2 Common Carrier Certification
Subject to Section 12.1, ART and Reseller each shall be responsible for
obtaining common carrier or other appropriate authorizations from the FCC and
state utility commissions and, to the extent required, to file tariffs wherever
necessary to provide the services contemplated by each under this Agreement;
provided that each party shall have complete discretion as to the terms and
conditions of its tariffs and geographies except to the extent compelled to do
otherwise by this Agreement.
12.3 Municipal and Local Government Regulatory Compliance
Reseller shall be responsible for complying with zoning, environmental, and
other rules and regulations imposed by municipal or other local governmental
units with respect to the Service and Equipment, provided that ARTs sole remedy
for Reseller's breach of this Section 12.3 is to seek indemnification from the
Reseller in accordance with Section 17.12.1 and that ART shall be responsible
for ensuring that the Equipment operates within any applicable environmental and
safety standards; provided, however, that Reseller shall be responsible for
ensuring that the location of the equipment is suitable for ART's operations and
that there are no impediments to full, continuous and safe operation of ART's
equipment.
13. Intellectual Property Rights
13.1 Trademarks, Tradenames and Branding
This Agreement does not waive either party's common law or statutory rights in
its respective trademarks and tradenames. Each party shall request prior
approval for use of the other party's trademarks, tradenames, logos, logotype
and corporate name in any promotional, marketing, reporting, materials,
including but not limited to hard copy, video, and electronic media, with a
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likelihood of public distribution. Such approval shall not be unreasonably
withheld. All Services sold by Reseller hereunder shall carry the Reseller
tradename, unless otherwise directed in writing by Reseller and agreed to in
writing by ART.
13.2 Inventions, Patent Rights, Copyrights, Trade Secrets and KnowHow
Each party shall retaln all rights in patents, inventions, copyrights, trade
secrets, and technical know how existing prior to this Agreement or
independently developed after the Effective Date of this Agreement. Use,
implementation, transfer or other disclosure of either party's intellectual
property in support of or in connection with this Agreement, whether indirect or
direct, shall not affect the intellectual property rights of the originating
party. Rights to mutually developed intellectual property will be negotiated in
good faith independent of the terms and conditions of this Agreement.
13.3 Software and Firmware
Any software or firmware provided to Reseller under this Agreement shall be
licensed to Reseller to install and use on Equipment provided by ART under this
Agreement. Reseller covenants and agrees to use such software or firmware
provided to it only for the purposes contemplated by this Agreement, and
Reseller retains no right, implied or otherwise, to use, transfer this software
or firmware to any other equipment and will not permit such software or firmware
to be copied or disclosed to third parties without the express, prior written
consent of ART. Upon the termination of this Agreement, Reseller agrees to
return all copies of such software and firmware to ART within thirty (30) days
of such termination.
14. Limitation of Liabilities
EXCEPT AS EXPRESSLY SET FORTH HEREIN, ART MAKES NO WARRANTIES OF ANY KIND WITH
RESPECT TO ANY OF THE EQUIPMENT, SERVICES, AND RELATED SUPPORT SERVICES, WHETHER
EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, IMPLIED WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR CONFORMITY TO ANY
REPRESENTATION OR DESCRIPTION. WITH RESPECT TO THE FURNISHING OF SERVICES TO
THIRD PARTIES AND/OR CUSTOMERS, NEITHER PARTY TO THIS AGREEMENT SHALL BE LIABLE
TO THE OTHER PARTY, OR ANY CUSTOMER OF SUCH OTHER PARTY, OR ANY OTHER PERSON,
INCLUDING, FOR EXAMPLE, A PERSON BUYING COMMUNICATION SERVICES FROM A CUSTOMER
OF SUCH OTHER PARTY, FOR INDIRECT, SPECIAL, PUNITIVE, INCIDENTAL, OR
CONSEQUENTIAL DAMAGES, AND INCLUDING, BUT NOT LIMITED TO, LOST REVENUES, ANY
CLAIM OF ANY CLIENT, CUSTOMER, OR PATRON FOR LOSS OF SERVCIES, LOST PROFITS, OR
REVENUES, OR COST OF SUBSTITUTE PERFORMANCE, EQUIPMENT, OR SERVICES ARISING
UNDER THIS AGREEMENT.
15. Confidentiality
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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 nonpublic information,
including end user 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 which are
being provided or which have been provided to the receiving party by the
disclosing party, or which are 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 nonconfidential basis prior to the
disclosure to the receiving party by the disclosing party; information that was
developed independently by the receiving party's employees, which employees have
had no access to the Confidential Information; (d) information that is disclosed
to the receiving party by a third party under no obligation of confidentiality
to the disclosing party and without violation of this Agreement by the receiving
party; or (e) is authorized by the disclosing party in writing for disclosure or
release by the receiving party.
The parties agree: (a) to treat and keep as confidential and proprietary all
Confidential Information disclosed by the other party; (b) to advise each
employee to whom any Confidential Information is to be made available of the
confidential nature of such Confidential Information and of the terms of this
Agreement; to promptly return to the disclosing party (or its designees), upon
the disclosing party's request, all Confidential Information and all copies. 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.
The parties agree to keep confidential the terms of this Agreement, including
but not limited to information relating to the prices charged and services
provided by ART. The parties further agree that any disclosures concerning this
Agreement or the terms and conditions shall require the mutual consent of ART
and Reseller, except as to such disclosures that may be required to comply with
securities laws, court order or similar order of an administrative or regulatory
agency, and in connection with relevant government agency communications.
Notwithstanding the foregoing, either party shall be entitled to disclose this
Agreement and the terms and conditions to its financing sources, and to its
auditors, attorneys and other agents to the extent necessary to enforce such
party's right or perform its obligations pursuant to this Agreement.
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16. Termination
16.1 Termination for Default
Either party may terminate this Agreement immediately upon any of the following
events: (i) failure to perform an obligation under this Agreement, or committing
a breach of this Agreement, and failure to cure such breach within thirty (30)
days following delivery to such defaulting party of a written notice of the
breach ("Notice"); provided that (a) if the cause of such breach is a Force
Majeure condition as defined in Section 17.10, the period for remedying such
breach shall be extended by the time measured by any delay from the Force
Majeure condition, except that, notwithstanding the foregoing, either party may
terminate if the Force Majeure condition extends beyond ninety (90) following
Notice and (b) if the breach by its nature cannot be cured within thirty (30)
days, the period for remedying such breach shall be extended for ninety (90)
days from Notice provided that the breaching party has exercised its best
efforts to cure the breach from the Notice; or (ii) if the other party becomes
insolvent or makes an assignment for the benefit of its creditors, or if a
committee of creditors or other representative is appointed to represent its
business, or if a voluntary or involuntary petition under any section of a
bankruptcy or similar act shall be filed by or against such other party and that
party fails within ninety (90) days following the appointment of such committee
or representative or the filing of any such involuntary petition to cause the
discharge of such committee or representative or the dismissal of such
involuntary petition.
16.2 Effect of Termination
(i) No termination of this Agreement shall effect any accrued rights or
obligations of any party as of the effective date of such termination nor shall
it affect any rights or obligations of any party which are intended by the
parties to survive any such termination. (ii) The right of any party to
terminate this Agreement is not an exclusive remedy, and any party shall be
entitled, alternatively or cumulatively, to other remedies permitted under the
terms of this Agreement. (iii) Upon termination or expiration of this Agreement,
each party promptly shall: (a) remove and return to the other party, or
obliterate, at the providing party's option, any material supplied by that party
and provide the other party with access to collect and retrieve any and all
equipment installed pursuant to this Agreement; (b) notify and arrange for all
publishers and others who may identify, list or publish either party's name as a
marketer, promoter or supporter of Services including, but not limited to,
publishers of telephone directories, yellow pages, and other business
directories, to discontinue these listings within six months of the termination
date of this Agreement or before the publication of a subsequent version of the
directory, whichever may occur earliest; and (c) certify to the other party of
and describe in detail all work in process under this Agreement. (iv) Reseller
shall pay in full to ART any and all amounts then due and owing, and not
reasonably in dispute, within thirty (30) days of termination of this Agreement.
17. General Provisions
17.1 Assignment
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Reseller shall not assign or transfer any of its rights or obligations hereunder
without the prior written consent of ART, which consent shall not be
unreasonably withheld or delayed if the assignee or transferee (i) expressly
assumes in writing the terms and conditions of this Agreement and (ii) satisfies
ART's reasonable requirements concerning the assignee's/transferee's human
resources to satisfy its obligations under this Agreement, financial condition,
creditworthiness and general business reputation. ART may assign this Agreement
(i) without notice or consent, to any Affiliate that agrees in writing to be
bound by the terms hereof (ii) without Notice or consent, on a contingent basis
to a financial service organization to secure any debt or lease payment, or
(iii) to any other entity that expressly assumes in writing the terms and
conditions of this Agreement upon prior consent from Reseller, which consent
shall not be unreasonably withheld. Any attempted assignment in violation of the
terms of this Section 17.1 will be void.
17.2 Benefit/Binding Nature
This Agreement shall inure to the benefit of and shall be binding upon the
parties and their successors and assigns.
17.3 No Third Party Beneficiaries
This Agreement is made solely for the benefit of the parties hereto and their
respective successors and assigns.
17.4 Authority and Acknowledgment
Each party represents and warrants that it has full power and authority to enter
into and perform under this Agreement and that the person signing this Agreement
has been properly authorized to do so. Each party further acknowledges that it
has had an adequate opportunity to consult counsel, that it has carefully read
each provision of this Agreement and understands this Agreement and that it
agrees to be bound by all of its terms, conditions and provisions.
17.5 Controlling Law
All questions concerning the validity and operation of this Agreement and the
performance of the obligations imposed on the parties under this Agreement shall
be interpreted and construed in accordance with the domestic laws of the State
of Pennsylvania even if its choice of law provisions or statutes are in conflict
with this requirement.
17.6 Regulatory Approval
This Agreement is subject to any regulatory approvals which may be required and
may be terminated by either party if any governmental or regulatory agency
imposes rules or regulations affecting the relationship between the parties in a
material way, provided that the imposition of such rules or regulations shall
not be construed to relieve the party affected by such rules or
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regulations from any duty under Sections 10.1, 10.2, 14, and 15 and from being
considered in breach for failure to carry out that obligation.
17.7 Dispute Resolution and Consent to Jurisdiction and Forum Selection
The parties agree that all disputes, claims or controversies between them
arising out of or relating to this Agreement shall be settled by arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association ("AAA"). Decisions of the arbitration panel shall be based upon
Pennsylvania State law. The Site of such arbitration shall be in Northhampton
County, Pennsylvania, or the closest other site agreed to by the AAA. This
choice of venue intended by the parties to be mandatory and permissive in nature
and each party waives any right it may have to assert the doctrine of forum non
conveniens or similar doctrine or otherwise object to venue as stated herein.
The arbitration panel shall consist of three arbitrators, one arbitrator to be
selected by each party and the third arbitrator to be selected by the other two
arbitrators. Any decision rendered by the arbitration panel pursuant to this
provision shall be concurred in by a majority of the members of the panel.
Judgment may be entered by any court of competent jurisdiction. Arbitration
pursuant to this section shall be the exclusive means of resolving any dispute,
claim or disagreement arising hereunder. The prevailing party in the arbitration
shall be entitled to reimbursement from the other party for all costs of the
arbitration including but not limited to fees and expenses paid to the AAA and
its own reasonable attorneys' fees.
17.8 Relationship of the Parties; No Agency or Partnership
The relationship between the parties under this Agreement is solely that of
independent reseller and service provider. It is agreed and understood that
neither party is an agent, employee or legal representative of the other, and
has no authority to bind the other in any way. Nothing in this Agreement shall
be deemed to constitute ART and Reseller as partners, joint venture partners, or
otherwise associated in or with the business of the other, and neither party
shall be liable for the debts, accounts, obligations or other liabilities of the
other party, its agents or employees. Neither party is authorized to incur debts
or other obligations of any kind on the part of or as agent for the other except
as may be specifically authorized herein.
17.9 Publicity
Neither party shall make any press release or other public announcement of or
otherwise disclose this Agreement, its contents, or the transactions herein
contemplated without the prior approval of the other party unless required by
law, regulation, court order or rule of any securities exchange, in which case
the disclosing party shall promptly inform the other party of such disclosure
and shall permit it to intervene to object if such is permitted. The foregoing
shall not prohibit either party from disclosing this Agreement or its contents
to its attorneys, accountants or other advisors provided they are informed of
and bound by this Section 17.9.
17.10 Force Majeure
NEITHER PARTY SHALL BE LIABLE FOR DELAYS IN PERFORMANCE, OR
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FAILURE TO PERFORM, THIS AGREEMENT OR ANY OBLIGATIONS HEREUNDER, WHICH ARE
ATTRIBUTABLE TO CAUSES BEYOND ITS REASONABLE CONTROL, INCLUDING BUT NOT LIMITED
TO OBSTRUCTION OF LINE OF SIGHT BETWEEN SITES, FIRE, FLOOD, EPIDEMIC,
EARTHQUAKE, ACT OF GOD, LIGHTNING, PUBLIC POWER FAILURE OR SURGE, EXPLOSION,
STRIKE OR OTHER LABOR DISPUTE, RIOT OR CIVIL DISTURBANCE, WAR OR ARMED CONFLICT,
OR ANY OTHER SIMILAR OCCURRENCE NOT WITHIN ITS CONTROL.
17.11 Insurance
Both parties shall provide insurance or provide self insurance during the term
of the Agreement for Worker's Compensation insurance and comprehensive general
liability. The liability insurance policies shall insure against loss or damage
on account of claims for bodily injuries, death or property damage suffered by a
person or persons in connection with each party's performance of this Agreement
and shall be in the combined limit amount of One Million Dollars ($1,000,000)
for each occurrence. Each party shall cause to have the other party named as an
additional insured on all required and necessary insurance policies.
Certificates of Insurance shall be issued to each party by the other party
within sixty (60) days following the Execution Date.
17.12 Indemnification
17.12.1 Indemnification of ART by Reseller
Reseller shall indemnify ART against, and hold ART harmless from all
liabilities, claims, damages, losses, demands, costs, judgments and expenses
(including reasonable attorneys' fees) arising out of or in connection with this
Agreement for personal injury or damage to tangible property caused by the acts
or omissions of Reseller or Reseller's employees, agents or invitees. In no
event shall ART's employees, agents or invitees be deemed to be employees,
agents or invitees of Reseller.
17.12.2 Indemnification of Reseller by ART
ART shall indemnify Reseller against, and hold Reseller harmless from all
liabilities, claims, damages, losses, demands, costs, judgments and expenses
(including reasonable attorneys' fees) arising out of or in connection with this
Agreement for personal injury or damage to tangible property caused by the acts
or omissions of ART or ART's employees, agents or invitees. In no event shall
Reseller's employees, agents or invitees be deemed to be employees, agents or
invitees of ART.
17.12.3 Duty to Notify and Assist
If any claim arises to which the provisions of this Section 17.12.3 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
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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 17.12.3, and the parties hereto agree that they will not unreasonably
withhold consent to such payment, settlement or compromise. The party against
whom the claim is asserted shall provide the other party such assistance as may
be reasonable in the defense and disposition of such claim.
17.13 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 certified registered mail.
If to ART: If to Reseller:
Steven D. Comrie R. Chadwick Paul, Jr.
President President
500108th Ave. NE, Ste. 2600 Chadwick Telephone
Bellevue, WA 98004 3 Bethlehem Plaza
206.688.8700 Bethlehem, PA 18018-5798
206.688.0703 610.866.4444
610.861.8718
with copy to: with copy to:
W. Theodore Pierson, Jr., Esq. Mark S. Sigmon
ART General Counsel Sigmon & Sigmon
c/o Pierson, Burnett & Hanley 146 East Broad Street
1667 K Street, NW, Ste. 801 Bethlehem, PA 18018
Washington, D.C. 20006 610.865.2742
202.466.3044 610.865.6295
Fax 202.466.3055
17.14 Period of Limitations
19
<PAGE>
Any claim arising from or in connection with this Agreement must be brought to
the attention of the other party in writing within one hundred eighty (180) days
of the event alleged as giving rise to an action, and any action arising from or
in connection with this Agreement must be brought within one (1) year after the
cause of action arises under this Agreement.
17.15 Section Headings
All Section Headings used in this Agreement are for convenience or reference
only and are not intended to define or limit the scope of any provisions of this
Agreement
17.16 Survival
The provisions of this Agreement that by their nature and context are intended
to survive the execution, delivery, performance and termination of this
Agreement, shall so survive and shall continue in force and effect until the
applicable limitations period has expired.
17.17 Waiver
No waiver of any right or remedy in respect to any occurrence or event on one
occasion shall be deemed a waiver of such right or remedy in respect of such an
occurrence or event on any other occasion.
17.18 Severability
If any portion of this Agreement is held to be invalid by a court of competent
jurisdiction, that provision shall become ineffective and unenforceable. The
parties agree that such invalidity shall not affect the validity of the
remaining portions of this Agreement and they further agree to substitute for
the invalid provision a valid provision that most closely approximates the
effect and intent of the invalid provision.
17.19 Interpretation
The words and phrases used herein shall have the meaning generally understood in
the telecommunications industry and the microwave radio industry. This Agreement
shall be construed in accordance with its fair meaning.
17.20 No Offsets
The payments required under this Agreement shall be due on time and neither
party may offset any such payment because of any claim hereunder.
17.21 Counterparts
This Agreement may be executed in any number of counterparts, each of which
shall, when executed, be deemed to be an original, but all of which together
shall constitute one and the same
20
<PAGE>
instrument. This Agreement may be executed and deemed effective and binding if
executed and exchanged by facsimile, provided that promptly thereafter original
signatures are exchanged.
17.22 Integration
This Agreement and all Attachments hereto constitute the entire agreement
between the parties hereto and supersedes all prior representations, agreements,
understandings and arrangements, oral or written, between the parties with
respect to the subject matter. All Preambles, Recitals, Background and
Statements of Purpose are expressly excluded from this Agreement. This Agreement
allocates the risks of loss among the parties according to their express
agreement, which allocation is reflected in the charges and terms and conditions
set forth herein. Except as otherwise provided for herein, this Agreement may
not be released, discharged, amended, or modified in any way except by a writing
that expressly refers to this Agreement and is executed by all parties hereto.
IN WITNESS WHEREOF, and intending to be legally bound, the undersigned parties
have duly executed this Agreement effective as of the date first above written.
ADVANCED RADIO TECHNOLOGIES. CHADWICK TELEPHONE
CORPORATION
By: /s/ Thomas C. Bennett By: /s/ R.C. Paul, Junior
----------------------- ---------------------
Name: Thomas C. Bennett Name: R.C. Paul, Jr.
--------------------- ------------------
Title: VP/GM, NE Title: Pres.
--------------------- ------------------
Date: 29 Oct 96 Date: 11-13-96
--------------------- ------------------
21
<PAGE>
ATTACHMENTS
A. Definitions
B. Current Version of Service Order
C. Charges for Services and Standard Installation
D. Escalation Procedures for Restoring Service
E. Performance Agreement
F. Standard Installation Equipment
G. Additional Equipment and Charges
22
<PAGE>
Attachment A
Definitions
As used in this Agreement, the following terms shall have the following
meanings:
"Acceptance Criteria" shall mean that the circuit is able to successfully
transmit and receive voice and/or data traffic between the two Demarcation
Points that define the ART portion of the circuit.
"Affiliates" shall mean any corporation or other entity which, directly or
indirectly, owns or controls, either de facto or de jure, the first entity, or
is directly or indirectly owned or controlled, either de facto or de jure, by
the first entity.
"Availability of 99.995%" shall mean a Circuit that, for a defined period of
time, the number of Severely Errored Seconds is less than .005% of the total
seconds in the period.
"Bit Error Rate" shall mean the number of bits unintentionally changed in the
course of transmission relative to a specific quantity of bits transmitted;
usually expressed as a number referenced to a power of 10.
"CAP" shall mean a Competitive Access Provider and is synonymous with the term
CLEC.
"Circuit" shall mean any individual DS-0, DS-l, DS-3 or other data transmission
service provided in total or in part by ART.
"CLEC" shall mean a company that is not the traditional LEC and furnishes local
exchange service pursuant to state authorization using primarily fiber optic
cable.
"Demarcation Point" shall mean the interface between the portion of a circuit
provided by ART and any portion of the circuit not provided by ART.
"Standard Installation" shall mean an installation where both radios are roof
mounted, no core boring penetrations are necessary, access is unrestricted
during normal business hours, and the installation can be accomplished in one
concurrent eight (8) hour period.
"IDU" shall mean the Indoor Unit, consisting of electronics that are part of the
ART-supplied 38 GHz radio transceiver, which is located typically within a
building on the End user's Premises and is connected to the ODU by coaxial
cable, usually RG 8.
"ODU" shall mean the Outdoor Unit, consisting of an antenna, antenna mount or
mast and electronics that are part of the ART-supplied 38 GHz radio transceiver
and which is located
23
<PAGE>
typically on the roof of a building or tower, but which may be mounted inside of
a window and which is connected to the IDU by coaxial cable, usually RG 8.
"PT" shall mean either standard clock Pacific Time or daylight Pacific clock
Time whichever is applicable.
"DS0" shall mean a Digital Signal Zero, which is a circuit with a bandwidth of
64 kilobits per second, which is the capacity necessary to carry a single voice
conversation.
"DS1" shall mean Digital Signal One, which is a circuit with a bandwidth of
1.544 megabits per second, roughiy 24 times that of DS-0. ADS-1 is also known as
a T-l.
"D53" shall mean Digital Signal Three, which is a circuit with a bandwidth of 45
megabits per second. A D-3 is also known as a T-3.
"End User" shall mean the Customer of the Reseller, which is responsible for the
content of the transmissions.
"Equipment" shall mean the equipment installed by ART and set forth in the Link
Inventory List.
"Force Majeure" shall mean the factors set forth in Section 18.10 that are
considered to excuse performance.
"Notice" shall mean the notice provisions set forth in Section 18.12.3.
"Outage" shall mean service interruptions in excess often consecutive (10)
Severely Errored Seconds.
"Link" shall mean radio path between two transceivers. A radio path may consist
of one or more Links.
"POTS" shall mean Plain Old Telephone Service, which is an [ ]acronym for the
simple, no vertical services, dial tone service, [ ] which is the basic voice
telephone service.
"Retail Rates" shall mean the rates charged to End Users by ART.
"Wholesale Rates" shall mean the rates charged to the Reseller by ART.
"Reseller" shall mean the carrier to whom ART sells Service at Wholesale rates
and which in turn provides Service to the End User.
"Service Area" shall mean the area within which ART provides Service.
24
<PAGE>
"Services" shall mean the services provided by ART pursuant to the terms of this
Agreement.
"Agreement" shall mean each initialed page of this agreement, each of its
Attachments and each amendments if executed by each party.
"Service Order" shall mean the order for Service executed by the Reseller in the
form of Attachment C.
"Severely Errored Seconds" shall mean those seconds in which the Bit Error Rate
is greater than 10-3.
"Site" shall mean location of the IDU, ODU, the connecting cabling and ancillary
equipment to be used for furnishing Service to the End User. Each Link shall
consist of two or more Sites.
"Site Surveys" shall mean the surveys of potential Sites for acceptability for
the location of Equipment and furnishing of Service.
"Tariff' shall mean the rates and related terms and conditions of Service filed
by ART with federal and state regulatory commissions and in effect at the time
of Service.
"Writing" shall mean any recordation whether on paper or its equivalent or in an
decipherable electronic medium, except that where a writing must be signed under
the terms of this Agreement it shall be on paper.
"Preliminary Site Surveys" shall mean the initial survey of the Site.
25
<PAGE>
[CIBC WOOD GUNDY LOGO] CIBC Wood Gundy
Securities Corp.
425 Lexington Avenue
New York, NY 10017
Tel. (212) 885-4486
Fax (212) 885-1900
November 5, 1996
Mr. Thomas A. Grina
Executive Vice President & Chief Financial Officer
Advanced Radio Telecom Corp.
500 108th Avenue, N.E.
Suite 2600
Bellevue, Washington 98004
Gentlemen:
This agreement (the "Agreement") will confirm that Advanced Radio Telecom
Corp. (the "Company") has retained CIBC Wood Gundy Securities Corp. ("CIBC") as
(i) the Company's exclusive placement agent in connection with the proposed
private placement of approximately $50 million principal amount of the Company's
Senior Secured Notes due 1998 (the "Notes"), or other similar financing as the
Company and CIBC shall mutually agree, in one transaction or a series of
transactions (the "Financing"), and (ii) once CIBC has delivered reasonably
acceptable commitments to the Company on a timely basis, a co-lead manager of
the Company's future public or private offerings of non-investment grade debt
securities (or preferred stock, convertible debt or convertible preferred
stock), excluding private equity issues, bank financings and vendor financings
initiated and negotiated directly between the Company (including its officers
and directors) and such investors (the "Future Financings") (together with the
Financing, the "Engagement").
1. RETENTION. (a) Subject to the provisions set forth below in this
Agreement, the Company hereby retains CIBC as (i) its exclusive placement agent
in connection with the proposed sale by the Company of the Notes, and (ii) once
CIBC has delivered reasonably acceptable commitments to the Company on a timely
basis, a co-lead manager of the Company's Future Financings. The Company agrees
that during the term of this Agreement it will not directly, or indirectly, (i)
offer any of the Notes for sale to, or solicit any offer to purchase any of the
same from, or otherwise contact, approach or negotiate in respect thereof with,
any person or persons, other than through CIBC as the Company's exclusive
placement agent; or (ii) offer any of the Future Financings for sale to, or
solicit any offer to purchase any of the same from, or otherwise contact,
approach or negotiate in respect thereof with, any person or persons, other than
through CIBC (if CIBC exercises its rights hereunder to act as a co-lead
manager) and the Company's other managers of the Future Financings. The Company
represents that (i) no such offers, solicitations or other actions have been
<PAGE>
Advanced Radio Telecom Corp.
November 5, 1996
Page 2
made or taken prior to the date hereof, except as previously disclosed to you,
and (ii) on and after the date hereof, it is not in discussions or obligated
under any agreement with any other agent, initial purchaser or underwriter with
respect to a private or public offering of the Notes or any other debt or
preferred stock financings, excluding private equity issues, bank financings and
vendor financings initiated and negotiated directly between the Company
(including its officers and directors) and such investors, and financings
contemplated by that certain engagement letter entered into between the Company
and Merrill Lynch & Co. on or about the date of this agreement.
(b) CIBC agrees to act as (i) the exclusive placement agent for the
Financing, and (ii) a co-lead manager of the Company's Future Financings,
subject to satisfactory completion of its due diligence investigation.
2. COMPENSATION. In consideration for services rendered hereunder by
CIBC, the Company agrees to pay CIBC as follows:
(a) The Company agrees to pay to CIBC a cash placement fee equal to 5.0%
of the total committed purchase price of the Notes (the "Placement Fee"). An
amount equal to 50% of the Placement Fee shall be payable upon the closing date
of the Company's initial public offering (the "IPO"), with the remaining
Placement Fee payable on the earlier of (i) the date the Notes are originally
issued (the "Closing Date") and (ii) March 31, 1997. The Placement Fee shall be
paid directly out of the proceeds from the Notes or the IPO, as the case may be,
by wire transfer or by delivery to CIBC of a certified or official bank check or
checks payable to its order in immediately available funds. If the Company
first consummates the Financing within one year following the expiration or
termination of this Agreement with any investors introduced to the Company by
CIBC during the term of this Agreement, the CIBC shall be entitled to receive
all amounts under Sections 2(a), (b) and (c).
(b) The Company agrees to pay to CIBC (i) not less than 45% of all fees
and compensation payable to all managers in respect of the Future Financings
(based on customary market terms) if two managers are engaged, or (ii) not less
than 30% of all fees and compensation payable to all managers in respect of the
Future Financings (based on customary market terms) if three or more managers
are engaged ,provided however, that CIBC shall be paid not less than 45% of the
total gross economic benefits of the top two managers in such Future Financing.
Such fees shall be paid directly out of the gross proceeds from the Future
Financings by wire transfer or by delivery to CIBC of a certified or official
bank check or checks payable to its order in immediately available funds.
(c) Whether or not any portion of the Engagement is consummated, the
Company hereby agrees to reimburse CIBC promptly upon request (on a monthly
<PAGE>
Advanced Radio Telecom Corp.
November 5, 1996
Page 3
basis) and upon presentation of appropriate documentation thereof in reasonable
detail for all reasonable out-of-pocket expenses (including word processing
charges, messenger and duplicating services, research document expenses, travel
expenses, legal fees and expenses and other customary expenditures) incurred by
it in connection with the Engagement, plus the reasonable fees and expenses of
all special counsel (except as may be superseded by future underwriting
agreements with respect to the Future Financings). The Company agrees to pay to
CIBC, upon execution of this Agreement an advance of $25,000 to cover initial
out-of-pocket expenses.
(d) No fee paid or payable to CIBC or any of its affiliates shall be
credited against any other fee paid or payable to CIBC or any of its
affiliates. Nothing contained in this Agreement shall require CIBC or any of
its affiliates to lend any amounts, purchase any securities or make any
investment in the Company or any of its affiliates for its own account,
directly or indirectly.
3. OFFERING MATERIALS. (a) The Company represents and warrants to CIBC
that this Agreement has been duly authorized, executed and delivered by the
Company and, assuming the due execution by CIBC, constitutes a legal, valid and
binding agreement of the Company, enforceable against the Company in accordance
with its terms.
(b) The Company will furnish CIBC with offering documentation with respect
to the Financing and the Future Financings (collectively, together with
amendments and supplements thereto, the "Offering Materials").
(c) CIBC will perform due diligence; however, the Company recognizes and
confirms that CIBC (A) will use and rely primarily on the Offering Materials and
on information available from generally recognized public sources in performing
the services contemplated by this Agreement without having independently
verified the same; (B) is authorized as the Company's exclusive placement agent
with respect to the Financing and a co-lead manager with respect to the Future
Financings to transmit to any prospective purchaser of the Notes or the
securities offered in the Future Financings, a copy or copies of the Offering
Materials and any other legal documentation supplied to CIBC expressly for
transmission to any prospective purchaser by or on behalf of the Company or by
any of the Company's officers, representatives or agents, in connection with the
performance of CIBC's services hereunder or any transaction contemplated hereby;
(C) does not assume responsibility for the accuracy or completeness of the
Offering Materials and such other information; (D) will not make an appraisal of
any assets of the Company; and (E) reserves the right to continue to perform due
diligence during the course of the Engagement until the Engagement is
consummated. CIBC agrees to and to cause its representatives to,
<PAGE>
Advanced Radio Telecom Corp.
November 5, 1996
Page 4
keep the Offering Materials and any confidential information about the Company
confidential so long as it is and remains non-public, unless disclosure is
required by law or requested by any government or regulatory agency or body (and
then only after giving the Company notice and an opportunity to contest such
disclosure to the extent practicable), and CIBC will not make use thereof,
except in connection with its services hereunder for the Company.
(d) Each of the parties hereto agrees that any reference to the other
party or any release, communication, or material distributed to prospective
purchasers of the Notes or the securities offered in the Future Financings is
subject to the other party's prior written approval. If any party hereto
terminates this engagement prior to the dissemination of any such release,
communication or material, no reference shall be made therein to such party.
(e) Without CIBC's prior written consent, no advice rendered by CIBC in
connection with the services performed by CIBC's pursuant to this Agreement will
be quoted by the Company, its affiliates or representatives nor will any such
advice be referred to in any report, document, release or other communication,
whether written or oral, prepared, issued or transmitted by such person, except
to the extent required by law (in which case the appropriate party shall so
advise the other in writing prior to such use and shall consult with the other
with respect to the form and timing of disclosure).
(f) The Company represents that the Offering Materials do not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements contained therein, in
light of the circumstances under which they are made, not misleading, except
that the Company makes no representation with respect to any of the projections
contained therein. The Company agrees to advise CIBC immediately of the
occurrence of any event or any other change known to it which results in the
Offering Materials containing any untrue statement of a material fact or
omitting to state any material fact required to be stated therein or necessary
to make the statements contained therein, in light of the circumstances under
which they were made, not misleading.
(g) CIBC will solicit offers for purchase of the Notes in compliance with
advice rendered by its own counsel with regard to applicable federal and state
securities laws. CIBC is duly registered as a broker/dealer under the
Securities Exchange Act of 1934, as amended, and is a member in good standing of
the National Association of Securities Dealers, Inc.
4. INDEMNITY. In consideration of CIBC's agreement to act on behalf of
the Company, notwithstanding any limitations set forth herein, the Company
agrees to
<PAGE>
Advanced Radio Telecom Corp.
November 5, 1996
Page 5
indemnify and hold harmless CIBC, its agents, employees, officers and directors,
and any person who controls CIBC within the meaning of Section 15 of the
Securities Act of 1933, as amended (the "Act") or Section 20 of the Securities
Exchange Act of 1934, as amended (each, an "Indemnified Party" and collectively,
the "Indemnified Parties"), from the against any and all losses, claims,
damages, liabilities and expenses (including, but not limited to, all reasonable
legal expenses, any and all other reasonable expenses incurred in investigating,
preparing or defending against any actin or proceeding, commenced or threatened,
(whether or not any Indemnified Party is a named party)) to which, jointly or
severally, an Indemnified Party may become subject, which are related to (i) any
transaction contemplated by this Agreement the retention of the CIBC under this
Agreement, the performance of services by CIBC hereunder or any involvement or
alleged involvement of CIBC in the Financing or the Future Financings, or (ii)
any untrue statement or alleged untrue statement of fact contained in any
information (oral or written) or document furnished or made available by the
Company (including, without limitation, the Offering Materials), directly by the
Company or through CIBC or otherwise, or any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements contained therein, in light of the circumstances under which they
were made, not misleading. Notwithstanding the foregoing, no Indemnified Party
shall be entitled to indemnification under this Section 4 with respect to any
action, suit or proceeding in which a final judgment (after all appeals or the
expiration of time to appeal) is entered against such Indemnified Party based
primarily upon his gross negligence or willful misconduct ("Disabling Conduct")
and any payment or reimbursement made to such Indemnified Party by the Company
in connection with any such action or proceeding will be repaid by such
Indemnified Party to the Company.
If any action or proceeding (including any governmental proceeding) is
brought or asserted against an Indemnified Party in respect of which indemnity
may be sought against to Company, such Indemnified Party in respect of which
indemnity may be sought against the Company, such Indemnified Party shall
promptly notify the Company in writing of the institution of such action or
proceeding; failure to provide such notice will not, however, relieve the
Company from any obligation or liability it has hereunder or otherwise, except
to the extent such failure results in a material disadvantage to the Company.
CIBC and each such Indemnified Party shall have the right to employ separate
counsel in any such action and to participate in the defense thereof, but the
fees and expenses of such counsel shall be at the expense of CIBC or such
Indemnified Party unless (a) the Company has agreed to pay such fees and
expenses, or (b) the Company shall have failed to assume the defense of such
actio nor proceeding. The Company, at its option, may assume the defense of any
such claim with counsel reasonably satisfactory to CIBC, except if such
Indemnified Party has been advised by counsel that, due to a conflict of
interests or because there may
<PAGE>
Advanced Radio Telecom Corp.
November 5, 1996
Page 6
be legal defenses available to such Indemnified Party that are different from or
additional to defenses available to the Company, separate counsel for the
Company and such Indemnified Party is advisable in which case, the reasonable
fees and expenses of CIBC's counsel, who must be reasonably satisfactory to the
Company, shall be at the expense of the Company, provided, that, upon invoking
such option the Company shall unconditionally and irrevocably commit in writing
to bear all risk with respect to such claim and to keep such Indemnified Party
informed of the progress of any such claim.
The Company agrees that, without the prior written consent of each of the
relevant Indemnified Parties it will not settle, compromise or consent to the
entry of any judgment in any pending or threatened claim, action or proceeding
in respect of which indemnification could be sought hereunder (whether or not
such Indemnified Parties are actual or potential parties to such claim, actio or
proceeding), (i) that involves any equitable relief that binds or purports to
bind such Indemnified Parties and (ii) unless such settlement, compromise or
consent includes an unconditional release for such Indemnified Parties from all
liability arising out of such claim, actin or proceeding. Unless the Company
fails to assume the defense of an action or proceeding, the Company shall not be
liable for any settlement of any such action or proceeding effected without its
written consent (which shall not be unreasonably withheld or delayed), but if
the Company has failed to assume such defense, and if such claim is settled with
the Company's written consent, or if there by a final judgment for the plaintiff
in any such action or proceeding, the Company agrees to indemnify and hold
harmless CIBC and any such Indemnified Party from and against any loss,
liability damage or expense by reason of such settlement or judgment.
If the indemnification provided for in this Section 4 unavailable to an
Indemnified Party in respect of any losses, claims, damages, liabilities and
expenses referred to herein or insufficient to hold an Indemnified Party
harmless (other than by reason of such Person's Disabling Conduct), then the
Company agrees that in lieu of indemnifying such Indemnified Party, it shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such losses, claims, damages, liabilities and expenses (i) in such proportion
as is appropriate to reflect the relative benefits received by them on the one
hand and the Indemnified Party on the other from the sale of the Notes or the
securities offered in the Future Financings or (ii) if the allocation provided
by clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company on the one hand and of the
Indemnified Party on the other in connection with the untrue statements or
omissions or other actions (or alleged untrue statements, omissions or other
actions) which resulted in such losses, claims, damages, liabilities and
expenses, as well as any other relevant equitable considerations. The relative
benefits received by the Company on
<PAGE>
Advanced Radio Telecom Corp.
November 5, 1996
Page 7
the one hand and the Indemnified Party on the other shall be deemed to be in the
same proportion as the total committed purchase price of the Notes or the
securities offered in the Future Financings, less the value of the compensation
which would be received by such Indemnified Party pursuant to the first sentence
of Section 2(a) or Section 2(b) hereof with respect to a sale of such Notes or
securities offered in the Future Financings, respectively, bears to such
compensation. The relative fault of the Company on the one hand and of the
Indemnified Party on the other shall be determined by reference to, among other
things, whether such untrue statements or omissions or other actions (or alleged
untrue statements, omissions or other actions) relate to information supplied or
action taken by the Company on the one hand or by the Indemnified Party on the
other and the relevant persons' relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue statements,
omissions or actions. The amount paid or payable by a party as a result of the
losses, claims, damages, liabilities and expenses referred to above shall be
deemed to include any legal or other fees or expenses reasonably incurred by
such party in connection with investigating or defending any action or claim.
The Company and CIBC agree that it would not be just and equitable if
contribution pursuant to this Section 4 were determined by pro rata allocation
or by any other method of allocation which does not take account of the
equitable considerations referred to above.
The aforesaid indemnity and contribution agreements shall apply to any
related activities engaged in by any Indemnified Party prior to this date and to
any modification of CIBC's engagement hereunder, and shall remain in full force
and effect regardless of any investigation made by or on behalf of CIBC or any
of its agents, employees, officers, directors or controlling persons and shall
survive the delivery and sale of the Notes or the securities offered in the
Future Financings. The Company agrees promptly to notify CIBC of the
commencement of any litigation or proceeding against it or any of its directors,
officers, agents or employees in connection with the transactions contemplated
hereby. The agreements contained in this Section 4 shall remain in full force
and effect following the completion or termination of CIBC's engagement
hereunder and shall be in addition to any liability that the Company may
otherwise have to CIBC and its agents, employees, officers, directors or
controlling persons.
The Company also agrees that no Indemnified Party shall have any liability
(whether direct or indirect, in contract or tort or otherwise) to the Company,
its owners, creditors or security holders for or in connection with advice or
services rendered or to be rendered by CIBC pursuant to this Agreement, the
transactions contemplated hereby or any Indemnified Party's actions or inactions
in connection with any such advice, services or transactions except to the
extent liabilities (and related expenses) of the Company are determined by a
final judgment of a court of
<PAGE>
Advanced Radio Telecom Corp.
November 5, 1996
Page 8
competent jurisdiction to have resulted primarily from such Indemnified Party's
Disabling Conduct in connection with any such advice, actions, inactions or
services.
5. SURVIVAL OF CERTAIN PROVISIONS. The representations, warranties,
covenants and confidentiality provisions contained in Section 3, the provisions
contained in Section 4 of this Agreement and the Company's obligation to pay
CIBC may compensation earned pursuant hereto or reimburse any expenses (pursuant
to Section 2 hereof) as provided for herein shall remain operative and in full
force and effort regardless of (a) any completion of the Engagement (b) any
termination of this Agreement, or (c) any investigation reads by or on behalf of
CIBC or any affiliates of CIBC, and shall be binding upon, and shall insure to
the benefit of any successors, assigns, heirs and personal representatives of
the Company, CIBC, the Indemnified Parties and any such person.
6. CONDITIONS OF PLACEMENT. It is understood that the obligations of
CIBC are to use reasonable efforts to place the Notes and the securities offered
in the Figure Financing and there is no obligation on the part of CIBC to
purchase, and no obligaion on the part of the Company to offer or sell, the
Notes or the securities offered in the Future Financings (except as may be
superseded by fixture underwriting agreements with respect to the Future
Financings). The obligations of CIBC are subject to satisfactory completion of
a due diligence investigation by CIBC and its counsel, market conditions and the
form and terms of the Notes and the securities offered in the Future Financings,
the Offering Materials, and all related documents being mutually acceptable to
the Company and CIBC.
7. NOTICES. Notice given pursuant to any of the provisions of this
Agreement shall be in writing and shall be mailed or delivered (a) if to the
Company, at its offices at 500 108th Avenue, N.E., Suite 2600, Bellevue,
Washington 98004, Attention: Mr. Thomas A. Grina; and (b) if to CIBC, at its
offices at 425 Lexington Avenue, 3rd Floor, New York, NY 10017, Attention: Mr.
Jay R. Bloom.
The parties hereto, by written notice to the other parties, may designate
additional or different addresses for subsequent notices or communications.
8. COUNTERPARTS. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, but all of which
shall constitute one and the same instrument.
9. THIRD PARTY BENEFICIARIES. This Agreement has been and is made solely
for the benefit of the parties hereto, and their respective successors and
assigns, and no other person shall acquire or have any right under or by virtue
of this Agreement.
<PAGE>
Advanced Radio Telecom Corp.
November 5, 1996
Page 9
10. CHOICE OF LAW, JURISDICTION, RECOVERY OF ATTORNEY'S FEES. This
Agreement shall be governed by, and construed in accordance with, the laws of
the State of New York (without regard to its conflict of laws provisions). The
Company hereby irrevocably submits to the jurisdiction of the Federal and New
York State courts located in the City of New York in connection with any suit,
action or proceeding related to this Agreement or any of the matters
contemplated hereby, irrevocably waives any defence of lack of personal
jurisdiction and irrevocably agrees that all claims in respect of any suit,
action or proceeding may be heard and determined in any such court. The Company
irrevocably waives, to the fullest extent it may effectively do so under
applicable law, any objection which it may now or hereafter have to the laying
of venue of any such suit, action or proceeding brought in any such court has
been brought in an inconvenient forum. The Company further agrees to pay or
reimburse CIBC for all reasonable costs and expenses incurred by CIBC in
connection with the enforcement of any of its rights under this Agreement,
including without limitation, all attorneys fees and expenses of its counsel.
11. HEADINGS. The section headings in this Agreement have been inserted
as a matter of convenience of reference and are not a part of this Agreement.
12. PRESS ANNOUNCEMENTS. At any time after the consummation or other
public announcement of any portion of the Engagement and with prior approval of
the Company (which approval shall not be unreasonably withheld or delayed).
CIBC may place an announcement (at its expense) in such newspapers and
publications as it may choose, stating that CIBC has acted as exclusive
placement agent of the Notes or manager of the Future Financing contemplated by
this Agreement.
13. TERM. Except as provided herein, the Agreement shall extend from the
date of this letter until the later of: (i) the last date that any of the Notes
remain outstanding, and (ii) the earlier of (a) two years following the issuance
of the Notes; and (b) the time at which the Company has issued through CIBC at
least $250 million in gross proceeds of securities offered in the Future
Financings. The Agreement may be extended by mutual consent of the parties.
14. AMENDMENT. This Agreement may not be modified or amended except in
writing duly executed by the parties hereto.
15. ASSIGNMENT. The Company consents to the assignment of this Agreement
to any affiliate of, or successor to, CIBC and the assumption of such affiliate
or successor is authorized pursuant to all applicable regulations to perform
CIBC's obligations hereunder.
<PAGE>
Advanced Radio Telecom Corp.
November 5, 1996
Page 10
16. ENFORCEABILITY. If any term, provision, covenant or restriction
contained in this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void, unenforceable or against its regulatory
policy, the remainder of the terms, provisions, covenants and restrictions
contained in this Agreement shall remain in full force and effect and shall in
no way be affected, impaired or invalidated.
Please sign and return the original and one copy of this letter to indicate
your acceptance of the terms set forth herein whereupon this letter and your
acceptance shall constitute a binding agreement between the Company and CIBC.
This letter amends and supersedes the letter agreement dated October 16, 1996
between CIBC and the Company.
Very truly yours,
CIBC Wood Gundy Securities Corp.
By:
-------------------------
Mr. Jay R. Bloom
Managing Director
Accepted and agreed to
as of November 5, 1996
Advanced Radio Telecom Corp.
By:
------------------------------------
Mr. Thomas A. Grina
Executive Vice President & Chief Executive Officer
<PAGE>
Exhibit 10.44(b)
October 16, 1996
Mr. Thomas A. Grina
Executive Vice President &
Chief Financial Officer
Advanced Radio Telecom Corp.
500 108th Avenue, NEN.E.
Suite 2600
Bellevue, Washington 98004
Gentlemen:
This agreement (the "Agreement") will confirm that Advanced Radio Telecom
Corp. and Advanced Radio Technologies Corporation (collectively, the "Company")
have agreed, for good and valuable consideration, the receipt of which is hereby
acknowledged , to offer to retain Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") as the sole book-running manager on customary
terms of the Company's future public or private offerings of (i) equity
securities (including common stock (whether issued in the Company's proposed
initial public offering of its Common Stock ("the IPO")or otherwise), securities
equivalent to common stock such as alphabet or targeted stock or preference
stock with characteristics similar to common stock, and securities convertible
into common stock) and (ii) debt securities (including investment grade debt
securities, non-investment grade debt securities, preferred stock, convertible
debt and convertible preferred stock), excluding for purposes of (i) and
(ii) above private equity issues, bank financings and vendor financings
initiated and negotiated directly between the Company (including its officers
and directors) and such investors and the purchase by certain investors of up to
$50 million of the Company's senior secured notes pursuant to the CIBC Financing
as described in the Company's registration statement relating to the IPO
(collectively, the "Future Financings").
1. RETENTION. (a) Subject to the provisions set forth below in this
Agreement, the Company hereby agrees to offer to retain Merrill Lynch as the
sole book-running manager of the Company's Future Financings on customary terms.
The Company represents that, (i) on and after the date hereof, it will not enter
into discussions or become obligated under any agreement with any other agent,
initial purchaser or underwriter with respect to a private or public offering of
any equity securities or debt securities, excluding private equity issues, bank
financings and vendor financings initiated and negotiated directly between the
Company (including its officers and directors) and such investors, without first
discussing such transaction with Merrill Lynch and offering Merrill Lynch the
opportunity to act as sole book-running manager in connection therewith, and
(ii) the Company has disclosed to Merrill Lynch all material agreements with any
other agents, underwriters, initial purchasers or advisors.
(a) Merrill Lynch, at its sole option, may accept the Company's
offer to act as sole book-running manager of any of the Company's Future
Financings, such acceptance being subject to, without limitation,
(a) satisfactory completion of Merrill Lynch's due diligence, (b) market
conditions
<PAGE>
Advanced Radio Telecom Corp.
October 16, 1996
Page 2
which, in Merrill Lynch's sole judgment, are satisfactory at the time of any
such Future Financing, (c) receipt by Merrill Lynch of all internal commitment
committee approvals, (d) no material adverse change in the condition, financial
or otherwise, of the Company, its business affairs or business prospects,
(e) mutually acceptable offering size, structure and pricing and (f) execution
of a customary Merrill Lynch agreement containing customary terms and conditions
for such Future Financing.
2. COMPENSATION. In consideration for services rendered hereunder
by Merrill Lynch, the Company agrees to pay Merrill Lynch as follows:
(a) If Merrill Lynch accepts the Company's offer with respect to
any Future Financing, the Company agrees to pay to Merrill Lynch not less than
55% of all fees and compensation payable to all managers in respect of the
Future Financings (based on customary market terms) if two managers are engaged,
or (ii) not less than 50% of all fees and compensation payable to all managers
in respect of the Future Financings (based on customary market terms) if three
or more managers are engaged. Such fees shall be paid with respect to such
Future Financing if, as and when the closing thereof occurs and shall be paid
directly out of the gross proceeds from the Future Financings by wire transfer
or by delivery to Merrill Lynch of a certified or official bank check or checks
payable to its order in immediately available funds.
(b) Whether or not any portion of this engagement is
consummated, the Company hereby agrees to reimburse Merrill Lynch promptly upon
request (on a monthly basis) and upon presentation of appropriate documentation
thereof in reasonable detail for all reasonable out-of-pocket expenses
(including word processing charges, messenger and duplicating services, research
document expenses, travel expenses, legal fees and expenses and other customary
expenditures) incurred by it in connection with this engagement; PROVIDED,
HOWEVER, that the Company shall have no obligation to reimburse Merrill Lynch
for (i) fees and disbursements of its legal counsel if any Future Financing
closes, or (ii) expenses in connection with any Future Financing (other than
legal fees and disbursements as aforesaid) that are customarily borne by the
representatives of the underwriters or placement agents under customary Merrill
Lynch underwriting or placement agreements.
(c) No fee paid or payable to Merrill Lynch or any of its
affiliates shall be credited against any other fee paid or payable to Merrill
Lynch or any of its affiliates. Nothing contained in this Agreement shall
require Merrill Lynch or any of its affiliates to lend any amounts, purchase any
securities or make any investment in the Company or any of its affiliates for
its own account, directly or indirectly.
3. OFFERING MATERIALS. (a) The Company represents and warrants to
Merrill Lynch that this Agreement has been duly authorized, executed and
delivered by the Company and, assuming the due execution by Merrill Lynch,
constitutes a legal, valid and binding agreement of the Company, enforceable
against the Company in accordance with its terms.
(a) The Company will furnish or cause to be furnished to Merrill
Lynch financial and other information which Merrill Lynch believes is
appropriate to its assignment as well as with offering documentation with
respect to Future Financings (collectively, together with amendments and
supplements thereto, the "Offering Materials").
(b) Merrill Lynch will perform due diligence; however the
Company recognizes and confirms that Merrill Lynch (i) will use and rely
primarily on the Offering Materials and on information available from generally
recognized public sources in performing the services contemplated by this
<PAGE>
Advanced Radio Telecom Corp.
October 16, 1996
Page 3
Agreement without having independently verified the same, (ii) does not assume
responsibility for the accuracy or completeness of the Offering Materials and
such other information, (iii) will not make an appraisal of any assets or
liabilities of the Company and (iv) reserves the right to continue to perform
due diligence during the course of this engagement until this engagement is
consummated.
(c) Each of the parties hereto agrees that any reference to the
other party or any release or communication in connection with this engagement
is subject to the other party's prior written approval. If any party hereto
terminates this engagement prior to the dissemination of any such release,
communication or material, no reference shall be made therein to such party.
(d) Without Merrill Lynch's prior written consent, no advice
rendered by Merrill Lynch in connection with the services performed by Merrill
Lynch pursuant to this Agreement will be quoted by the Company, its affiliates
or representatives nor will any such advice be referred to in any report,
document, release or other communication, whether written or oral, prepared,
issued or transmitted by such person, except to the extent required by law (in
which case the appropriate party shall so advise the other in writing prior to
such use and shall consult with the other with respect to the form and timing of
disclosure).
(e) The Company represents that the Offering Materials will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements contained
therein, in light of the circumstances under which they are made, not
misleading. The Company agrees to advise Merrill Lynch immediately of the
occurrence of any event or any other change known to it which results in any
Offering Materials containing any untrue statement of a material fact or
omitting to state any material fact required to be stated therein or necessary
to make the statements contained therein, in light of the circumstances under
which they were made, not misleading, and to promptly deliver to Merrill Lynch
copies of any announcement, annual report, financial report or such other
information concerning the business and financial condition of the Company.
4. INDEMNITY. In consideration of Merrill Lynch's agreement to act
on behalf of the Company, notwithstanding any limitations set forth herein, the
Company agrees to indemnify and hold harmless Merrill Lynch and its affiliates,
and its and their respective directors, officers, employees, agents and
controlling persons (Merrill Lynch and each such person being an "Indemnified
Party"), from and against any and all losses, claims, damages and liabilities,
joint or several, to which any Indemnified Party may become subject under any
applicable law or otherwise, related to or arising out of (i) any untrue
statement or alleged untrue statement of a material fact contained in any
information (oral or written) or other documents furnished or made available by
the Company to Merrill Lynch or any of its representatives (including, without
limitation, the Offering Materials), or the omission or alleged omission to
state therein a material fact necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading, or (ii) any
transaction contemplated by this Agreement or the engagement of Merrill Lynch
pursuant to, and the performance by Merrill Lynch of the services contemplated
by this Agreement or any involvement or alleged involvement of Merrill Lynch in
the Future Financings, and will reimburse any Indemnified Party for all expenses
(including reasonable counsel fees and expenses) as they are incurred in
connection with the investigation or, preparation for or defense of any pending
or threatened claim or any action or proceeding arising therefrom, whether or
not such Indemnified Party is a party and whether or not such claim, action or
proceeding is initiated or brought by or on behalf of the Company; PROVIDED,
HOWEVER, that the Company will not be liable under clause (ii) hereof to the
extent that any loss, claim, damage or liability is found in a final judgment by
a court to have resulted from Merrill Lynch's bad faith, willful misconduct or
gross negligence. The Company also agrees that no Indemnified Party shall have
any
<PAGE>
Advanced Radio Telecom Corp.
October 16, 1996
Page 4
liability (whether direct or indirect, in contract or tort or otherwise) to the
Company or its security holders or creditors related to or arising out of the
engagement of Merrill Lynch pursuant to, or the performance by Merrill Lynch of
the services contemplated by, this Agreement, except to the extent that any
loss, claim, damage or liability is found in a final judgment by a court to have
resulted from Merrill Lynch's bad faith, willful misconduct or gross negligence.
If any action or proceeding (including any governmental proceeding) is
brought or asserted against an Indemnified Party in respect of which indemnity
may be sought against the Company, such Indemnified Party shall promptly notify
the Company in writing of the institution of such action or proceeding; failure
to provide such notice will not, however, relieve the Company from any
obligation or liability it has hereunder or otherwise, except to the extent such
failure results in a material disadvantage to the Company. Merrill Lynch and
each such Indemnified Party shall have the right to employ separate counsel in
any such action and to participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of Merrill Lynch or such
Indemnified Party unless (a) the Company has agreed to pay such fees and
expenses, or (b) the Company shall have failed to assume the defense of such
action or proceeding. The Company, at its option, may assume the defense of any
such claim with counsel reasonably satisfactory to Merrill Lynch, except if such
Indemnified Party has been advised by counsel that, due to a conflict of
interests or because there may be legal defenses available to such Indemnified
Party that are different from or additional to defenses available to the
Company, separate counsel for the Company and such Indemnified Party is
advisable in which case, the reasonable fees and expenses of Merrill Lynch's
counsel shall be at the expense of the Company; PROVIDED that, upon invoking
such option the Company shall unconditionally and irrevocably commit in writing
to bear all risk with respect to such claim and to keep such Indemnified Party
informed of the progress of any such claim.
The Company agrees that, without the prior written consent of each of the
relevant Indemnified Parties, it will not settle, compromise or consent to the
entry of any judgment in any pending or threatened claim, action or proceeding
in respect of which indemnification could be sought hereunder (whether or not
such Indemnified Parties are actual or potential parties to such claim, action
or proceeding), (i) that involves any equitable relief that binds or purports to
bind such Indemnified Parties and (ii) unless such settlement, compromise or
consent includes an unconditional release for such Indemnified Parties from all
liability arising out of such claim, action or proceeding and does not include a
statement as to or an admission of fault, culpability or a failure to act by or
on behalf of an Indemnified Party. Unless the Company fails to assume the
defense of an action or proceeding, the Company shall not be liable for any
settlement of any such action or proceeding effected without its written consent
(which shall not be unreasonably withheld or delayed), but if the Company has
failed to assume such defense, and if such claim is settled with the Company's
written consent, or if there be a final judgment for the plaintiff in any such
action or proceeding, the Company agrees to indemnify and hold harmless Merrill
Lynch and any such Indemnified Party from and against any loss, liability damage
or expense by reason of such settlement or judgment.
If the indemnification provided for in this Agreement is for any reason
held unenforceable by an Indemnified Party, the Company agrees to contribute to
the losses, claims, damages, liabilities and expenses for which such
indemnification is held unenforceable (i) in such proportion as is appropriate
to reflect the relative benefits received by the Company, on the one hand, and
the Indemnified Party, on the other hand, of any Future Financing or (ii) if
(but only if) the allocation provided by clause (i) is for any reason held
unenforceable, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) but also the relative fault of the
Company, on the one hand, and of the Indemnified Party, on the other hand, as
well as any other relevant equitable considerations. The relative benefits
received by the
<PAGE>
Advanced Radio Telecom Corp.
October 16, 1996
Page 5
Company, on the one hand, and the Indemnified Party, on the other hand, shall be
deemed to be in the same proportion as the total net proceeds of any securities
offered in the Future Financing bears to any fees paid or to be paid to Merrill
Lynch in connection with any such Future Financings; PROVIDED, HOWEVER, that, to
the extent permitted by applicable law, in no event shall the respective
Indemnified Parties be required to contribute an amount in excess of the fees
actually paid to Merrill Lynch in connection with any such Future Financing.
The relative fault of the Company on the one hand and of the Indemnified Party
on the other shall be determined by reference to, among other things, whether
such untrue statements or omissions or other actions (or alleged untrue
statements, omissions or other actions) relate to information supplied or action
taken by the Company on the one hand or by the Indemnified Party on the other
and the relevant persons' relative intent, knowledge, access to information and
opportunity to correct or prevent such untrue statement, omissions or actions.
The amount paid or payable by a party as a result of the losses, claims,
damages, liabilities and expenses referred to above shall be deemed to include
any legal or other fees or expenses reasonably incurred by such party in
connection with investigating or defending any action or claim. The Company and
Merrill Lynch agree that it would not be just and equitable if contribution
pursuant to this Section 4 were determined by pro rata allocation or by any
other method of allocation which does not take account of the equitable
considerations referred to above.
The aforesaid indemnity and contribution agreements shall apply to any
modification of Merrill Lynch's engagement hereunder, and shall remain in full
force and effect regardless of any investigation made by or on behalf of Merrill
Lynch or its affiliates or its or their respective directors, officers,
employees, agents or controlling persons and shall survive the delivery and sale
of the securities offered in the Future Financings. The Company agrees promptly
to notify Merrill Lynch of the commencement of any litigation or proceeding
against it or any of its directors, officers, agents or employees in connection
with the transactions contemplated hereby. The agreements contained in this
Section 4 shall remain in full force and effect following the completion or
termination of Merrill Lynch's engagement hereunder and shall be in addition to
any liability that the Company may otherwise have to Merrill Lynch and its
affiliates and its and their respective directors, officers, employees, agents
or controlling persons.
In the event the parties enter into an agreement referred to in Sections 1
and 6, the provisions thereof relating to indemnification, contribution and
notice, defense and settlement of claims shall supersede the provisions of this
paragraph 4 solely with respect to the subject matter of such other agreement.
5. SURVIVAL OF CERTAIN PROVISIONS. The representations, warranties
and covenants contained in Section 3, the provisions contained in Section 4 of
this Agreement and the Company's obligation to pay Merrill Lynch any
compensation pursuant hereto or reimburse any expenses (pursuant to Section 2
hereof) as provided for herein shall remain operative and in full force and
effect regardless of (a) any completion of this engagement, (b) any termination
of this Agreement, or (c) any investigation made by or on behalf of Merrill
Lynch or any affiliate of Merrill Lynch, and shall be binding upon, and shall
inure to the benefit of, any successors, assigns, heirs and personal
representatives of the Company, Merrill Lynch, the Indemnified Parties and any
such person.
6. NO COMMITMENT. This Agreement is not intended to constitute, and
should not be construed as, an agreement or commitment between the Company and
Merrill Lynch relative to underwriting or purchasing securities in any Future
Financings, and Merrill Lynch or the Company, in its respective sole judgment
and discretion, may determine at any time not to proceed with any such
transaction. Such an agreement will be made only by the execution of a
definitive agreement in Merrill
<PAGE>
Advanced Radio Telecom Corp.
October 16, 1996
Page 6
Lynch's customary form and shall be conditioned further upon all necessary
approvals and upon compliance by the Company with the terms contained in this
Agreement and such definitive documentation.
7. NOTICES. Notice given pursuant to any of the provisions of this
Agreement shall be in writing and shall be mailed or delivered (a) if to the
Company, at its offices at 500 108th Avenue, NE, Suite 2600, Bellevue,
Washington 98004, Attention: Mr. Thomas A. Grina; and (b) if to Merrill Lynch at
its offices at World Financial Center, North Tower, 250 Vesey Street, 29th
Floor, New York, New York 10281-1229, Attention: Mr. Steven C. Jones. The
parties hereto, by written notice to the other parties, may designate additional
or different addresses for subsequent notices or communications.
8. COUNTERPARTS. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original, but all of
which shall constitute one and the same instrument.
9. THIRD PARTY BENEFICIARIES. This Agreement has been and is made
solely for the benefit of the parties hereto, and their respective successors
and assigns, and no other person shall acquire or have any right under or by
virtue of this Agreement.
10. CHOICE OF LAW, JURISDICTION, RECOVERY OF ATTORNEY'S FEES. This
Agreement shall be governed by, and construed in accordance with, the laws of
the State of New York (without regard to its conflict of laws provisions). The
Company hereby irrevocably submits to the jurisdiction of the Federal and New
York State courts located in the City of New York in connection with any suit,
action or proceeding related to this Agreement or any of the matters
contemplated hereby, irrevocably waives any defense of lack of personal
jurisdiction and irrevocably agrees that all claims in respect of any suit,
action or proceeding may be heard and determined in any such court. The Company
irrevocably waives, to the fullest extent it may effectively do so under
applicable law, any objection which it may now or hereafter have to the laying
of venue of any such suit, action or proceeding brought in any such court and
any claims that any such suit, action or proceeding brought in any such court
has been brought in an inconvenient forum. Subject to paragraph 2(c) above, the
Company further agrees to pay or reimburse Merrill Lynch for all reasonable
costs and expenses incurred by Merrill Lynch in connection with the enforcement
of any of its rights under this Agreement, including without limitation, all
attorneys fees and expenses of its counsel.
11. HEADINGS. The section headings in this Agreement have been as a
matter of convenience of reference and are not a part of this Agreement.
12. PRESS ANNOUNCEMENTS. At any time after the consummation or other
public announcement of any portion of this engagement and with prior approval of
the Company (which approval shall not be unreasonably withheld or delayed),
Merrill Lynch may place an announcement (at its expense) in such newspapers and
publications as it may choose, stating that Merrill Lynch has acted as sole
book-running manager of the Future Financings contemplated by this Agreement.
13. TERM. Except as provided herein, the Agreement shall extend from
the date of this letter until the earlier of (i) two years following the IPO and
(ii) the time at which the Company has issued through Merrill Lynch at least
$300 million in gross proceeds of any combination of debt and/or equity
securities (without giving effect to gross proceeds from the IPO).
<PAGE>
Advanced Radio Telecom Corp.
October 16, 1996
Page 7
14. AMENDMENT. This Agreement may not be modified or amended except
in writing duly executed by the parties hereto.
15. ASSIGNMENT. The Company consents to the assignment of this
Agreement to any affiliate of, or successor to, Merrill Lynch and the assumption
of such affiliate or successor of Merrill Lynch's rights and obligations
hereunder.
16. ENFORCEABILITY. If any term, provision, covenant or restriction
contained in this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void, unenforceable or against its regulatory
policy, the remainder of the terms, provisions, covenants and restrictions
contained in this Agreement shall remain in full force and effect and shall in
no way be affected, impaired or invalidated.
17. WAIVER OF TRIAL BY JURY. Each of Merrill Lynch and the Company
(in its own behalf and, to the extent permitted by applicable law, on behalf of
its shareholders) waives all right to trial by jury in any action, proceeding,
claim or counterclaim (whether based upon contract, tort or otherwise) related
to or arising out of the engagement of Merrill Lynch pursuant to, or the
performance by Merrill Lynch of the services contemplated by, this agreement.
<PAGE>
Advanced Radio Telecom Corp.
October 16, 1996
Page 8
If the foregoing terms correctly set forth our agreement, please confirm by
signing and returning to us the duplicate copy of this agreement. We look
forward to working with you toward the successful conclusion of this engagement.
Very truly yours,
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
By: ________________________________
Steven C. Jones
Vice President
Investment Banking Group
Confirmed and accepted as of the
date first written above.
Advanced Radio Telecom Corp.
By: ________________________________
Name:
Title:
Advanced Radio Technologies Corporation
By: ________________________________
Name:
Title:
Dated: October ____, 1996
<PAGE>
SUMMARY OF TERMS AND CONDITIONS
ADVANCED RADIO TELECOM CORP.
12/19/96
THIS SUMMARY OF TERMS AND CONDITIONS IS PROVIDED FOR DISCUSSION PURPOSES ONLY
AND DOES NOT REPRESENT AN OFFER, AGREEMENT OR COMMITMENT TO LEND. THE TERMS
ON WHICH CANADIAN IMPERIAL BANK OF COMMERCE ("CIBC, INC.") MIGHT EXTEND
CREDIT TO ADVANCED RADIO TELECOM CORP. AND SUBSIDIARIES IS SUBJECT TO OUR
THOROUGH DUE DILIGENCE OF THE COMPANY INCLUDING BUT NOT LIMMITED TO A REVIEW
OF THE COMPANY'S EXISTING AND PROSPECTIVE BUSINESS, ASSETS, MARKETS,
INDUSTRY, MATERIAL CONTRACTS, GOVERNMENT OBLIGATIONS, DOCUMENTATION,
OWNERSHIP STRUCTURE AND INDEBTEDNESS.
BORROWER: Advanced Radio Telecom Corp. ("ART")
GUARANTORS: All Subsidiaries of the Borrower.
AGENT AND
UNDERWRITER: Canadian Imperial Bank of Commerce ("CIBC, Inc.")
FACILITY: $100,000,000 Senior Secured Revolving Credit Facility
converting to an Amortizing Term Loan.
TENOR: To be determined upon review of the company's business plan.
AGENT'S
COMMITMENT: $100,000,000
SYNDICATION
MANAGEMENT: The Agent will manage all aspects of the syndication,
including the timing of offers to potential lenders, the
amounts offered to potential lenders, the acceptance of
commitments and the compensation provided.
PURPOSE: To finance the construction of the Borrower's network, to
finance continued capital expenditures, to finance
Permitted Acquisitions, operating losses and working
capital.
CLOSING: No later than ----------------
AVAILABILITY: All loans will be subject to incurrence provisions and all
other terms and conditions of the Credit Agreement.
<PAGE>
INCURRENCE
PROVISIONS: To be determined, but to include:
- Total Debt to Operating Cash Flow
- Minimum number of links
- Minimum number of links per [pop or market, to be
determined]
- Minimum amount of revenue/link
Incurrence will also be subject to pro-forma compliance with
the terms of this agreement and other agreements of the
Borrower and its Subsidiaries.
AMORTIZATION: To be determined upon review of business plan.
MANDATORY
PREPAYMENTS: - During the Term Loan period, % of Excess Cash Flow for
the most recently completed year, with such reductions
applied to required amortization in inverse order of
maturity.
- Proceeds from additional equity shall be applied first to
reduce outstandings under the facility.
- Proceeds from Permitted Asset Sales shall be used to reduce
outstandings under the facility.
Early termination costs of fixed rate borrowing contracts
shall be for the account of the Borrower.
VOLUNTARY
COMMITMENT
REDUCTIONS: At the Borrower's discretion, provided the Agent receives
5 business days prior written notice, early termination
costs are borne by the Borrower, and such commitment
reductions will not reduce scheduled commitment reductions.
RATE OF INTEREST: At the Borrower's option, Base Rate and LIBOR options will
be available. The applicable margin will be based on the
ratio of Total Debt to Annualized Operating Cash Flow, as
at the end of each fiscal quarter. Initially, the applicable
margins shall be 2.50% in the case of Base Rate loans and
3.50% in the case of LIBOR based loans. Appropriate
reduction points based on the ratio will be determined
upon review of the business plan.
INTEREST PERIODS: 1, 2, 3, 6 and 12 months on LIBOR rate loans, subject to
availability.
<PAGE>
DEFAULT RATE: 3% above the highest margin applicable under the Base Rate
option upon an event of default.
FEES AND
EXPENSES: The Borrower will pay all reasonable fees and expenses of
Agent bank's legal counsel during the course of this
transaction. In addition, the Borrower will pay to the
Agent the following fees:
1. Structuring Fee: $ [ ]
2. Facility Fee 3.50% payable at closing
3. Commitment Fee: Beginning at the Commitment Date,
1/2% per annum on the unused
portion of the facility, payable
quarterly in arrears.
SECURITY: First priority perfected security interest in all assets
of the Borrower and a pledge of the stock and assets of
the Borrower's direct and indirect subsidiaries. [Limited
exceptions will be made for assets of Unrestricted
Subsidiaries, to be determined.]
Pledge of stock of special purpose FCC license holding
entities.
CONDITIONS
PRECEDENT: Conditions precedent to initial funding will be customary
to a financing of this nature, including but not limited to
the following:
1. No material adverse change in the business, properties,
financial conditions, results of operations, or prospects
of the Borrower and its Subsidiaries has occurred since
[ ]. The Agent shall not become aware of any previously
undisclosed information which the Agent reasonably believes
could have a material adverse effect on the business,
properties, financial condition, results of operations,
or prospects of the Borrower or its Subsidiaries.
2. The Borrower and its Subsidiaries shall not be
prevented by any person from entering into a credit
agreement on the terms and conditions contained herein.
<PAGE>
3. The execution, delivery and performance of the loan
documents does not and will not violate or cause a
default under any material agreement to which the Borrower
and its Subsidiaries is a party.
[4. The Borrower and its Subsidiaries shall not be
restricted in any way from raising public debt or equity
except as agreed to herein.]
5. There is no litigation or other proceeding that would
materially affect the Borrower and its Subsidiaries or
this financing.
6. All necessary documentation has been completed,
including but not limited to a credit agreement and
security agreements acceptable to the Agent and its
counsel. Such documentation to incorporate normal terms
and conditions, representations and warranties, yield
protection, increased cost and capital adequacy provisions,
affirmative and negative covenants, indemnification
provisions and events of default.
7. The Agent shall be satisfied with the corporate and
capital structure of the Borrower and its Subsidiaries.
8. All FCC due diligence shall have been completed to
the satisfaction of the Agent and its counsel. Agent and
its counsel shall have received evidence of their
satisfaction, that the Borrower has obtained all
authorizations required by the FCC for the construction
and operation of 38 gigahertz wireless links in accordance
with the company's Business Plan.
9. The Agent shall have received all fees payable as
outlined above.
10. The Agent shall have received and be satisfied with
the company's Business Plan, which shall include financial
projections extending through the term of the Facility
along with management's assumptions in creating such
projections.
<PAGE>
11. The Agent shall have received a solvency opinion and
such opinion shall be satisfactory to the Agent.
[Necessity to be determined upon review of use of proceeds.]
12. Successful completion of a public offering of unsecured
notes with net proceeds to ART of at least $ and on
terms and conditions satisfactory to the Agent. All
proceeds from such offerings shall have been used for the
construction and operation of the company's network, for
permitted acquisitions, capital expenditures, to fund
operating losses or working capital. [Provision can be
eliminated if offering is completed prior to commitment
date.]
13. The Borrower shall have delivered a Compliance
Certificate demonstrating compliance with all covenants
on a pro-forma basis, and conditions precedent including
all conditions of lending.
SUBSEQUENT
BORROWINGS: After giving effect to any Borrowing, the Borrower and its
Subsidiaries shall be in compliance with all requirements
under the credit agreement.
No Default and Compliance with Incurrence Provisions.
All Representations and Warranties remain true and correct.
[Subject to materiality to be covered in documentation of
each Representation and Warranty.]
REPRESENTATIONS
AND WARRANTIES: Usual for facilities and transactions of this type, and
others to be specified by the Agent, including but not
limited to corporate existence, good standing,
authorization, FCC licenses, financial statements, title
to assets, ownership of stock, no material adverse change,
litigation, no violation of agreements or instruments,
compliance with law, taxes, accuracy of information.
<PAGE>
FINANCIAL
COVENANTS: This facility will be governed by financial and other
affirmative and negative covenants, including but not
limited to the following:
TOTAL DEBT TO ANNUALIZED OPERATING CASH FLOW
The Borrower will not permit the ratio of the aggregate
principal amount of consolidated Total Debt outstanding
at any time during the respective periods below to
Operating Cash Flow determined as of the end of the most
recently ended quarterly period to exceed the respective
ratios indicated:
Total Debt to
Period Operating Cash Flow
------ -------------------
[To Be Determined]
Interest Coverage
-----------------
The Borrower will not permit the ratio of Operating Cash
Flow to Cash Interest Expense for the Trailing four quarter
period to be less than the respective ratios indicated
below:
Interest
Period Coverage
[To Be Determined]
ProForma Fixed Charge Coverage
------------------------------
Commencing upon the conversion of the facility from a
revolving credit facility to a term loan, the Borrower
shall not permit the ratio of Cash Flow Available for
Debt Service as of the end of any quarter, to Pro Forma
Fixed Charges as of the end of such quarter to be less
than [1.00 to 1].
Total Debt per Total Links
--------------------------
The Borrower shall not permit the ratio of Total Debt
outstanding as at the end of the most recently ended
fiscal quarter to Total Links (to be defined) as of such
date to be greater than the respective amounts indicated
below:
[To Be Determined]
<PAGE>
Performance Tests
Performance tests including but not necessarily limited
to minimum revenues, minimum Operating Cash Flow (or
maximum loss), minimum revenue per link and minimum
number of links will also apply. Levels will be determined
upon review of the business plan.
OTHER COVENANTS: Within 180 days of closing and at all times thereafter the
Borrower shall maintain interest rate protection in a form
reasonably acceptable to the Agent on at least 50% of the
Facility then outstanding at an effective rate and for a
period acceptable to the Agent.
RESTRICTED
PAYMENTS: The Borrower will not directly or indirectly declare, order,
pay or make any Restricted Payment.
The Borrower and its Subsidiaries shall not make any
acquisitions other than Permitted Acquisitions (to be
defined).
PERMITTED
INDEBTEDNESS: The Borrower and its Subsidiaries shall not incur, assume
or guarantee any indebtedness except:
1. Commitments with respect to this facility.
2. Up to $ in public unsecured notes on
terms satisfactory to the Agent. [Specifically the notes
currently being contemplated.]
3. Current liabilities in the ordinary course of business.
4. Liabilities resulting from interest rate hedging
obligations.
PERMITTED LIENS: The Borrower and its Subsidiaries will not incur any liens
except as related to this facility.
ACQUISITIONS,
INVESTMENTS,
MERGERS,
SALE OF ASSETS: 1. The Borrower and its Subsidiaries will not acquire
or merge unrelated entities, except for Permitted
Acquisitions.
<PAGE>
2. The Borrower and its Subsidiaries will not make
investments other than investments in securities of high
quality, liquid and with maturities less than 90 days.
3. The Borrower and its Subsidiaries will not sell
assets except for Permitted Asset Sales (to be defined),
excluding transactions in the ordinary course of business.
FINANCIAL
REPORTING: The Borrower will provide financial information as
follows:
1. Audited consolidated annual financial statements
prepared by a recognized accounting firm acceptable to
the Agent and the Banks within 90 days of the Borrower's
fiscal year-end.
2. Unaudited quarterly consolidated and consolidating
financial statements within 45 days of the end of each
quarter.
3. Unaudited monthly consolidating financial statements
within 30 days of the end of each month.
4. Compliance Certificates with detailed calculations
of covenant compliance concurrently with the quarterly
and annual financial statement's and prior to each
borrowing under the Facility.
5. Annual budgets within 30 days of the Borrower's
fiscal year-end.
6. Additional information as each lender may reasonably
request from time to time.
EVENTS OF DEFAULT: Customary for transactions and facilities of this type
and others to be specified by the Agent, including but
not limited to nonpayment of principal or interest when
due, violation of covenants, falsity of representations
and warranties in any material respect, actual or asserted
invalidity of security documents and security interests and
the occurrence of any of the following events with respect
to any of the Borrower or its Subsidiaries: cross-default,
cross acceleration, bankruptcy, material judgments, ERISA,
change of control, loss or material impairment of FCC
licenses.
CHANGE OF
CONTROL: [To be drafted upon discussion with the company.]
<PAGE>
ASSIGNMENTS: Each Bank may assign all or part of its interest, rights
and obligations provided that with respect to any partial
assignment, such assignment shall be in amount of at least
$5,000,000.
MAJORITY BANKS: 66 2/3%
GOVERNING LAW: New York.
<PAGE>
EXHIBIT 12
ADVANCED RADIO TELECOM CORP.
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1996
------------------------------
HISTORICAL PRO FORMA
-------------- --------------
<S> <C> <C>
Net loss before fixed charges and income taxes.................................... $18,981,434 $19,073,928
Interest expense, including amortization of deferred financing costs and
discounts........................................................................ 1,396,943 20,546,088
-------------- --------------
Net loss before taxes............................................................. $20,378,377 $39,620,016
-------------- --------------
-------------- --------------
Fixed charges:
Interest expense, including amortization of deferred financing costs and
discounts...................................................................... $1,396,943 $20,546,088
-------------- --------------
Total fixed charges............................................................... $1,396,943 $20,546,088
-------------- --------------
-------------- --------------
Deficiency of net loss to cover fixed charges..................................... $20,378,377 $39,620,016
-------------- --------------
-------------- --------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
------------------------------
HISTORICAL PRO FORMA
-------------- --------------
<S> <C> <C>
Net loss before fixed charges and income taxes.................................... $3,103,303 $3,226,628
Interest expense, including amortization of deferred financing costs and
discounts........................................................................ 131,540 24,616,543
-------------- --------------
Net loss before taxes............................................................. $3,234,843 $27,843,171
-------------- --------------
-------------- --------------
Fixed charges:
Interest expense, including amortization at deferred financing costs and
discounts...................................................................... $131,540 $24,616,543
-------------- --------------
Total fixed charges............................................................... $131,540 $24,616,543
-------------- --------------
-------------- --------------
Deficiency of net loss to cover fixed charges..................................... $3,234,843 $27,843,171
-------------- --------------
-------------- --------------
</TABLE>
<TABLE>
<CAPTION>
AUGUST 23, 1993
(DATE OF
INCEPTION) YEAR ENDED
TO DECEMBER 31,
DECEMBER 31, 1993 1994
------------------ -------------
<S> <C> <C>
Net loss before fixed charges and income taxes................................. $ 6,594 $ 124,245
Interest expense, including amortization of deferred financing costs........... -- 4,375
------- -------------
Net loss before taxes.......................................................... $ 6,594 $ 128,620
------- -------------
Fixed charges:
Interest expense, including amortization of deferred financing costs......... $ -- $ 4,375
------- -------------
Total fixed charges............................................................ $ -- $ 4,375
------- -------------
------- -------------
Deficiency of net loss to cover fixed charges.................................. $ 6,594 $ 128,620
------- -------------
------- -------------
</TABLE>
<PAGE>
EXHIBIT 23(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of
our report dated April 26, 1996, except for Note 5B as to which the date is June
26, 1996, except for the first paragraph of Note 2A, Note 2C and the second
paragraph of Note 11A as to which the date is October 11, 1996, and except for
the fourth paragraph of Note 1A and Note 1C as to which the date is November 12,
1996, on our audits of the financial statements of Advanced Radio Telecom Corp.
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
January 3, 1997
