<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 3, 1997
REGISTRATION NO. 333-19295
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ADVANCED RADIO TELECOM CORP.
(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
PROPOSED MAXIMUM
MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE OFFERING PRICE REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED PER UNIT (1) (1) FEE
<S> <C> <C> <C> <C>
Units............................... 135,000 Units $1,000 $135,000,000 $40,909 (2)
% Senior Notes due 2007........... $135,000,000 N/A N/A (3)
2,025,000
Warrants to Purchase Common Stock... Warrants N/A N/A (3)
Common Stock, $.001 par value per
share (4).......................... 2,731,725 Shares $0.01 $27,317 $8.28 (2)
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457 under the Securities Act.
(2) Previously paid.
(3) As such securities are to be provided without additional cost to purchasers,
no registration fee is required with respect thereto.
(4) Represents the number of shares of Common Stock initially issuable upon
exercise of the Warrants to Purchase Common Stock registered hereby.
------------------------------
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 FEBRUARY 3, 1997
PROSPECTUS
$135,000,000
[LOGO]
135,000 UNITS CONSISTING OF
% SENIOR NOTES DUE 2007
AND 2,025,000 WARRANTS TO PURCHASE SHARES OF COMMON STOCK
------------------
Advanced Radio Telecom Corp. ("ART" or the "Company") is hereby offering
(the "Offering") 135,000 units (the "Units"), each consisting of $1,000
principal amount of % Senior Notes due 2007 (the "Notes") and 15 warrants
(collectively, the "Warrants"), each Warrant representing the right to purchase
1.349 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) of 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 $51.6 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 any 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--Ranking" and "Description of Certain
Indebtedness."
Each Warrant will entitle the holder thereof, subject to certain conditions,
to purchase 1.349 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 2,731,725 shares of
Common Stock, representing approximately 12% 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." On January 31, 1997, the closing price of the Common Stock on the
Nasdaq National Market was $10.75 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 $1,250,000.
------------------------------
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 SECURITIES
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
ACQUISITION OF TELECOM (AS DEFINED) BY THE MERGER (THE "MERGER") OF A
WHOLLY-OWNED SUBSIDIARY OF ADVANCED RADIO TECHNOLOGIES CORPORATION WITH AND INTO
TELECOM 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 THE COMPANY'S CERTIFICATE OF
INCORPORATION TO CHANGE ITS NAME FROM ADVANCED RADIO TECHNOLOGIES CORPORATION 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 81 markets. See "Risk Factors -- Risk of
Non-Consummation of CommcoCCC Acquisition and Other Acquisitions; Commco
Option," "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 approximately 80
revenue-generating radio links installed and operated by the Company and an
additional 99 radio links installed for other carriers.
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
3
<PAGE>
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 88 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 14, 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' research and development activities, the
Company continuously seeks to reduce costs by designing equipment that
allows it to more efficiently utilize its spectrum. For example, the
Company anticipates taking delivery of 38 GHz OC-3 radios SONET compatible
(155 Mbps) within 18-24 months.
5
<PAGE>
CUSTOMERS AND APPLICATIONS
The Company began deploying its links principally on a trial basis in
November 1995 and has since been hiring its staff, building its internal
infrastructure and developing its marketing plans and relationships with
potential customers. The Company has generated only nominal revenues from its
operations to date 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./WorldCom, 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 33.3
Kbps dial-up modem, which is the fastest dial-up modem currently in
widespread commercial use, 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
6
<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 AGREEMENT. In November 1996, ART entered into an agreement with
WorldCom, Inc. ("WorldCom") 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. WorldCom acquired MFS Communications, Inc. on December 31, 1996.
- 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 one-year
terms totalling five additional years upon expiration of its initial term.
See "Business--Agreements Relating to Licenses and Authorizations--ICG
Agreement."
7
<PAGE>
THE OFFERING
THE UNITS
<TABLE>
<S> <C>
Units Offered..................... 135,000 Units, each consisting of $1,000 principal
amount of % Senior Notes due 2007 and 15 Warrants,
each Warrant representing the right to purchase 1.349
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 of 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 $51.6 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..................... $135,000,000 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 $51.6 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 Collateral Agent under
the Pledge Agreement (in each case, 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>
8
<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 future
unsecured, senior indebtedness of the Company and will
rank senior in right of payment to any 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 indebted-
ness. 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.......................... 2,025,000 Warrants which, when exercised, would entitle
the holders thereof to purchase, in the aggregate,
2,731,725 shares of Common Stock (the "Warrant Shares"),
representing approximately 12% 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>
9
<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 and resale, to the extent applicable, 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 -- Ability 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 of 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 1.349 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
respect to the Common Stock, including certain
distributions of shares of Common Stock, issuances of
options or convertible securities, and dividends and
distributions. A Warrant does not entitle the holder
thereof to receive any dividends paid on shares of
Common Stock. See "Description of Warrants."
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 "CIBC
Investors") 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."
10
<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 2,408,559 504,462 2,299,118
Interest and financing expense......................... 131,540 32,658,543 1,396,943 26,577,589
Net loss............................................... 3,234,843 34,633,966 20,378,377 44,713,113
Pro forma net loss per share of Common Stock (3)....... $ 0.30 $ 1.75 $ 2.15 $ 2.43
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) $ 75,455,289
Property and equipment, net................................. 3,581,561 11,019,217 11,019,217
FCC licenses, net........................................... 4,235,734 4,276,780 99,991,780
Total assets................................................ 9,876,559 20,541,997 258,520,252
Short-term debt............................................. -- 9,275,179 --
Long-term debt (including current portion).................. 6,450,000 3,107,422 108,768,695
Total stockholders' equity (deficit)........................ (312,860) (2,995,212) 116,666,949
</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 300,258 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 135,000 Units offered in the Offering assuming $135.0 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 $51.6 million and (c) the value ascribed to the Warrants of
approximately $29.3 million (the value was based on an assumed value of
$10.75 per share of Common Stock, a nominal exercise price per share and an
assumed issuance of Warrants to purchase an aggregate of
11
<PAGE>
2,731,725 shares of Common Stock); (viii) the use of $3.0 million of 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 $10.75 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 because 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.
12
<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 $23.7 million. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The Company currently expects capital expenditures of approximately
$35.0 million in 1997 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. On January 27, 1997, the FCC
granted its consent to the CommoCCC Acquisition, but periods for judicial and
administrative review have not expired. 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 (as
defined), 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."
If the Company were unable to complete the CommcoCCC Acquisition for any
reason, the Company's footprint could be considerably smaller than planned, and
the expected development of the Company's business could be materially adversely
affected.
COMPETITION
The telecommunications services industry is highly competitive. The Company
has only recently begun to market its wireless broadband services to potential
customers and is currently providing services on a limited basis. In each market
area in which the Company is authorized to provide services, the Company
competes or will compete with several other service providers and technologies.
The Company expects to compete primarily on the basis of wireless broadband
service features, quality, price, reliability, customer service and rapid
response to customer needs. The Company faces significant competition from other
38 GHz providers and incumbent LECs, such as the Regional Bell Operating
Companies ("RBOCs"). The Company may also compete with CAPs/CLECs, other
wireless service
14
<PAGE>
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.
In January 1997, the FCC allocated 300 MHz of spectrum in the 5 GHz band for
unlicensed devices to provide short-range, high-speed wireless digital
communications. These frequencies must be shared with incumbent users without
causing interference. Although the allocation is designed to facilitate the
creation of new wireless local area networks (and thus might not be competitive
to the Company's services), it is too early to predict what kind of equipment
might ultimately be manufactured and for what purposes it might be utilized.
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 inter-LATA
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
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believes that in order to provide broadband capacity to a significant number of
business and government users cable operators will be required to spend
significant time and capital in order to upgrade their existing networks to the
next generation of hybrid fiber coaxial network architecture. However, there can
be no assurance that cable television operators will not emerge as a source of
competition to the Company.
The Company may also face competition from electric utilities, LECs
operating outside their current local service areas, IXCs and other providers.
These entities provide transmission services using technologies which may enjoy
a greater degree of market acceptance than 38 GHz wireless broadband technology
in the provision of last mile broadband services. In addition, the Company may
face competition from new market entrants using wireless, fiber optic and
enhanced copper based networks to provide local service.
Many of the Company's competitors have long-standing relationships with
customers and suppliers, greater name recognition and greater financial,
technical and marketing resources than the Company. As a result, these
competitors may be able to more quickly develop and exploit new or emerging
technologies, adapt to changes in customer requirements or devote greater
resources to the marketing of their services than the Company. The consolidation
of telecommunications companies and the formation of strategic alliances and
cooperative relationships in the telecommunications and related 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
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more applications filed by third parties and therefore could not be granted
under the FCC rules generally prohibiting the grant of mutually-exclusive
applications. All of the pending applications are subject to the freeze on the
grant of additional authorizations pending completion of the NPRM, which
proposes dismissal of all such applications. The Company's business plans do not
assume that any of these pending applications will be granted. The Company does
not believe that a failure to grant these applications will impair its ability
to operate. See "Business -- Government Regulation."
In its provision of local wireless broadband services, the Company currently
is not subject to rate regulation by the FCC, but is subject to regulation by
most states. Additionally, the Company is required to comply with all applicable
local zoning and other laws governing the installation and operation of its
wireless broadband networks.
Changes in existing laws and regulations, including those relating to the
provision of wireless local telecommunications services via 38 GHz licenses, or
any failure or significant delay in obtaining necessary regulatory approvals,
could have a material adverse effect on the Company. On November 13, 1995, the
FCC released an order barring the acceptance of new applications for 38 GHz
authorizations. On December 15, 1995, the FCC announced the issuance of a notice
of proposed rulemaking (the "NPRM"), pursuant to which it proposed to amend its
current rules to provide for, among other things, (i) the adoption of an auction
procedure for the issuance of authorizations in the 38 GHz band, 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 FCC 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.
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The Company manages the systems of ART West, DCT (as defined), 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 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 81 markets, 73 of which are owned by the Company,
19 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
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or any of the licenses will be renewed upon expiration of their initial terms.
In the event that the FCC does not renew one or more of the licenses, the
Company's business and results of operations could be materially adversely
affected.
The Company plans to use its licenses to develop wireless broadband systems
in all of its market areas. In addition, a limited secondary market exists for
38 GHz licenses, and the Company may from time to time purchase such licenses.
The value of licenses held or acquired hereafter by the Company will depend upon
the success of the Company's wireless broadband operations, fluctuations in the
level of supply and demand for such licenses and the telecommunications
industry's response to the availability and efficacy of wireless broadband
systems. In addition, federal and state regulations limit the ability of
licensees to sell their licenses. Assignments of licenses and changes of control
involving entities holding licenses require prior FCC and, in some instances,
state regulatory approval and are subject to restrictions and limitations on the
identity and status of the assignee or successor. These regulatory restrictions
on transfer of licenses may adversely affect the value of the Company's
licenses.
POTENTIAL RIGHTS TO FOREIGN LICENSES
Entities in which the Company has a substantial interest have applied or
intend to apply for licenses to provide wireless broadband services in Canada
and in various Western European countries. Although the Company currently
expects that, 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 costs of approximately $300,000, 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.
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MANAGEMENT OF GROWTH
The Company is currently experiencing a period of rapid growth and is
pursuing a business plan that, if successfully implemented, will result in
expansion of its operations and the provision of 38 GHz services on a widespread
basis over the next two to five years. The Company's success will depend on its
ability to manage growth effectively, to enhance its operational and financial
control and information systems and to attract, assimilate and retain additional
qualified personnel. Failure by the Company to meet the demands of customers and
to manage the expansion of its business and operations could have a material
adverse effect on the Company's development and results of operations.
LINE OF SIGHT; ROOF RIGHTS; OTHER LIMITATIONS
Wireless broadband services over 38 GHz frequencies require a direct line of
sight between two transceivers comprising a link and are subject to distance and
rain attenuation. The maximum length of a single link is generally limited to
three to five miles, and, as a result, intermediate links (or "repeaters") are
required to permit wireless broadband transmission to extend beyond this limit.
In the absence of a direct line of sight, repeaters may be required to
circumvent obstacles, such as buildings in urban areas or hills in rural areas.
In addition, in areas of heavy rainfall, the intensity of rainfall and the size
of raindrops can affect the transmission quality of 38 GHz services.
Transmission links in these areas are engineered for shorter distances and
greater power to maintain transmission quality. The use of intermediate links to
overcome obstructions or rain fade increases the cost of service. While these
increased costs may not be significant in all cases, such costs may render
wireless broadband services uneconomical in certain circumstances.
Due to line of sight limitations, the Company currently installs its
transceivers and antennas on the rooftops of buildings and on other tall
structures. 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
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Company's authorizations do not track the appropriate growth and development
patterns of potential customers within its market areas or that other 38 GHz
providers have greater geographic coverage or more bandwidth, the Company may
have a competitive disadvantage.
RELIANCE ON EQUIPMENT SUPPLIERS; LACK OF INDUSTRY STANDARDS
The Company currently purchases the majority of its telecommunications
equipment pursuant to an agreement with P-Com, Inc. ("P-Com") and also has
entered into an equipment purchase agreement with Harris. Any reduction or
interruption in supply from either supplier could have a disruptive effect on
the Company. Although six manufacturers currently produce or are developing
equipment that will meet the Company's current and anticipated requirements, no
industry standard or uniform protocol currently exists for 38 GHz equipment.
Consequently, a single manufacturer's equipment must be used in establishing a
link and generally will be used across an entire market area. As a result, the
failure of the Company to procure sufficient equipment produced by a single
manufacturer for service in a particular market area could adversely affect the
Company's results of operations. See "Business -- Strategic Alliances."
DEPENDENCE ON THIRD PARTIES FOR MARKETING AND SERVICE
The Company is partly dependent upon third parties for marketing its
services and maintaining its operational systems. The Company 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 Company is unable to apply for
additional licenses as the FCC has generally suspended the acceptance of new
applications 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 of new licenses. 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, (ii) applications
currently being processed by the FCC and (iii) 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
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implemented in the future, (ii) the Company will have sufficient resources to
develop or acquire new technologies or to introduce new services capable of
competing with future technologies or service offerings, (iii) the Company's
inventory of equipment will not be rendered obsolete or (iv) the cost of 38 GHz
equipment will decline as rapidly as that of competitive alternatives. See
"Business."
DEPENDENCE ON KEY EMPLOYEES
The success of the Company is dependent, in part, on its ability to attract
and retain qualified technical, marketing, sales and management personnel,
especially the Company's executive officers. Competition for such personnel is
intense, and the Company's inability to attract and retain additional key
employees or the loss of one or more of its current key employees could have a
material adverse effect on the Company's business and results of operations. The
Company has employment agreements with each of its officers. See "Management."
FINANCIAL RISKS
SIGNIFICANT CAPITAL REQUIREMENTS; NEED FOR ADDITIONAL FINANCING
Management anticipates that, based on its current plan of development,
assuming that no material new acquisitions are consummated, the net proceeds of
the Offering and the 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 capital
expenditures of approximately $35.0 million in 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, other than those now under contract, or
buys spectrum at auction 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 any future subordinated indebtedness of the Company. At September 30,
1996, on a pro
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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 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 $108.8
million of total indebtedness (which is net of $29.3 million allocated to the
Warrants) and stockholders' equity of approximately $116.7 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, once the Pledged Securities
are no longer available for such purpose; (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 Consolidated 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
24
<PAGE>
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."
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 Federal 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
ABILITY 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 and resale, to the
extent applicable, of
25
<PAGE>
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 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 14, 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 will
elect James B. Murray, Jr. 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."
26
<PAGE>
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."
27
<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 81 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 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.
28
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the Offering (assuming gross proceeds
of $135.0 million) are estimated to be approximately $129.0 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 in 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 $51.6 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."
29
<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
------------------------
FISCAL PERIOD HIGH LOW
- ---------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
1996 Fourth Quarter (from November 5)................................. $ 16.50 $ 10.50
1997 First Quarter (through January 31)............................... $ 12.375 $ 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."
30
<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 certain other transactions occurring subsequent to
September 30, 1996 and the application of the net proceeds thereof as described
in Note 1 below and (iii) on a pro forma as adjusted basis, giving effect to, as
described in Note 2 below, (A) the pro forma adjustments in (ii), (B) the sale
by the Company of 135,000 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 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 $ 87,633,151(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)....................................... -- -- 105,661,273
---------------- ----------------- ------------------
Total long-term debt............................................... 3,107,422 3,107,422 108,768,695
---------------- ----------------- ------------------
Stockholders' equity (deficit):
Preferred stock (5).................................................. 921 -- --
Common Stock (6)..................................................... 6,587 13,560 19,560
Additional paid-in capital........................................... 20,745,714 54,290,502 148,123,229
Accumulated deficit ................................................. (23,748,434) (31,475,840) (31,475,840)
---------------- ----------------- ------------------
Total stockholders' equity (deficit)............................... (2,995,212) 22,828,222 116,666,949
---------------- ----------------- ------------------
Total capitalization............................................. $ 112,210 $ 25,935,644 $ 225,435,644
---------------- ----------------- ------------------
---------------- ----------------- ------------------
</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
300,258 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
135,000 Units in the Offering assuming $135.0 million of gross proceeds,
after deducting (a) the estimated underwriting discount and offering
expenses of approximately $6.0 million, (b) the cash used to purchase the
Pledged Securities of approximately $51.6 million and (c) the value ascribed
to the Warrants of approximately $29.3 million (the value was based on an
assumed value of $10.75 per share of Common Stock, a nominal exercise price
per share and an assumed issuance of Warrants to purchase an aggregate of
2,731,725 shares of Common Stock); (ii) 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 $10.75
per share plus related estimated expenses.
(3) Cash and cash equivalents excludes restricted cash of $51.6 million used to
purchase the Pledged Securities.
(4) The Company anticipates gross proceeds from the Offering of $135.0 million.
The estimated value of the Warrants ($29.3 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 $135.0 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.
31
<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 2,408,559 504,462
Interest and financing expense............................................ 131,540 32,658,543 1,396,943
Net loss.................................................................. 3,234,843 34,633,966 20,378,377
Pro forma net loss per share of Common Stock (3).......................... $ 0.30 $ 1.75 $ 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............................................. 2,299,118
Interest and financing expense............................................ 26,577,589
Net loss.................................................................. 44,713,113
Pro forma net loss per share of Common Stock (3).......................... $ 2.43
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)................................................................... $ 75,455,289
Property and equipment, net......................................................................... 11,019,217
FCC licenses, net................................................................................... 99,991,780
Total assets........................................................................................ 258,520,252
Short-term debt..................................................................................... --
Long-term debt (including current portion).......................................................... 108,768,695
Accumulated deficit................................................................................. (31,475,840)
Total stockholders' equity (deficit)................................................................ 116,666,949
</TABLE>
32
<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>
- ------------------------------
(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 300,258 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 135,000
Units offered in the Offering assuming $135.0 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 $51.6 million and (c) the value ascribed to the Warrants of
approximately $29.3 million (the value was based on an assumed value of
$10.75 per share of Common Stock, a nominal exercise price per share and an
assumed issuance of Warrants to purchase an aggregate of 2,731,725 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 $10.75
per share plus related estimated expenses.
33
<PAGE>
- ------------------------------
(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 because 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
18.92% 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 $675,000 and $506,250 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.............................................. $ 44,713,113
Year ended December 31, 1995...................................................... 34,633,966
</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>
34
<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 expects its
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."
35
<PAGE>
ACQUISITIONS, BUSINESS DEVELOPMENT AND CAPITAL EXPENDITURES
From inception through September 30, 1996, the Company has invested an
aggregate of $4.4 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 November 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 costs
of approximately $300,000, 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
36
<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 in 1997; 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. During the nine months
ended September 30, 1996, the Company operated approximately 60
revenue-generating radio links (single path point-to-point microwave
connections).
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
$1.2 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,
37
<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
38
<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.
39
<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 in 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, other than those now under
contract, or buys spectrum at auction or (iv) the Company accelerates
implementation of its business plan, 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 approximately 80 revenue-generating radio links
installed and operated by the Company and an additional 99 radio links installed
for other carriers.
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 14, 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 38 GHz service, (iii) making
presentations at industry trade shows, (iv) providing an interactive Internet
home page, (v) running promotional advertisements in selected trade media and
(vi) conducting extensive one-on-one presentations and demonstrations through
its carrier sales force. The sales organization is supported by the product
marketing group which has developed programs for each of the targeted sectors.
As a non-dominant carrier, ART does not have to cost-justify its rates to
regulatory bodies and therefore has a wide latitude to exercise individual case
based pricing, subject to certain policies against discriminatory treatment. As
a result, ART expects to enter into customer-specific and service-specific
arrangements, which include volume, capacity and term discounts and customized
billing and payment options. The services offered by ART are expected to be
competitively priced with those of the incumbent LECs. The Company also intends
to charge for installation and network monitoring services where appropriate.
The Company also anticipates offering metered services to various end users at
an appropriate point in the future.
CUSTOMERS AND APPLICATIONS
The Company began deploying its links principally on a trial basis in
November 1995 and has since been hiring its staff, building its internal
infrastructure and developing its marketing plans and relationships with
potential customers. The Company has generated only nominal revenues from its
operations to date 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./WorldCom, 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 33.3 Kbps
dial-up modem which is the fastest dial-up modem currently in widespread
commercial use 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 1,300 times the rate of the 33.3
Kbps dial-up modem, which is the fastest dial-up modem currently in
widespread commercial use, 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 81 markets, 73 of
which are owned by the Company, 19 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
Boston, MA 200 -- 100 300
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>
54
<PAGE>
<TABLE>
<CAPTION>
BANDWIDTH COVERED BY AUTHORIZATIONS (MHZ)
-------------------------------------------
UNDER
DEFINITIVE
AGREEMENT TO
MARKET OWNED MANAGED (1) ACQUIRE TOTAL
- -------------------------------------------------- ----------- --------------- ------------- -----
<S> <C> <C> <C> <C>
200 MHZ MARKETS
Philadelphia, PA/Trenton, NJ 200 -- -- 200
Miami/Fort Lauderdale, FL 100 -- 100 200
Cleveland/Akron, OH 100 -- 100 200
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
Little Rock, AR -- -- 100 100
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
BANDWIDTH COVERED BY AUTHORIZATIONS (MHZ)
-------------------------------------------
UNDER
DEFINITIVE
AGREEMENT TO
MARKET OWNED MANAGED (1) ACQUIRE TOTAL
- -------------------------------------------------- ----------- --------------- ------------- -----
<S> <C> <C> <C> <C>
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
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<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. On January 27, 1997,
the FCC granted its consent to the CommcoCCC Acquisition, but periods for
judicial and administrative review have not expired. 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." 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.
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
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<PAGE>
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 exercisable, 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.
As a condition to the CommcoCCC Acquisition, the Company will elect James B.
Murray, Jr. as a director of the Company promptly after the closing 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 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
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<PAGE>
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. On January 10, 1997, the FCC granted its consent
to the Extended Agreement, but periods for judicial and administrative review
have not expired. 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."
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 was entitled to receive all of the revenues
generated by the DCT Systems until December 31, 1996. From January 1,
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<PAGE>
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
one-year 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 marketing expertise and its access to extensive
distribution channels within its region will accelerate the
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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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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 costs of approximately $300,000, and ATI is responsible for securing
any additional
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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 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 from other 38 GHz service providers.
The Company also faces potential competition from new entrants to the 38 GHz
market, including LECs and other leading telecommunications companies. The NPRM
contemplates an auction of certain spectrum assets, including the lower fourteen
proposed 100 MHz channels (which are similar to those used by the Company) and
four proposed 50 MHz channels in the 38 GHz spectrum band, which have not been
previously available for commercial use. See "-- Government Regulation." On
December 31,
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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. See "-- 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.
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.
In January 1997, the FCC allocated 300 MHz of spectrum in the 5 GHz band for
unlicensed devices to provide short-range, high-speed wireless digital
communications. These frequencies must be shared with incumbent users without
causing interference. Although the allocation is designed to facilitate the
creation of new wireless local area networks (and thus might not be competitive
to the Company's services), it is too early to predict what kind of equipment
might ultimately be manufactured and for what purposes it might be utilized.
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 inter-LATA 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
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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
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.
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GOVERNMENT REGULATION
The Company's wireless broadband services are subject to regulation by
federal, state and local governmental agencies. The Company believes that it is
in substantial compliance with all material laws, rules and regulations
governing its operations and has obtained, or is in the process of obtaining,
all authorizations, tariffs and approvals necessary and appropriate to conduct
its operations. Nevertheless, changes in existing laws and regulations,
including those relating to the provision of wireless local telecommunications
services via 38 GHz and/or the future granting of 38 GHz authorizations, or any
failure or significant delay in obtaining necessary regulatory approvals, could
have a material adverse effect on the Company.
FEDERAL REGULATION
At the federal level, the FCC has jurisdiction over the use of the
electromagnetic spectrum (I.E., wireless services) and has exclusive
jurisdiction over all interstate telecommunications services, that is, those
that originate in one state and terminate in another state. State regulatory
commissions have jurisdiction over intrastate communications, that is, those
that originate and terminate in the same state. Municipalities may regulate
limited aspects of the Company's business by, for example, imposing zoning
requirements and requiring installation permits. The Company also is subject to
taxation at the federal and state levels and may be subject to varying taxes and
fees from local jurisdictions.
FCC LICENSING. The Communications Act of 1934 (the "Communications Act")
imposes certain requirements relating to licensing, common carrier obligations,
reporting and treatment of competition. Under current FCC rules, the recipient
of an authorization for 38 GHz microwave facilities is required to construct
facilities to place the station "in operation" within 18 months of the date of
grant of the authorization. Although, under current FCC regulations, the term
"in operation" is not defined beyond the requirement that the station be capable
of providing service, the industry custom is to establish at least one link
between two transceivers in each market area for which it holds a license. In
the event that the recipient fails to comply with the construction deadline, the
license is subject to forfeiture, absent an extension of the deadline. Upon
completion of the CommcoCCC Acquisition, the Company will own or manage a total
of 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 81 markets to construct and operate 38 GHz wireless
broadband facilities, 73 of which are owned by the Company, 19 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
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among such classifications. The Company generally is obligated to furnish
service to its competitors and might be obligated to allow other 38 GHz
providers to install links within one of the Company's market areas for a
non-discriminatory fee. Under the FCC's streamlined regulation of non-dominant
carriers, the Company, as a non-dominant carrier, must file tariffs with the FCC
for certain interstate services on an ongoing basis. The Company is in the
process of filing tariffs with the FCC, to the extent required, with respect to
its provision of interstate service. The FCC has recently initiated a rulemaking
proceeding to eliminate the tariff filing requirement pursuant to new
forbearance authority contained in the Telecommunications Act. The Company, as a
non-dominant carrier, is not currently subject to rate regulation.
The Company manages the systems of ART West, DCT, TeleCom One and CommcoCCC
(during the pendency of certain acquisitions) pursuant to management agreements.
See "Business -- Agreements Relating to Licenses and Authorizations." In
addition, the Company recently entered into the ICG Agreement and a services
agreement with Microwave Partners. 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 inter-LATA 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
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the United States Department of Justice, and the states are given jurisdiction
to enforce these requirements. There can be no assurance, however, that the
states and the FCC will implement the Telecommunications Act in a manner
favorable to the Company and its customers.
FCC RULEMAKING. On November 13, 1995, the FCC released an order barring the
acceptance of new applications for 38 GHz authorizations. On December 15, 1995,
the FCC announced the issuance of the NPRM, pursuant to which it proposed to
amend its current rules to provide for, among other things, (i) the adoption of
an auction procedure for the issuance of authorizations in the 38 GHz band,
including a possible auction of the lower fourteen proposed 100 MHz channels
(which are similar to those used by the Company) and the lower four proposed 50
MHz channels in the 38 GHz band that have not been previously available for
commercial use and a possible auction of the unlicensed areas in the upper
fourteen 100 MHz channels, (ii) licensing frequencies using predefined
geographic service areas ("Basic Trading Areas"), (iii) the imposition of
substantially stricter construction requirements for authorizations that are not
received pursuant to auctions as a condition to the retention of such
authorizations and (iv) the implementation of certain technical rules designed
to avoid radio frequency interference among licensees. In addition, the FCC
ordered that those applications subject to mutual exclusivity with other
applicants or placed on public notice by the FCC after September 13, 1995 would
be held in abeyance pending the outcome of the NPRM and might then be dismissed
(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.
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STATE REGULATION
Many of the Company's services, either now or in the future, may be
classified as intrastate and therefore may be subject to state regulation. The
Company is in the process of obtaining state authorizations deemed to be
sufficient to conduct most, if not all, of its proposed business in the
near-term, but there can be no assurance that some portion of the Company's
proposed transmissions might not be considered to be subject to state
jurisdiction in a state in which the Company does not have appropriate
authority. The Company expects that as its business and product lines expand and
the requirements of the Telecommunications Act favoring competition in the
provision of local communications services are implemented, it will offer an
increased number and type of intrastate services. The Company is implementing a
program to expand the scope of its intrastate certifications in various state
jurisdictions as its product line expands and as the Telecommunications Act is
implemented.
Under current state regulatory schemes, entities can compete with LECs in
the provision of (i) local access services, (ii) dedicated access services,
(iii) private network services, including WAN services, for businesses and other
entities and (iv) long distance toll services. The remaining local
telecommunications services, including switched local exchange services
encompassing calls originating and terminating within a single LATA, are not
currently subject to competition in most states. The Telecommunication Act
requires each of these states to remove these barriers to competition. No
assurance can be given as to how quickly and how effectively each state will act
to implement the new legislation.
INTELLECTUAL PROPERTY RIGHTS
The Company has one registered service mark, ART, and has filed for
protection for three other service marks: DigiWave (the Company's wireless
broadband trademark), OZ Box (the Company's proprietary network management
interface) and Advanced Radio Telecom. These first filings are block mark
applications, which if allowed by the Patent and Trademark Office, would protect
future variations. The Company will seek the maximum protection for its future
service marks. There can be no assurance that the service marks applied for will
be granted nor that the Company's future efforts will be successful. Although
the Company is developing various proprietary processes, software products and
databases and intends to protect its rights vigorously and to continue to
develop such proprietary systems and databases, there can be no assurance that
these measures will be successful in establishing its proprietary rights in such
assets.
EMPLOYEES
As of December 31, 1996, the Company had a total of 121 employees, including
39 in engineering and field services, 47 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)..................... 40 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 for election promptly after 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 promptly after
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.
As a condition to the CommcoCCC Acquisition, the Company will elect Mr.
Murray 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 14, 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 $ 1,660,657 $ 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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<PAGE>
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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<PAGE>
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 14, 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)........................................................... 4,600 *
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)...................................... 2,837,514 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 2,600 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 simultaneously redeemed
293,791 shares of Telecom common stock from LHC for $2.0 million. In connection
with the February 1996 Reorganization described below, LHC granted to the
holders of such Series D preferred stock a contingent option ("Series D Option")
to purchase 145,685 shares of Telecom common stock owned by LHC at a nominal
price.
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 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. As a condition to the CommcoCCC
Acquisition, the Company will elect James B. Murray, Jr. as a Class III director
of the Company. 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 15 Warrants, each Warrant initially representing the right to purchase
1.349 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
of 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 $135.0 million aggregate principal amount 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 Issue Date. 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 Collateral Agent and the holders of
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the Notes, the Pledged 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 on the Notes when and as due. The Company expects to
use approximately $51.6 million of the net proceeds of the 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 Offering. The Pledged Securities will be pledged by
the Company to the Collateral Agent for the benefit of the Collateral Agent and
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.
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
Temporary Cash Investments 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 (v) in the definition thereof for the U.S. government securities
originally pledged as Collateral; PROVIDED, HOWEVER, Temporary Cash Investments
so substituted must, upon receipt of scheduled interest and principal payments
thereon, in the opinion of a nationally recognized firm of independent public
accountants selected by the Company, provide funds at least equal to 125.0% (or
100.0%, in the case of substituted Government Securities) of the amount of any
of the first six scheduled interest payments on the Notes that are unpaid (or
the portion of such interest payments to be funded 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 of 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.
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
applicable 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 any 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 senior to the Notes
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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 any amount of
Indebtedness permanently repaid as provided under the "Disposition of Proceeds
of Asset Sales" covenant described below (other than any such permanent
reduction of the Indebtedness under clause (xiii) hereof; PROVIDED, HOWEVER,
that the aggregate principal amount of Indebtedness outstanding pursuant to
clauses (i) and (xiii) hereof shall not exceed $125.0 million at any time;
(ii)
Indebtedness of any of the Company's Restricted Subsidiaries owing to the
Company or another Restricted Subsidiary; 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 or a Restricted
Subsidiary and (B) any sale or other transfer of any such Indebtedness to a
Person that is not the Company or a Restricted Subsidiary 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
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purchase price or similar obligations, or from Guarantees or letters of credit,
surety bonds or performance bonds securing any obligations of the Company or any
of the Restricted Subsidiaries pursuant to such agreements, in any case Incurred
in connection with the disposition of any business, assets or Restricted
Subsidiary of the Company (other than Guarantees of Indebtedness Incurred by any
Person acquiring all or any portion of such business, assets or Restricted
Subsidiary of the Company for the purpose of financing such acquisition), in a
principal amount not to exceed the gross proceeds actually received by the
Company or any Restricted Subsidiary in connection with such disposition;
(v)
without duplication of clause (viii) hereof, Indebtedness of the Company
not to exceed, at any one time outstanding, two TIMES an amount equal to
(A) the aggregate proceeds (less appropriate fees and expenses) (which proceeds
may consist of cash, Capital Stock of an entity that as a result of such
transaction becomes a Restricted Subsidiary of the Company, or
Telecommunications Assets which in connection with such transaction become held
by the Company or a Restricted Subsidiary of the Company, and the value of which
proceeds shall be the fair market value thereof as determined in good faith by
the Board, which in all events shall make any appropriate adjustments on account
of any Indebtedness associated with such Capital Stock or Telecommunications
Assets in making such determination) received by the Company from the issuance
and sale of its Capital Stock (other than Redeemable Stock and Preferred Stock
that provides for the payment of dividends in cash) 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;
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(x)
the Incurrence by the Company or any of its Restricted Subsidiaries of
Hedging Obligations that are Incurred for the purpose of fixing or
hedging interest rate risk with respect to any floating rate Indebtedness of the
Company or any Restricted Subsidiary, as the case may be, that is permitted by
the terms of the Indenture to be outstanding;
(xi)
the Incurrence by the Company's Unrestricted Subsidiaries of Non-Recourse
Debt, PROVIDED, HOWEVER, that if any such Indebtedness ceases to be
Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be deemed to
constitute an incurrence of Indebtedness by a Restricted Subsidiary of the
Company;
(xii)
the Incurrence by Unrestricted Subsidiaries of Indebtedness to the
Company or any Restricted Subsidiary of the Company to the extent
permitted by the "Limitation on Restricted Payments" covenant;
(xiii)
Indebtedness of the Company outstanding at any time in an aggregate
principal amount not to exceed $100.0 million Incurred pursuant to the
Credit Facility less any amount of Indebtedness under the Credit Facility
permanently repaid as provided under the "Disposition of Proceeds of Asset
Sales" covenant described below; PROVIDED, HOWEVER, that the aggregate principal
amount of Indebtedness outstanding pursuant to clauses (i) and (xiii) hereof
shall not exceed $125.0 million at any time;
(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) 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
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(C) the aggregate amount expended for all Restricted Payments (the amount
so expended, if other than in cash, to be determined in good faith by
the Board, whose determination shall be conclusive and evidenced by a
resolution of the Board) after the Issue Date shall exceed the sum of (1)
50% of the aggregate amount of the Adjusted Consolidated Net Income (or, if
the Adjusted Consolidated Net Income is a loss, MINUS 100% of such amount)
(determined by excluding income resulting from transfers of assets by the
Company or a Restricted Subsidiary to an Unrestricted Subsidiary) accrued on
a cumulative basis during the period (taken as one accounting period)
beginning on the first day of the fiscal quarter immediately following the
Issue Date and ending on the last day of the last fiscal quarter preceding
the date for which reports have been filed pursuant to the "Reports"
covenant, PLUS (2) the aggregate Net Cash Proceeds received by the Company
after the Issue Date from the issuance and sale permitted by the Indenture
of its Capital Stock (other than Redeemable Stock) to a Person who is not a
Subsidiary of the Company, or from the issuance to a Person who is not a
Subsidiary of the Company of any options, warrants or other rights to
acquire Capital Stock of the Company (in each case, exclusive of any
convertible Indebtedness, Redeemable Stock or any options, warrants or other
rights that are redeemable at the option of the holder, or are required to
be redeemed, prior to the Stated Maturity of the Notes), MINUS the actual
amount of Net Cash Proceeds used to make Directed Investments, PLUS (3) an
amount equal to the net reduction in Investments (other than reductions in
Permitted Investments) in any Person resulting from payments of interest on
Indebtedness, dividends, repayments of loans or advances, or other transfers
of assets, in each case to the Company or any Restricted Subsidiary (except
to the extent any such payment is included in the calculation of Adjusted
Consolidated Net Income), or from the redesignation of Unrestricted
Subsidiaries as Restricted Subsidiaries (valued in each case as provided in
the definition of "Investments"), not to exceed the amount of Investments
previously made by the Company and its Restricted Subsidiaries in such
Person.
The foregoing provision shall not be violated by reason of:
(i)
the payment of any dividend within 60 days after the date of declaration
thereof if, at said date of declaration, such payment would comply with
the foregoing paragraph;
(ii)
the redemption, repurchase, defeasance or other acquisition or retirement
for value of Indebtedness that is subordinated in right of payment to the
Notes, including premium, if any, and accrued and unpaid interest, with the
proceeds of, or in exchange for, Indebtedness Incurred under clause (iii) of the
second paragraph of the "Limitation on Indebtedness" covenant;
(iii)
the repurchase, redemption or other acquisition of Capital Stock of the
Company (or options, warrants or other rights to acquire such Capital
Stock) in exchange for, or out of the proceeds of a substantially concurrent
offering of, shares of Capital Stock or options, warrants or other rights to
acquire such Capital Stock (in each case, other than Redeemable Stock) of the
Company;
(iv)
the making of any principal payment or repurchase, redemption,
retirement, defeasance or other acquisition for value of Indebtedness of
the Company which is subordinated in right of payment to the Notes in exchange
for, or out of the proceeds of a substantially concurrent offering of, shares of
the Capital Stock of the Company (other than Redeemable Stock);
(v)
payments or distributions, in the nature of satisfaction of dissenters'
rights, pursuant to or in connection with a consolidation, merger or
transfer of assets that complies with the provisions of the Indenture applicable
to mergers, consolidations and transfers of all or substantially all of the
property and assets of the Company;
(vi)
any purchase or acquisition from, or withholding on issuances to, any
employee of the Company's Capital Stock in order to satisfy any
applicable federal, state or local tax payments in respect of the receipt of
shares of the Company's Capital Stock;
(vii)
any purchase or acquisition from, or withholding on issuances to, any
employee of the Company's Capital Stock in order to pay the purchase
price of such Capital Stock or similar instrument pursuant to a stock option,
equity incentive or other employee benefit plan or agreement of the Company or
any of its Restricted Subsidiaries;
(viii)
the repurchase of shares of, or options to purchase shares of, the
Company's Capital Stock from employees of the Company in connection with
the termination of their employment; PROVIDED that (A) the aggregate price paid
for all such repurchased shares of Capital Stock made in any twelve-month period
shall not exceed $250,000 PLUS the aggregate cash proceeds received by the
Company during
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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 Restricted Payments 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 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
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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 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:
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(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 owned or acquired by the Company or any Restricted
Subsidiary to ART Licensing (except that the Company may directly own or acquire
and retain such FCC licenses and authorizations) and (ii) cause ART Licensing to
remain a Wholly Owned Restricted Subsidiary of the Company.
Notwithstanding the foregoing, (i) 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 and (ii) nothing herein shall prohibit any action permitted
under the covenant described under "--Limitation on Restricted Payments" or any
action permitted under the covenant described under "--Disposition of Proceeds
of Asset Sales," other than sales of less than all of the Capital Stock of a
Wholly Owned Restricted Subsidiary.
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
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following any Change in Control, the Company will mail a notice to each holder
describing the transaction or transactions that constitute the Change in Control
and offering to repurchase Notes pursuant to the procedures required by the
Indenture and described in such notice.
The Indenture does not contain provisions that permit the holders of the
Notes to require that the Company repurchase or redeem the Notes in the event of
a highly leveraged transaction, including a takeover, recapitalization or
similar restructuring, that may adversely effect the holders of the Notes if
such transaction does not otherwise constitute a Change in Control. See "--
Certain Definitions." In addition, with the consent of at least 66 2/3% in
principal amount 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 the succeeding
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.
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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 of the Notes then outstanding;
PROVIDED, HOWEVER, that the Company may amend, 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,
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whose determination shall be evidenced by a resolution of the Board, the
principal purpose of such transaction is to change the state of incorporation of
the Company; and PROVIDED FURTHER that any such transaction shall not have as
one of its purposes the evasion of the foregoing limitations.
EVENTS OF DEFAULT AND REMEDIES
The following events are "Events of Default" under the Indenture:
(i)
default in the payment of interest on the Notes when it becomes due and
payable as to any interest payment date on or prior to ,
2000, and continuance of such default for a period of five (5) days or more; or
default in the payment of interest on the Notes when it becomes due and payable
as to any interest payment date after , 2000, and continuance of
such default for a period of thirty (30) days or more; or
(ii)
default in the payment of principal of, or premium, if any, on the Notes
when due; or
(iii)
default in the performance, or breach, of any covenant described under
"Certain Covenants -- Limitation on Restricted Payments," "-- Limitation
on Indebtedness," "-- Change in Control," "-- Disposition of Proceeds of Asset
Sales," the first sentence of "Security" 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
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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 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 such holder gives the
Trustee written notice of a continuing Event of Default, 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.
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DEFEASANCE
The Company may at any time terminate all of its obligations with respect to
the Notes ("defeasance"), except for certain obligations, including those
regarding any trust established for a defeasance and obligations to register the
transfer or exchange of the Notes, to replace mutilated, destroyed, lost or
stolen Notes as required by the Indenture and to maintain agencies in respect of
the Notes. The Company may at any time terminate its obligations under certain
covenants set forth in the Indenture, some of which are described under "Certain
Covenants" above, and any omission to comply with such obligations shall not
constitute a Default with respect to the Notes ("covenant defeasance"). To
exercise either defeasance or covenant defeasance, the Company must irrevocably
deposit in trust with the Trustee, for the benefit of the holders of the Notes,
money (in United States dollars) or U.S. government obligations (denominated in
United States dollars), or a combination thereof, in such amounts as will be
sufficient to pay the principal of, premium, if any, and interest on the
outstanding Notes to redemption or maturity and comply with certain other
conditions, including the delivery of a legal opinion as to certain tax matters.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of Notes)
as to all outstanding Notes when either (a) all such Notes theretofore
authenticated and delivered (except lost, stolen or destroyed Notes that have
been replaced or paid and Notes for whose payment money has theretofore been
deposited in trust or segregated and held in trust by the Company and thereafter
repaid to the Company or discharged from such trust) have been delivered to the
Trustee for cancellation or (b)(i) all such Notes not theretofore delivered to
the Trustee for cancellation have become due and payable by their terms or shall
have been called for redemption and the Company has irrevocably deposited or
caused to be deposited with the Trustee as trust funds in trust for the purpose
an amount of money sufficient to pay and discharge the entire Indebtedness on
the Notes not theretofore delivered to the Trustee for cancellation or
redemption, for the principal amount, premium, if any, and accrued interest to
the date of such deposit; (ii) the Company has paid all other sums payable by it
under the Indenture; and (iii) the Company has delivered irrevocable
instructions to the Trustee to apply the deposited money toward the payment of
the Notes at maturity or on the redemption date, as the case may be. In
addition, the Company must deliver an Officers' Certificate and an Opinion of
Counsel stating that all conditions precedent to satisfaction and discharge have
been complied with.
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 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 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
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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 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
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the terms of its charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to such Restricted
Subsidiary; (iv) any gains or losses (on an after-tax basis) attributable to
Asset Sales; (v) except for purposes of calculating the amount of Restricted
Payments that may be made pursuant to clause (C) of the first paragraph of the
"Limitation on Restricted Payments" covenant described above, any amount paid
as, or accrued for, cash dividends on Preferred Stock of the Company or any
Restricted Subsidiary owned by Persons other than the Company and any of its
Restricted Subsidiaries; and (vi) all extraordinary or nonrecurring gains and
losses; and (vii) the net income of the Company in respect of the Pledged
Securities.
"ADJUSTED CONSOLIDATED NET TANGIBLE ASSETS" means the total amount of assets
of the Company and its Restricted Subsidiaries (less applicable depreciation,
amortization and other valuation reserves), except to the extent resulting from
write-ups of capital assets (excluding write-ups in connection with accounting
for acquisitions in conformity with GAAP), after deducting therefrom (i) all
current liabilities of the Company and its Restricted Subsidiaries (excluding
intercompany items) and (ii) all goodwill, trade names, trademarks, patents,
unamortized debt discount and expense and other like intangibles (other than
licenses issued by the FCC), all as set forth on the quarterly or annual
consolidated balance sheet of the Company and its Restricted Subsidiaries,
prepared in conformity with GAAP and most recently filed with the Commission
pursuant to the "Reports" covenant; PROVIDED that the value of any licenses
issued by the FCC shall, in the event of an auction for similar licenses, be
equal to the fair market value ascribed thereto in good faith by the Board and
evidenced by a resolution of the Board. As used in the Indenture, references to
financial statements of the Company and its Restricted Subsidiaries shall be
adjusted to exclude Unrestricted Subsidiaries if the context requires.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; PROVIDED that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control. For purposes of the Indenture, the term "Affiliate"
shall at all times include Laurence S. Zimmerman, Landover Holdings Corporation
and their respective Affiliates.
"ART LICENSING" means ART Licensing Corp., a Delaware corporation and a
wholly owned subsidiary of the Company, or any successor thereto, or such other
Restricted Subsidiary or Restricted 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
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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.
"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 or (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, for so long as held pursuant to the Pledge Agreement,
(a) all of Company's now owned and existing and hereafter arising or acquired
right, title and interest in and to the Pledged Securities and the Pledge
Account, (b) the certificates or other evidences of ownership representing any
Pledged Securities or the Pledge Account and (c) all proceeds of any of the
Pledged Securities, including, without limitation, all dividends, interest,
principal payments, cash, options, warrants, rights, instruments, investment
property, subscriptions and other property or proceeds from time to time
received, receivable or otherwise distributed or distributable in respect of or
in exchange for any or all of the Pledged Securities.
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"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 and (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,
all as determined on a consolidated basis for the Company and its Restricted
Subsidiaries in conformity with GAAP; PROVIDED that, if any Restricted
Subsidiary is not a Wholly Owned Restricted Subsidiary, Consolidated EBITDA
shall be reduced (to the extent not otherwise reduced in accordance with GAAP)
by an amount equal to (A) the amount of the Adjusted Consolidated Net Income
attributable to such Restricted Subsidiary MULTIPLIED BY (B) the quotient of (1)
the number of shares of outstanding Common Stock of such Restricted Subsidiary
not owned on the last day of such period by the Company or any of its Restricted
Subsidiaries DIVIDED BY (2) the total number of shares of outstanding Common
Stock of such Restricted Subsidiary on the last day of such period.
Notwithstanding the foregoing, the provision for taxes based on the income or
profits of, and the depreciation and amortization and other non-cash charges of,
a Restricted Subsidiary of a Person shall be added to Adjusted Consolidated Net
Income to compute Consolidated EBITDA only to the extent (and in the same
proportion) that the net income of such Restricted Subsidiary was included in
calculating the Adjusted Consolidated Net Income of such Person and only if a
corresponding amount would be permitted at the date of determination to be
dividended to the Company by such Restricted Subsidiary without prior approval
(that has not been obtained), pursuant to the terms of its charter and all
agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to that Restricted Subsidiary or its
stockholders.
"CONSOLIDATED INTEREST EXPENSE" means, for any period, the aggregate amount
of interest in respect of Indebtedness (including amortization of original issue
discount on any Indebtedness and the interest portion of any deferred payment
obligation, calculated in accordance with the effective interest method of
accounting; all commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing and net payments
(if any) pursuant to Hedging Obligations; and Indebtedness that is Guaranteed or
secured by the Company or any of its Restricted Subsidiaries) and all but the
principal component of rentals in respect of Capitalized Lease Obligations paid,
accrued or scheduled to be paid or to be accrued by the Company and its
Restricted Subsidiaries during such period; EXCLUDING, HOWEVER, (i) any amount
of such interest of any Restricted Subsidiary if the net income of such
Restricted Subsidiary is excluded from the calculation of Adjusted Consolidated
Net Income pursuant to clause (iii) of the definition thereof (but only in the
same proportion as the net income of such Restricted Subsidiary is excluded from
the calculation of Adjusted Consolidated 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.
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"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 first and the second provision of this definition, respectively, 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.
"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.
"GOVERNMENT SECURITIES" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States is pledged.
"GUARANTEE" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness or other obligation of any
other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness or other obligation of such other Person (whether arising by virtue
of partnership arrangements, or by
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agreements to keep-well, to purchase assets, goods, securities or services, to
take-or-pay, or to maintain financial statement conditions or otherwise) or (ii)
entered into for purposes of assuring in any other manner the obligee of such
Indebtedness or other obligation of the payment thereof or to protect such
obligee against loss in respect thereof (in whole or in part); PROVIDED that the
term "Guarantee" shall not include endorsements for collection or deposit in the
ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning.
"HEDGING OBLIGATIONS" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates.
"INCUR" means, with respect to any Indebtedness, to incur, create, issue,
assume, Guarantee or otherwise become liable for or with respect to, or become
responsible for, the payment of, contingently or otherwise, such Indebtedness,
including, with respect to the Company and its Restricted Subsidiaries, an
"incurrence" of Indebtedness by reason of a Person becoming a Restricted
Subsidiary of the Company; PROVIDED that neither the accrual of interest nor the
accretion of original issue discount shall be considered an Incurrence of
Indebtedness.
"INDEBTEDNESS" means, with respect to any Person at any date of
determination (without duplication), (i) all indebtedness of such person for
borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments (whether negotiable or
non-negotiable), (iii) all obligations of such Person in respect of letters of
credit or other similar instruments (including reimbursement obligations with
respect thereto), (iv) all obligations of such Person to pay the deferred and
unpaid purchase price of property or services, which purchase price is due more
than six months after the date of placing such property in service or taking
delivery and title thereto or the completion of such services, except trade
payables and escrows, holdbacks and comparable arrangements to secure
indemnification obligations under acquisition agreements, (v) all obligations of
such Person as lessee under Capitalized Leases, (vi) all indebtedness of other
Persons secured by a Lien on any asset of such Person, whether or not such
indebtedness is assumed by such Person, PROVIDED that the amount of such
indebtedness shall be the lesser of (A) the fair market value of such asset at
such date of determination and (B) the amount of such indebtedness, (vii) the
balance deferred and unpaid of the purchase price of any property or
representing any Hedging Obligations, except any such balance that constitutes
an accrued expense or trade payable and (viii) all indebtedness of other Persons
Guaranteed by such Person to the extent such indebtedness is Guaranteed by such
Person. The amount of Indebtedness of any Person at 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
Incurrence 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 100% of the fair market value
of the Pledged Securities that are Government Securities and 80% of the fair
market value of other Temporary Cash Investments, in each case then held by the
Collateral Agent, 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
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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 and 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
Person and Restricted Subsidiaries on a consolidated basis outstanding to (ii)
the Total Market Capitalization of the Person.
"INVESTMENT" in any Person means any direct or indirect advance, loan or
extension of credit (including, without limitation, by way of Guarantee or
similar arrangement, but excluding advances to customers in the ordinary course
of business that are, in conformity with GAAP, recorded as accounts receivable
on the balance sheet of the Company or its Restricted Subsidiaries) or capital
contribution to (by means of any transfer of cash or other property to others or
any payment for property or services for the account or use of others), or any
purchase or acquisition of Capital Stock, bonds, notes, debentures or other
similar instruments issued by, such Person and shall include (i) the designation
of a Restricted Subsidiary as an Unrestricted Subsidiary and (ii) the fair
market value of the Capital Stock held by the Company and the Restricted
Subsidiaries of any Person that has ceased to be a Restricted Subsidiary by
reason of any transaction permitted by clause (iii) of the "Limitation on the
Issuance and Sale of Capital Stock of Restricted Subsidiaries" covenant. For
purposes of the definition of "Unrestricted Subsidiary" and the "Limitation on
Restricted Payments" covenant, (i) "Investment" shall include the fair market
value of the assets (net of liabilities) of any Restricted Subsidiary of the
Company at the time that such Restricted Subsidiary is designated an
Unrestricted Subsidiary and shall exclude the fair market value of the assets
(net of liabilities) of any Unrestricted Subsidiary at the time that such
Unrestricted Subsidiary is designated a Restricted Subsidiary of the Company and
(ii) any property transferred to or from an Unrestricted Subsidiary shall be
valued at its fair market value at the time of such transfer, in each case as
determined by the Board in good faith.
"ISSUE DATE" means the date of original issuance of the Notes.
"LIEN" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the nature
thereof, any option or other agreement to sell or give a security interest in
and any filing of or agreement to give any financing statement under the Uniform
Commercial Code (or equivalent statutes) of any jurisdiction).
"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
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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 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
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shall act as the Paying Agent for an Offer to Purchase. The Company will comply
with Rule 14e-1 under the Exchange Act and any other securities laws and
regulations thereunder to the extent such laws and regulations are applicable,
in the event that the Company is required to repurchase Notes pursuant to an
Offer to Purchase.
"PERMITTED ASSET SWAP" means any disposition by the Company or any of its
Restricted Subsidiaries of Telecommunications Assets or a majority of the Voting
Stock of a Restricted Subsidiary in exchange for comparable Telecommunications
Assets or a majority of the Voting Stock of a comparable Restricted Subsidiary;
PROVIDED that the Board shall have approved such disposition and exchange and
determined the fair market value of the assets subject to such transaction as
evidenced by a resolution of the Board or such fair market value has been
determined by a written opinion of an investment banking firm of national
standing or other recognized independent expert with experience appraising the
terms and conditions of the type of transaction contemplated thereby.
"PERMITTED INVESTMENTS" MEANS:
(i) an Investment in a Restricted Subsidiary or a Person which will,
upon the making of such Investment, become a Restricted Subsidiary or be
merged or consolidated with or into or transfer or convey all or
substantially all its assets to, the Company or a Restricted Subsidiary;
(ii) Temporary Cash Investments;
(iii) payroll, travel and similar advances to cover matters that are
expected at the time of such advances ultimately to be treated as expenses
in accordance with GAAP;
(iv) loans or advances to employees (other than executive officers of
the Company) in an aggregate principal amount not to exceed $1.0 million at
any one time outstanding;
(v) stock, obligations or securities received in satisfaction of
judgments;
(vi) Investments, to the extent that the consideration provided by the
Company or any of its Restricted Subsidiaries consists solely of Capital
Stock (other than Redeemable Stock) of the Company;
(vii) notes payable to the Company that are received by the Company as
payment of the purchase price for Capital Stock (other than Redeemable
Stock) of the Company;
(viii) 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
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(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;
(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 Subsidiaries or 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
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
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 Subsidiary; PROVIDED that such Liens do not extend to or cover any
property or assets of the Company or any Subsidiary other than the property
or assets acquired;
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(xii) Liens in favor of the Company or any Subsidiary;
(xiii) Liens arising from the rendering of a final judgment or order
against the Company or any 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 Subsidiaries in the ordinary course of business in accordance
with the past practices of the Company and its Subsidiaries prior to the
Issue Date;
(xvii) Liens on or sales of receivables;
(xviii) Liens securing other Indebtedness in an aggregate amount not to
exceed $250,000 at any one time;
(xix) Liens on assets of Unrestricted Subsidiaries that secure
Non-Recourse Debt of Unrestricted Subsidiaries;
(xx) Liens existing on the Issue Date 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 of the Notes than those Liens 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 Subsidiaries created in favor of the holders of the
Notes;
(xxii) Liens with respect to the assets of a Subsidiary granted by such
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 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 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.
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"PLEDGE AGREEMENT" means the Collateral Pledge and Security Agreement, dated
as of the date of the Indenture, by and between The Bank of New York and the
Company, among other things, governing the disbursement of funds from the Pledge
Account.
"PLEDGED SECURITIES" means the Government Securities purchased by the
Company with a portion of the net proceeds from the sale of the Notes and
deposited in the Pledge Account and any securities substituted therefor pursuant
to the Pledge Agreement.
"PREFERRED STOCK" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
Person's preferred or preference stock, whether now outstanding or issued after
the Issue Date, and including, without limitation, all classes and series of
preferred or preference stock of such Person.
"REDEEMABLE STOCK" means any class or series of Capital Stock of any Person
that by its terms or otherwise is (i) required to be redeemed prior to the
Stated Maturity of the Notes, (ii) redeemable at the option of the holder of
such class or series of Capital Stock at any time prior to the Stated Maturity
of the Notes (unless the redemption price is, at the Company's option, without
conditions precedent, payable solely is Common Stock (other than Redeemable
Stock) of the Company) or (iii) convertible into or exchangeable for Capital
Stock referred to in clause (i) or (ii) above or Indebtedness having a scheduled
maturity prior to the Stated Maturity of the Notes; PROVIDED that any Capital
Stock that would not constitute Redeemable Stock but for provisions thereof
giving holders thereof the right to require such Person to repurchase or redeem
such Capital Stock upon the occurrence of an "asset sale" or "change of control"
occurring prior to the Stated Maturity of the Notes shall not constitute
Redeemable Stock if the "asset sale" or "change of control" provisions
applicable to such Capital Stock are no more favorable to the holders of such
Capital Stock than the provisions contained in "Disposition of Proceeds of Asset
Sales" and "Change in Control" covenants described above and such Capital Stock
specifically provides that such Person will not repurchase or redeem any such
stock pursuant to such provision prior to the Company's repurchase of such Notes
as are required to be repurchased pursuant to the "Disposition of Proceeds of
Asset Sales" and "Change in Control" covenants described above.
"RESTRICTED SUBSIDIARY" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"SIGNIFICANT SUBSIDIARY" means, at any date of determination, any Restricted
Subsidiary of the Company that, together with its Subsidiaries, (i) for the most
recent fiscal year of the Company, accounted for more than 10% of the
consolidated revenues of the Company and its Restricted Subsidiaries or (ii) as
of the end of such fiscal year, had assets accounting for more than 10% of the
consolidated assets of the Company and its Restricted Subsidiaries, all as set
forth on the most recently available consolidated financial statements of the
Company for such fiscal year.
"SPECIFIED DATE" means any redemption date, any date of purchase of Notes
pursuant to the "Disposition of Proceeds of Asset Sales" or "Change in Control"
covenants described above, or any date on which the Notes are due and payable
after an Event of Default.
"STATED MATURITY" means, (i) with respect to any debt security, the date
specified in such debt security as the fixed date on which the final installment
of principal of such debt security is due and payable and (ii) with respect to
any scheduled installment of principal of or interest on any debt security, the
date specified in such debt security as the fixed date on which such installment
is due and payable.
"STRATEGIC EQUITY INVESTOR" means any Person which is (or a controlled
Affiliate of any Person which is or a controlled Affiliate of which is) engaged
principally in the Telecommunications Business and which has a Total Market
Capitalization of at least $1.0 billion.
"SUBSIDIARY" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the
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other Subsidiaries of that Person (or a combination thereof) and (ii) any
partnership (a) the sole general partner or the managing general partner of
which is such Person or a Subsidiary of such Person or (b) the only general
partners of which are such Person or of one or more Subsidiaries of such Person
(or any combination thereof).
"TELECOMMUNICATIONS ASSETS" means all assets (including, without limitation,
assets consisting of subscribers), rights (contractual or otherwise) and
properties, whether tangible or intangible, used in connection with a
Telecommunications Business.
"TELECOMMUNICATIONS BUSINESS" means, when used in reference to any Person,
that such Person is engaged primarily in the business of (i) providing voice,
video or data communications services, (ii) creating, developing, marketing or
selling communications related equipment, software and other devices or (iii)
evaluating, participating in or pursuing any other activity or opportunity that
is related or incidental to those identified in clauses (i) or (ii) above.
"TEMPORARY CASH INVESTMENT" means any of the following: (i) direct
obligations of the United States or any agency thereof or obligations fully and
unconditionally guaranteed by the United States or any agency thereof; (ii) time
deposit accounts, certificates of deposit and money market deposits maturing
within six months of the date of acquisition thereof issued by a bank or trust
company which is organized under the laws of the United States, any state
thereof or any foreign country recognized by the United States, and which bank
or trust company has capital, surplus and undivided profits aggregating in
excess of $500.0 million (or the foreign currency equivalent thereof) and has
outstanding debt which is rated "A" (or such similar equivalent rating) or
higher by at least one nationally recognized statistical rating organization (as
defined in Rule 436 under the Securities Act) or any money-market fund sponsored
by a registered broker dealer or mutual fund distributor; (iii) repurchase
obligations with a term of not more than 30 days for underlying securities of
the types described in clause (i) above entered into with a bank meeting the
qualifications described in clause (ii) above; (iv) commercial paper, maturing
not more than six months after the date of acquisition, issued by a corporation
(other than an Affiliate of the Company) organized and in existence under the
laws of the United States, any state thereof or any foreign country recognized
by the United States with rating at the time as of which any investment therein
is made of "P-1" (or higher) according to Moody's Investors Service, Inc. or
"A-1" (or higher) according to Standard & Poor's Ratings Group; and (v)
securities with maturities of six months or less from the date of acquisition
issued or fully and unconditionally guaranteed by any state, commonwealth or
territory of the United States, or by any political subdivision or taxing
authority thereof, and rated at least "A" by Standard & Poor's Ratings Group or
Moody's Investors Service, Inc.
"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
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stockholder. For purposes of any such determination, such banking firm's written
opinion may state that such fair market value is no less than a specified amount
and such opinion may be as of a date no earlier than 90 days prior to the date
of such determination.
"TRADING DAY" with respect to a securities exchange or automated quotation
system means a day on which such exchange or system is open for a full day of
trading.
"UNRESTRICTED SUBSIDIARY" means any Subsidiary that is designated by the
Board as an Unrestricted Subsidiary pursuant to a resolution of the Board; but
only to the extent that such Subsidiary (i) has no Indebtedness other than
Non-Recourse Debt; (ii) is not party to any agreement, contract, arrangement or
understanding with the Company or any Restricted Subsidiary of the Company
unless the terms of any such agreement, contract, arrangement or understanding
are no less favorable to the Company or such Restricted Subsidiary than those
that might be obtained at the time from Persons who are not Affiliates of the
Company; (iii) is a Person with respect to which neither the Company nor any of
its Restricted Subsidiaries has any direct or indirect obligation (A) to
subscribe for additional equity interests, except to the extent that such
obligation complies with the "Limitation on Restricted Payments" covenant, or
(B) to maintain or preserve such Person's financial condition or to cause such
Person to achieve any specified levels of operating results; (iv) is not a
guarantor of or otherwise directly or indirectly provides credit support for any
Indebtedness of the Company or any of its Restricted Subsidiaries; and (v) has,
immediately prior to the commencement of material business operations, at least
one director on its board of directors that is not a director or executive
officer of the Company or any of its Restricted Subsidiaries and has at least
one executive officer that is not a director or executive officer of the Company
or any of its Restricted Subsidiaries. Any such designation by the Board shall
be evidenced to the Trustee by filing with the Trustee a certified copy of the
resolution of the Board giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
conditions and was permitted by the covenant described above under the caption
"Limitation on Restricted Payments." If, at any time, any Unrestricted
Subsidiary would fail to meet the foregoing 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 Agreement,
(ii) that certain Cooperation 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
1.349 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 2,731,725 shares of Common Stock, representing approximately 12% 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 , 1997 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 or upon the
surrender of additional Warrants. 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 and resale, to
the extent applicable, of the Warrant Shares upon the exercise of the Warrants.
Subject to "black-out" periods not to exceed 90 days in the aggregate 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 or 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 13,559,420 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 CIBC Investors 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 CIBC Investors warrants to
purchase 300,258 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 CIBC Investors 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 CIBC Investors 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 CIBC Investors 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 CIBC Investors 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 a 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 would 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 would 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 would limit investments and asset sales. The Credit
Facility would contain a provision relating to change of control of the Company.
The Credit Facility would 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 would 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 in an accrual period 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.
A holder who purchases a Note for an amount other than the adjusted issue
price and/or on a date other than the end of an accrual period will be required
to determine for himself the amount of original issue discount, if any, he is
required to include in gross income for federal income tax purposes.
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
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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.
SALE OR RETIREMENT OF A NOTE. In general, a holder of a Note will recognize
gain or loss upon the sale, retirement, redemption 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, redemption 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 and otherwise will be a
short term capital gain or loss.
Holders should be aware that the resale of the Note may be effected by the
"Market Discount" rules of the Code under which a subsequent Purchaser of a Note
acquiring the Note at a market discount generally would be required to include
as ordinary income a portion of the gain realized upon the disposition or
retirement of such Note, to the extent of the market discount that has accrued
while the debt instrument was held by such holder.
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
plus 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 and otherwise will be a short term capital gain or loss.
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.
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It is possible that the Warrants may be deemed to have been exercised for
tax purposes on the date on which they first become exercisable or possibly on
the date issued, regardless of whether they are actually exercised on the date
on which they are first exercisable. As a result, it is possible that the
holding period of a Warrant Share may be deemed to have begun on the date on
which the Warrants first become exercisable or possibly on the date issued, and
that a holder may have a long-term capital gain or loss upon a sale or exchange
of a Warrant Share more than one year after that date.
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.
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
It is expected that the Notes will be considered to have "significant
original issue discount" and that the yield of the Notes will be at least five
percentage points above the applicable federal rate. As a result, it is expected
that the Company will not be able to deduct for tax purposes any original issue
discount accruing with respect thereto. A corporate holder may be entitled to
treat the original issue discount 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 and 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................................................. 135,000
---------
---------
</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.
Merrill Lynch acted as an underwriter in the Common Stock Offering for which
Merrill Lynch received customary compensation. 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 also 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 120,104
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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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.
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.
BIT -- 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.
COPPER WIRE -- A shorthand reference to traditional telephone lines using
electric current to carry signals over copper wire.
DIGITAL -- A method of storing, processing and transmitting information
through the use of distinct electronic or optical pulses that represent the
binary code digits 0 and 1. Digital transmission and switching technologies
employ a sequence of these pulses to represent information as opposed to the
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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.
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.
IXC (INTER-EXCHANGE CARRIERS) -- Usually referred to as long distance
providers. There are many facilities-based IXCs, including AT&T, MCI, WorldCom,
Sprint and Frontier.
KILOBIT -- One thousand bits of information. The information-carrying
capacity (i.e., bandwidth) of a circuit may be measured in "kilobits per
second."
KBPS -- Kilobits per second.
LANS (LOCAL AREA NETWORKS) -- The interconnection of computers for the
purpose of sharing files, programs and various devices such as work stations,
printers and high-speed modems. LANs may include dedicated computers or file
servers that provide a centralized source of shared files and programs. Most
office computer networks use a LAN to share files, printers, modems and other
items. Where computers are separated by greater distances, a Metropolitan Area
Net (MAN) or other Wide Area Net (WAN) may be used.
LAST MILE -- A shorthand reference to the last section of a
telecommunications path to the ultimate end user which may be less than or
greater than a mile.
LATAS (LOCAL ACCESS AND TRANSPORT AREAS) -- The geographically defined areas
in which RBOCs were authorized by the MFJ to provide local exchange services.
These LATAs roughly reflect the population density of their respective states
(California has 11 LATAs while Wyoming has only one). There are 164 LATAs in the
United States. LATAs have one or more area codes and may cross state lines.
LEC (LOCAL EXCHANGE CARRIER) -- A company providing local exchange services.
The traditional local telephone companies (also known as incumbent local
exchange carriers), such as the RBOCs, which until recently were monopolies.
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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.
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.
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.
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.
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.
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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.
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ADVANCED RADIO TELCOM CORP.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
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<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 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 135,000 Units
(consisting of Notes and Warrants) offered in the Offering assuming $135,000,000
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 $10.75 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) 87,633,151
(12,000,000 (4)
(6,000,000 (5)
(3,000,000 (7)
(1,883,655 (8)
77,425,000(9)
Accounts receivable..................................... 78,645
78,645
Other current assets.................................... 140,227
140,227
--------------- ---------------- ----------------
Total current assets.................................. 971,240 86,880,783 87,852,023
Restricted cash........................................... 1,000,000 51,600,000(9) 52,600,000
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) 99,991,780
89,430,000(7)
Deferred financing costs, net............................. 2,343,087 (1,907,528 (1)
5,975,000(9) 6,410,559
Deposits.................................................. 463,036
463,036
Other assets.............................................. 183,637
183,637
--------------- ---------------- ----------------
$ 20,541,997 $ 237,978,255 $ 258,520,252
--------------- ---------------- ----------------
--------------- ---------------- ----------------
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, net of discount............................. -- 105,661,273(9) 105,661,273
Deferred tax liability.................................... -- 21,930,000(7) 21,930,000
--------------- ---------------- ----------------
Total liabilities..................................... 23,537,209 118,316,094 141,853,303
--------------- ---------------- ----------------
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) 148,123,229
(3,433 (2)
165,082(3)
(318 (6)
64,494,000(7)
4,503,848(8)
29,338,727(9)
Accumulated deficit..................................... (23,748,434) (1,339,903 (4) (31,475,840)
(6,387,503 (8)
--------------- ---------------- ----------------
Total stockholders' equity (deficit).................. (2,995,212) 119,662,161 116,666,949
--------------- ---------------- ----------------
$ 20,541,997 $ 237,978,255 $ 258,520,252
--------------- ---------------- ----------------
--------------- ---------------- ----------------
</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 1,794,656 (11 2,299,118
--------------- --------------- ---------------
19,165,920 1,794,656 20,960,576
--------------- --------------- ---------------
Other:
Interest expense....................................... 1,396,943 (811,483)(4)
19,604,626 (10 20,190,086
Financing expense...................................... -- 6,387,503(8) 6,387,503
Interest income........................................ (59,473) (2,070,450) 10) (2,129,923)
--------------- --------------- ---------------
1,337,470 23,110,196 24,447,666
--------------- --------------- ---------------
Pretax loss........................................ 20,378,377 24,904,852 45,283,229
Deferred tax benefit..................................... -- (570,116) 11) (570,116)
--------------- --------------- ---------------
Net loss........................................... $ 20,378,377 $ 24,334,736 $ 44,713,113
--------------- --------------- ---------------
--------------- --------------- ---------------
Pro forma net loss per share of Common Stock (C)......... $ 2.15 $ 2.43
--------------- ---------------
--------------- ---------------
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 2,392,875 (11 2,408,559
--------------- --------------- ---------------
3,118,650 2,392,875 5,511,525
--------------- --------------- ---------------
Other:
Interest expense....................................... 131,540 26,139,500 (10 26,271,040
Financing expense...................................... -- 6,387,503(8) 6,387,503
Interest income........................................ (9,554) (2,760,600) 10) (2,770,154)
--------------- --------------- ---------------
121,986 29,766,403 29,888,389
--------------- --------------- ---------------
Pretax loss........................................ 3,234,843 32,159,278 35,394,121
Deferred tax benefit..................................... -- (760,155) 11) (760,155)
--------------- --------------- ---------------
Net loss........................................... $ 3,234,843 $ 31,399,123 $ 34,633,966
--------------- --------------- ---------------
--------------- --------------- ---------------
Pro forma net loss per share
of Common Stock (C)..................................... $ 0.30 $ 1.75
--------------- ---------------
--------------- ---------------
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 $10.75 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 300,258 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 $4,503,848. Assumes no draw down under the CIBC Financing
Commitment.
(9)Assumed gross proceeds of $135,000,000 from the issuance of the 135,000
Units (consisting of Notes and Warrants) in the Offering, the related
estimated underwriting discount and related expenses of approximately
$5,975,000 and the cash used for the purchase of Pledged Securities of
approximately $51,600,000. The value ascribed to the Unit Warrants
totaled approximately $29,300,000 based on an assumed issuance of
Warrants to purchase an aggregate of
F-5
<PAGE>
2,731,725 shares of Common Stock of the Company (representing
approximately 12.0% 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 14.0%
(resulting in an effective interest rate of 18.92% 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 $675,000 and $506,250 for the year ended December 31,
1995 and for the nine months ended September 30, 1996, respectively.
Interest income of $2,070,450 for the nine months ended September 30,
1996 and $2,760,600 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 certain 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..................................................... 13
The Company...................................................... 28
Use of Proceeds.................................................. 29
Price Range of Common Stock and Dividend Policy.................. 30
Capitalization................................................... 31
Selected Historical and Pro Forma Financial Data................. 32
Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................... 35
Business......................................................... 42
Management....................................................... 70
Principal Stockholders........................................... 80
Certain Transactions............................................. 82
Description of Units............................................. 87
Description of Notes............................................. 87
Description of Warrants.......................................... 116
Description of Capital Stock..................................... 118
Description of Certain Indebtedness.............................. 120
Certain Federal Income Tax Considerations........................ 122
Underwriting..................................................... 126
Legal Matters.................................................... 127
Experts.......................................................... 127
Available Information............................................ 127
Special Note Regarding Forward-Looking Statements................ 128
Glossary......................................................... 129
Index to Financial Statements.................................... F-1
</TABLE>
$135,000,000
[LOGO]
135,000 UNITS CONSISTING OF
% SENIOR NOTES DUE 2007
AND
2,025,000 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................................... 2,500
Trustee fees and expenses (including counsel fees)................ 15,000
Collateral Agent Fees and expenses................................ 5,000
Miscellaneous expenses............................................ 50,000
----------
TOTAL (estimated)................................................. $1,247,744
----------
----------
</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 "CIBC
Investors") 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 CIBC Investors 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 have been delivered with this Registration Statement
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 (included in Exhibit 4-2(a))
(c) Collateral Pledge and Security Agreement.
4-3 (a) Form of Warrant Agreement.
(b) Specimen of Warrant Certificate (included in Exhibit 4-3(a)).
4-4 Omitted
5-1 Opinion and Consent of Hahn & Hessen LLP, counsel for the Registrant, with
respect to the Registrant's Units, Notes, Warrants and Warrant Shares.
9-1 (a) Voting Trust Agreement dated November 5, 1996.(1)
(b) Form of Trustee Indemnification Agreement.**
(c) Cooperation Agreement dated November 5, 1996.(1)
(d) Confidentiality Agreement dated November 5, 1996.(1)
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.(1)
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. (1)
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.
</TABLE>
II-6
<PAGE>
<TABLE>
<C> <S> <C>
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
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.(1)
(b) Form of September Bridge Warrant.(1)
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.(1)
(j) Comlink, Inc., dated as of October 28, 1996.(1)
10-40 MFS Communications Company, Inc. Agreements.**
</TABLE>
II-7
<PAGE>
<TABLE>
<C> <S> <C>
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.(1)
10-43 Carrier Resale Agreement dated October 22, 1996 with Chadwick Telephone.(1)
10-44 (a) Engagement Letter with CIBC Wood Gundy dated November 5, 1996.(1)
(b) Engagement Letter with Merrill Lynch & Co. dated October 16, 1996.(1)
10-45 Summary of Terms and Conditions with CIBC.(1)
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 Statement of Eligibility of Trustee.
</TABLE>
- ------------------------
** 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.
(1) Previously Filed.
+ 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.
II-8
<PAGE>
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement;
(2) That, for the purpose of determining any liability under the Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-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 January 31, 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/ VERNON L. FOTHERINGHAM*
------------------------------------------- Chairman, Chief Executive Officer January 31, 1997
Vernon L. Fotheringham* and Director
/s/ STEVEN D. COMRIE*
------------------------------------------- Director January 31, 1997
Steven D. Comrie
/s/ JAMES C. COOK*
------------------------------------------- Director January 31, 1997
James C. Cook
/s/ MARK C. DEMETREE*
------------------------------------------- Director January 31, 1997
Mark C. Demetree
/s/ ANDREW I. FILLAT*
------------------------------------------- Director January 31, 1997
Andrew I. Fillat
/s/ ALAN Z. SENTER*
------------------------------------------- Director January 31, 1997
Alan Z. Senter
</TABLE>
- ------------------------
* By Thomas A. Grina, Attorney-in-Fact
II-10
<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 (included in Exhibit 4-2(a)).
(c) Collateral Pledge and Security Agreement.
4-3 (a) Form of Warrant Agreement
(b) Specimen of Warrant Certificate (included in Exhibit 4-3(a)).
4-4 Omitted
5-1 Opinion and Consent of Hahn & Hessen LLP, counsel for the Registrant, with respect to
the Registrant's Units, Notes, Warrants and Warrant Shares.
9-1 (a) Voting Trust Agreement dated November 5, 1996.(1)
(b) Form of Trustee Indemnification Agreement.**
(c) Cooperation Agreement dated November 5, 1996.(1)
(d) Confidentiality Agreement dated November 5, 1996.(1)
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.(1)
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. (1)
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.(1)
(b) Form of September Bridge Warrant.(1)
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.(1)
(j) Comlink, Inc., dated as of October 28, 1996.(1)
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.(1)
10-43 Carrier Resale Agreement dated October 22, 1996 with Chadwick Telephone.(1)
10-44 (a) Engagement Letter with CIBC Wood Gundy dated November 5, 1996.(1)
(b) Engagement Letter with Merrill Lynch & Co. dated October 16, 1996.(1)
10-45 Summary of Terms and Conditions with CIBC.(1)
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 Statement of Eligibility of Trustee.
</TABLE>
- ------------------------
** 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.
(1) Previously Filed.
+ Confidential treatment requested for the deleted portions of this document.
<PAGE>
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
ADVANCED RADIO TELECOM CORP.
(a Delaware corporation)
135,000 Units Consisting of
$135,000,000 Aggregate Principal Amount of
___% Senior Notes due 2007 and Warrants
to Purchase 2,731,725 Shares of Common Stock
PURCHASE AGREEMENT
Dated: February __, 1997
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
<PAGE>
Table of Contents
PURCHASE AGREEMENT...........................................................1
SECTION 1. Representations and Warranties.............................3
(a) Representations and Warranties by the Company.................3
(b) Officer's Certificates.......................................13
SECTION 2. Sale and Delivery to Underwriters; Closing................13
(a) Securities...................................................13
(b) Payment......................................................13
(c) Denominations; Registration..................................14
SECTION 3. Covenants of the Company..................................14
(a) Compliance with Securities Regulations and Commission
Requests..................................................14
(b) Filing of Amendments.........................................14
(c) Delivery of Registration Statements..........................14
(d) Delivery of Prospectuses.....................................15
(e) Continued Compliance with Securities Laws....................15
(f) Blue Sky Qualifications......................................15
(g) Rule 158.....................................................15
(h) Use of Proceeds..............................................16
(i) Listing......................................................16
(j) Restriction on Sale of Securities............................16
(k) Reporting Requirements.......................................16
(m) Pledged Securities...........................................16
SECTION 4. Payment of Expenses.......................................16
(a) Expenses.....................................................16
(b) Termination of Agreement.....................................17
SECTION 5. Conditions of Underwriters' Obligations...................17
(a) Effectiveness of Registration Statement......................17
(b) Opinion of Counsel for Company...............................17
(d) Opinion of Counsel for Underwriters..........................18
(e) Officers' Certificate........................................18
(f) Accountants' Comfort Letter..................................18
(g) Bring-down Comfort Letter....................................18
(h) Maintenance of Rating........................................18
(i) Approval of Listing..........................................19
(j) Objection....................................................19
(l) Additional Documents.........................................19
(m) Termination of Agreement.....................................19
SECTION 6. Indemnification...........................................19
(a) Indemnification of Underwriters..............................19
(b) Indemnification of Company, Directors and Officers...........20
(c) Actions against Parties; Notification........................20
(d) Settlement without Consent if Failure to Reimburse...........21
SECTION 7. Contribution..............................................21
SECTION 8. Representations, Warranties and Agreements to Survive
Delivery..................................................23
(a) Termination; General.........................................23
(b) Liabilities..................................................23
SECTION 10. Default by One or More of the Underwriters................23
SECTION 11. Notices...................................................24
i
<PAGE>
SECTION 12. Parties...................................................24
SECTION 13. Governing Law and Time....................................24
SECTION 14. Effect of Headings........................................24
SCHEDULES
Schedule A - List of Underwriters..............................Sch A-1
Schedule B - Pricing Information...............................Sch B-1
EXHIBITS
Exhibit A - Form of Opinion of Company's Counsel...................A-1
Exhibit B - Form of Opinion of Special Regulatory Counsel..........B-1
Exhibit C - Capitalization of the Company..........................C-1
ii
<PAGE>
ADVANCED RADIO TELECOM CORP.
(a Delaware corporation)
135,000 Units Consisting of
$135,000,000 Aggregate Principal Amount of
___% Senior Notes due 2007 and Warrants
to Purchase Shares of Common Stock
PURCHASE AGREEMENT
February __, 1997
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
CIBC WOOD GUNDY SECURITIES CORP.
as Representatives of the several Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Ladies and Gentlemen:
Advanced Radio Telecom Corp. (f/k/a Advanced Radio Technologies
Corporation), a Delaware corporation (the "Company"), confirms its agreement
with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch") and each of the other Underwriters named in Schedule A
hereto (collectively, the "Underwriters," which term shall also include any
underwriter substituted as hereinafter provided in Section 10 hereof), for
whom Merrill Lynch and CIBC Wood Gundy Securities Corp. ("CIBC Wood Gundy")
are acting as representatives (in such capacity, the "Representatives") with
respect to the issue and sale by the Company and the purchase by the
Underwriters (the "Offering"), acting severally and not jointly, of the
respective amounts set forth in said Schedule A of 135,000 units (the
"Units"), each consisting of $1,000 principal amount of the Company's ___%
Senior Notes due 2007 (collectively, the "Notes") and 15 warrants
(collectively, the "Warrants"), each Warrant representing the right to
purchase 1.349 shares (collectively, the "Warrant Shares") of common stock,
par value $.001 per share (the "Common Stock"). The Notes are to be issued
pursuant to an indenture, dated as of February __, 1997 (the "Indenture"),
between the Company and The Bank of New York, as trustee (the "Trustee").
The Warrants are to be issued pursuant to a warrant agreement, dated as of
February __, 1997 (the "Warrant Agreement"), between the Company and
Continental Stock Transfer and Trust Company, as warrant agent (the "Warrant
Agent"). 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 (such date, the "Separation Date"). The Units, the Notes, the
Warrants and the Warrant Shares are herein collectively referred to as the
"Securities."
<PAGE>
This Agreement, the Indenture, the Warrant Agreement and the Collateral
Pledge and Security Agreement, dated as of February __, 1997 (the "Pledge
Agreement"), between the Company and The Bank of New York, as collateral
agent (the "Collateral Agent"), are herein collectively referred to as the
"Operative Documents." Capitalized terms used herein but not otherwise
defined herein shall have the meanings given to such terms in the Indenture.
The Company understands that the Underwriters propose to make a public
offering of the Units as soon as the Underwriters deem advisable after this
Agreement has been executed and delivered and the Indenture has been
qualified under the Trust Indenture Act of 1939, as amended (the "1939 Act").
Prior to the date hereof, the Company entered into a certain Senior Secured
Credit Agreement and certain ancillary documents attached thereto as exhibits
(collectively, the "CIBC Agreements"), pursuant to which certain investors
identified by CIBC Wood Gundy agreed, under certain circumstances, to
purchase up to $50.0 million of the Company's senior secured notes.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (No. 333-19295) covering
the registration of the Securities under the Securities Act of 1933, as
amended (the "1933 Act"), including the related preliminary prospectus or
prospectuses. Promptly after execution and delivery of this Agreement, the
Company will either (i) prepare and file a prospectus in accordance with the
provisions of Rule 430A ("Rule 430A") of the rules and regulations of the
Commission under the 1933 Act (the "1933 Act Regulations") and paragraph (b)
of Rule 424 ("Rule 424(b)") of the 1933 Act Regulations or (ii) if the
Company has elected to rely upon Rule 434 ("Rule 434") of the 1933 Act
Regulations, prepare and file a term sheet (a "Term Sheet") in accordance
with the provisions of Rule 434 and Rule 424(b). The information included
in such prospectus or in such Term Sheet, as the case may be, that was
omitted from such registration statement at the time it became effective but
that is deemed to be part of such registration statement at the time it
became effective (a) pursuant to paragraph (b) of Rule 430A is referred to
as "Rule 430A Information" or (b) pursuant to paragraph (d) of Rule 434 is
referred to as "Rule 434 Information." Each prospectus used before such
registration statement became effective, and any prospectus that omitted, as
applicable, the Rule 430A Information or the Rule 434 Information, that was
used after such effectiveness and prior to the execution and delivery of
this Agreement, is herein called a "preliminary prospectus." Such
registration statement, including the exhibits thereto and schedules thereto
at the time it became effective and including the Rule 430A Information and
the Rule 434 Information, as applicable, is herein called the "Registration
Statement." Any registration statement filed pursuant to Rule 462(b) of the
1933 Act Regulations is herein referred to as the "Rule 462(b) Registration
Statement," and after such filing the term "Registration Statement" shall
include the Rule 462(b) Registration Statement. The final prospectus in the
form first furnished to the Underwriters for use in connection with the
offering of the SecuritieUnits is herein called the "Prospectus." If Rule
434 is relied on, the term "Prospectus" shall refer to the preliminary
prospectus dated January 16, 1997 together with the Term Sheet, and all
references in this Agreement to the date of the Prospectus shall mean the
date of the Term Sheet. For purposes of this Agreement, all references to
the Registration Statement, any preliminary prospectus, the Prospectus or
any Term Sheet or any amendment or supplement to any of the foregoing shall
be deemed to include the copy filed with the Commission pursuant to its
Electronic Data Gathering, Analysis and Retrieval system ("EDGAR").
2
<PAGE>
SECTION 1. Representations and Warranties.
(a) Representations and Warranties by the Company. The Company
represents and warrants to each Underwriter as of the date hereof, as of the
Closing Time referred to in Section 2(b) hereof, and agrees with each
Underwriter, as follows:
(i) Each of the Registration Statement and any Rule 462(b) Registration
Statement has become effective under the 1933 Act and no stop order
suspending the effectiveness of the Registration Statement or any Rule
462(b) Registration Statement has been issued under the 1933 Act and no
proceedings for that purpose have been instituted or are pending or, to the
knowledge of the Company, are contemplated by the Commission, and any
request on the part of the Commission for additional information has been
complied with. At the respective times the Registration Statement, any
Rule 462(b) Registration Statement and any post-effective amendments
thereto became effective and at the Closing Time, the Registration
Statement, the Rule 462(b) Registration Statement and any amendments and
supplements thereto complied and will comply in all material respects with
the requirements of the 1933 Act and the 1933 Act Regulations and did not
and will not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading, and the Prospectus, any preliminary
prospectus and any supplement thereto or prospectus wrapper prepared in
connection therewith, at their respective times of issuance and at the
Closing Time, complied and will comply in all material respects with any
applicable laws or regulations of foreign jurisdictions in which the
Prospectus and such preliminary prospectus, as amended or supplemented, if
applicable, are distributed in connection with the offer and sale of
Reserved Securities. Neither the Prospectus nor any amendments or
supplements thereto (including any prospectus wrapper), at the time the
Prospectus or any such amendment or supplement was issued and at the
Closing Time, included or will include an untrue statement of a material
fact or omitted or will omit to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under which
they were made, not misleading. If Rule 434 is used, the Company will
comply with the requirements of Rule 434 and the Prospectus shall not be
"materially different," as such term is used in Rule 434, from the
prospectus included in the Registration Statement at the time it became
effective. The representations and warranties in this subsection shall not
apply to statements in or omissions from the Registration Statement or
Prospectus made in reliance upon and in conformity with information
furnished to the Company in writing by any Underwriter through Merrill
Lynch expressly for use in the Registration Statement or Prospectus.
(ii) Each preliminary prospectus and the prospectus filed as part of
the Registration Statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 under the 1933 Act, complied when so
filed in all material respects with the 1933 Act Regulations, and each
preliminary prospectus and the Prospectus delivered to the Underwriters for
use in connection with the Offering were identical to the electronically
transmitted copies thereof filed with the Commission pursuant to EDGAR,
except to the extent permitted by Regulation S-T.
(iii) No action has been taken and no local, state or Federal law,
statute, ordinance, rules, regulation, requirement, judgment or court
decree has been enacted, adopted or issued by any governmental agency that
prevents the issuance of the Units or prevents or suspends the use
3
<PAGE>
of the Prospectus; no judgment, restraining order or order of any nature
by a Federal or state court of competent jurisdiction has been issued that
prevents the issuance of the Units or prevents or suspends the sale of the
Units in any jurisdiction referred to in Section 3(f) hereof; and every
request of any securities authority or agency of any jurisdiction for
additional information has been complied with in all material respects.
(iv) There are no contracts or other documents required to be
described in the Registration Statement or to be filed as exhibits to the
Registration Statement by the 1933 Act or by the 1933 Act Regulations which
have not been described or filed as required. The contracts so described
in the Prospectus are accurate and complete in all material respects, and
all such contracts described as being in full force and effect on the date
hereof are in full force and effect on the date hereof. Neither the
Company nor any of its subsidiaries or, to the best of the Company's
knowledge, any other party is in breach of or default under any such
contract.
(v) Each of the Company and ART Licensing Corp., a Delaware
corporation ("ART Licensing") has been duly formed as a corporation and is
validly existing in good standing under the laws of its jurisdiction of
incorporation and has all requisite corporate power and authority to own,
lease and operate its properties and to conduct its business as described
in the Prospectus. Each of the Company and ART Licensing is duly qualified
to do business and is in good standing as a foreign corporation in each
jurisdiction in which the nature of its business or its ownership or
leasing of property requires such qualification, except where the failure
to be so qualified would not have, either individually or in the aggregate,
a material adverse effect on the assets, properties, business, management,
earnings, net worth, results of operations, condition (financial or
otherwise) or business prospects of the Company and its subsidiaries, taken
as a whole. No proceeding has been instituted in any such jurisdiction,
revoking, limiting or curtailing, or seeking to revoke, limit or curtail,
such power and authority or qualification.
(vi) ART Licensing, Advanced Radio Telecom Sweden AB, a corporation
organized under the laws of Sweden ("ART Sweden"), and Advanced Radio
Telecom Limited, a corporation organized under the laws of the United
Kingdom ("ART UK"), are the only subsidiaries of the Company. The Company
owns all of the outstanding capital stock of each such subsidiary, subject,
in the case of ART Sweden and ART UK, to the provisions of that certain ART
Europe Shareholders Agreement, dated as of September 30, 1996, between the
Company and Trond Johannessen; all such capital stock has been duly
authorized and validly issued and is fully paid and nonassessable, free and
clear of any security interest, claim, lien, encumbrance or adverse
interest of any nature, other than any liens arising under the CIBC
Agreements as described in the Prospectus; and none of such capital stock
was issued in violation of any preemptive or similar rights. Except as
disclosed in the Prospectus, there are no outstanding subscriptions,
rights, warrants, calls, commitments of sale or options to acquire, or
instruments convertible into or exchangeable for, any such shares of
capital stock or other equity interest of any such subsidiary.
(vii) Neither ART Sweden nor ART UK has any material assets or
conducts any material business or operations.
(viii) The Company and its subsidiaries do not have any ownership
interest in any joint venture, other than (A) the Company's 50% ownership
interest in the ART West Joint
4
<PAGE>
Venture, a Delaware partnership owned by the Company and Extended
Communications, Inc. ("ART West"), and (B) the Company's investment
in Advantage Telecom, Inc.
(ix) Upon consummation of the Offering, the Company will have an
authorized and outstanding capitalization as set forth in Exhibit C hereto.
All of the issued and outstanding shares of capital stock of the Company
have been duly authorized and validly issued, are fully paid and
non-assessable and were not issued in violation of any preemptive or
similar rights. Except as disclosed in the Prospectus, there are no
outstanding subscriptions, rights, warrants, calls, commitments of sale or
options to acquire, or instruments convertible into or exchangeable for,
any capital stock of the Company. The description of the Company's stock
option, stock bonus and other stock plans or arrangements, and the options
or other rights granted and exercised thereunder, set forth in the
Prospectus accurately and fairly presents in all material respects the
information required to be shown with respect to such plans, arrangements,
options and rights.
(x) The Company has all requisite corporate power and authority to
execute, deliver and perform its obligations under the Operative Documents
and to consummate the transactions contemplated hereby and thereby,
including, without limitation, the corporate power and authority to issue,
sell and deliver the Securities as provided herein and therein.
(xi) The Company has duly authorized, executed and delivered this
Agreement and this Agreement is the legally valid and binding obligation of
the Company, enforceable against the Company in accordance with its terms,
except as the enforceability thereof may be limited (A) by the effect of
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or
other similar laws now or hereafter in effect relating to or affecting the
rights and remedies of creditors, (B) by the effect of general principles
of equity, whether enforcement is considered in a proceeding in equity or
at law, and the discretion of the court before which any proceeding
therefor may be brought and (C) to the extent that rights to
indemnification and contribution thereunder may be limited by federal or
state securities laws or public policy relating thereto.
(xii) The Company has duly authorized the Units and, when issued
and delivered to and paid for by the Underwriters in accordance with the
terms hereof, the Units will conform in all material respects to the
description thereof in the Prospectus.
(xiii) The Company has duly authorized the Indenture and, when the
Company has duly executed and delivered the Indenture (assuming the due
authorization, execution and delivery thereof by the Trustee), the
Indenture will be the legally valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except as the
enforceability thereof may be limited (A) by the effect of bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium or other
similar laws now or hereafter in effect relating to or affecting the rights
and remedies of creditors and (B) by the effect of general principles of
equity, whether enforcement is considered in a proceeding in equity or at
law, and the discretion of the court before which any proceeding therefor
may be brought. The Indenture has been duly qualified under the 1939 Act.
(xiv) The Company has duly authorized the Notes and, when issued
and authenticated in accordance with the terms of the Indenture and
delivered to and paid for by the Underwriters
5
<PAGE>
in accordance with the terms hereof, the Notes will conform in all
material respects to the description thereof in the Prospectus, will
be entitled to the benefits of the Indenture and will be the legally
valid and binding obligations of the Company, enforceable against the
Company in accordance with their terms, except as the enforceability
thereof may be limited (A) by the effect of bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium or other similar laws
now or hereafter in effect relating to or affecting the rights and remedies
of creditors and (B) by the effect of general principles of equity,
whether enforcement is considered in a proceeding in equity or at law,
and the discretion of the court before which any proceeding therefor
may be brought.
(xv) The Company has duly authorized the Warrant Agreement and, when
the Company has duly executed and delivered the Warrant Agreement (assuming
the due authorization, execution and delivery thereof by the Warrant
Agent), the Warrant Agreement will be the legally valid and binding
obligation of the Company, enforceable against the Company in accordance
with its terms, except as the enforceability thereof may be limited (A) by
the effect of bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium or other similar laws now or hereafter in effect relating to or
affecting the rights and remedies of creditors, (B) by the effect of
general principles of equity, whether enforcement is considered in a
proceeding in equity or at law, and the discretion of the court before
which any proceeding therefor may be brought and (C) to the extent that
rights to indemnification and contribution thereunder may be limited by
federal or state securities laws or public policy relating thereto.
(xvi) The Company has duly authorized the Warrants and, when
countersigned by the Warrant Agent and issued and delivered by the Company
in accordance with the terms of the Warrant Agreement and delivered to and
paid for by the Underwriters in accordance with the terms hereof, the
Warrants will conform in all material respects to the description thereof
in the Prospectus and will have been validly issued, and the issuance of
such Warrants will not be subject to any preemptive or similar rights.
(xvii) The Company has duly authorized and reserved for issuance
the Warrant Shares to be issued upon the exercise of the Warrants and, when
issued and delivered upon the exercise of the Warrants against payment of
the Exercise Price as provided in the Warrant Agreement, the Warrant Shares
will conform in all material respects to the description thereof in the
Prospectus, will have been duly issued and will be fully paid and
non-assessable, and the issuance of such Warrant Shares will not be subject
to any preemptive or similar rights.
(xviii) The Company has duly authorized the Pledge Agreement and,
when the Company has duly executed and delivered the Pledge Agreement
(assuming the due authorization, execution and delivery thereof by the
Collateral Agent), the Pledge Agreement will be the legally valid and
binding obligation of the Company, enforceable against the Company in
accordance with its terms, except as the enforceability thereof may be
limited (A) by the effect of bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to or affecting the rights and remedies of creditors, (B) by the
effect of general principles of equity, whether enforcement is considered
in a proceeding in equity or at law, and the discretion of the court before
which any proceeding therefor may be brought and (C) to the extent that
rights to indemnification and contribution thereunder may be limited by
federal or state securities laws or public policy relating thereto.
6
<PAGE>
(xix) Upon consummation of the Offering, the Company will be the
sole beneficial owner of the Pledged Securities (as defined in the
Registration Statement) and no Lien (as defined in the Registration
Statement) will exist upon such Pledged Securities (and no right or option
to acquire the same will exist in favor of any other person or entity),
except for the pledge and security interest in favor of the Collateral
Agent to be created or provided for in the Pledge Agreement, which pledge
and security interest will constitute a first priority perfected pledge and
security interest in and to all of the Pledged Securities.
(xx) No approval, authorization, order, consent, registration, filing,
qualification, license or permit of or with any court, regulatory,
administrative or other governmental body is required for the execution and
delivery of this Agreement by the Company or the consummation of the
transactions contemplated by this Agreement, except such as have been
obtained and are in full force and effect under the 1933 Act and such as
may be required under applicable Blue Sky laws in connection with the
purchase and distribution of the SecuritieUnits by the Underwriters and the
clearance of the Offering with the National Association of Securities
Dealers, Inc. ("NASD").
(xxi) No preemptive rights or other rights to subscribe for or
purchase exist with respect to the issuance and sale of the Securities by
the Company pursuant to this Agreement. No stockholder of the Company has
any right which has not been waived to require the Company to register the
sale of any shares owned by such stockholder under the 1933 Act in the
Offering contemplated by this Agreement. No further approval or authority
of the stockholders or the board of directors of the Company (the "Board of
Directors") will be required for the issuance and sale of the Securities to
be sold by the Company as contemplated herein.
(xxii) The Company has filed each of (A) the Cooperation Agreement
between Landover Holdings Corp. ("LHC"), Laurence S. Zimmerman and the
Company, (B) the Voting Trust Agreement among Vernon L. Fotheringham,
Andrew I. Fillat and Mark C. Demetree, as trustees, LHC, Kimberly
Zimmerman, the Zachary Tyler Zimmerman Trust and the Company and (C) the
Confidentiality Agreement among Laurence S. Zimmerman, the Company and
Telecom (collectively, the "Voting Trust Agreements"), with the Secretary
of State of the State of Delaware and has taken all acts necessary to
comply with Delaware law; each of the Voting Trust Agreements complied with
Delaware law when so filed; and, to the Company's knowledge, Laurence S.
Zimmerman has taken all acts necessary to comply with Delaware law.
(xxiii) Each of the CIBC Agreements will terminate upon consummation
of the Offering.
(xxiv) The CommcoCCC Agreement (as such term is defined in the
Prospectus) has been duly authorized and validly executed by each of the
parties thereto and is the legally valid and binding agreement of each such
party, enforceable against each such party in accordance with its terms,
except as the enforceability thereof may be limited (A) by the effect of
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or
other similar laws now or hereafter in effect relating to or affecting the
rights and remedies of creditors, (B) by the effect of general principles
of equity, whether enforcement is considered in a proceeding in equity or
at law, and the discretion of the court before which any proceeding
therefor may be
7
<PAGE>
brought and (C) to the extent that rights to indemnification and
contribution thereunder may be limited by federal or state securities
laws or public policy relating thereto.
(xxv) None of the execution, delivery and performance of the
Operative Documents by the Company, the compliance by the Company with all
of the provisions thereof, the issuance and sale of the Units, the
consummation by the Company and its subsidiaries of the transactions
contemplated thereby (A) require any consent, approval, authorization or
other order of or filing, registration, qualification, license or permit of
or with, any court, regulatory body, administrative agency or other
governmental body (including, without limitation, the Federal
Communications Commission (the "FCC")), other than those that have been
obtained and are in full force and effect, or (B) violate, conflict with,
or constitute a breach of any of the terms or provisions of, or a default
under (or an event that with notice or the lapse of time, or both, would
constitute a default), or require consent under, or result in the
imposition of a lien or encumbrance on any properties of the Company or any
of its subsidiaries pursuant to (1) the charter or bylaws of the Company or
any of its subsidiaries, (2) any bond, debenture, note, mortgage, deed of
trust or other agreement, indenture or other instrument to which or by
which any of them is a party or by which any of them or any of their
respective property is bound, (3) any local, state or Federal law, statute,
ordinance, rule, regulation or requirement (including, without limitation,
the Communications Act of 1934, as amended by the Telecommunications Act of
1996 (as so amended, the "Communications Act"), the rules and regulations
of the FCC and any environmental laws, statutes, ordinances, rules or
regulations) applicable to the Company, any of its subsidiaries or any of
their respective assets or properties or (4) any judgment, order or decree
of any court or governmental agency or authority having jurisdiction over
the Company, any of its subsidiaries or any of their assets or properties,
that, in the case of clauses (2), (3) or (4), (x) would reasonably be
expected, either individually or in the aggregate, to result in a material
adverse effect on the assets, properties, business, management, earnings,
net worth, results of operations, condition (financial or otherwise) or
business prospects of the Company and its subsidiaries, taken as a whole,
(y) would materially interfere with or materially adversely affect the
issuance of the Units or the consummation of the Offering or (z) would in
any manner draw into question the validity of any of the Operative
Documents (any of the events set forth in clauses (x), (y) or (z), a
"Material Adverse Effect").
(xxvi) Neither the Company nor any of its subsidiaries is or,
immediately after giving effect to the Offering, will be (A) in violation
of its charter or bylaws, (B) in default in the performance of any material
obligation, agreement or condition contained in any bond, debenture, note
or any other evidence of indebtedness or in any other agreement, indenture
or instrument material to the conduct of the business of the Company and
its subsidiaries, taken as a whole, to which any of them is a party, or by
which any of their respective properties is bound or (C) in violation of
any local, state or Federal law, statute, ordinance, rule, regulation,
requirement, judgment or court decree (including, without limitation, the
Communications Act and the rules and regulations of the FCC and
environmental laws, statutes, ordinances, rules, regulations, judgments or
court decrees) applicable to any of them or any of their respective assets
or properties (whether owned or leased), other than, in the case of clauses
(B) and (C), any default or violation that would not reasonably be expected
to have a Material Adverse Effect. There exists no condition that, with
notice, the passage of time or otherwise, would constitute a default under
any such document or instrument that would reasonably be expected to have a
Material Adverse Effect.
8
<PAGE>
(xxvii) Other than routine FCC proceedings relating to applications
for and assignments of 38 GHz wireless broadband authorizations and other
than rulemaking procedures of general applicability to the 38 GHz wireless
broadband telecommunications industry, there is (A) no action, suit or
proceeding before or by any court, arbitrator or governmental agency, body
or official, domestic or foreign, now pending or threatened or, to the
Company's knowledge, contemplated to which the Company or any of its
subsidiaries is or may be a party or to which the business or property of
any of them is subject, or (B) no injunction, restraining order or order of
any nature by a Federal or state court or foreign court of competent
jurisdiction to which the Company, any of its subsidiaries or their
business, assets, or property are, or would reasonably be expected to be,
subject.
(xxviii) Each of the Company and ART Licensing has good and
marketable title, free and clear of all liens, claims, encumbrances and
restrictions, except for liens described in the Prospectus, liens for taxes
not yet due and payable and other liens not material to the business,
prospects, financial condition or results of operations of the Company and
its subsidiaries, taken as a whole, to all property and assets described in
the Prospectus as currently being owned by each of the Company and its
subsidiaries. The Company or its subsidiaries hold 73 authorizations (the
"Company FCC Licenses") to provide 38 GHz wireless broadband services
("Service"). In particular, the Company or its subsidiaries hold the
authorizations set forth in the table in the Prospectus under the heading
"Business--38 GHz Wireless Broadband Licenses and Authorizations" (the
"License Table") to provide Service in the markets identified therein as
"Owned" and for the amount of bandwidth set forth in the column entitled
"Owned" opposite each such market. The Company has entered into contracts,
pursuant to which the Company is authorized to manage such authorizations
on the terms set forth in the Prospectus, with third parties (including,
without limitation, the ICG Agreement (as defined in the Prospectus)) that
hold, on a combined basis, 351 authorizations (the "Managed FCC Licenses")
to provide Service. In particular, these third parties hold the
authorizations set forth in the License Table to provide Service in the
markets identified therein as "Managed" and for the amount of bandwidth set
forth in the column entitled "Managed" opposite each such market, subject
to such qualifications as are set forth in the Prospectus. The
shareholders of CommcoCCC, Inc. ("CommcoCCC") hold 129 authorizations (the
"CommcoCCC FCC Licenses") to provide Service, which authorizations will be
contributed to CommcoCCC. In particular, the shareholders of CommcoCCC
hold the authorizations set forth in the License Table to provide Service
in the markets identified therein as "Under Definitive Agreement to
Acquire" and for the bandwidth set forth in the column entitled "Under
Definitive Agreement to Acquire" opposite each such market. All of the
Company FCC Licenses, the Managed FCC Licenses and the CommcoCCC FCC
Licenses (collectively, the "Licenses") are in full force and effect. Each
of the Company and its subsidiaries is in compliance with the terms and
conditions of all such Licenses and with the rules and regulations of the
regulatory authorities having jurisdictions with respect thereto. All
leases to which the Company or any of its subsidiaries is a party are valid
and binding, and no default has occurred or is continuing thereunder which
would reasonably be expected to result in a Material Adverse Effect. Each
of the Company and its subsidiaries enjoys peaceful and undisturbed
possession under all such leases to which it is a party as lessee or as
assignee of lessee with such exceptions as do not materially interfere with
the use made by the Company or its subsidiaries.
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(xxix) Each of the Company, ART Licensing and ART West has such
permits, licenses, franchises, trademarks and authorizations of
governmental or regulatory authorities other than the FCC ("Permits") as
are necessary to own, lease and operate their respective properties and
to conduct their respective business in the manner described in the
Prospectus. Each of the Company, ART Licensing and ART West has fulfilled
and performed all of its material obligations with respect to such Permits,
and no event has occurred which allows, or after notice or lapse of time
would allow, revocation or termination thereof or result in any other
material impairment of the rights of the holder of any such Permit, except
for any such impairments which would not, individually or in the aggregate,
have a Material Adverse Effect. Except as described in the Prospectus,
such Permits contain no restrictions that are materially burdensome to the
Company and its subsidiaries, taken as a whole.
(xxx) The development, implementation and operation of the 38 GHz
wireless broadband telecommunications services network as described, and in
the markets described, in the Prospectus will not (A) result in any
violation of the provisions of the charter or bylaws of the Company or any
of its subsidiaries, (B) result in any violation of any applicable law,
administrative regulation or administrative or court decree (including,
without limitation, the Communications Act, the rules and regulations of
the FCC and environmental laws) or (C) conflict with or constitute a breach
or violation of, or constitute a default under, or result in the creation
or imposition of any lien, charge or encumbrance upon any property or
assets of the Company or its subsidiaries pursuant to, any contract,
indenture, mortgage, loan agreement, note, lease or other instrument to
which the Company or any of its subsidiaries is a party or by which any of
them may be bound, or to which any of their property is subject, except, in
the case of clauses (B) and (C) above, any such violations, conflicts or
breaches that would not individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
(xxxi) Except as described in the Prospectus, the business and
operations conducted and proposed to be conducted by the Company and its
subsidiaries as described in the Prospectus are not regulated by any public
service or public utility commissions in the States in which the Company
and its subsidiaries conduct or propose to conduct such business and
operations as described in the Prospectus; and neither the Company nor any
of its subsidiaries is or will be required to obtain any Permit from any
public service or public utility commission in any such State to conduct
its business as described in the Prospectus.
(xxxii) Each of the Company, ART Licensing and ART West has filed
all reports required to be filed with the FCC.
(xxxiii) Neither the Company nor ART Licensing has violated any
foreign, Federal, state or local law or regulation relating to the
protection of human health and safety, the environment or hazardous or
toxic substances or wastes, pollutants or contaminants, except where any
such violations would not, individually or in the aggregate, have a
Material Adverse Effect.
(xxxiv) All tax returns required to be filed by the Company or any
of its subsidiaries in any jurisdiction have been so filed. All material
taxes, including withholding taxes, penalties and interest, assessments,
fees and other charges due or claimed to be due from such entities or that
are due and payable have been paid, other than those being contested in
good faith and for which adequate reserves have been provided for those
currently payable without penalty or
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interest. There are no proposed additional taxes assessments against the
Company or any of its subsidiaries, and neither the Company nor any of its
subsidiaries has any knowledge of any tax deficiency which has been or
might be asserted or threatened against the Company or any of its
subsidiaries which would reasonably be expected to have a Material
Adverse Effect.
(xxxv) Each of the Company and its subsidiaries maintains
reasonably adequate insurance.
(xxxvi) Coopers & Lybrand, L.L.P., who have expressed their opinion
with respect to the financial statements and schedules filed with the
Commission as part of the Registration Statement and included in the
Prospectus and in the Registration Statement, are independent public
accountants as required by the 1933 Act and the 1933 Act Regulations.
(xxxvii) The financial statements, together with related schedules
and notes forming part of the Registration Statement and the Prospectus
(and any amendment or supplement thereto), present fairly the individual
and consolidated financial positions, results of operations and changes in
financial position of the Company and its subsidiaries on the basis stated
in the Registration Statement and the Prospectus (and any amendment or
supplement thereto) at the respective dates or for the respective periods
to which they apply. Such statements and related schedules and notes have
been prepared in accordance with generally accepted accounting principles
consistently applied through the periods involved, except as disclosed
therein. The other financial and statistical information and data set
forth in the Registration Statement and the Prospectus (and any amendment
or supplement thereto) is, in all material respects, accurately presented
and prepared on a basis consistent with such financial statements and the
books and records of the Company and its subsidiaries. The pro forma
financial information and other financial information included in the
Prospectus present fairly the information shown therein, have been prepared
in accordance with the Commission's rules and regulations with respect to
pro forma financial information, have been properly compiled on the pro
forma basis described therein, and, in the opinion of the Company, the
assumptions used in the preparation thereof are reasonable and the
adjustments used therein are appropriate to give effect to the transactions
or circumstances referred to therein. No other financial statements or
schedules are required to be included in the Registration Statement. The
selected financial data set forth in the Prospectus under the captions
"Summary Historical and Pro Forma Financial Data," "Capitalization" and
"Selected Historical and Pro Forma Financial Data" fairly present the
information set forth therein on the basis stated in the Registration
Statement.
(xxxviii) Each of the Company and its subsidiaries maintains a system
of internal accounting controls sufficient to provide reasonable assurance
that (A) transactions are executed in accordance with management's general
or specific authorizations, (B) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for assets,
(C) access to assets is permitted only in accordance with management's
general or specific authorizations and (D) the recorded accountability for
assets is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect thereto.
(xxxix) Subsequent to the respective dates as of which information
is given in the Prospectus and except as set forth in the Prospectus, (A)
neither the Company nor any of its
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subsidiaries has incurred any liabilities or obligations, direct or
contingent, which are material, individually or in the aggregate, to
the Company and its subsidiaries, taken as a whole, nor entered into any
transaction not in the ordinary course of business, (B) neither the
Company nor any of its subsidiaries has sustained any material loss or
interference with its businesses or properties from fire, flood,
windstorm, accident or other calamity, whether or not covered by insurance,
(C) there has not been, individually or in the aggregate, any change or
development which would reasonably be expected to result in a Material
Adverse Effect and (D) there has been no dividend or distribution of
any kind declared, paid or made by the Company or any of its subsidiaries
on any class of capital stock.
(xl) As disclosed in the Prospectus, the Company does not intend to,
nor does it believe that it will, incur debts beyond its ability to pay
such debts as they mature. As disclosed in the Prospectus, after giving
effect to the Offering, the fair saleable value of the assets of the
Company on a consolidated basis will exceed the amount that will be
required to be paid on or in respect of the existing debts and other
liabilities (including contingent liabilities) of the Company on a
consolidated basis as they become absolute and mature. As disclosed in the
Prospectus, the assets of the Company on a consolidated basis do not
constitute unreasonably small capital to carry out the business of the
Company and its subsidiaries, taken as a whole, as conducted or as proposed
to be conducted.
(xli) Neither the Company nor any of its subsidiaries is (A) an
"investment company" or a company "controlled" by an "investment company"
within the meaning of the Investment Company Act of 1940, as amended, or
(B) a "holding company" or a "subsidiary company" or an "affiliate" of a
holding company within the meaning of the Public Utility Holding Company
Act of 1935, as amended.
(xlii) None of the execution, delivery and performance of this
Agreement, the issuance and sale of the Units, the application of the
proceeds from the issuance and sale of the Units and the consummation of
the transactions contemplated thereby as set forth in the Prospectus, will
violate Regulation G, T, U or X promulgated by the Board of Governors of
the Federal Reserve System or analogous foreign laws and regulations.
(xliii) The Company has not distributed, and will not distribute
prior to the First Closing Date, any offering material in connection with
the offering and sale of the Units other than any preliminary prospectus,
the Prospectus, the Registration Statement and the other materials
permitted by the 1933 Act.
(xliv) Neither the Company nor any of its subsidiaries has (A)
taken, directly or indirectly, any action designed to, or that might
reasonably be expected to, cause or result in stabilization or manipulation
of the price of any security of the Company to facilitate the sale or
resale of the Units or (B) since the date of the Prospectus (1) sold, bid
for, purchased or paid any person any compensation for soliciting purchases
of, the Units or (2) paid or agreed to pay to any person any compensation
for soliciting another to purchase any other securities of the Company.
(xlv) Except pursuant to this Agreement, there are no contracts,
agreements or understandings between the Company or any of its subsidiaries
and any other person that would give rise to a valid claim against the
Company, any of its subsidiaries or any of the Underwriters
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for a brokerage commission, finder's fee or like payment in connection
with the issuance, purchase and sale of the Units.
(xlvi) Each of the Company and its subsidiaries has complied with
all provisions of Section 517.075, Florida Statutes.
(xlvii) Except as disclosed in the Prospectus, there are no business
relationships or related party transactions required to be disclosed
therein pursuant to Item 404 of Regulation S-K of the Commission.
The Company acknowledges that each of the Underwriters and,
for purposes of the opinions to be delivered to the Underwriters pursuant to
Section 5 hereof, counsel to the Company and counsel to the Underwriters,
will rely upon the accuracy and truth of the foregoing representations and
hereby consents to such reliance.
(b) Officer's Certificates. Any certificate signed by any
officer of the Company or any of its subsidiaries delivered to the
Representatives or to counsel for the Underwriters on or prior to Closing
Time shall be deemed a representation and warranty by the Company to each
Underwriter as to the matters covered thereby.
SECTION 2. Sale and Delivery to Underwriters; Closing.
(a) Securities. On the basis of the representations and
warranties herein contained and subject to the terms and conditions herein
set forth, the Company agrees to sell to each Underwriter, severally and not
jointly, and each Underwriter, severally and not jointly, agrees to purchase
from the Company, at the price set forth in Schedule B, the number of Units
set forth in Schedule A opposite the name of such Underwriter, plus any
additional number of Units which such Underwriter may become obligated to
purchase pursuant to the provisions of Section 10 hereof.
(b) Payment. Payment of the purchase price for, and delivery
of, the Units shall be made at the offices of Latham & Watkins, or at such
other place as shall be agreed upon by the Representatives and the Company,
at 9:00 A.M. (Eastern time) on the third (fourth, if the pricing occurs after
4:30 P.M. (Eastern time) on any given day) business day after the date hereof
(unless postponed in accordance with the provisions of Section 10), or such
other time not later than ten business days after such date as shall be
agreed upon by the Representatives and the Company (such time and date of
payment and delivery being herein called "Closing Time").
Payment shall be made to the Company by wire transfer of
immediately available funds to a bank account designated by the Company,
against delivery to the Representatives for the respective accounts of the
Underwriters of certificates for the Units to be purchased by them. It is
understood that each Underwriter has authorized the Representatives, for its
account, to accept delivery of, receipt for, and make payment of the purchase
price for, the Units which it has agreed to purchase. Merrill Lynch,
individually and not as representative of the Underwriters, may (but shall
not be obligated to) make payment of the purchase price for the Units to be
purchased by any Underwriter whose funds have not been received by the
Closing Time, but such payment shall not relieve such Underwriter from its
obligations hereunder.
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(c) Denominations; Registration. Certificates for the Notes
and Warrants comprising the Units shall be in such denominations and
registered in such names as the Representatives may request in writing at
least one full business day before the Closing Time. Such certificates will
be made available for examination and packaging by the Representatives in The
City of New York not later than 10:00 A.M. (Eastern time) on the business day
prior to the Closing Time.
SECTION 3. Covenants of the Company. The Company
covenants with each Underwriter as follows:
(a) Compliance with Securities Regulations and Commission Requests. The
Company, subject to Section 3(b), will comply with the requirements of Rule
430A or Rule 434, as applicable, and will notify the Representatives
immediately, and confirm the notice in writing, (i) when any post-effective
amendment to the Registration Statement shall become effective, or any
supplement to the Prospectus or any amended Prospectus shall have been
filed, (ii) of the receipt of any comments from the Commission, (iii) of
any request by the Commission for any amendment to the Registration
Statement or any amendment or supplement to the Prospectus or for
additional information, and (iv) of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement or of
any order preventing or suspending the use of any preliminary prospectus,
or of the suspension of the qualification of the Units for offering or sale
in any jurisdiction, or of the initiation or threatening of any proceedings
for any of such purposes. The Company will promptly effect the filings
necessary pursuant to Rule 424(b) and will take such steps as it deems
necessary to ascertain promptly whether the form of prospectus transmitted
for filing under Rule 424(b) was received for filing by the Commission and,
in the event that it was not, it will promptly file such prospectus. The
Company will make every reasonable effort to prevent the issuance of any
stop order and, if any stop order is issued, to obtain the lifting thereof
at the earliest possible moment.
(b) Filing of Amendments. The Company will give the Representatives
notice of its intention to file or prepare any amendment to the
Registration Statement (including any filing under Rule 462(b)), any Term
Sheet or any amendment, supplement or revision to either the prospectus
included in the Registration Statement at the time it became effective or
to the Prospectus, will furnish the Representatives with copies of any such
documents a reasonable amount of time prior to such proposed filing or use,
as the case may be, and will not file or use any such document to which the
Representatives or counsel for the Underwriters shall object.
(c) Delivery of Registration Statements. The Company has furnished or
will deliver to the Representatives and counsel for the Underwriters, without
charge, signed copies of the Registration Statement as originally filed and
of each amendment thereto (including exhibits filed therewith or
incorporated by reference therein) and signed copies of all consents and
certificates of experts, and will also deliver to the Representatives,
without charge, a conformed copy of the Registration Statement as
originally filed and of each amendment thereto (without exhibits) for each
of the Underwriters. The copies of the Registration Statement and each
amendment thereto furnished to the Underwriters will be identical to the
electronically transmitted copies thereof filed with the Commission
pursuant to EDGAR, except to the extent permitted by Regulation S-T.
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(d) Delivery of Prospectuses. The Company has delivered to each
Underwriter, without charge, as many copies of each preliminary prospectus
as such Underwriter reasonably requested, and the Company hereby consents
to the use of such copies for purposes permitted by the 1933 Act. The
Company will furnish to each Underwriter, without charge, during the period
when the Prospectus is required to be delivered under the 1933 Act or the
Securities Exchange Act of 1934 (the "1934 Act"), such number of copies of
the Prospectus (as amended or supplemented) as such Underwriter may
reasonably request. The Prospectus and any amendments or supplements
thereto furnished to the Underwriters will be identical to the
electronically transmitted copies thereof filed with the Commission
pursuant to EDGAR, except to the extent permitted by Regulation S-T.
(e) Continued Compliance with Securities Laws. The Company will comply
with the 1933 Act, the 1933 Act Regulations and the 1939 Act and the
regulations thereunder so as to permit the completion of the distribution
of the Units as contemplated in this Agreement and in the Prospectus. If at
any time when a prospectus is required by the 1933 Act to be delivered in
connection with sales of the Units, any event shall occur or condition shall
exist as a result of which it is necessary, in the opinion of counsel for the
Underwriters or for the Company, to amend the Registration Statement or
amend or supplement the Prospectus in order that the Prospectus will not
include any untrue statements of a material fact or omit to state a
material fact necessary in order to make the statements therein not
misleading in the light of the circumstances existing at the time it is
delivered to a purchaser, or if it shall be necessary, in the opinion of
such counsel, at any such time to amend the Registration Statement or amend
or supplement the Prospectus in order to comply with the requirements of
the 1933 Act or the 1933 Act Regulations, the Company will promptly prepare
and file with the Commission, subject to Section 3(b), such amendment or
supplement as may be necessary to correct such statement or omission or to
make the Registration Statement or the Prospectus comply with such
requirements, and the Company will furnish to the Underwriters such number
of copies of such amendment or supplement as the Underwriters may
reasonably request.
(f) Blue Sky Qualifications. The Company will use its best efforts, in
cooperation with the Underwriters, to qualify the Securities for offering
and sale under the applicable securities laws of such states and other
jurisdictions as the Representatives may designate and to maintain such
qualifications in effect for a period of not less than one year from the
later of the effective date of the Registration Statement and any Rule
462(b) Registration Statement; provided, however, that the Company shall not
be obligated to file any general consent to service of process or to
qualify as a foreign corporation or as a dealer in securities in any
jurisdiction in which it is not so qualified or to subject itself to
taxation in respect of doing business in any jurisdiction in which it is
not otherwise so subject. In each jurisdiction in which the Securities
have been so qualified, the Company will file such statements and reports
as may be required by the laws of such jurisdiction to continue such
qualification in effect for a period of not less than one year from the
effective date of the Registration Statement and any Rule 462(b)
Registration Statement. The Company will also supply the Underwriters with
such information as is necessary for the determination of the legality of
the Units for investment under the laws of such jurisdictions as the
Underwriters may request.
(g) Rule 158. The Company will timely file such reports pursuant to
the 1934 Act as are necessary in order to make generally available to its
securityholders as soon as practicable an
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earnings statement for the purposes of, and to provide the benefits
contemplated by, the last paragraph of Section 11(a) of the 1933 Act.
(h) Use of Proceeds. The Company will use the net proceeds received by
it from the sale of the Units in the manner specified in the Prospectus
under "Use of Proceeds."
(i) Listing. The Company will use its best efforts to effect the
listing of the Warrant Shares on the Nasdaq National Market in compliance
with applicable Nasdaq National Market listing requirements.
(j) Restriction on Sale of Securities. During a period of 180 days from
the date of the Prospectus, the Company will not, without the prior written
consent of Merrill Lynch, directly or indirectly, issue, sell, offer or
contract to sell, grant any option for the sale of, or otherwise transfer
or dispose of, any debt security of the Company (other than the Notes) in a
public offering registered under the 1933 Act or in a transaction exempt
from the registration requirements of the 1933 Act by operation of Rule
144A under the 1933 Act Regulations.
(k) Reporting Requirements. The Company, during the period when the
Prospectus is required to be delivered under the 1933 Act or the 1934 Act,
will file all documents required to be filed with the Commission pursuant
to the 1934 Act within the time periods required by the 1934 Act and the
rules and regulations of the Commission thereunder.
(l) Compliance with Warrant Agreement. The Company will comply with the
provisions of the Warrant Agreement relating to the registration under the
1933 Act of the initial issuance of the Warrant Shares upon exercise of the
Warrants.
(m) Pledged Securities. Pursuant to the Indenture and upon closing of
the Offering, the Company will use a portion of the net proceeds of the
Offering to purchase and pledge to the Collateral Agent for the benefit of
holders of the Notes Pledged 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 public
accountants selected by the Company, to provide for payment in full for the
first six scheduled interest payments due on the Notes. The Company will
take all actions necessary to pledge, assign and set over to the Collateral
Agent, for the benefit of holders of the Notes, and irrevocably grant to
the Collateral Agent for the benefit of the holders of the Notes a first
priority security interest in, all of its respective right, title and
interest in such Pledged Securities held by the Collateral Agent or on its
behalf, in order to secure the obligations of the Company to pay interest
on the Notes and in certain circumstances the obligations of the Company to
pay principal on the Notes.
SECTION 4. Payment of Expenses. (a) Expenses. The Company will
pay all expenses incident to the performance of its obligations under this
Agreement, including (i) the preparation, printing and filing of the
Registration Statement (including financial statements and exhibits) as
originally filed and of each amendment thereto, (ii) the preparation,
printing and delivery to the Underwriters of this Agreement, any Agreement
among Underwriters, the other Operative Documents and such other documents as
may be required in connection with the offering, purchase, sale, issuance or
delivery of the Securities, (iii) the preparation, issuance and delivery of
the certificates for the Notes and the Warrants to the Underwriters,
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(iv) the fees and disbursements of the Company's counsel, accountants and
other advisors, (v) the qualification of the Securities under securities laws
in accordance with the provisions of Section 3(f) hereof, including filing
fees and the reasonable fees and disbursements of counsel for the
Underwriters in connection therewith and in connection with the preparation
of the Blue Sky Survey and any supplement thereto, (vi) the printing and
delivery to the Underwriters of copies of each preliminary prospectus, any
Term Sheets and of the Prospectus and any amendments or supplements thereto,
(vii) the preparation, printing and delivery to the Underwriters of copies of
the Blue Sky Survey and any supplement thereto, (viii) the fees and expenses
of the Trustee, including the fees and disbursements of counsel for the
Trustee in connection with the Indenture and the Notes, (ix) the fees and
expenses of the Collateral Agent, including the fees and disbursements of
counsel for the Collateral Agent in connection with the Pledge Agreement, (x)
the fees and expenses of the Warrant Agent, including the fees and
disbursements of counsel for the Warrant Agent in connection with the Warrant
Agreement and the Warrants, (xi) any fees payable in connection with the
rating of the Units to the SecuritiNotes, (xii) the filing fees incident to,
and the reasonable fees and disbursements of counsel Underwriters in
connection with, the review by the NASD of the terms of the sale of the
UnitsSecuritie and (xiii) the fees and expenses incurred in connection with
the listing of the Warrant Shares on the Nasdaq National Market.
(b) Termination of Agreement. If this Agreement is
terminated by the Representatives in accordance with the provisions of
Section 5 or Section 9(a)(i) hereof, the Company shall reimburse the
Underwriters for all of their out-of-pocket expenses, including the
reasonable fees and disbursements of counsel for the Underwriters.
SECTION 5. Conditions of Underwriters' Obligations. The
obligations of the several Underwriters hereunder are subject to the accuracy
of the representations and warranties of the Company contained in Section 1
hereof or in certificates of any officer of the Company or any subsidiary of
the Company delivered pursuant to the provisions hereof, to the performance
by the Company of its covenants and other obligations hereunder, and to the
following further conditions:
(a) Effectiveness of Registration Statement. The Registration Statement,
including any Rule 462(b) Registration Statement, has become effective and
at Closing Time no stop order suspending the effectiveness of the
Registration Statement shall have been issued under the 1933 Act or
proceedings therefor initiated or threatened by the Commission, and any
request on the part of the Commission for additional information shall have
been complied with to the reasonable satisfaction of counsel to the
Underwriters. A prospectus containing the Rule 430A Information shall have
been filed with the Commission in accordance with Rule 424(b) (or a
post-effective amendment providing such information shall have been filed
and declared effective in accordance with the requirements of Rule 430A)
or, if the Company has elected to rely upon Rule 434, a Term Sheet shall
have been filed with the Commission in accordance with Rule 424(b).
(b) Opinion of Counsel for Company. At Closing Time, the Representatives
shall have received the favorable opinion, dated as of Closing Time, of
Hahn & Hessen LLP, counsel for the Company, in form and substance
satisfactory to counsel for the Underwriters, together with signed or
reproduced copies of such letter for each of the other Underwriters to the
effect set forth in Exhibit A hereto and to such further effect as counsel
to the Underwriters may reasonably request.
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(c) Opinion of Special Regulatory Counsel. At Closing Time, the
Representatives shall have received the favorable opinion, dated as of
Closing Time, of Latham & Watkins, special regulatory counsel, in form and
substance satisfactory to the Underwriters, together with signed or
reproduced copies of such letter for each of the other Underwriters to the
effect set forth in Exhibit B hereto and to such further effect as the
Underwriters may reasonably request.
(d) Opinion of Counsel for Underwriters. At Closing Time, the
Representatives shall have received the favorable opinion, dated as of
Closing Time, of Latham & Watkins, counsel for the Underwriters, with
respect to certain matters requested by the Underwriters. In giving such
opinion such counsel may rely, as to all matters governed by the laws of
jurisdictions other than the law of the State of New York, the federal law
of the United States and the General Corporation Law of the State of
Delaware, upon the opinions of counsel satisfactory to the Representatives.
Such counsel may also state that, insofar as such opinion involves factual
matters, they have relied, to the extent they deem proper, upon
certificates of officers of the Company and its subsidiaries and
certificates of public officials.
(e) Officers' Certificate. At Closing Time, there shall not have been,
since the date hereof or since the respective dates as of which information
is given in the Prospectus, any material adverse change in the condition,
financial or otherwise, or in the earnings, business affairs or business
prospects of the Company and its subsidiaries considered as one enterprise,
whether or not arising in the ordinary course of business, and the
Representatives shall have received a certificate of the President or a
Vice President of the Company and of the chief financial or chief
accounting officer of the Company, dated as of Closing Time, to the effect
that (i) there has been no such material adverse change, (ii) the
representations and warranties in Section 1(a) hereof are true and correct
with the same force and effect as though expressly made at and as of
Closing Time, (iii) the Company has complied with all agreements and
satisfied all conditions on its part to be performed or satisfied at or
prior to Closing Time, and (iv) no stop order suspending the effectiveness
of the Registration Statement has been issued and no proceedings for that
purpose have been instituted or are pending or are contemplated by the
Commission.
(f) Accountants' Comfort Letter. At the time of the execution of this
Agreement, the Representatives shall have received from Coopers & Lybrand
L.L.P. a letter dated such date, in form and substance satisfactory to the
Representatives, together with signed or reproduced copies of such letter
for each of the other Underwriters containing statements and information of
the type ordinarily included in accountants' "comfort letters" to
underwriters with respect to the financial statements and certain financial
information contained in the Registration Statement and the Prospectus.
(g) Bring-down Comfort Letter. At Closing Time, the Representatives
shall have received from Coopers & Lybrand L.L.P. a letter, dated as of
Closing Time, to the effect that they reaffirm the statements made in the
letter furnished pursuant to subsection (f) of this Section, except that
the specified date referred to shall be a date not more than three business
days prior to Closing Time.
(h) Maintenance of Rating. At Closing Time, the Notes shall be rated
at least "Caa" by Moody's Investor's Service Inc. and "CCC+" by Standard &
Poor's Ratings Group, a division
18
<PAGE>
of McGraw-Hill, Inc., and the Company shall have delivered to the
Representatives a letter dated the Closing Time, from each such rating
agency, or other evidence satisfactory to the Representatives, confirming
that the Notes have such ratings; and since the date of this Agreement,
there shall not have occurred a downgrading in the rating assigned to the
Notes or any of the Company's other securities by any "nationally recognized
statistical rating agency," as that term is defined by the Commission for
purposes of Rule 436(g)(2) under the 1933 Act, and no such organization
shall have publicly announced that it has under surveillance or review its
rating of the Notes or any of the Company's other securities.
(i) Approval of Listing. At Closing Time, the Warrant Shares shall have
been approved for listing on the Nasdaq National Market, subject only to
official notice of issuance.
(j) No Objection. The NASD has confirmed that it has not raised any
objection with respect to the fairness and reasonableness of the
underwriting terms and arrangements.
(k) Opinion Regarding Pledged Securities. At Closing Time, the
Representatives shall have received the favorable opinion, dated as of
Closing Time, of Coopers & Lybrand L.L.P. to the effect that the Company
has deposited with, and pledged to, the Collateral Agent for the benefit of
holders of the Notes Pledged Securities in an amount as will be sufficient
upon receipt of scheduled interest and principal payments of such
securities to provide for payment in full for the first six scheduled
interest payments due on the Notes.
(l) Additional Documents. At Closing Time, counsel for the Underwriters
shall have been furnished with such documents and opinions as they may
require for the purpose of enabling them to pass upon the issuance and sale
of the SecuritieUnits as herein contemplated, or in order to evidence the
accuracy of any of the representations or warranties, or the fulfillment of
any of the conditions, herein contained; and all proceedings taken by the
Company in connection with the issuance and sale of the SecuritieUnits as
herein contemplated shall be satisfactory in form and substance to the
Representatives and counsel for the Underwriters.
(m) Termination of Agreement. If any condition specified in this Section
shall not have been fulfilled when and as required to be fulfilled, this
Agreement may be terminated by the Representatives by notice to the Company
at any time at or prior to Closing Time, and such termination shall be
without liability of any party to any other party except as provided in
Section 4 and except that Sections 1, 6, 7 and 8 shall survive any such
termination and remain in full force and effect.
SECTION 6. Indemnification.
(a) Indemnification of Underwriters. The Company agrees to
indemnify and hold harmless each Underwriter and each person, if any, who
controls any Underwriter within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(or any amendment thereto), including the Rule 430A Information
19
<PAGE>
and the Rule 434 Information, if applicable, or the omission or alleged
omission therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading or arising out of any
untrue statement or alleged untrue statement of a material fact included in
any preliminary prospectus or the Prospectus (or any amendment or supplement
thereto), or the omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission; provided that (subject to Section 6(d)
below) any such settlement is effected with the written consent of the
Company; and
(iii) against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by Merrill Lynch),
reasonably incurred in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency
or body, commenced or threatened, or any claim whatsoever based upon any
such untrue statement or omission, or any such alleged untrue statement or
omission, to the extent that any such expense is not paid under (i) or (ii)
above;
provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by any
Underwriter through Merrill Lynch expressly for use in the Registration
Statement (or any amendment thereto), including the Rule 430A Information and
the Rule 434 Information, if applicable, or any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto).
(b) Indemnification of Company, Directors and Officers. Each Underwriter
severally agrees to indemnify and hold harmless the Company, its directors, each
of its officers who signed the Registration Statement, and each person, if any,
who controls the Company within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act against any and all loss, liability, claim, damage
and expense described in the indemnity contained in subsection (a) of this
Section, as incurred, but only with respect to untrue statements or omissions,
or alleged untrue statements or omissions, made in the Registration Statement
(or any amendment thereto), including the Rule 430A Information and the Rule 434
Information, if applicable, or any preliminary prospectus or the Prospectus (or
any amendment or supplement thereto) in reliance upon and in conformity with
written information furnished to the Company by such Underwriter through Merrill
Lynch expressly for use in the Registration Statement (or any amendment thereto)
or such preliminary prospectus or the Prospectus (or any amendment or supplement
thereto).
(c) Actions against Parties; Notification. Each indemnified party shall give
notice as promptly as reasonably practicable to each indemnifying party of any
action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve such
indemnifying party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall not relieve it
from any liability which it may have otherwise than on account
20
<PAGE>
of this indemnity agreement. In the case of parties indemnified pursuant to
Section 6(a) above, counsel to the indemnified parties shall be selected by
Merrill Lynch, and, in the case of parties indemnified pursuant to Section
6(b) above, counsel to the indemnified parties shall be selected by the
Company. An indemnifying party may participate at its own expense in the
defense of any such action; provided, however, that counsel to the
indemnifying party shall not (except with the consent of the indemnified
party) also be counsel to the indemnified party. In no event shall the
indemnifying parties be liable for fees and expenses of more than one counsel
(in addition to any local counsel) separate from their own counsel for all
indemnified parties in connection with any one action or separate but similar
or related actions in the same jurisdiction arising out of the same general
allegations or circumstances. No indemnifying party shall, without the prior
written consent of the indemnified parties, settle or compromise or consent
to the entry of any judgment with respect to any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever in respect of which indemnification or
contribution could be sought under this Section 6 or Section 7 hereof
(whether or not the indemnified parties are actual or potential parties
thereto), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party from all liability arising
out of such litigation, investigation, proceeding or claim and (ii) does not
include a statement as to or an admission of fault, culpability or a failure
to act by or on behalf of any indemnified party.
(d) Settlement without Consent if Failure to Reimburse. If
at any time an indemnified party shall have requested an indemnifying party
to reimburse the indemnified party for fees and expenses of counsel, such
indemnifying party agrees that it shall be liable for any settlement of the
nature contemplated by Section 6(a)(ii) effected without its written consent
if (i) such settlement is entered into more than 45 days after receipt by
such indemnifying party of the aforesaid request, (ii) such indemnifying
party shall have received notice of the terms of such settlement at least 30
days prior to such settlement being entered into and (iii) such indemnifying
party shall not have reimbursed such indemnified party in accordance with
such request prior to the date of such settlement.
SECTION 7. Contribution. If the indemnification provided
for in Section 6 hereof is for any reason unavailable to or insufficient to
hold harmless an indemnified party in respect of any losses, liabilities,
claims, damages or expenses referred to therein, then each indemnifying party
shall contribute to the aggregate amount of such losses, liabilities, claims,
damages and expenses incurred by such indemnified party, as incurred, (i) in
such proportion as is appropriate to reflect the relative benefits received
by the Company on the one hand and the Underwriters on the other hand from
the offering of the SecuritieUnits pursuant to this Agreement or (ii) if the
allocation provided by clause (i) is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company on
the one hand and of the Underwriters on the other hand in connection with the
statements or omissions which resulted in such losses, liabilities, claims,
damages or expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Company on the one hand
and the Underwriters on the other hand in connection with the offering of the
Units pursuant to this Agreement shall be deemed to be in the same respective
proportions as the total net proceeds from the offering of the Units pursuant
to this Agreement (before deducting expenses) received by the Company and the
total underwriting discount received by the Underwriters, in each case as set
forth on the cover of the Prospectus, or, if Rule 434 is used, the
corresponding location on the Term Sheet, bear to the aggregate initial
public offering price of the Units as set forth on such cover.
21
<PAGE>
The relative fault of the Company on the one hand and the
Underwriters on the other hand shall be determined by reference to, among
other things, whether any such untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact
relates to information supplied by the Company or by the Underwriters and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
The Company and the Underwriters agree that it would not be
just and equitable if contribution pursuant to this Section 7 were determined
by pro rata allocation (even if the Underwriters were treated as one entity
for such purpose) or by any other method of allocation which does not take
account of the equitable considerations referred to above in this Section 7.
The aggregate amount of losses, liabilities, claims, damages and expenses
incurred by an indemnified party and referred to above in this Section 7
shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue or alleged untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section 7, no
Underwriter shall be required to contribute any amount in excess of the
amount by which the total price at which the Notes underwritten by it and
distributed to the public were offered to the public exceeds the amount of
any damages which such Underwriter has otherwise been required to pay by
reason of any such untrue or alleged untrue statement or omission or alleged
omission.
No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, each person, if any, who
controls an Underwriter within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act shall have the same rights to contribution as such
Underwriter, and each director of the Company, each officer of the Company
who signed the Registration Statement, and each person, if any, who controls
the Company within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act shall have the same rights to contribution as the Company. The
Underwriters' respective obligations to contribute pursuant to this Section 7
are several in proportion to the number of Units set forth opposite their
respective names in Schedule A hereto and not joint.
SECTION 8. Representations, Warranties and Agreements to
Survive Delivery. All representations, warranties and agreements contained
in this Agreement or in certificates of officers of the Company or any of its
subsidiaries submitted pursuant hereto, shall remain operative and in full
force and effect, regardless of any investigation made by or on behalf of any
Underwriter or controlling person, or by or on behalf of the Company, and
shall survive delivery of the Units to the Underwriters.
22
<PAGE>
SECTION 9. Termination of Agreement.
(a) Termination; General. The Representatives may terminate
this Agreement, by notice to the Company, at any time at or prior to Closing
Time (i) if there has been, since the time of execution of this Agreement or
since the respective dates as of which information is given in the
Prospectus, any material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects of the
Company and its subsidiaries considered as one enterprise, whether or not
arising in the ordinary course of business, or (ii) if there has occurred any
material adverse change in the financial markets in the United States, any
outbreak of hostilities or escalation thereof or other calamity or crisis or
any change or development involving a prospective change in national or
international political, financial or economic conditions, in each case the
effect of which is such as to make it, in the judgment of the
Representatives, impracticable to market the Units or to enforce contracts
for the sale of the Units, or (iii) if trading in any securities of the
Company has been suspended or materially limited by the Commission or the
Nasdaq National Market, or if trading generally on the American Stock
Exchange or the New York Stock Exchange or in the Nasdaq National Market has
been suspended or materially limited, or minimum or maximum prices for
trading have been fixed, or maximum ranges for prices have been required, by
any of said exchanges or by such system or by order of the Commission, the
NASD or any other governmental authority, or (iv) if a banking moratorium has
been declared by either Federal or New York authorities.
(b) Liabilities. If this Agreement is terminated pursuant to
this Section, such termination shall be without liability of any party to any
other party except as provided in Section 4 hereof, and provided further that
Sections 1, 6, 7 and 8 shall survive such termination and remain in full
force and effect.
SECTION 10. Default by One or More of the Underwriters. If
one or more of the Underwriters shall fail at Closing Time to purchase the
Units which it or they are obligated to purchase under this Agreement (the
"Defaulted Securities"), the Representatives shall have the right, but not
the obligation, within 24 hours thereafter, to make arrangements for one or
more of the non-defaulting Underwriters, or any other underwriters, to
purchase all, but not less than all, of the Defaulted Securities in such
amounts as may be agreed upon and upon the terms herein set forth; if,
however, the Representatives shall not have completed such arrangements
within such 24-hour period, then this Agreement shall terminate without
liability on the part of any non-defaulting Underwriter.
No action taken pursuant to this Section shall relieve any
defaulting Underwriter from liability in respect of its default.
In the event of any such default which does not result in a
termination of this Agreement, either the Representatives or the Company
shall have the right to postpone Closing Time for a period not exceeding
seven days in order to effect any required changes in the Registration
Statement or Prospectus or in any other documents or arrangements.
SECTION 11. Notices. All notices and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
mailed or transmitted by any standard form of telecommunication. Notices to
the Underwriters shall be directed to the Representatives c/o Merrill Lynch
at North Tower, World Financial Center, New York, New York 10281-1201,
attention of Steven C. Jones; and notices to the Company shall be directed to
it at 500 108th Avenue, N.E., Suite 2600, Bellevue, Washington 98004,
attention of Chief Financial Officer.
23
<PAGE>
SECTION 12. Parties. This Agreement shall each inure to
the benefit of and be binding upon the Underwriters and the Company and their
respective successors. Nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any person, firm or corporation, other
than the Underwriters and the Company and their respective successors and the
controlling persons and officers and directors referred to in Sections 6 and
7 and their heirs and legal representatives, any legal or equitable right,
remedy or claim under or in respect of this Agreement or any provision herein
contained. This Agreement and all conditions and provisions hereof are
intended to be for the sole and exclusive benefit of the Underwriters and the
Company and their respective successors, and said controlling persons and
officers and directors and their heirs and legal representatives, and for the
benefit of no other person, firm or corporation. No purchaser of
SecuritieUnits from any Underwriter shall be deemed to be a successor by
reason merely of such purchase.
SECTION 13. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK. SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME.
SECTION 14. Effect of Headings. The Article and Section
headings herein and the Table of Contents are for convenience only and shall
not affect the construction hereof.
24
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof,
whereupon this instrument, along with all counterparts, will become a binding
agreement between the Underwriters and the Company in accordance with its
terms.
Very truly yours,
ADVANCED RADIO TELECOM CORP.
By
-------------------------
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
CIBC WOOD GUNDY SECURITIES CORP.
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By
-------------------------------
Authorized Signatory
25
<PAGE>
SCHEDULE A
Number
Name of Underwriter of Units
------------------- --------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated ..................
CIBC Wood Gundy Securities Corp. ..............
-------
Total .............................................135,000
-------
-------
Sch A-1
<PAGE>
SCHEDULE B
ADVANCED RADIO TELECOM CORP.
135,000 Units Consisting of
$135,000,000 Aggregate Principal Amount of
___% Senior Notes due 2007 and Warrants
to Purchase Shares of Common Stock
1. The initial public offering price of the Units shall $135,000,000.
2. The purchase price to be paid by the Underwriters for the Units shall
be $____________.
3. The interest rate on the Notes shall be ___% per annum.
4. The prices at which the Company may repurchase Notes pursuant to the
optional redemption provisions of the Indenture shall be as follows:
2002 ...........................____%
2003 ...........................____%
2004 ...........................____%
2005 and thereafter ............____%.
5. The price at which the Company may repurchase Notes pursuant to the
equity claw-back feature of the optional redemption provisions of the Indenture
shall be ___%.
6. The number of shares of Common Stock for which a Warrant may be
initially exercised shall be 1,349.
7. The initial exercise price of the Warrants shall be $____ per share
of Common Stock.
Sch B-1
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ADVANCED RADIO TELECOM CORP.
135,000 Units Consisting of
$135,000,000 Aggregate Principal Amount of
___% Senior Notes due 2007 and
Warrants to Purchase 2,731,725 Shares of Common Stock
INDENTURE
Dated as of February ___, 1997
THE BANK OF NEW YORK
Trustee
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CROSS-REFERENCE TABLE*
Trust Indenture
Act Section Indenture Section
310(a)(1) . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(2). . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(3) . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(4). . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(5). . . . . . . . . . . . . . . . . . . . . . 7.10
(b) . . . . . . . . . . . . . . . . . . . . . . . 7.10
(c) . . . . . . . . . . . . . . . . . . . . . . . N.A.
311(a) . . . . . . . . . . . . . . . . . . . . . . . 7.11
(b) . . . . . . . . . . . . . . . . . . . . . . . 7.11
(c) . . . . . . . . . . . . . . . . . . . . . . . N.A.
312(a) . . . . . . . . . . . . . . . . . . . . . . . 2.05
(b) . . . . . . . . . . . . . . . . . . . . . . . 10.03
(c) . . . . . . . . . . . . . . . . . . . . . . .
313(a) . . . . . . . . . . . . . . . . . . . . . . 7.06
(b)(1 . . . . . . . . . . . . . . . . . . . . . .
(b)(2) . . . . . . . . . . . . . . . . . . . . . 7.06
(c) . . . . . . . . . . . . . . . . . . . . . . . 7.06; 10.02
(d) . . . . . . . . . . . . . . . . . . . . . . . 7.06
314(a) . . . . . . . . . . . . . . . . . . . . . . 4.03; 10.02
(b) . . . . . . . . . . . . . . . . . . . . . . . 4.18
(c)(1). . . . . . . . . . . . . . . . . . . . . . 10.04
(c)(2). . . . . . . . . . . . . . . . . . . . . . 10.04
(c)(3). . . . . . . . . . . . . . . . . . . . . . 4.18
(d) . . . . . . . . . . . . . . . . . . . . . . . 4.18
(e) . . . . . . . . . . . . . . . . . . . . . . . 10.05
(f) . . . . . . . . . . . . . . . . . . . . . . . N.A.
315(a) . . . . . . . . . . . . . . . . . . . . . . . 7.01
(b) . . . . . . . . . . . . . . . . . . . . . . . 7.05, 10.02
(c) . . . . . . . . . . . . . . . . . . . . . . . 7.01
(d) . . . . . . . . . . . . . . . . . . . . . . . 7.01
(e) . . . . . . . . . . . . . . . . . . . . . . . 6.11
316(a)(last sentence) . . . . . . . . . . . . . . . 2.09
(a)(1)(a) . . . . . . . . . . . . . . . . . . . . 6.05
(a)(1)(b) . . . . . . . . . . . . . . . . . . . . 6.04
(a)(2). . . . . . . . . . . . . . . . . . . . . . N.A.
(b) . . . . . . . . . . . . . . . . . . . . . . . 6.07
(c) . . . . . . . . . . . . . . . . . . . . . . . 2.13
317 (a)(1) . . . . . . . . . . . . . . . . . . . . . 6.08
(a)(2). . . . . . . . . . . . . . . . . . . . . . 6.09
(b) . . . . . . . . . . . . . . . . . . . . . . . 2.04
318(a) . . . . . . . . . . . . . . . . . . . . . . . 10.01
(b) . . . . . . . . . . . . . . . . . . . . . . . N.A.
(c) . . . . . . . . . . . . . . . . . . . . . . . 10.01
N.A. means not applicable.
*This Cross-Reference Table is not part of the Indenture.
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.01. Definitions. . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.02. Other Definitions . . . . . . . . . . . . . . . . . . . . 16
Section 1.03. Incorporation by Reference of Trust Indenture Act . . . . 17
Section 1.04. Rules of Construction . . . . . . . . . . . . . . . . . . 17
ARTICLE 2
THE NOTES
Section 2.01. Form and Dating . . . . . . . . . . . . . . . . . . . . . 17
Section 2.02. Execution and Authentication . . . . . . . . . . . . . . . 18
Section 2.03. Registrar and Paying Agent . . . . . . . . . . . . . . . . 18
Section 2.04. Paying Agent to Hold Money in Trust . . . . . . . . . . . 19
Section 2.05. Lists of Holders of the Notes . . . . . . . . . . . . . . 19
Section 2.06. Transfer and Exchange . . . . . . . . . . . . . . . . . . 19
Section 2.07. Replacement Notes . . . . . . . . . . . . . . . . . . . . 20
Section 2.08. Outstanding Notes . . . . . . . . . . . . . . . . . . . . 20
Section 2.09. Treasury Notes . . . . . . . . . . . . . . . . . . . . . . 20
Section 2.10. Temporary Notes . . . . . . . . . . . . . . . . . . . . . 21
Section 2.11. Cancellation . . . . . . . . . . . . . . . . . . . . . . . 21
Section 2.12. Defaulted Interest . . . . . . . . . . . . . . . . . . . . 21
Section 2.13. Record Date . . . . . . . . . . . . . . . . . . . . . . . 21
Section 2.14. CUSIP Number . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE 3
REDEMPTION
Section 3.01. Notices to Trustee . . . . . . . . . . . . . . . . . . . . 22
Section 3.02. Selection of Notes to Be Redeemed . . . . . . . . . . . . 22
Section 3.03. Notice of Redemption . . . . . . . . . . . . . . . . . . . 23
Section 3.04. Effect of Notice of Redemption . . . . . . . . . . . . . . 23
Section 3.05. Deposit of Redemption Price . . . . . . . . . . . . . . . 23
Section 3.06. Notes Redeemed in Part . . . . . . . . . . . . . . . . . . 24
Section 3.07. Optional Redemption . . . . . . . . . . . . . . . . . . . 24
Section 3.08. Mandatory Redemption . . . . . . . . . . . . . . . . . . . 24
ARTICLE 4
COVENANTS
Section 4.01. Payment of Notes . . . . . . . . . . . . . . . . . . . . . 25
Section 4.02. Maintenance of Office or Agency . . . . . . . . . . . . . 25
Section 4.03. Reports . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 4.04. Compliance Certificate . . . . . . . . . . . . . . . . . . 26
Section 4.05. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 4.06. Stay, Extension and Usury Laws . . . . . . . . . . . . . . 27
Section 4.07. Limitation on Restricted Payments . . . . . . . . . . . . 27
i
<PAGE>
Section 4.08. Limitation on Dividend and Other Payment
Restrictions Affecting Restricted Subsidiaries . . . . . . 30
Section 4.09. Limitation on Indebtedness . . . . . . . . . . . . . . . . 31
Section 4.10. Limitation on Issuances and Sales of Capital Stock of
Restricted Subsidiaries . . . . . . . . . . . . . . . . . 34
Section 4.11. Disposition of Proceeds of Asset Sales . . . . . . . . . . 34
Section 4.12. Limitation on Transactions with Affiliates . . . . . . . . 35
Section 4.13. Limitation on Liens Securing Certain Indebtedness . . . . 36
Section 4.14. Corporate Existence . . . . . . . . . . . . . . . . . . . 36
Section 4.15. Change of Control . . . . . . . . . . . . . . . . . . . . 36
Section 4.16. Business Activities of the Company . . . . . . . . . . . . 37
Section 4.17. No Amendment to Voting Trust Agreement . . . . . . . . . . 37
Section 4.18. Pledge Agreement; Security . . . . . . . . . . . . . . . . 37
ARTICLE 5
SUCCESSORS
Section 5.01. Consolidation, Merger, Sale of Assets, Etc. . . . . . . . 38
Section 5.02. Successor Corporation Substituted . . . . . . . . . . . . 39
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.01. Events of Default . . . . . . . . . . . . . . . . . . . . 40
Section 6.02. Acceleration . . . . . . . . . . . . . . . . . . . . . . . 41
Section 6.03. Other Remedies . . . . . . . . . . . . . . . . . . . . . . 42
Section 6.04. Waiver of Past Defaults . . . . . . . . . . . . . . . . . 42
Section 6.05. Control by Majority . . . . . . . . . . . . . . . . . . . 42
Section 6.06. Limitation on Suits . . . . . . . . . . . . . . . . . . . 42
Section 6.07. Rights of Holders of Notes to Receive Payment . . . . . . 43
Section 6.08. Collection Suit by Trustee . . . . . . . . . . . . . . . . 43
Section 6.09. Trustee May File Proofs of Claim . . . . . . . . . . . . . 43
Section 6.10. Priorities . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 6.11. Undertaking for Costs . . . . . . . . . . . . . . . . . . 44
ARTICLE 7
TRUSTEE
Section 7.01. Duties of Trustee . . . . . . . . . . . . . . . . . . . . 44
Section 7.02. Rights of Trustee . . . . . . . . . . . . . . . . . . . . 45
Section 7.03. Individual Rights of Trustee . . . . . . . . . . . . . . . 46
Section 7.04. Trustee's Disclaimer . . . . . . . . . . . . . . . . . . . 46
Section 7.05. Notice of Defaults . . . . . . . . . . . . . . . . . . . . 46
Section 7.06. Reports by Trustee to Holders of the Notes . . . . . . . . 46
Section 7.07. Compensation and Indemnity . . . . . . . . . . . . . . . . 46
Section 7.08. Replacement of Trustee . . . . . . . . . . . . . . . . . . 47
Section 7.09. Successor Trustee by Merger, etc . . . . . . . . . . . . . 48
Section 7.10. Eligibility; Disqualification . . . . . . . . . . . . . . 48
Section 7.11. Preferential Collection of Claims Against Company . . . . 48
ii
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ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.01. Option to Effect Legal Defeasance or Covenant
Defeasance . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 8.02. Legal Defeasance and Discharge . . . . . . . . . . . . . . 49
Section 8.03. Covenant Defeasance . . . . . . . . . . . . . . . . . . . 49
Section 8.04. Conditions to Legal or Covenant Defeasance . . . . . . . . 50
Section 8.05. Deposited Money and Government Securities to be
Held in Trust; Other Miscellaneous Provisions. . . . . . . 50
Section 8.06. Repayment to Company . . . . . . . . . . . . . . . . . . . 51
Section 8.07. Reinstatement . . . . . . . . . . . . . . . . . . . . . . 51
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.01. Without Consent of Holders of Notes . . . . . . . . . . . 52
Section 9.02. With Consent of Holders of Notes . . . . . . . . . . . . . 52
Section 9.03. Compliance with Trust Indenture Act . . . . . . . . . . . 53
Section 9.04. Revocation and Effect of Consents . . . . . . . . . . . . 53
Section 9.05. Notation on or Exchange of Notes . . . . . . . . . . . . . 54
Section 9.06. Trustee to Sign Amendments, etc . . . . . . . . . . . . . 54
ARTICLE 10
MISCELLANEOUS
Section 10.01. Trust Indenture Act Controls . . . . . . . . . . . . . . . 54
Section 10.02. Notices . . . . . . . . . . . . . . .. . . . . . . . . . . 54
Section 10.03. Communication by Holders of Notes with Other
Holders of Notes . . . . . . . . . . . . . . . . . . . . . 55
Section 10.04. Certificate and Opinion as to Conditions Precedent . . . . 55
Section 10.05. Statements Required in Certificate or Opinion . . . . . . 56
Section 10.06. Rules by Trustee and Agents . . . . . . . . . . . . . . . 56
Section 10.07. No Personal Liability of Partners, Directors, Officers,
Employees and Stockholders . . . . . . . . . . . . . . . . 56
Section 10.08. Governing Law . . . . . . . . . . . . . . . . . . . . . . 56
Section 10.09. No Adverse Interpretation of Oth.er Agreements . . . . . . 56
Section 10.10. Successors . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 10.11. Severability . . . . . . . . . . . . . . . . . . . . . . . 57
Section 10.12. Counterpart Originals . . . . . . . . . . . . . . . . . . 57
Section 10.13. Table of Contents, Headings, etc . . . . . . . . . . . . . 57
iii
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EXHIBITS
Exhibit A Form of the Note
Exhibit B Form of the Pledge Agreement
iv
<PAGE>
INDENTURE dated as of February ___, 1997 between Advanced Radio Telecom
Corp., f/k/a Advanced Radio Technologies Corporation, a Delaware corporation
(the "Company"), and The Bank of New York, a New York banking corporation, as
trustee (the "Trustee").
The Company and the Trustee agree as follows for the benefit of each other
and for the equal and ratable benefit of the Holders of the ___% Senior Notes
due 2007 (the "Notes"):
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
SECTION 1.01. DEFINITIONS.
"ACQUIRED DEBT" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"ADJUSTED CONSOLIDATED NET INCOME" means, for any period, the aggregate net
income (or loss) of the Company and its Restricted Subsidiaries for such period
determined in conformity with GAAP; PROVIDED that the following items shall be
excluded in computing Adjusted Consolidated Net Income (without duplication):
(i) the net income of any Person (other than net income attributable to a
Restricted Subsidiary) in which any Person (other than the Company or any of its
Restricted Subsidiaries) has a joint interest and the net income of any
Unrestricted Subsidiary, except to the extent of the amount of dividends or
other distributions actually paid to the Company or any of its Restricted
Subsidiaries by such other Person (including, without limitation, an
Unrestricted Subsidiary) during such period; (ii) solely for the purposes of
calculating the amount of Restricted Payments that may be made pursuant to
clause (C) of Section 4.07(a) hereof (and in such case, except to the extent
includable pursuant to clause (i) above), the net income (or loss) of any Person
accrued prior to the date it becomes a Restricted Subsidiary or is merged into
or consolidated with the Company or any of its Restricted Subsidiaries or all or
substantially all of the property and assets of such Person are acquired by the
Company or any of its Restricted Subsidiaries; (iii) the net income of any
Restricted Subsidiary to the extent that the declaration or payment of dividends
or similar distributions by such Restricted Subsidiary of such net income is not
at the time permitted by the operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to such Restricted Subsidiary; (iv) any gains or losses
(on an after-tax basis) attributable to Asset Sales; (v) except for purposes of
calculating the amount of Restricted Payments that may be made pursuant to
clause (C) of Section 4.07(a) hereof, any amount paid as, or accrued for, cash
dividends on Preferred Stock of the Company or any Restricted Subsidiary owned
by Persons other than the Company and any of its Restricted Subsidiaries;
(vi) all extraordinary or nonrecurring gains and losses; and (vii) the net
income of the Company in respect of the Pledged Securities.
"ADJUSTED CONSOLIDATED NET TANGIBLE ASSETS" means the total amount of
assets of the Company and its Restricted Subsidiaries (less applicable
depreciation, amortization and other valuation reserves), except to the extent
resulting from write-ups of capital assets (excluding write-ups in connection
with accounting for acquisitions in conformity with GAAP), after deducting
therefrom (i) all current liabilities of the Company and its Restricted
Subsidiaries (excluding intercompany items) and (ii) all goodwill, trade names,
trademarks, patents, unamortized debt discount and expense and other like
intangibles (other than
<PAGE>
licenses issued by the FCC), all as set forth on the quarterly or annual
consolidated balance sheet of the Company and its Restricted Subsidiaries,
prepared in conformity with GAAP and most recently filed with the Commission
pursuant to Section 4.03 hereof; PROVIDED that the value of any licenses issued
by the FCC shall, in the event of an auction for similar licenses, be equal to
the fair market value ascribed thereto in good faith by the Board and evidenced
by a resolution of the Board. As used herein, references to financial
statements of the Company and its Restricted Subsidiaries shall be adjusted to
exclude Unrestricted Subsidiaries if the context requires.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; PROVIDED that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control. For purposes hereof, the term "Affiliate" shall at all
times include Laurence S. Zimmerman, Landover Holdings Corporation and their
respective Affiliates.
"AGENT" means any Registrar, Paying Agent or co-registrar.
"ART LICENSING" means ART Licensing Corp., a Delaware corporation and a
wholly owned subsidiary of the Company, or any successor thereto, or such other
Restricted Subsidiary or Restricted 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,
2
<PAGE>
transfers or other dispositions otherwise constituting Asset Sales in an
aggregate amount not to exceed $500,000 during the relevant twelve-month period
referred to in Section 4.11 hereof; (E) any Restricted Payment permitted by
Section 4.07 hereof; (F) any Lien permitted to be Incurred by Section 4.13
hereof; (G) any transaction that is governed by the provisions of Article 5
hereof; (H) any sale, transfer or other disposition of the Capital Stock of an
Unrestricted Subsidiary; and (I) any disposition pursuant to the Option
Agreement, dated as of July 3, 1996, between the Company and Commco, L.L.C.
"AVERAGE LIFE" means, at any date of determination with respect to any debt
security, the quotient obtained by dividing (i) the sum of the products of
(A) the number of years from such date of determination to the dates of each
successive scheduled principal payment of such debt security and (B) the amount
such principal payment by (ii) the sum of all such principal payments.
"BOARD" means the Board of Directors of the Company.
"BUSINESS DAY" means any day other than a Legal Holiday.
"CAPITAL STOCK" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
"CAPITALIZED LEASE" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) of which the discounted present value
of the rental obligations of such Person as lessee, in conformity with GAAP, is
required to be capitalized on the balance sheet of such Person; and "Capitalized
Lease Obligations" means the discounted present value of the rental obligations
under such lease.
"CHANGE IN CONTROL" means such time as (i) a "person" or "group" (within
the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act) becomes the
ultimate "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of
Voting Stock representing more than 50% of the total voting power of the Voting
Stock of the Company on a fully diluted basis, (ii) individuals who on the Issue
Date constitute the Board (together with any new directors whose election by the
Board or whose nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds of the members of the Board then in
office who either were members of the Board on the Issue Date or whose election
or nomination for election was previously so approved) cease for any reason to
constitute a majority of the members of the Board then in office or (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, for so long as held pursuant to the Pledge Agreement,
(a) all of Pledgor's now owned and existing and hereafter arising or acquired
right, title and interest in and to the Pledged Securities and the Pledge
Account, (b) the certificates or other evidences of ownership representing any
Pledged Securities or the Pledge Account and (c) all proceeds of any of the
Pledged Securities, including, without limitation, all dividends, interest,
principal payments, cash, options, warrants, rights, instruments,
3
<PAGE>
investment property, subscriptions and other property or proceeds from time to
time received, receivable or otherwise distributed or distributable in respect
of or in exchange for any or all of the Pledged Securities.
"COLLATERAL AGENT" means the party named as collateral agent under the
Pledge Agreement, or its successor.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" of any Person means Capital Stock of such Person that does
not rank prior, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding up
of such Person, to share 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 and (vi) all other non-cash items reducing
Adjusted Consolidated Net Income (other than items that shall 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 on
any series of preferred stock of such Person, all as determined on a
consolidated basis for the Company and its Restricted Subsidiaries in conformity
with GAAP; PROVIDED that, if any Restricted Subsidiary is not a Wholly Owned
Restricted Subsidiary, Consolidated EBITDA shall be reduced (to the extent not
otherwise reduced in accordance with GAAP) by an amount equal to (A) the amount
of the Adjusted Consolidated Net Income attributable to such Restricted
Subsidiary MULTIPLIED BY (B) the quotient of (1) the number of shares of
outstanding Common Stock of such Restricted Subsidiary not owned on the last day
of such period by the Company or any of its Restricted Subsidiaries DIVIDED BY
(2) the total number of shares of outstanding Common Stock of such Restricted
Subsidiary on the last day of such period. Notwithstanding the foregoing, the
provision for taxes based on the income or profits of, and the depreciation and
amortization and other non-cash charges of, a Restricted Subsidiary of a Person
shall be added to Adjusted Consolidated Net Income to compute Consolidated
EBITDA only to the extent (and in the same proportion) that the net income of
such Restricted Subsidiary was included in calculating the Adjusted Consolidated
Net Income of such Person and only if a corresponding amount would be permitted
at the date of determination to be dividended to the Company by such Restricted
Subsidiary without prior approval (that has not been obtained), pursuant to the
terms of its charter and all agreements, instruments, judgments, decrees,
orders, statutes, rules and governmental regulations applicable to that
Restricted Subsidiary or its stockholders.
"CONSOLIDATED INTEREST EXPENSE" means, for any period, the aggregate amount
of interest in respect of Indebtedness (including amortization of original issue
discount on any Indebtedness and the interest portion of any deferred payment
obligation, calculated in accordance with the effective interest method of
accounting; all commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing and net payments
(if any) pursuant to Hedging Obligations;
4
<PAGE>
and Indebtedness that is Guaranteed or secured by the Company or any of its
Restricted Subsidiaries) and all but the principal component of rentals in
respect of Capitalized Lease Obligations paid, accrued or scheduled to be paid
or to be accrued by the Company and its Restricted Subsidiaries during such
period; EXCLUDING, HOWEVER, (i) any amount of such interest of any Restricted
Subsidiary if the net income of such Restricted Subsidiary is excluded from the
calculation of Adjusted Consolidated Net Income pursuant to clause (iii) of the
definition thereof (but only in the same proportion as the net income of such
Restricted Subsidiary is excluded from the calculation of Adjusted Consolidated
Note Income pursuant to clause (iii) of the definition thereof) and (ii) any
premiums, fees and expenses (and any amortization thereof) payable in connection
with the offering of the Notes, all as determined on a consolidated basis
(without taking into account Unrestricted Subsidiaries) in conformity with GAAP.
"CORPORATE TRUST OFFICE OF THE TRUSTEE" shall be at the address of the
Trustee specified in Section 10.02 hereof or such other address as to which the
Trustee may give notice to the Company.
"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 first and the second proviso of this definition, respectively, Sections
4.09(b)(xiii) and (xiv) hereof 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.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended (or
any successor act), and the rules and regulations thereunder.
"FAIR MARKET VALUE" means the price that would be paid in an arm's
length transaction between an informed and willing seller under no compulsion
to sell and an informed and willing buyer under no
5
<PAGE>
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 herein shall be
computed in conformity with GAAP applied on a consistent basis, except that
calculations made for purposes of determining compliance with the terms of the
covenants and with other provisions hereof shall be made without giving effect
to (i) the amortization of any expenses incurred in connection with the offering
of the Notes and (ii) except as otherwise provided, the amortization of any
amounts required or permitted by Accounting Principles Board Opinion Nos. 16 and
17.
"GOVERNMENT SECURITIES" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States is pledged.
"GUARANTEE" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness or other obligation of any
other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness or other obligation of such other Person (whether arising by virtue
of partnership arrangements, or by agreements to keep-well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (ii) entered into for purposes of assuring
in any other manner the obligee of such Indebtedness or other obligation of the
payment thereof or to protect such obligee against loss in respect thereof (in
whole or in part); PROVIDED that the term "Guarantee" shall not include
endorsements for collection or deposit in the ordinary course of business. The
term "Guarantee" used as a verb has a corresponding meaning.
"HEDGING OBLIGATIONS" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates.
"HOLDER" means a Person in whose name a Note is registered.
"INCUR" means, with respect to any Indebtedness, to incur, create, issue,
assume, Guarantee or otherwise become liable for or with respect to, or become
responsible for, the payment of, contingently or otherwise, such Indebtedness,
including, with respect to the Company and its Restricted Subsidiaries, an
"incurrence" of Indebtedness by reason of a Person becoming a Restricted
Subsidiary of the Company;
6
<PAGE>
PROVIDED that neither the accrual of interest nor the accretion of original
issue discount shall be considered an Incurrence of Indebtedness.
"INDEBTEDNESS" means, with respect to any Person at any date of
determination (without duplication), (i) all indebtedness of such person for
borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments (whether negotiable or non-
negotiable), (iii) all obligations of such Person in respect of letters of
credit or other similar instruments (including reimbursement obligations with
respect thereto), (iv) all obligations of such Person to pay the deferred and
unpaid purchase price of property or services, which purchase price is due more
than six months after the date of placing such property in service or taking
delivery and title thereto or the completion of such services, except trade
payables and escrows, holdbacks and comparable arrangements to secure
indemnification obligations under acquisition agreements, (v) all obligations of
such Person as lessee under Capitalized Leases, (vi) all indebtedness of other
Persons secured by a Lien on any asset of such Person, whether or not such
indebtedness is assumed by such Person, PROVIDED that the amount of such
indebtedness shall be the lesser of (A) the fair market value of such asset at
such date of determination and (B) the amount of such indebtedness, (vii) the
balance deferred and unpaid of the purchase price of any property or
representing any Hedging Obligations, except any such balance that constitutes
an accrued expense or trade payable and (viii) all indebtedness of other Persons
Guaranteed by such Person to the extent such indebtedness is Guaranteed by such
Person. The amount of Indebtedness of any Person at 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 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 Section 4.03 hereof (such four full
fiscal quarter period being referred to herein as the "Four Quarter Period");
PROVIDED that (x) pro forma effect shall be given to any Indebtedness Incurred
from the beginning of the Four Quarter Period through the Transaction Date
(including any Indebtedness Incurred on the Transaction Date), to the extent
outstanding on the Transaction Date, (y) if during the period commencing on the
first day of such Four Quarter Period through the Transaction Date (the
"Reference Period"), the Company or any of the Restricted Subsidiaries shall
have engaged in any Asset Sale, Consolidated EBITDA for such period shall be
reduced by an amount equal to the EBITDA (if positive), or increased by an
amount equal to the EBITDA (if negative), directly attributable to the assets
which are the subject of such Asset Sale and 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.
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"INDEBTEDNESS TO TOTAL MARKET CAPITALIZATION RATIO" means, at any date of
determination, the ratio of (i) the aggregate amount of Indebtedness of the
Company and its Restricted Subsidiaries on a consolidated basis outstanding to
(ii) the Total Market Capitalization of the Company.
"INDENTURE" means this Indenture, as amended or supplemented from time to
time.
"INVESTMENT" in any Person means any direct or indirect advance, loan or
extension of credit (including, without limitation, by way of Guarantee or
similar arrangement, but excluding advances to customers in the ordinary course
of business that are, in conformity with GAAP, recorded as accounts receivable
on the balance sheet of the Company or its Restricted Subsidiaries) or capital
contribution to (by means of any transfer of cash or other property to others or
any payment for property or services for the account or use of others), or any
purchase or acquisition of Capital Stock, bonds, notes, debentures or other
similar instruments issued by, such Person and shall include (i) the designation
of a Restricted Subsidiary as an Unrestricted Subsidiary and (ii) the fair
market value of the Capital Stock held by the Company and the Restricted
Subsidiaries of any Person that has ceased to be a Restricted Subsidiary by
reason of any transaction permitted by clause (iii) of Section 4.10 hereof. For
purposes of the definition of "Unrestricted Subsidiary" and Section 4.07 hereof,
(i) "Investment" shall include the fair market value of the assets (net of
liabilities) of any Restricted Subsidiary of the Company at the time that such
Restricted Subsidiary is designated an Unrestricted Subsidiary and shall exclude
the fair market value of the assets (net of liabilities) of any Unrestricted
Subsidiary at the time that such Unrestricted Subsidiary is designated a
Restricted Subsidiary of the Company and (ii) any property transferred to or
from an Unrestricted Subsidiary shall be valued at its fair market value at the
time of such transfer, in each case as determined by the Board in good faith.
"ISSUE DATE" means the date of original issuance of the Notes.
"LEGAL HOLIDAY" means a Saturday, a Sunday or a day on which banking
institutions in The City of New York or at a place of payment are authorized by
law, regulation or executive order to remain closed. If a payment date is a
Legal Holiday at a place of payment, payment may be made at that place on the
next succeeding day that is not a Legal Holiday, and no interest shall accrue
for the intervening period.
"LIEN" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"NET CASH PROCEEDS" means (a) with respect to any Asset Sale, the proceeds
of such Asset Sale in the form of cash or cash equivalents, including payments
in respect of deferred payment obligations (to the extent corresponding to the
principal, but not interest, component thereof) when received in the form of
cash or cash equivalents (except to the extent such obligations are financed or
sold with recourse to the Company or any Restricted Subsidiary of the Company)
and proceeds from the conversion of other property received when converted to
cash or cash equivalents, net of (i) brokerage commissions and other fees and
expenses (including fees and expenses of counsel and investment bankers) related
to such Asset Sale, (ii) provisions for all taxes (whether or not such taxes
shall actually be paid or are payable) as a
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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 shall not have any recourse to the stock or assets of the Company or
any of its Restricted Subsidiaries.
"NOTES" means the Notes described above issued under this Indenture.
"OFFER TO PURCHASE" means an offer to purchase Notes by the Company from
the holders that is required by Section 4.11 or Section 4.15 hereof and which is
commenced by mailing a notice to the Trustee and each holder stating: (i) the
covenant pursuant to which the offer is being made and that all Notes validly
tendered shall be accepted for payment on a PRO RATA basis; (ii) the purchase
price and the date of purchase (which shall be a business day no earlier than 30
days nor later than 60 days from the date such notice is mailed) (the "Payment
Date"); (iii) that any Note not tendered shall 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
shall 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 shall 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 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
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(vii) that holders whose Notes are being purchased only in part shall 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 shall 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 shall
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.
"OFFICERS' CERTIFICATE" means a certificate (a) signed by two officers of
the Company, one of whom shall be the chief executive officer, chief financial
officer or chief accounting officer of the Company, and (b) which complies with
Sections 10.04 and 10.05 hereof.
"OPINION OF COUNSEL" means an opinion (a) from legal counsel, who may be an
employee of or counsel to the Company or any Subsidiary of the Company, and (b)
which complies with Sections 10.04 and 10.05 hereof.
"PERMITTED ASSET SWAP" means any disposition by the Company or any of its
Restricted Subsidiaries of Telecommunications Assets or a majority of the Voting
Stock of a Restricted Subsidiary in exchange for comparable Telecommunications
Assets or a majority of the Voting Stock of a comparable Restricted Subsidiary;
PROVIDED that the Board shall have approved such disposition and exchange and
determined the fair market value of the assets subject to such transaction as
evidenced by a resolution of the Board or such fair market value has been
determined by a written opinion of an investment banking firm of national
standing or other recognized independent expert with experience appraising the
terms and conditions of the type of transaction contemplated thereby.
"PERMITTED INVESTMENTS" means: (i) an Investment in a Restricted Subsidiary
or a Person which shall, upon the making of such Investment, become a Restricted
Subsidiary or be merged or consolidated with or into or transfer or convey all
or substantially all its assets to, the Company or a Restricted Subsidiary;
(ii)Temporary Cash Investments; (iii) payroll, travel and similar advances to
cover matters that are expected at the time of such advances ultimately to be
treated as expenses in accordance with GAAP; (iv) loans or advances to employees
(other than executive officers of the Company) in an aggregate principal amount
not to exceed $1.0 million at any one time outstanding; (v) stock, obligations
or securities received in satisfaction of judgments; (vi) Investments, to the
extent that the consideration provided by the Company or any of its Restricted
Subsidiaries consists solely of Capital Stock (other than Redeemable Stock) of
the Company; (vii) notes payable to the Company that are received by the Company
as payment of the purchase price for Capital Stock (other than Redeemable Stock)
of the Company; (viii) Investments in an aggregate amount not to exceed $20.0
million at any one time
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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; (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
Subsidiaries or 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 Section 4.09
hereof, (1) to finance the cost (including the cost of improvement or
construction) of the item of property or assets subject thereto and such Lien is
created prior to, at the time of or within six months after the later of the
acquisition, the completion of construction or the commencement of full
operation of such property or (2) to refinance any Indebtedness previously so
secured, (B) the principal amount of the Indebtedness secured by such Lien does
not exceed 100% of such cost and (C) any such Lien shall not extend to or cover
any property or assets other than such item of property or assets and any
improvements on such item; (vii) leases or subleases granted to others that do
not materially interfere with the ordinary course of business of the Company and
its Subsidiaries, taken as a whole; (viii) Liens encumbering property or assets
under construction arising from progress or partial
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payments by a customer of the Company or its 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
Subsidiary; PROVIDED that such Liens do not extend to or cover any property or
assets of the Company or any Subsidiary other than the property or assets
acquired; (xii) Liens in favor of the Company or any Subsidiary; (xiii) Liens
arising from the rendering of a final judgment or order against the Company or
any 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 Subsidiaries in the ordinary course of
business in accordance with the past practices of the Company and its
Subsidiaries prior to the Issue Date; (xvii) Liens on or sales of receivables;
(xviii) Liens securing other Indebtedness in an aggregate amount not to exceed
$250,000 at any one time; (xix) Liens on assets of Unrestricted Subsidiaries
that secure Non-Recourse Debt of Unrestricted Subsidiaries; (xx) Liens existing
on the Issue Date 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 of
the Notes than those Liens 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 Subsidiaries created in favor of the holders of the Notes; (xxii) Liens
with respect to the assets of a Subsidiary granted by such Subsidiary to the
Company or a Wholly Owned Restricted Subsidiary to secure Indebtedness owing to
the Company or such other Wholly Owned Restricted Subsidiary; (xxiii) Liens
securing Indebtedness which is Incurred to refinance secured Indebtedness which
is permitted to be Incurred under Section 4.09(b)(iii) hereof; PROVIDED that
such Liens do not extend to or cover any property or assets of the Company or
any 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 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 Subsidiary other than the equipment so acquired;
(xxv) Liens securing Indebtedness which is permitted to be Incurred under
Section 4.09(b)(xiii) or (xiv) hereof; 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 Collateral Agent
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
sale of the Notes.
"PLEDGE AGREEMENT" means the Collateral Pledge and Security Agreement,
dated as of the date hereof, by and between The Bank of New York and the
Company, among other things, governing the disbursement of funds from the Pledge
Account.
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"PLEDGED SECURITIES" means the Government Securities purchased by the
Company with a portion of the net proceeds from the sale of the Notes, and any
substitute 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 control"
occurring prior to the Stated Maturity of the Notes shall not constitute
Redeemable Stock if the "asset sale" or "change of control" provisions
applicable to such Capital Stock are no more favorable to the holders of such
Capital Stock than the provisions contained in Sections 4.11 and 4.15 hereof and
such Capital Stock specifically provides that such Person shall not repurchase
or redeem any such stock pursuant to such provision prior to the Company's
repurchase of such Notes as are required to be repurchased pursuant to Sections
4.11 and 4.15 hereof.
"RESPONSIBLE OFFICER," when used with respect to the Trustee, means any
officer within the corporate trust department of the Trustee (or any successor
group of the Trustee) or any other officer of the Trustee customarily performing
functions similar to those performed by any of the above designated officers and
also means, with respect to a particular corporate trust matter, any other
officer to whom such matter is referred because of his knowledge of and
familiarity with the particular subject.
"RESTRICTED SUBSIDIARY" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"SECURITIES ACT" means the Securities Act of 1933, as amended (or any
successor act), and the rules and regulations thereunder.
"SIGNIFICANT SUBSIDIARY" means, at any date of determination, any
Restricted Subsidiary of the Company that, together with its Subsidiaries, (i)
for the most recent fiscal year of the Company, accounted for more than 10% of
the consolidated revenues of the Company and its Restricted Subsidiaries or (ii)
as of the end of such fiscal year, had assets accounting for more than 10% of
the consolidated assets of the Company and its Restricted Subsidiaries, all as
set forth on the most recently available consolidated financial statements of
the Company for such fiscal year.
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"SPECIFIED DATE" means any redemption date, any date of purchase of Notes
pursuant to Section 4.11 or Section 4.15 hereof, or any date on which the Notes
are due and payable after an Event of Default.
"STATED MATURITY" means, (i) with respect to any debt security, the date
specified in such debt security as the fixed date on which the final installment
of principal of such debt security is due and payable and (ii) with respect to
any scheduled installment of principal of or interest on any debt security, the
date specified in such debt security as the fixed date on which such installment
is due and payable.
"STRATEGIC EQUITY INVESTOR" means any Person which is (or a controlled
Affiliate of any Person which is or a controlled Affiliate of which is) engaged
principally in the Telecommunications Business and 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 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
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"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.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa-
77bbbb) as in effect on the date on which this Indenture is qualified under the
TIA, except as provided in Section 9.03.
"TOTAL MARKET CAPITALIZATION" of any Person means, as of any day of
determination, the sum of (a) the consolidated Indebtedness of such Person and
its Restricted Subsidiaries on such day, PLUS (b) the product of (i) the
aggregate number of outstanding shares of Common Stock of such Person on such
day (which shall not include any options or warrants on, or securities
convertible or exchangeable into, shares of Common Stock of such Person) and
(ii) the average Closing Price of such Common Stock over the 10 consecutive
Trading Days ending not earlier than 10 Trading Days immediately prior to such
date of determination, PLUS (c) the liquidation value of any outstanding shares
of Preferred Stock of such Person on such day. If no such Closing Price exists
with respect to shares of any such class, the value of such shares for purposes
of clause (b) of the preceding sentence shall be determined by the Board in good
faith and evidenced by a resolution of the Board filed with the Trustee.
Notwithstanding the foregoing, unless the Company's Common Stock is listed on
any national securities exchange or on the Nasdaq National Market, the "Total
Market Capitalization" of the Company shall mean, as of any date of
determination, the enterprise value (without duplication) of the Company and its
Restricted Subsidiaries (including the fair market value of their debt and
equity, but excluding the enterprise value of the Company's Unrestricted
Subsidiaries), as determined by an independent banking firm of national standing
with experience in such valuations and evidenced by a written opinion in
customary form filed with the Trustee; PROVIDED that for purposes of any such
determination, the enterprise value of the Company shall be calculated as if the
Company were a publicly held corporation without a controlling stockholder. For
purposes of any such determination, such banking firm's written opinion may
state that such fair market value is no less than a specified amount and such
opinion may be as of a date no earlier than 90 days prior to the date of such
determination.
"TRUSTEE" means the party named as such above until a successor replaces it
in accordance with the applicable provisions of this Indenture and thereafter
means the successor serving hereunder.
"TRADING DAY" with respect to a securities exchange or automated quotation
system means a day on which such exchange or system is open for full day of
trading.
"UNRESTRICTED SUBSIDIARY" means any Subsidiary that is designated by the
Board as an Unrestricted Subsidiary pursuant to a resolution of the Board; but
only to the extent that such Subsidiary (i) has no Indebtedness other than Non-
Recourse Debt; (ii) is not party to any agreement, contract, arrangement or
understanding with the Company or any Restricted Subsidiary of the Company
unless the terms of any such agreement, contract, arrangement or understanding
are no less favorable to the Company or such Restricted Subsidiary than those
that might be obtained at the time from Persons who are not Affiliates of the
Company; (iii) is a Person with respect to which neither the Company nor any of
its Restricted Subsidiaries has any direct or indirect obligation (A) to
subscribe for additional equity interests, except to the extent that such
obligation complies with Section 4.07 hereof, or (B) to maintain or preserve
such Person's financial condition or to cause such Person to achieve any
specified levels of operating results;
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(iv) is not a guarantor of or otherwise directly or indirectly provides credit
support for any Indebtedness of the Company or any of its Restricted
Subsidiaries; and (v) has, immediately prior to the commencement of material
business operations, at least one director on its board of directors that is not
a director or executive officer of the Company or any of its Restricted
Subsidiaries and has at least one executive officer that is not a director or
executive officer of the Company or any of its Restricted Subsidiaries. Any
such designation by the Board shall be evidenced to the Trustee by filing with
the Trustee a certified copy of the resolution of the Board giving effect to
such designation and an Officers' Certificate certifying that such designation
complied with the foregoing conditions and was permitted by Section 4.07 hereof.
If, at any time, any Unrestricted Subsidiary would fail to meet the foregoing
requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an
Unrestricted Subsidiary for purposes of this Indenture and any Indebtedness of
such Subsidiary shall be deemed to be Incurred by a Restricted Subsidiary of the
Company as of such date (and, if such Indebtedness is not permitted to be
Incurred as of such date under Section 4.09 hereof, the Company shall be in
default of such covenant). The Board may at any time designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; PROVIDED that such designation shall
be deemed to be an Incurrence of Indebtedness by a Restricted Subsidiary of the
Company of any outstanding Indebtedness of such Unrestricted Subsidiary and such
designation shall only be permitted if (i) such Indebtedness is permitted under
Section 4.09 hereof and (ii) no Default or Event of Default would be in
existence following such designation.
"VOTING STOCK" means, with respect to any Person, Capital Stock of any
class or kind ordinarily having the power to vote for the election of directors,
managers or other voting members of the governing body of such Person.
"VOTING TRUST AGREEMENTS" means (i) that certain Voting Trust Agreement,
(ii) that certain Cooperation 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.
SECTION 1.02.OTHER DEFINITIONS.
Defined in
TERM Section
"Affiliate Transaction".................. 4.12
"Bankruptcy Law"......................... 4.01
"Covenant Defeasance".................... 8.03
"Custodian".............................. 6.01
"Event of Default"....................... 6.01
"Excess Proceeds"........................ 4.11
"Legal Defeasance"....................... 8.02
"Paying Agent"........................... 2.03
"Payment Default"........................ 6.01
"Registrar".............................. 2.03
"Restricted Payments".................... 4.07
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SECTION 1.03.INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"INDENTURE SECURITIES" means the Notes;
"INDENTURE SECURITY HOLDER" means a Holder of a Note;
"INDENTURE TO BE QUALIFIED" means this Indenture;
"INDENTURE TRUSTEE" or "INSTITUTIONAL TRUSTEE" means the Trustee;
"OBLIGOR" on the Notes means the Company and any successor obligor
upon the Notes.
All other terms used in this Indenture that are defined by the TIA, defined
by TIA reference to another statute or defined by Commission rule under the TIA
have the meanings so assigned to them.
SECTION 1.04.RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned
to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the plural
include the singular; and
(5) provisions apply to successive events and transactions.
ARTICLE 2
THE NOTES
SECTION 2.01.FORM AND DATING.
The Notes and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit A hereto, the terms of which are
incorporated in and made a part of this Indenture. The Notes may have
notations, legends or endorsements approved as to form by the Company and
required by law, stock exchange rule, agreements to which the Company is subject
or usage. Each Note shall be dated
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the date of its authentication. The Notes shall be issuable only in
denominations of $1,000 and integral multiples thereof.
SECTION 2.02. EXECUTION AND AUTHENTICATION.
Two officers of the Company shall sign the Notes for the Company by manual
or facsimile signature. The Company's seal shall be reproduced on the Notes.
If an officer whose signature is on a Note no longer holds that office at
the time the Note is authenticated, the Note shall nevertheless be valid.
A Note shall not be valid until authenticated by the manual signature of
the Trustee. The signature of the Trustee shall be conclusive evidence that the
Note has been authenticated under this Indenture. The form of Trustee's
certificate of authentication to be borne by the Notes shall be substantially as
set forth in Exhibit A hereto.
The Trustee shall, upon a written order of the Company signed by two
officers of the Company, authenticate Notes for original issue up to an
aggregate face amount stated in paragraph 4 of the Notes. The aggregate
principal amount of Notes outstanding at any time shall not exceed the amount
set forth therein except as provided in Section 2.07.
The Trustee may appoint an authenticating agent acceptable to the Company
to authenticate Notes. Unless limited by the terms of such appointment, an
authenticating agent may authenticate Notes whenever the Trustee may do so.
Each reference in this Indenture to authentication by the Trustee includes
authentication by such agent. An authenticating agent has the same rights as an
Agent to deal with the Company or an Affiliate of the Company.
SECTION 2.03. REGISTRAR AND PAYING AGENT.
The Company shall maintain (i) an office or agency where Notes may be
presented for registration of transfer or for exchange (including any co-
registrar, the "REGISTRAR") and (ii) an office or agency where Notes may be
presented for payment ("PAYING AGENT") and an office or agency in the Borough of
Manhattan, City and State of New York, where notices and demands upon the
Company in respect of the Notes and this Indenture may be served. The Registrar
shall maintain an office or agency in the Borough of Manhattan, City and State
of New York, where Notes may be presented for registration of transfer or for
exchange, and the Paying Agent shall maintain an office or agency in the Borough
of Manhattan, City and State of New York, where Notes may be presented for
payment. The Registrar shall keep a register of the Notes and of their transfer
and exchange. The Company may appoint one or more co-registrars and one or more
additional paying agents. The term "Paying Agent" includes any additional
paying agent. The Company may change any Paying Agent, Registrar or
co-registrar without prior notice to any Holder of a Note. The Company shall
notify the Trustee and the Trustee, at the Company's direction, shall notify the
Holders of the Notes of the name and address of any Agent not a party to this
Indenture. The Company may act as Paying Agent, Registrar or co-registrar. The
Company shall enter into an appropriate agency agreement with any Agent not a
party to this Indenture, which shall incorporate the provisions of the TIA. The
agreement shall implement the provisions of this Indenture that relate to such
Agent. The Company shall notify the Trustee of the name and address of any such
Agent. If the Company fails to maintain a Registrar or Paying Agent, or fails
to give the foregoing
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notice, the Trustee shall act as such, and shall be entitled to appropriate
compensation in accordance with Section 7.07.
The Company initially appoints the Trustee as Registrar, Paying Agent and
agent for service of notices and demands in connection with the Notes.
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST.
The Company shall require each Paying Agent other than the Trustee to agree
in writing that the Paying Agent shall hold in trust for the benefit of the
Holders of the Notes or the Trustee all money held by the Paying Agent for the
payment of principal of, premium, if any, and interest on the Notes, and shall
notify the Trustee of any Default by the Company in making any such payment.
While any such Default continues, the Trustee may require a Paying Agent to pay
all money held by it to the Trustee. The Company at any time may require a
Paying Agent to pay all money held by it to the Trustee. Upon payment over to
the Trustee, the Paying Agent (if other than the Company) shall have no further
liability for the money delivered to the Trustee. If the Company acts as Paying
Agent, it shall segregate and hold in a separate trust fund for the benefit of
the Holders of the Notes all money held by it as Paying Agent.
SECTION 2.05. LISTS OF HOLDERS OF THE NOTES.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Holders of the Notes and shall otherwise comply with TIA Section 312(a). If
the Trustee is not the Registrar, the Company shall furnish to the Trustee at
least seven Business Days before each interest payment date and at such other
times as the Trustee may request in writing a list in such form and as of such
date as the Trustee may reasonably require of the names and addresses of Holders
of the Notes, including the aggregate principal amount of the Notes held by each
thereof, and the Company shall otherwise comply with TIA Section 312(a).
SECTION 2.06. TRANSFER AND EXCHANGE.
When Notes are presented to the Registrar with a request to register the
transfer of or to exchange them for an equal principal amount of Notes of other
denominations, the Registrar shall register the transfer of or make the exchange
if its requirements for such transactions are met; PROVIDED, HOWEVER, that any
Note presented or surrendered for registration of transfer or exchange shall be
duly endorsed or accompanied by a written instruction of transfer in form
satisfactory to the Registrar and the Trustee duly executed by the Holder
thereof or by his attorney duly authorized in writing. To permit registrations
of transfer and exchanges, the Company shall issue and the Trustee shall
authenticate Notes at the Registrar's request, subject to such rules as the
Trustee may reasonably require.
Neither the Company nor the Registrar shall be required to (i) issue,
register the transfer of or exchange Notes during a period beginning at the
opening of business on a Business Day 15 days before the day of any selection of
Notes for redemption under Section 3.02 or (ii) register the transfer of or
exchange any Note so selected for redemption in whole or in part, except the
unredeemed portion of any Note being redeemed in part.
No service charge shall be made to any Holder of a Note for any
registration of transfer or exchange (except as otherwise expressly permitted
herein), but the Company may require payment of a
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sum sufficient to cover any transfer tax or similar governmental charge payable
in connection therewith (other than such transfer tax or similar governmental
charge payable upon exchanges pursuant to Sections 2.10, 3.06 or 9.05, which
shall be paid by the Company).
Prior to due presentment to the Trustee for registration of the transfer of
any Note, the Trustee, any Agent and the Company may deem and treat the Person
in whose name any Note is registered as the absolute owner of such Note for the
purpose of receiving payment of principal of, premium, if any, and interest on
such Note and for all other purposes whatsoever, whether or not such Note is
overdue, and neither the Trustee, any Agent nor the Company shall be affected by
notice to the contrary.
SECTION 2.07.REPLACEMENT NOTES.
If any mutilated Note is surrendered to the Trustee, or the Company and the
Trustee receive evidence to their satisfaction of the destruction, loss or theft
of any Note, the Company shall issue and the Trustee shall authenticate a
replacement Note if the Trustee's requirements for replacements of Notes are
met. An indemnity bond shall be supplied by the Holder that is sufficient in
the judgment of the Trustee and the Company to protect the Company, the Trustee,
any Agent or any authenticating agent from any loss which any of them may suffer
if a Note is replaced. Each of the Company and the Trustee may charge for its
expenses in replacing a Note.
Every replacement Note is an additional obligation of the Company.
SECTION 2.08. OUTSTANDING NOTES.
The Notes outstanding at any time are all the Notes authenticated by the
Trustee except for those cancelled by it, those delivered to it for cancellation
and those described in this Section as not outstanding.
If a Note is replaced pursuant to Section 2.07, it ceases to be outstanding
unless the Trustee receives proof satisfactory to it that the replaced Note is
held by a bona fide purchaser.
If the principal amount of any Note is considered paid under Section 4.01,
it ceases to be outstanding and interest on it ceases to accrue.
Subject to Section 2.09, a Note does not cease to be outstanding because
the Company, a Subsidiary of the Company or an Affiliate of the Company holds
the Note.
SECTION 2.09. TREASURY NOTES.
In determining whether the Holders of the required principal amount of
Notes have concurred in any direction, waiver or consent, Notes owned by the
Company, any Subsidiary of the Company or any Affiliate of the Company shall be
considered as though not outstanding, except that for purposes of determining
whether the Trustee shall be protected in relying on any such direction, waiver
or consent, only Notes which a Responsible Officer actually knows to be so owned
shall be so considered. Notwithstanding the foregoing, Notes that are to be
acquired by the Company, any Subsidiary of the Company or an Affiliate of the
Company pursuant to an exchange offer, tender offer or other agreement shall not
be deemed to be owned by the Company, a Subsidiary of the Company or an
Affiliate of the
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Company until legal title to such Notes passes to the Company or such Subsidiary
or Affiliate, as the case may be.
SECTION 2.10. TEMPORARY NOTES.
Until definitive Notes are ready for delivery, the Company may prepare and
the Trustee shall authenticate temporary Notes. Temporary Notes shall be
substantially in the form of definitive Notes but may have variations that the
Company and the Trustee consider appropriate for temporary Notes. Without
unreasonable delay, the Company shall prepare and the Trustee, upon receipt of
the written order of the Company signed by two officers of the Company, shall
authenticate definitive Notes in exchange for temporary Notes. Until such
exchange, temporary Notes shall be entitled to the same rights, benefits and
privileges as definitive Notes.
SECTION 2.11. CANCELLATION.
The Company at any time may deliver Notes to the Trustee for cancellation.
The Registrar and Paying Agent shall forward to the Trustee any Notes
surrendered to them for registration of transfer, exchange or payment. The
Trustee shall cancel all Notes surrendered for registration of transfer,
exchange, payment, replacement or cancellation and shall retain cancelled Notes
(subject to the record retention requirement of the Exchange Act), unless the
Company directs cancelled Notes to be returned to it. The Company may not issue
new Notes to replace Notes that it has redeemed or paid or that have been
delivered to the Trustee for cancellation.
SECTION 2.12. DEFAULTED INTEREST.
If the Company defaults in a payment of interest on the Notes, it shall pay
the defaulted interest in any lawful manner plus, to the extent lawful, interest
payable on the defaulted interest, to the Persons who are Holders of the Notes
on a subsequent special record date, which date shall be at the earliest
practicable date but in all events at least five Business Days prior to the
payment date, in each case at the rate provided in the Notes and in
Section 4.01. The Company shall, with the consent of the Trustee, fix or cause
to be fixed each such special record date and payment date. At least 15 days
before the special record date, the Company (or the Trustee, in the name of and
at the expense of the Company) shall mail to Holders of the Notes a notice that
states the special record date, the related payment date and the amount of such
interest to be paid.
SECTION 2.13. RECORD DATE.
The Company or the Trustee, as the case may be, may set any day as a record
date for the purpose of determining the Holders of outstanding Notes entitled to
give or take any request, demand, authorization, direction, notice, consent,
waiver or other action provided or permitted by this Indenture to be given or
taken by Holders of Notes and may set a record expiration date not later than
180 days after the record date as the date upon which such record date shall
expire. The Holders of outstanding Notes on such record date, and no other
Holders, shall be entitled to take the relevant action, whether or not such
Holders remain Holders after such record date; PROVIDED that no such action
shall be effective hereunder unless taken on or prior to the applicable record
expiration date, if any, by Holders of the requisite principal amount of
outstanding Notes on such record date; and PROVIDED, FURTHER, that for the
purpose of determining whether Holders of the requisite principal amount of such
Notes have taken such
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action, no Note shall be deemed to have been outstanding on such record date
unless it is also outstanding on the date such action is to become effective.
The Company may set a new record date or record expiration date for any action
for which a record date has previously been set pursuant to this paragraph
(whereupon the record date or record expiration date previously set shall
automatically and with no action by any Person by canceled and of no effect),
nor shall anything in this paragraph be construed to render ineffective any
action taken by Holders of the requisite principal amount of outstanding Notes
on or prior to the date such action is taken.
SECTION 2.14. CUSIP NUMBER.
The Company in issuing the Notes may use a "CUSIP" number and, if it does
so, the Trustee shall use the CUSIP number in notices of redemption or exchange
as a convenience to Holders; PROVIDED that any such notice may state that no
representation is made as to the correctness or accuracy of the CUSIP number
printed in the notice or on the Notes and that reliance may be placed only on
the other identification numbers printed on the Notes. The Company shall
promptly notify the Trustee of any change in the CUSIP number.
ARTICLE 3
REDEMPTION
SECTION 3.01. NOTICES TO TRUSTEE.
If the Company elects to redeem Notes pursuant to the optional redemption
provisions of Section 3.07, it shall furnish to the Trustee, at least 45 days
(unless a shorter period is acceptable to the Trustee) but not more than 60 days
before a redemption date, an Officers' Certificate setting forth (i) the
redemption date, (ii) the principal amount of Notes to be redeemed and (iii) the
redemption price.
SECTION 3.02. SELECTION OF NOTES TO BE REDEEMED.
If less than all of the Notes are to be redeemed, the Trustee shall select
the Notes to be redeemed among the Holders of the Notes in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed, or, if the Notes are not so listed, on a PRO RATA basis, by
lot or in accordance with any other method the Trustee in its sole discretion
considers fair and appropriate (and in such manner as complies with applicable
legal and stock exchange requirements of the principal national securities
exchange, if any, on which the Notes being redeemed are listed), PROVIDED that
no Notes of $1,000 or less shall be redeemed in part. In the event of partial
redemption by lot, the particular Notes to be redeemed shall be selected, unless
otherwise provided herein, not less than 45 nor more than 60 days prior to the
redemption date by the Trustee from the then outstanding Notes not previously
called for redemption.
The Trustee shall promptly notify the Company in writing of the Notes
selected for redemption and, in the case of any Note selected for partial
redemption, the principal amount thereof to be redeemed. Notes and portions of
them selected shall be in amounts of $1,000 or whole multiples of $1,000; except
that if all of the Notes of a Holder are to be redeemed, the entire outstanding
amount of Notes held by such Holder, even if not a multiple of $1,000, shall be
redeemed. Except as provided in the preceding
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sentence, provisions of this Indenture that apply to Notes called for redemption
also apply to portions of Notes called for redemption.
SECTION 3.03. NOTICE OF REDEMPTION.
Subject to the provisions of Sections 4.11 and 4.15 hereof, at least
30 days but not more than 60 days before a redemption date, the Company shall
mail or cause to be mailed, by first class mail, a notice of redemption to each
Holder whose Notes are to be redeemed at its registered address; PROVIDED that
in the event of a redemption pursuant to Section 3.07(b) arising out of a sale
of the Company's Capital Stock (other than Disqualified Stock) to a Strategic
Equity Investor, such notice shall not be mailed prior to the consummation of
such sale.
The notice shall identify the Notes to be redeemed (including CUSIP number)
and shall state: (a) the redemption date; (b) the redemption price; (c) if any
Note is being redeemed in part, the portion of the principal amount of such Note
to be redeemed and that, after the redemption date upon surrender of such Note,
a new Note or Notes in principal amount equal to the unredeemed portion shall be
issued; (d) the name and address of the Paying Agent; (e) that Notes called for
redemption shall be surrendered to the Paying Agent to collect the redemption
price; (f) that, unless the Company defaults in making such redemption payment,
interest on Notes called for redemption ceases to accrue on and after the
redemption date; (g) the paragraph of the Notes or Section of this Indenture
pursuant to which the Notes called for redemption are being redeemed; and (h)
that no representation is made as to the correctness or accuracy of the CUSIP
number, if any, listed in such notice or printed on the Notes.
At the Company's request, the Trustee shall give the notice of redemption
in the Company's name and at its expense; PROVIDED, HOWEVER, that the Company
shall have delivered to the Trustee, at least 45 days (unless a shorter period
is acceptable to the Trustee) prior to the redemption date, an Officers'
Certificate requesting that the Trustee give such notice and setting forth the
information to be stated in such notice as provided in the preceding paragraph.
SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption is mailed in accordance with Section 3.03, Notes
called for redemption become due and payable on the redemption date at the
redemption price. A notice of redemption may not be conditional.
SECTION 3.05. DEPOSIT OF REDEMPTION PRICE.
One Business Day prior to the redemption date, the Company shall deposit
with the Trustee or with the Paying Agent money sufficient to pay the redemption
price of and accrued interest on all Notes to be redeemed on that date. The
Trustee or the Paying Agent shall promptly return to the Company any money
deposited with the Trustee or the Paying Agent by the Company in excess of the
amounts necessary to pay the redemption price of, and accrued interest on, all
Notes to be redeemed.
If the Company complies with the provisions of the preceding paragraph, on
and after the redemption date, interest shall cease to accrue on the Notes or
the portions of Notes called for redemption. If a Note is redeemed on or after
an interest record date but on or prior to the related interest payment date,
then any accrued and unpaid interest shall be paid to the Person in whose name
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such Note was registered at the close of business on such record date. If any
Note called for redemption shall not be so paid upon surrender for redemption
because of the failure of the Company to comply with the preceding paragraph,
interest shall be paid on the unpaid principal, from the redemption date until
such principal is paid, and to the extent lawful on any interest not paid on
such unpaid principal, in each case at the rate provided in the Notes and in
Section 4.01.
SECTION 3.06. NOTES REDEEMED IN PART.
Upon surrender of a Note that is redeemed in part, the Company shall issue
and the Trustee shall authenticate for the Holder of the Note at the expense of
the Company a new Note equal in principal amount to the unredeemed portion of
the Note surrendered.
SECTION 3.07. OPTIONAL REDEMPTION.
(a) Except as set forth in Section 3.07(b) below, the Company
shall not have the option to redeem the Notes prior to ______________ 2002.
Thereafter, the Notes shall 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 (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:
YEAR PERCENTAGE
---- ----------
2002.......................................... %
2003.......................................... %
2004.......................................... %
2005 and thereafter..........................100.000%
(b) Notwithstanding the provisions of Section 3.07(a) above, 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
of 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 shall 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.
(c) Any redemption pursuant to this Section 3.07 shall be made
pursuant to the provisions of Sections 3.01 through 3.06 hereof.
SECTION 3.08. MANDATORY REDEMPTION.
Except as set forth under Sections 4.11 and 4.15 hereof, the Company shall
not be required to make mandatory redemption payments with respect to the Notes.
There are no sinking fund payments with respect to the Notes.
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ARTICLE 4
COVENANTS
SECTION 4.01. PAYMENT OF NOTES.
The Company shall pay or cause to be paid the principal of, premium, if
any, and interest on the Notes on the dates and in the manner provided in the
Notes. Principal, premium, if any, and interest shall be considered paid on the
date due if the Paying Agent, if other than the Company, holds as of 10:00 a.m.
Eastern Time on the due date money deposited by the Company in immediately
available funds and designated for and sufficient to pay all principal, premium,
if any, and interest then due.
The Company shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue principal at the rate equal to
the then applicable interest rate on the Notes to the extent lawful; it shall
pay interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue installments of interest (without regard to any
applicable grace period) at the same rate to the extent lawful.
The term "BANKRUPTCY LAW" means title 11, U.S. Code or any similar federal
or state law for the relief of debtors.
SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY.
The Company shall maintain an office or agency (which may be an office of
the Trustee or an affiliate of the Trustee, Paying Agent, Registrar or
co-registrar) where Notes may be surrendered for registration of transfer or
exchange and where notices and demands to or upon the Company in respect of the
Notes and this Indenture may be served. The Company shall give prompt written
notice to the Trustee of the location, and any change in the location, of such
office or agency. If at any time the Company shall fail to maintain any such
required office or agency or shall fail to furnish the Trustee with the address
thereof, such presentations, surrenders, notices and demands may be made or
served at the Corporate Trust Office of the Trustee.
The Company may also from time to time designate one or more other offices
or agencies where the Notes may be presented or surrendered for any or all such
purposes and may from time to time rescind such designations; PROVIDED, HOWEVER,
that no such designation or rescission shall in any manner relieve the Company
of its obligation to maintain an office or agency for such purposes. The
Company shall give prompt written notice to the Trustee of any such designation
or rescission and of any change in the location of any such other office or
agency.
The Company hereby designates the Corporate Trust Office of the Trustee as
one such office or agency of the Company in accordance with Section 2.03.
SECTION 4.03. REPORTS.
(a) Whether or not required by the rules and regulations of the
Securities and Exchange Commission (the "COMMISSION"), so long as any Notes
are outstanding, the Company shall furnish to the Holders of Notes (i) all
quarterly and annual financial information that would be required to be
contained
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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 shall file a copy of all such information and reports
with the Commission for public availability (unless the Commission shall not
accept such a filing) and make such information available to securities analysts
and prospective investors upon request. The Company shall also comply with the
provisions of TIA Section 314(a).
(b) The Company shall provide the Trustee with a sufficient number of
copies of all SEC Reports that the Trustee may be required to deliver to the
Holders of the Notes under this Section 4.03.
(c) Delivery of such reports, information and documents to the
Trustee is for informational purposes only and the Trustee's receipt of such
shall not constitute constructive notice of any information contained therein
or determinable from information contained therein, including the Company's
compliance with any of its covenants hereunder (as to which the Trustee is
entitled to rely exclusively on Officers' Certificates).
SECTION 4.04. COMPLIANCE CERTIFICATE.
(a) The Company shall deliver to the Trustee, within 120 days
after the end of each fiscal year, an Officers' Certificate stating that a
review of the activities of the Company and its Subsidiaries during the
preceding fiscal year has been made under the supervision of the signing
officers with a view to determining whether the Company has kept, observed,
performed and fulfilled, and has caused each of its Subsidiaries to keep,
observe, perform and fulfill, its obligations under this Indenture, and
further stating, as to each such officer signing such certificate, that to
the best of his or her knowledge the Company has kept, observed, performed
and fulfilled, and has caused each of its Subsidiaries to keep, observe,
perform and fulfill, each and every covenant contained in this Indenture and
no such Person is in default in the performance or observance of any of the
terms, provisions and conditions of this Indenture to be performed or
observed by it (or, if a Default or Event of Default shall have occurred,
describing all such Defaults or Events of Default of which he or she may have
knowledge and what action each is taking or proposes to take with respect
thereto) and that to the best of his or her knowledge no event has occurred
and remains in existence by reason of which payments on account of the
principal of, premium, if any, or interest, if any, on the Notes are
prohibited or if such event has occurred, a description of the event and what
action each is taking or proposes to take with respect thereto.
(b) So long as not contrary to the then current recommendations of
the American Institute of Certified Public Accountants, the year-end
financial statements delivered pursuant to Section 4.03 above shall be
accompanied by a written statement of the Company's independent public
accountants (who shall be a firm of established national reputation) that in
making the examination necessary for certification of such financial
statements, nothing has come to their attention which would lead them to
believe that the Company has violated any provisions of ARTICLE 4 or ARTICLE
5 of this Indenture, insofar as they relate to accounting matters, or, if any
such violation has occurred, specifying the nature and period of existence
thereof, it being understood that such accountants shall not be liable
directly or indirectly to any Person for any failure to obtain knowledge of
any such violation.
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(c) The Company shall, so long as any of the Notes are
outstanding, deliver to the Trustee, forthwith upon any officer becoming
aware of (i) any Default or Event of Default or (ii) any default under any
Indebtedness referred to in Section 6.01(e), an Officers' Certificate
specifying such Default, Event of Default or default and what action the
Company is taking or proposes to take with respect thereto.
(d) At the time of any Restricted Payment, the Company and its
Subsidiaries shall deliver to the Trustee an Officers' Certificate required
by this Section.
SECTION 4.05. TAXES.
The Company shall pay, and shall cause each of its Subsidiaries to pay,
prior to delinquency, all material taxes, assessments, and governmental levies,
except as contested in good faith and by appropriate proceedings or where the
failure to effect such payment is not adverse in any material respect to the
Holders of the Notes.
SECTION 4.06. STAY, EXTENSION AND USURY LAWS.
The Company covenants (to the extent that it may lawfully do so) that it
shall not at any time insist upon, plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay, extension or usury law wherever
enacted, now or at any time hereafter in force, that may affect the covenants or
the performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it shall not, by resort to any such law, hinder, delay
or impede the execution of any power herein granted to the Trustee, but shall
suffer and permit the execution of every such power as though no such law has
been enacted.
SECTION 4.07. LIMITATION ON RESTRICTED PAYMENTS.
(a) The Company shall not, and shall 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) 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;
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(B) except with respect to any Investment (other than an
Investment consisting of the designation of a Restricted Subsidiary as
an Unrestricted Subsidiary), the Company could not Incur at least $1.00
of Indebtedness under Section 4.09(a) hereof; and
(C) the aggregate amount expended for all Restricted Payments (the
amount so expended, if other than in cash, to be determined in good
faith by the Board, whose determination shall be conclusive and
evidenced by a resolution of the Board) after the Issue Date shall
exceed the sum of (1) 50% of the aggregate amount of the Adjusted
Consolidated Net Income (or, if the Adjusted Consolidated Net Income is
a loss, MINUS 100% of such amount) (determined by excluding income
resulting from transfers of assets by the Company or a Restricted
Subsidiary to an Unrestricted Subsidiary) accrued on a cumulative basis
during the period (taken as one accounting period) beginning on the
first day of the fiscal quarter immediately following the Issue Date
and ending on the last day of the last fiscal quarter preceding the
date for which reports have been filed pursuant to Section 4.03 hereof,
PLUS (2) the aggregate Net Cash Proceeds received by the Company after
the Issue Date from the issuance and sale permitted by this Indenture
of its Capital Stock (other than Redeemable Stock) to a Person who is
not a Subsidiary of the Company, or from the issuance to a Person who
is not a Subsidiary of the Company of any options, warrants or other
rights to acquire Capital Stock of the Company (in each case, exclusive
of any convertible Indebtedness, Redeemable Stock or any options,
warrants or other rights that are redeemable at the option of the
holder, or are required to be redeemed, prior to the Stated Maturity of
the Notes), MINUS the actual amount of Net Cash Proceeds used to make
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.
(b) The foregoing provision shall not be violated by reason of:
(i) the payment of any dividend within 60 days after the date
of declaration thereof if, at said date of declaration, such payment
would comply with the foregoing paragraph;
(ii) the redemption, repurchase, defeasance or other
acquisition or retirement for value of Indebtedness that is
subordinated in right of payment to the Notes, including premium, if
any, and accrued and unpaid interest, with the proceeds of, or in
exchange for, Indebtedness Incurred under Section 4.09(b)(iii) hereof;
(iii) the repurchase, redemption or other acquisition of
Capital Stock of the Company (or options, warrants or other rights to
acquire such Capital Stock) in exchange for, or out of the proceeds of
a substantially concurrent offering of, shares of Capital Stock or
options, warrants or other rights to acquire such Capital Stock (in
each case, other than Redeemable Stock) of the Company;
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(iv) the making of any principal payment or repurchase,
redemption, retirement, defeasance or other acquisition for value of
Indebtedness of the Company which is subordinated in right of payment
to the Notes in exchange for, or out of the proceeds of, a
substantially concurrent offering of, shares of the Capital Stock of
the Company (other than Redeemable Stock);
(v) payments or distributions, in the nature of satisfaction
of dissenters' rights, pursuant to or in connection with a
consolidation, merger or transfer of assets that complies with the
provisions hereof applicable to mergers, consolidations and transfers
of all or substantially all of the property and assets of the Company;
(vi) any purchase or acquisition from, or withholding on
issuances to, any employee of the Company's Capital Stock in order to
satisfy any applicable federal, state or local tax payments in respect
of the receipt of shares of the Company's Capital Stock;
(vii) any purchase or acquisition from, or withholding on
issuances to, any employee of the Company's Capital Stock in order to
pay the purchase price of such Capital Stock or similar instrument
pursuant to a stock option, equity incentive or other employee benefit
plan or agreement of the Company or any of its Restricted Subsidiaries;
(viii) the repurchase of shares of, or options to purchase shares
of, the Company's Capital Stock from employees of the Company in
connection with the termination of their employment; PROVIDED that (A)
the aggregate price paid for all such repurchased shares of Capital
Stock made in any twelve-month period shall not exceed $250,000 PLUS
the aggregate cash proceeds received by the Company during such
twelve-month period from any reissuance of such 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.
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(c) Each Restricted Payment permitted pursuant to the preceding
paragraph (other than Restricted Payments referred to in clause (ii) thereof)
and the Net Cash Proceeds from any issuance of Capital Stock referred to in
clause (iii) or (iv) shall be included in calculating whether the conditions
of clause (C) of Section 4.07(a) hereof have been met with respect to any
subsequent Restricted Payments. In the event the proceeds of an issuance of
Capital Stock of the Company are used for the redemption, repurchase or other
acquisition of the Notes or Indebtedness that is PARI PASSU with the Notes,
then the Net Cash Proceeds of such issuance shall be included in clause (C)
of Section 4.07(a) hereof only to the extent such proceeds are not used for
such redemption, repurchase or other acquisition of Indebtedness.
(d) The Board may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default. For
purposes of making such determination, all outstanding Investments by the
Company and its Restricted Subsidiaries (except to the extent repaid in cash)
in the Subsidiary so designated shall be deemed to be Restricted Payments at
the time of such designation and shall reduce the amount available for
Restricted Payments under the first paragraph of this covenant. All such
outstanding Investments shall be deemed to constitute Investments in an
amount valued in accordance with the definition of "Investment." Such
designation shall only be permitted if such Restricted Payment would be
permitted at such time and if such Restricted Subsidiary otherwise meets the
definition of an Unrestricted Subsidiary.
SECTION 4.08. LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING
RESTRICTED SUBSIDIARIES.
(a) The Company shall not, and shall not permit any Restricted
Subsidiary to, create or otherwise cause or suffer to exist or become effective
any consensual encumbrance or restriction of any kind on the ability of any
Restricted Subsidiary to (i) pay dividends or make other distributions permitted
by applicable law on any Capital Stock of such Restricted Subsidiary owned by
the Company or any other Restricted Subsidiary, (ii) pay any Indebtedness owed
to the Company or any other Restricted Subsidiary that owns, directly or
indirectly, any Capital Stock of such Restricted Subsidiary, (iii) make loans or
advances to the Company or any other Restricted Subsidiary that owns, directly
or indirectly, any Capital Stock of such Restricted Subsidiary or (iv) transfer
any of its property or assets to the Company or any other Restricted Subsidiary
that owns, directly or indirectly, any Capital Stock of such Restricted
Subsidiary.
(b) The foregoing provisions shall not prohibit any encumbrances or
restrictions:
(i) existing on the Issue Date in this Indenture or any other
agreement in effect on the Issue Date, and any extension, refinancing,
renewal or replacement of any such agreement; PROVIDED that the
encumbrances and restrictions in any such extension, refinancing, renewal
or replacement are no less favorable in any material respect to the holders
than those encumbrances or restrictions that are then in effect and that
are being extended, refinanced, renewed or replaced;
(ii) existing under or by reason of applicable law;
(iii) existing with respect to any Person or the property or
assets of such Person acquired by the Company or any Restricted Subsidiary,
at the time of such acquisition and not Incurred in contemplation thereof,
which encumbrances or restrictions are not applicable to any
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Person or the property or assets of any Person other than such Person or
the property or assets of such Person so acquired;
(iv) in the case of clause (iv) of Section 4.08(a) hereof, (A)
that restrict in a customary manner the subletting, assignment or transfer
of any property or asset that is a lease, license, conveyance or contract
or similar property or asset, (B) existing by virtue of any transfer of,
agreement to transfer, option or right with respect to, or Lien on, any
property or assets of the Company or any Restricted Subsidiary, not
otherwise prohibited hereby or (C) arising or agreed to in the ordinary
course of business, not relating to any Indebtedness, and that do not,
individually or in the aggregate, detract from the value of property or
assets of the Company or any Restricted Subsidiary in any manner material
to the Company or any Restricted Subsidiary; or
(v) imposed pursuant to an agreement that has been entered
into for the sale or disposition of Capital Stock of, or property or assets of,
the Company or a Restricted Subsidiary; PROVIDED that such encumbrance or
restriction shall only remain in force during the pendency of such acquisition
or disposition; or
(vi) imposed pursuant to agreements governing Indebtedness
permitted to be Incurred under Sections 4.09(b)(xiii) and (xiv) hereof.
(c) Nothing contained in this Section 4.08 shall prevent the Company
or any Restricted Subsidiary from (a) creating, Incurring, assuming or suffering
to exist any Liens otherwise permitted in Section 4.13 hereof or (b) restricting
the sale or other disposition of property or assets of the Company or any of its
Restricted Subsidiaries that secure Indebtedness of the Company or any of its
Restricted Subsidiaries.
SECTION 4.09. LIMITATION ON INDEBTEDNESS.
(a) The Company shall not, and shall not permit any of its
Subsidiaries to, Incur any Indebtedness (including Acquired Debt); PROVIDED that
the Company may Incur Indebtedness (including Acquired Debt) if, after giving
effect to the Incurrence of such Indebtedness and the receipt and application of
the proceeds therefrom, the Indebtedness to EBITDA Ratio would be greater than
zero and less than 5 to 1.
(b) The foregoing provisions shall not apply to:
(i) Indebtedness of the Company outstanding at any time in an
aggregate principal amount not to exceed $100.0 million, less any amount of
Indebtedness permanently repaid as provided under Section 4.11 hereof
(other than any such permanent reduction of the Indebtedness under clause
(xiii) hereof); PROVIDED, HOWEVER, that the aggregate principal amount of
Indebtedness outstanding pursuant to clauses (i) and (xiii) hereof shall
not exceed $125.0 million at any time;
(ii) Indebtedness of any of the Company's Restricted
Subsidiaries owing to the Company or another Restricted Subsidiary;
PROVIDED, HOWEVER, that (A) any subsequent issuance or transfer of Capital
Stock that results in any such Indebtedness being held by a Person other
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than the Company or a Restricted Subsidiary and (B) any sale or other
transfer of any such Indebtedness to a Person that is not the Company or a
Restricted Subsidiary 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 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
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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 hereof to be outstanding;
(xi) the Incurrence by the Company's Unrestricted Subsidiaries
of Non-Recourse Debt, PROVIDED, HOWEVER, that if any such Indebtedness
ceases to be Non-Recourse Debt of an Unrestricted Subsidiary, such event
shall be deemed to constitute an Incurrence of Indebtedness by a Restricted
Subsidiary of the Company;
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(xii) the Incurrence by Unrestricted Subsidiaries of
Indebtedness to the Company or any Restricted Subsidiary of the Company to
the extent permitted by Section 4.07 hereof;
(xiii) Indebtedness of the Company outstanding at any time in an
aggregate principal amount not to exceed $100.0 million Incurred pursuant
to the Credit Facility less any amount of Indebtedness pursuant to the
Credit Facility permanently repaid as provided under Section 4.11 hereof;
PROVIDED, HOWEVER, that the aggregate principal amount of Indebtedness
outstanding pursuant to clauses (i) and (xiii) hereof shall not exceed
$125.0 million at any time;
(xiv) Guarantees by the Company's Restricted Subsidiaries of
the Indebtedness referred to in clause (xiii) above;
(xv) Indebtedness of the Company existing on the Issue Date;
and
(xvi) Indebtedness of the Company represented by the Notes and
this Indenture.
(c) For purposes of determining compliance with this Section 4.09, in
the event that an item of Indebtedness meets the criteria of more than one of
the types of Indebtedness described in the above clauses, the Company, in its
sole discretion, shall classify such item of Indebtedness and only be required
to include the amount and type of such Indebtedness in one of such clauses.
(d) The Company shall not, and shall not permit any Restricted
Subsidiary to, Incur any Guarantee of Indebtedness of any Unrestricted
Subsidiary.
(e) Notwithstanding the foregoing, ART Licensing shall not Incur any
Indebtedness or issue any Preferred Stock; PROVIDED that ART Licensing may Incur
Indebtedness of the type and in the amount set forth in Section 4.09(b)(xiv).
SECTION 4.10. LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF RESTRICTED
SUBSIDIARIES.
The Company shall not sell, and shall 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 Section 4.11(a)(i)(A) or (B).
SECTION 4.11. DISPOSITION OF PROCEEDS OF ASSET SALES.
(a) The Company shall not, and shall 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
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by the Company or such Restricted Subsidiary into cash within 30 days of their
receipt (to the extent of the cash received), shall be deemed to be cash for
purposes of this provision. In the event and to the extent that the Net Cash
Proceeds received by the Company or its Restricted Subsidiaries from one or more
Asset Sales occurring on or after the Issue Date in any period of 12 consecutive
months exceed 10% of Adjusted Consolidated Net Tangible Assets (determined as of
the date closest to the commencement of such 12-month period for which a
consolidated balance sheet of the Company and its Restricted Subsidiaries has
been prepared), then the Company shall, or shall cause the relevant Restricted
Subsidiary to, (i) within six months after the date Net Cash Proceeds so
received exceed 10% of Adjusted Consolidated Net Tangible Assets (A) apply an
amount equal to such excess Net Cash Proceeds to permanently repay
unsubordinated Indebtedness of the Company or any of its Restricted Subsidiaries
owing to a Person other than the Company or any of its Restricted Subsidiaries
or (B) invest an equal amount, or the amount not so applied pursuant to clause
(A) (or enter into a definitive agreement committing to so invest within six
months after the date of such agreement), in property or assets of a nature or
type or that are used in a business (or in a company having property and assets
of a nature or type, or engaged in a business) similar or related to the nature
or type of the property and assets of, or the business of, the Company and its
Restricted Subsidiaries existing on the date of such Investment (as determined
in good faith by the Board, whose determination shall be conclusive and
evidenced by a resolution of the Board and (ii) apply (no later than the end of
the six-month period referred to in clause (i)) such excess Net Cash Proceeds
(to the extent not applied pursuant to clause (i)) as provided in the following
paragraph of this Section 4.11. The amount of such excess Net Cash Proceeds
required to be applied (or to be committed to be applied) during such six-month
period as set forth in clause (i) of the preceding sentence and not applied as
so required by the end of such period shall constitute "EXCESS PROCEEDS."
(b) If, as of the first day of any calendar month, the aggregate
amount of Excess Proceeds not theretofore subject to an Offer to Purchase
pursuant to this Section 4.11 totals at least $5.0 million, the Company shall
commence, not later than the fifteenth business day of the succeeding 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.
SECTION 4.12. LIMITATION ON TRANSACTIONS WITH AFFILIATES.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, sell, lease, transfer or otherwise dispose of any of its
properties or assets to, or purchase any property or assets from, or enter into
or make any contract, agreement, loan, advance or Guarantee with, or any
contract, agreement, loan, advance or Guarantee for the specific benefit of, any
Affiliate (each of the foregoing, an "AFFILIATE TRANSACTION"), unless (i) such
Affiliate Transaction is on terms that are no less favorable to the Company or
the relevant Restricted Subsidiary than those that would have been obtained in a
comparable transaction by the Company or such Restricted Subsidiary with an
unrelated Person and (ii) the Company delivers to the Trustee (A) with respect
to any Affiliate Transaction involving aggregate consideration in excess of $1.0
million, a resolution of the Board of Directors set forth in an Officers'
Certificate certifying that such Affiliate Transaction complies with clause (A)
above and that such Affiliate Transaction has been approved by a majority of the
disinterested members of the Board of Directors and (B) with respect to any
Affiliate Transaction involving aggregate consideration in excess of $5.0
million, a written opinion, appraisal or certification from a nationally
recognized professional experienced in evaluating similar types of transactions
stating that the terms of such transaction are fair to the Company
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or such Restricted Subsidiary, as the case may be, from a financial point of
view; PROVIDED that the following shall not be deemed to constitute Affiliate
Transactions: (i) the payment of reasonable fees to directors of the Company who
are not employees of the Company; (ii) agreements and arrangements existing on
the date hereof; (iii) any employment agreement entered into by the Company or
any of its Restricted Subsidiaries in the ordinary course of business of the
Company or such Restricted Subsidiary; (iv) the adoption of employee benefit
plans in the ordinary course of business and payments and other transactions
thereunder; PROVIDED that any such adoption, payment or other transaction shall
have been approved by a majority of the disinterested members of the Board; (v)
transactions between or among the Company and/or its Wholly Owned Restricted
Subsidiaries; (vi) any contract, agreement, loan, advance or Guarantee for the
general benefit of the Company and its stockholders, including stockholders that
are Affiliates of the Company; and (vii) any Affiliate Transactions permitted by
the provisions of Section 4.07 hereof.
SECTION 4.13. LIMITATION ON LIENS SECURING CERTAIN INDEBTEDNESS.
The Company shall not, and shall not permit any Subsidiary to, create,
Incur, assume or suffer to exist any Lien, other than Permitted Liens, on any of
its assets or properties of any character, or any shares of Capital Stock or
Indebtedness of any Subsidiary, without making effective provision for all of
the Notes and all other amounts due hereunder to be directly secured equally and
ratably with (or, if the obligation or liability to be secured by such Lien is
subordinated in right of payment to the Notes prior to) the obligation or
liability secured by such Lien.
SECTION 4.14. CORPORATE EXISTENCE.
Subject to Article 5, the Company shall do or cause to be done all things
necessary to preserve and keep in full force and effect (i) its existence as a
corporation, and the corporate, partnership or other existence of any
Subsidiary, in accordance with the respective organizational documents (as the
same may be amended from time to time) of the Company or any such Subsidiary and
(ii) the rights (charter and statutory), licenses and franchises of the Company
and its Subsidiaries; PROVIDED, HOWEVER, that the Company shall not be required
to preserve any such right, license or franchise, or the corporate, partnership
or other existence of any of its Subsidiaries if the Board of Directors of the
Company shall determine that the preservation thereof is no longer desirable in
the conduct of the business of the Company and its Subsidiaries, taken as a
whole, and that the loss thereof is not adverse in any material respect to the
Holders of the Notes.
SECTION 4.15. CHANGE OF CONTROL.
In the event of a Change in Control, the Company shall commence and
consummate an Offer to Purchase for all the then outstanding Notes, at a
purchase price equal to 101% of the principal amount thereof, plus accrued and
unpaid interest, if any, to the date of purchase. Not later than 20 days
following any Change in Control, the Company shall mail a notice to the Trustee
and each Holder describing the transaction or transactions that constitute the
Change in Control and offering to repurchase Notes pursuant to the procedures
required by this Indenture and described in such notice.
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SECTION 4.16. BUSINESS ACTIVITIES OF THE COMPANY AND RESTRICTED SUBSIDIARIES.
(a) The Company shall not, and shall 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 shall (i) at such time and to the extent permitted by the FCC, transfer,
or cause to be transferred, all FCC licenses and authorizations of the Company
and its Restricted Subsidiaries to ART Licensing and (ii) cause ART Licensing to
remain a Wholly Owned Restricted Subsidiary of the Company.
(b) Notwithstanding the foregoing, to the extent permitted by the
FCC, the Company shall 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.
SECTION 4.17. NO AMENDMENT TO VOTING TRUST AGREEMENT.
The Company shall 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 of the then outstanding Notes; PROVIDED, HOWEVER, that the
Company may amend, 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.
SECTION 4.18. PLEDGE AGREEMENT; SECURITY.
(a) The Company shall (i) enter into the Pledge Agreement (in the
form attached hereto as Exhibit B) and comply with the terms and provisions
thereof and (ii) use a portion of the net proceeds of the sale of the Notes to
purchase the Pledged Securities to be pledged to the Collateral Agent for its
benefit and the ratable benefit of the Holders of the Notes in an amount
sufficient upon receipt of scheduled interest and principal payments, 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 on the Notes when and as due. The Pledged
Securities shall be pledged by the Company to the Collateral Agent for its
benefit and the ratable benefit of the Holders of the Notes and shall be held by
the Collateral Agent in the Pledge Account pending disbursement pursuant to the
Pledge Agreement.
(b) Each Holder, by its acceptance of a Note, consents and agrees to
the terms of the Pledge Agreement (including, without limitation, the provisions
providing for foreclosure and release of Collateral) as the same may be in
effect or may be amended from time to time in accordance with its terms, and
authorizes and directs the Collateral Agent to enter into the Pledge Agreement
to which it is a party and to perform its respective obligations and exercise
its respective rights thereunder in accordance therewith. The Company shall do
or cause to be done all such acts and things as may be necessary or proper, or
as may be required by the provisions of the Pledge Agreement, to assure and
confirm to the Collateral Agent the security interest in the Collateral
contemplated hereby, by the Pledge Agreement or any part thereof, as from time
to time constituted, so as to render the same available for
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the security and benefit of this Indenture and of the Notes secured hereby,
according to the intent and purposes herein expressed. The Company shall take,
or shall cause to be taken, upon request of the Collateral Agent, any and all
actions reasonably required to cause the Pledge Agreement to create and
maintain, as security for the obligations of the Company under this Indenture
and the Notes, valid and enforceable first priority perfected security interest
in and to all of the Collateral, in favor of the Collateral Agent, superior to
and prior to the rights of all third Persons and subject to no Liens other than
as provided herein.
(c) The release of any Collateral pursuant to the Pledge Agreement
shall not be deemed to impair the security under this Indenture in contravention
of the provisions hereof if and to the extent the Collateral is released
pursuant to this Indenture and the Pledge Agreement. To the extent applicable,
the Company shall cause TIA Section 314(d) relating to the release of property
or securities from the Lien and security interest of the Pledge Agreement and
relating to the substitution therefor of any property or securities to be
subjected to the Lien and security interest of the Pledge Agreement to be
complied with. Any certificate or opinion required by TIA Section 314(d) may
be made by an officer of the Company, except in cases where TIA Section 314(d)
requires that such certificate or opinion be made by an independent Person,
which Person shall be an independent engineer, appraiser or other expert
selected or approved by the Collateral Agent in the exercise of reasonable care.
(d) The Company shall cause TIA Section 314(b), relating to opinions
of counsel regarding the Lien of the Pledge Agreement, to be complied with. The
Company shall furnish to the Trustee prior to each proposed release of
Collateral pursuant to the Pledge Agreement (i) all documents required by TIA
Section 314(d) and (ii) an opinion of the counsel to the effect that such
accompanying documents constitute all documents required by TIA Section 314(d).
The Collateral Agent may, to the extent permitted by Sections 7.01 and 7.02
hereof, accept as conclusive evidence of compliance with the foregoing
provisions the appropriate statements contained in such instruments.
(e) The Collateral Agent may, in its sole discretion and without the
consent of the Holders, on behalf of the Holders, take all actions it deems
necessary or appropriate in order to (i) enforce any of the terms of the Pledge
Agreement and (ii) collect and receive any and all amounts payable in respect of
the obligations of the Company hereunder. The Collateral Agent shall have power
to institute and to maintain such suits and proceedings as it may deem expedient
to prevent any impairment of the Collateral by any acts that may be unlawful or
in violation of the Pledge Agreement or this Indenture, and such suits and
proceedings as the Collateral Agent may deem expedient to preserve or protect
its interests and the interests of the Holders in the Collateral (including
power to institute and maintain suits or proceedings to restrain the enforcement
of or compliance with any legislative or other governmental enactment, rule or
order that may be unconstitutional or otherwise invalid if the enforcement of,
or compliance with, such enactment, rule or order would impair the security
interest hereunder or be prejudicial to the interests of the Holders or of the
Collateral Agent).
ARTICLE 5
SUCCESSORS
SECTION 5.01. CONSOLIDATION, MERGER, SALE OF ASSETS, ETC.
(a) The Company shall not consolidate with, merge with or into, or
sell, convey, transfer, lease or otherwise dispose of all or substantially all
of its property and assets (as an entirety or
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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
this Indenture; (ii) immediately after giving effect to such transaction, no
Default or Event of Default shall have occurred and be continuing;
(iii) immediately after giving effect to such transaction on a pro forma basis,
the Indebtedness to Total Market Capitalization Ratio (determined as of a date
no earlier than 10 days prior to such transaction) of the Company, or any person
becoming the successor obligor of the Notes, would be no greater than 130% of
the Indebtedness to Total Market Capitalization Ratio of the Company immediately
prior to giving effect to such transaction; PROVIDED that this clause (iii)
shall not apply to any transaction or series of transactions effected solely for
the purpose of creating a parent corporation of which the Company shall be a
Wholly Owned Subsidiary and whose stockholders shall be identical (without
regard to the exercise of options or warrants, or securities convertible or
exchangeable into shares of Common Stock) to those of the Company immediately
prior thereto; and (iv) the Company delivers to the Trustee an Officers'
Certificate (attaching the arithmetic computations to demonstrate compliance
with clause (iii)) and an Opinion of Counsel, in each case, stating that such
consolidation, merger or transfer and such supplemental indenture complies with
this provision and that all conditions precedent provided for herein relating to
such transaction have been complied with; PROVIDED, HOWEVER, that clause (iii)
above does not apply if, in the good faith determination of the Board, whose
determination shall be evidenced by a resolution of the Board, the principal
purpose of such transaction is to change the state of incorporation of the
Company; and PROVIDED FURTHER that any such transaction shall not have as one of
its purposes the evasion of the foregoing limitations.
(b) The Company shall deliver to the Trustee prior to such
transaction an Officers' Certificate covering clauses (i) through (iv) of
Section 5.01(a) hereof, stating that such transaction and such supplemental
indenture comply with this Indenture, and an Opinion of Counsel.
SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED.
Upon any consolidation or merger, or any sale, lease, conveyance or other
disposition of all or substantially all of the assets of the Company in
accordance with Section 5.01, the successor corporation formed by such
consolidation or into or with which the Company is merged or to which such sale,
lease, conveyance or other disposition is made shall succeed to, and be
substituted for (so that from and after the date of such consolidation, merger,
sale, lease, conveyance or other disposition, the provisions of this Indenture
referring to the Company shall refer instead to the successor corporation and
not to the Company), and may exercise every right and power of the Company under
this Indenture with the same effect as if such successor Person has been named
as the Company, herein; PROVIDED, HOWEVER, that the predecessor Company shall
not be relieved from the obligations to pay the principal of and interest on the
Notes, except in the case of a sale of all of the Company's assets that meets
the requirements of Section 5.01 hereof.
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ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.01. EVENTS OF DEFAULT.
Each of the following constitutes an "EVENT OF DEFAULT":
(a) default in the payment of interest on the Notes when it
becomes due and payable as to any interest payment date on or prior to
_______, 2000, and continuance of such default for a period of five (5)
days or more; or default in the payment of interest on the Notes when it
becomes due and payable as to any interest payment date after _______,
2000, and continuance of such default for a period of thirty (30) days or
more; or
(b) default in the payment of principal of, or premium, if
any, on the Notes when due; or
(c) default in the performance, or breach, of any covenant
described under Sections 4.07, 4.09, 4.11, 4.15 and 4.18(a) and Article 5
hereof; or
(d) default in the performance, or breach, of any covenant in
this Indenture (other than defaults specified in clause (a), (b) or (c)
above), and the continuance of such default or breach for a period of 30
days or more after written notice to the Company by the Trustee or to the
Company and the Trustee by the holders of at least 25% in aggregate
principal amount of the then outstanding Notes (in each case, when such
notice is deemed received in accordance with this Indenture); or
(e) default under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is Guaranteed by the Company or any
of its Restricted Subsidiaries) whether such Indebtedness or Guarantee now
exists, or is created after the Issue Date, which default (i) is caused by
a failure to pay principal of or premium, if any, or interest on such
Indebtedness prior to the expiration of the grace period provided in such
Indebtedness on the date of such default (a "PAYMENT DEFAULT") or
(ii) results in the acceleration of such Indebtedness prior to its express
maturity and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness under
which there has been a Payment Default, or the maturity of which has been
so accelerated, aggregates $5.0 million or more; or
(f) any final judgment or order (not covered by insurance)
for the payment of money in excess of $5.0 million in the aggregate for all
such final judgments or orders against all such Persons (treating any
deductibles, self-insurance or retention as not so covered) shall be
rendered against the Company or any Significant Subsidiary and shall not be
paid or discharged, and there shall be any period of 60 consecutive days
following entry of the final judgment or order that causes the aggregate
amount for all such final judgments or orders outstanding and not paid or
discharged against all such Persons to exceed $5.0 million during which a
stay of enforcement of such final judgment or order, by reason of a pending
appeal or otherwise, shall not be in effect; or
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(g) a court having jurisdiction in the premises enters a
decree or order for (i) relief in respect of the Company or any Significant
Subsidiary in an involuntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, (ii) the
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of the Company or any Significant
Subsidiary or for all or substantially all of the property and assets of
the Company or any Significant Subsidiary or (iii) the winding up or
liquidation of the affairs of the Company or any Significant Subsidiary
and, in each case, such decree or order shall remain unstayed and in effect
for a period of 60 consecutive days; or
(h) the Company or any Significant Subsidiary (i) commences a
voluntary case under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect, or consents to the entry of an order for
relief in an involuntary case under any such law, (ii) consents to the
appointment of or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Company or any
Significant Subsidiary or for all or substantially all of the property and
assets of the Company or any Significant Subsidiary or (iii) effects any
general assignment for the benefit of creditors.
The term "CUSTODIAN" means any receiver, trustee, assignee, liquidator or
similar official under any Bankruptcy Law.
SECTION 6.02. ACCELERATION.
If any Event of Default (other than an Event of Default specified in clause
(g) or (h) 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 then outstanding Notes shall, declare
the principal of, and any accrued and unpaid interest on, all outstanding Notes
to be immediately due and payable and upon any such declaration such amounts
shall become immediately due and payable. If an Event of Default specified in
clause (g) or (h) 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
then outstanding Notes also have the right to waive past defaults under this
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.
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SECTION 6.03. OTHER REMEDIES.
If an Event of Default occurs and is continuing, the Trustee may pursue any
available remedy to collect the payment of principal, premium, if any, and
interest on the Notes or to enforce the performance of any provision of the
Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any of
the Notes or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder of a Note in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. All remedies
are cumulative to the extent permitted by law.
SECTION 6.04. WAIVER OF PAST DEFAULTS.
Holders of not less than a majority in aggregate principal amount of the
then outstanding Notes by written notice to the Trustee may, on behalf of the
Holders of all of the Notes, waive an existing Default or Event of Default and
its consequences, except a continuing Default or Event of Default in the payment
of the principal of, premium, if any, or interest on, the Notes. Upon any such
waiver, such Default shall cease to exist, and any Event of Default arising
therefrom shall be deemed to have been cured for every purpose of this
Indenture; but no such waiver shall extend to any subsequent or other Default or
impair any right consequent thereon.
SECTION 6.05.CONTROL BY MAJORITY.
Holders of a majority in principal amount of the then outstanding Notes may
direct the time, method and place of conducting any proceeding for exercising
any remedy available to the Trustee or exercising any trust or power conferred
on it. However, the Trustee may refuse to follow any direction that conflicts
with the law or this Indenture or that the Trustee determines may be unduly
prejudicial to the rights of other Holders of Notes or that may involve the
Trustee in personal liability.
SECTION 6.06. LIMITATION ON SUITS.
A Holder of a Note may pursue a remedy with respect to this Indenture or
the Notes only if, (a) the Holder of a Note gives to the Trustee written notice
of a continuing Event of Default, (b) the Holders of at least 25% in principal
amount of the then outstanding Notes make a written request to the Trustee to
pursue the remedy, (c) such Holder of a Note or Holders of Notes offer and, if
requested, provide to the Trustee indemnity satisfactory to the Trustee against
any loss, liability or expense; (d) the Trustee does not comply with the request
within 60 days after receipt of the request and the offer and, if requested, the
provision of indemnity, and (e) during such 60-day period, the Holders of a
majority in principal amount of the then outstanding Notes do not give the
Trustee a direction inconsistent with the request.
A Holder of a Note may not use this Indenture to prejudice the rights of
another Holder of a Note or to obtain a preference or priority over another
Holder of a Note.
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SECTION 6.07. RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the right of any
Holder of a Note to receive payment of principal, premium, if any, and interest
on the Note, on or after the respective due dates expressed in the Note, or to
bring suit for the enforcement of any such payment on or after such respective
dates, shall not be impaired or affected without the consent of the Holder of
the Note.
SECTION 6.08. COLLECTION SUIT BY TRUSTEE.
Subject to Section 6.02 hereof, if an Event of Default specified in
Section 6.01(a) or (b) occurs and is continuing, the Trustee is authorized to
recover judgment in its own name and as trustee of an express trust against the
Company for the whole amount of principal of, premium, if any, and interest
remaining unpaid on the Notes and interest on overdue principal and, to the
extent lawful, interest and such further amount as shall be sufficient to cover
the costs and expenses of collection, including the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel.
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee is authorized to file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders of the Notes allowed in any judicial proceedings relative to the Company
(or any other obligor upon the Notes), the Company's creditors or the Company's
property and shall be entitled and empowered to collect, receive and distribute
any money or other property payable or deliverable on any such claims and any
custodian in any such judicial proceeding is hereby authorized by each Holder of
a Note to make such payments to the Trustee, and in the event that the Trustee
shall consent to the making of such payments directly to the Holders of the
Notes, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 7.07. To the
extent that the payment of any such compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, and any other amounts due the
Trustee under Section 7.07 out of the estate in any such proceeding, shall be
denied for any reason, payment of the same shall be secured by a Lien on, and
shall be paid out of, any and all distributions, dividends, money, securities
and other properties which the Holders of the Notes may be entitled to receive
in such proceeding whether in liquidation or under any plan of reorganization or
arrangement or otherwise. Nothing contained herein shall be deemed to authorize
the Trustee to authorize or consent to or accept or adopt on behalf of any
Holder of a Note any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder of a Note thereof,
or to authorize the Trustee to vote in respect of the claim of any Holder of a
Note in any such proceeding.
SECTION 6.10. PRIORITIES.
If the Trustee collects any money pursuant to this Article, it shall pay
out the money in the following order:
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FIRST: to the Trustee, its agents and attorneys for amounts
due under Section 7.07, including payment of all compensation, expense and
liabilities incurred, and all advances made, by the Trustee and the costs
and expenses of collection;
SECOND: (i) first to Holders of Notes, for amounts due and
unpaid on such Notes for principal, premium, if any, and interest, ratably,
without preference or priority of any kind according to the amounts due and
payable on the Notes for principal, premium, if any, and interest,
respectively, and (ii) second, to the extent any other monies are
available, to Holders of all Notes for amounts due and unpaid on all such
Notes for principal, premium, if any, and interest, ratably, without
preference or priority of any kind, according to the amounts due and
payable on the Notes; and
THIRD: to the Company or to such party as a court of competent
jurisdiction shall direct.
The Trustee may fix a record date and payment date for any payment to
Holders of Notes.
SECTION 6.11. UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under this Indenture
or in any suit against the Trustee for any action taken or omitted by it as a
Trustee, a court in its discretion may require the filing by any party litigant
in the suit of an undertaking to pay the costs of the suit, and the court in its
discretion may assess reasonable costs, including reasonable attorneys' fees and
expenses, against any party litigant in the suit, having due regard to the
merits and good faith of the claims or defenses made by the party litigant.
This Section does not apply to a suit by the Trustee, a suit by a Holder of a
Note pursuant to Section 6.07, or a suit by Holders of more than 10% in
principal amount of the then outstanding Notes.
ARTICLE 7
TRUSTEE
SECTION 7.01.DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise, as a
prudent man would exercise or use under the circumstances in the conduct of his
own affairs.
(b) Except during the continuance of an Event of Default, (i) the
duties of the Trustee shall be determined solely by the express provisions of
this Indenture and the Trustee need perform only those duties that are
specifically set forth in this Indenture and no others, and no implied covenants
or obligations shall be read into this Indenture against the Trustee, and (ii)
in the absence of bad faith on its part, the Trustee may conclusively rely, as
to the truth of the statements and the correctness of the opinions expressed
therein, upon certificates or opinions furnished to the Trustee and conforming
to the requirements of this Indenture. However, in case of any such
certificates or opinions which by any
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provision hereof are specifically required to be furnished to the Trustee, the
Trustee shall examine the certificates and opinions to determine whether or not
they conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liabilities for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that (i) this paragraph does not limit the effect of
paragraph (b) of this Section; (ii) the Trustee shall not be liable for any
error of judgment made in good faith by a Responsible Officer, unless it is
proved that the Trustee was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any action it takes or
omits to take in good faith in accordance with a direction received by it
pursuant to Section 6.05.
(d) Whether or not therein expressly so provided, every provision of
this Indenture that in any way relates to the Trustee is subject to paragraphs
(a), (b) and (c) of this Section.
(e) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or incur any liability. The Trustee shall be under
no obligation to exercise any of its rights and powers under this Indenture at
the request of any Holder of Notes, unless such Holder shall have offered to the
Trustee security and indemnity satisfactory to the Trustee against any loss,
liability or expense.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
SECTION 7.02. RIGHTS OF TRUSTEE.
(a) The Trustee may conclusively rely upon any document believed by
it to be genuine and to have been signed or presented by the proper Person. The
Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate or an Opinion of Counsel or both. The Trustee shall
not be liable for any action it takes or omits to take in good faith in reliance
on such Officers' Certificate or Opinion of Counsel. The Trustee may consult
with counsel of its selection and the advice of such counsel or any Opinion of
Counsel shall be full and complete authorization and protection from liability
in respect of any action taken, suffered or omitted by it hereunder in good
faith and in reliance thereon.
(c) The Trustee may act through its attorneys and agents and shall
not be responsible for the misconduct or negligence of any agent appointed with
due care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it believes to be authorized or within its rights or
powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Company shall be sufficient if
signed by an officer of the Company.
(f) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders unless such Holders shall have
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offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities that might be incurred by it in compliance with such
request or direction.
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become the owner or
pledgee of Notes and may otherwise deal with the Company or any Affiliate of the
Company with the same rights it would have if it were not Trustee. However, in
the event that the Trustee acquires any conflicting interest, it shall eliminate
such conflict within 90 days, apply to the Commission for permission to continue
as trustee or resign. Any Agent may do the same with like rights and duties.
The Trustee is also subject to Sections 7.10 and 7.11.
SECTION 7.04. TRUSTEE'S DISCLAIMER.
The Trustee shall not be responsible for and makes no representation as to
the validity or adequacy of this Indenture or the Notes, it shall not be
accountable for the Company's use of the proceeds from the Notes or any money
paid to the Company or upon the Company's direction under any provision of this
Indenture, it shall not be responsible for the use or application of any money
received by any Paying Agent other than the Trustee, and it shall not be
responsible for any statement or recital herein or any statement in the Notes or
any other document in connection with the sale of the Notes or pursuant to this
Indenture other than its certificate of authentication.
SECTION 7.05. NOTICE OF DEFAULTS.
If a Default or Event of Default occurs and is continuing and if it is
known to a Responsible Officer of the Trustee, the Trustee shall mail to Holders
of Notes a notice of the Default or Event of Default within 90 days after it
occurs. Except in the case of a Default or Event of Default in payment of
principal of, premium, if any, or interest on any Note, the Trustee may withhold
the notice if and so long as a committee of its Responsible Officers in good
faith determines that withholding the notice is in the interests of the Holders
of the Notes.
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES.
Within 60 days after January 1 beginning with the January 1 following the
date of this Indenture, the Trustee shall mail to the Holders of the Notes a
brief report dated as of such reporting date that complies with TIA Section
313(a) (but if no event described in TIA Section 313(a) has occurred within
the twelve months preceding the reporting date, no report need be transmitted).
The Trustee also shall comply with TIA Section 313(b)(2). The Trustee shall
also transmit by mail all reports as required by TIA Section 313(c).
A copy of each report at the time of its mailing to the Holders of Notes
shall be mailed to the Company and filed with the Commission and each stock
exchange on which the Notes are listed. The Company shall promptly notify the
Trustee when the Notes are listed on any stock exchange.
SECTION 7.07. COMPENSATION AND INDEMNITY.
The Company shall pay to the Trustee from time to time such compensation as
shall be agreed in writing between the Company and the Trustee for its
acceptance of this Indenture and services
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hereunder. The Trustee's compensation shall not be limited by any law on
compensation of a trustee of an express trust. The Company shall reimburse the
Trustee promptly upon request for all reasonable disbursements, advances and
expenses incurred or made by it in addition to the compensation for its
services. Such expenses shall include the reasonable compensation,
disbursements and expenses of the Trustee's agents and counsel.
The Company shall indemnify each of the Trustee and any predecessor Trustee
against any and all losses, liabilities, damages, claims or expenses, including
taxes (other than taxes based on the income of the Trustee) incurred by it
arising out of or in connection with the acceptance or administration of its
duties under this Indenture, except any such loss, liability or expense as may
be attributable to the negligence or bad faith of the Trustee. The Trustee
shall notify the Company promptly of any claim for which it may seek indemnity.
Failure by the Trustee to so notify the Company shall not relieve the Company of
its obligations hereunder. The Company shall defend the claim and the Trustee
shall cooperate in the defense. The Trustee may have separate counsel and the
Company shall pay the reasonable fees and expenses of such counsel. The Company
need not pay for any settlement made without its consent, which consent shall
not be unreasonably withheld.
The obligations of the Company under this Section 7.07 shall survive the
satisfaction and discharge of this Indenture.
To secure the Company' payment obligations in this Section, the Trustee
shall have a Lien prior to the Notes on all money or property held or collected
by the Trustee, except that held in trust to pay principal, premium, if any, and
interest on particular Notes. Such Lien shall survive the satisfaction and
discharge of this Indenture.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(g) or (h) occurs, the expenses and the
compensation for the services (including the fees and expenses of its agents and
counsel) are intended to constitute expenses of administration under any
Bankruptcy Law.
SECTION 7.08. REPLACEMENT OF TRUSTEE.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section.
The Trustee may resign in writing at any time and be discharged from the
trust hereby created by so notifying the Company. The Holders of Notes of a
majority in principal amount of the then outstanding Notes may remove the
Trustee by so notifying the Trustee and the Company in writing. The Company may
remove the Trustee if: (a) the Trustee fails to comply with Section 7.10; (b)
the Trustee is adjudged a bankrupt or an insolvent or an order for relief is
entered with respect to the Trustee under any Bankruptcy Law; (c) a Custodian or
public officer takes charge of the Trustee or its property; or (d) the Trustee
becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the office
of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the then outstanding Notes may appoint a
successor Trustee to replace the successor Trustee appointed by the Company.
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If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company, or
the Holders of Notes of at least 10% in principal amount of the then outstanding
Notes may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
If the Trustee after written request by any Holder of a Note who has been a
Holder of a Note for at least six months fails to comply with Section 7.10, such
Holder of a Note may petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its appointment
to the retiring Trustee and to the Company. Thereupon, the resignation or
removal of the retiring Trustee shall become effective, and the successor
Trustee shall have all the rights, powers and duties of the Trustee under this
Indenture. The successor Trustee shall mail a notice of its succession to
Holders of the Notes. The retiring Trustee shall promptly transfer all property
held by it as Trustee to the successor Trustee, provided all sums owing to the
Trustee hereunder have been paid and subject to the Lien provided for in
Section 7.07. Notwithstanding replacement of the Trustee pursuant to this
Section 7.08, the Company's obligations under Section 7.07 shall continue for
the benefit of the retiring Trustee.
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates, merges or converts into, or transfers all or
substantially all of its corporate trust business to, another corporation, the
successor corporation without any further act shall be the successor Trustee.
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION.
There shall at all times be a Trustee hereunder which shall be a
corporation organized and doing business under the laws of the United States of
America or of any state thereof authorized under such laws to exercise corporate
trustee power, shall be subject to supervision or examination by federal or
state authority and shall have a combined capital and surplus of at least $100.0
million as set forth in its most recent published annual report of condition.
This Indenture shall always have a Trustee who satisfies the requirements
of TIA Section 310(a)(1), (2) and (5). The Trustee is subject to TIA Section
310(b).
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
The Trustee is subject to TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). A Trustee who has resigned or been
removed shall be subject to TIA Section 311(a) to the extent indicated therein.
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ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 8.01. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE.
The Company may, at the option of its Board of Directors evidenced by a
resolution set forth in an Officers' Certificate, at any time, with respect to
the Notes, elect to have either Section 8.02 or 8.03 be applied to all
outstanding Notes upon compliance with the conditions set forth below in this
Article Eight. In the event of Legal Defeasance or Covenant Defeasance, the
security interest described under Section 4.18 will be released.
SECTION 8.02. LEGAL DEFEASANCE AND DISCHARGE.
Upon the Company's exercise under Section 8.01 of the option applicable to
this Section 8.02, the Company shall be deemed to have been discharged from its
obligations with respect to all outstanding Notes on the date the conditions set
forth below are satisfied (hereinafter, "LEGAL DEFEASANCE"). For this purpose,
such Legal Defeasance means that the Company shall be deemed to have paid and
discharged the entire Indebtedness represented by the then outstanding Notes,
which shall thereafter be deemed to be "outstanding" only for the purposes of
Section 8.05 and the other Sections of this Indenture referred to in (a) and (b)
below, and to have satisfied all of its other obligations under such Notes and
this Indenture (and the Trustee, on demand of and at the expense of the Company,
shall execute proper instruments acknowledging the same), except for the
following which shall survive until otherwise terminated or discharged
hereunder: (a) the rights of holders of outstanding Notes to receive payments in
respect of the principal of, premium, if any, and interest on, such Notes when
such payments are due, or on the redemption date, as the case may be; (b) the
Company's obligations with respect to the Notes concerning the issuance of
temporary Notes, the registration of Notes, mutilated, destroyed, lost or stolen
Notes and the maintenance of an office or agency for payment and money for
security payments held in trust; (c) the rights, powers, trust, duties and
immunities of the Trustee, and the Company's obligations in connection
therewith; and (d) the Legal Defeasance provisions of this Indenture.
SECTION 8.03. COVENANT DEFEASANCE.
Upon the Company's exercise under Section 8.01 of the option applicable to
this Section 8.03, the Company shall be released from its obligations under the
covenants contained in Sections 4.03, 4.04, 4.07, 4.08, 4.09, 4.10, 4.11, 4.12,
4.13, 4.14, 4.15, 4.16, 4.17 and 4.18 and Article Five with respect to the then
outstanding Notes on and after the date the conditions set forth below are
satisfied (hereinafter, "COVENANT DEFEASANCE"), and the Notes shall thereafter
be deemed not "outstanding" for the purposes of any direction, waiver, consent
or declaration or act of Holders (and the consequences of any thereof) in
connection with such covenants, but shall continue to be deemed "outstanding"
for all other purposes hereunder (it being understood that such Notes shall not
be deemed outstanding for accounting purposes). For this purpose, such Covenant
Defeasance means that, with respect to the then outstanding Notes, the Company
may omit to comply with and shall have no liability in respect of any term,
condition or limitation set forth in any such covenant, whether directly or
indirectly, by reason of any reference elsewhere herein to any such covenant or
by reason of any reference in any such covenant to any other provision herein or
in any other document and such omission to comply shall not constitute a Default
or an Event of Default under Section 6.01(c), but, except as specified above,
the remainder of this Indenture and such Notes shall be unaffected thereby. In
addition, upon the Company' exercise under Section 8.01
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of the option applicable to this Section 8.03, Sections 6.01(d) through 6.01(f)
shall not constitute Events of Default.
SECTION 8.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE.
The following shall be the conditions to the application of either
Section 8.02 or Section 8.03 to the then outstanding Notes: (i) the Company
shall irrevocably have deposited or caused to be deposited with the Trustee (or
another trustee satisfying the requirements of Section 7.10 who shall agree to
comply with the provisions of this Article Eight applicable to it) as trust
funds in trust, specifically pledged as security for, and dedicated solely to,
the benefit of the Holders of the Notes, cash in U.S. dollars, non-callable U.S.
government obligations, or a combination thereof, in such amounts as shall be
sufficient, in the opinion of a nationally recognized firm of independent public
accountants selected by the Company, to pay the principal of, premium, if any,
and interest on the then outstanding Notes, on the stated maturity or on the
applicable optional redemption date, as the case may be, of such principal or
installment of principal of, premium, if any, or interest on the then
outstanding Notes; (ii) in the case of Legal Defeasance, the Company shall
deliver to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that (A) the Company has received from, or
there has been published by, the Internal Revenue Service a ruling or (B) since
the date hereof, there has been a change in the applicable federal income tax
law, in either case to the effect that, and based thereon such opinion of
counsel shall confirm that, the holders of the then outstanding Notes shall not
recognize income, gain or loss for federal income tax purposes as a result of
such Legal Defeasance and shall be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such Legal Defeasance had not occurred; (iii) in the case of Covenant
Defeasance, the Company shall deliver to the Trustee an opinion of counsel in
the United States reasonably acceptable to the Trustee confirming that the
holders of the then outstanding Notes shall not recognize income, gain or loss
for federal income tax purposes as a result of such Covenant Defeasance and
shall be subject to federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such Covenant Defeasance
had not occurred; (iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit or insofar as Events of Default from
bankruptcy or insolvency events are concerned, at any time in the period ending
on the 91st day after the date of deposit; (v) such Legal Defeasance or Covenant
Defeasance shall not result in a breach or violation of, or constitute a default
under any material agreement or instrument (other than this Indenture) to which
the Company is a party or by which the Company is bound; (vi) the Company shall
have delivered to the Trustee an Officers' Certificate stating that the deposit
was not made by the Company with the intent of preferring the holders of Notes
over the other creditors of the Company with the intent of defeating, hindering,
delaying or defrauding creditors of the Company or others; (vii) the Company
shall have delivered to the Trustee an Officers' Certificate and an opinion of
counsel, each stating that all conditions precedent provided for relating to the
Legal Defeasance or the Covenant Defeasance have been complied with; and (viii)
the Company shall have paid or duly provided for payment of all amounts due to
the Trustee pursuant to Section 7.07 hereof.
SECTION 8.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST;
OTHER MISCELLANEOUS PROVISIONS.
Subject to Section 8.06, all money and Government Securities (including the
proceeds thereof) deposited with the Trustee (or other qualifying trustee,
collectively for purposes of this Section 8.05, the "TRUSTEE") pursuant to
Section 8.04 in respect of the then outstanding Notes shall be held in trust and
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applied by the Trustee, in accordance with the provisions of such Notes and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as Paying Agent) as the Company may determine, to
the Holders of such Notes of all sums due and to become due thereon in respect
of principal, premium, if any, and interest, but such money need not be
segregated from other funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the cash or Government Securities
deposited pursuant to Section 8.04 or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is for
the account of the Holders of the then outstanding Notes.
Anything in this Article Eight to the contrary notwithstanding, the Trustee
shall deliver or pay to the Company from time to time upon the request of the
Company any money or Government Securities held by it as provided in
Section 8.04 which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee (which may be the opinion delivered under
Section 8.04(a)), are in excess of the amount thereof which would then be
required to be deposited to effect an equivalent Legal Defeasance or Covenant
Defeasance.
SECTION 8.06. REPAYMENT TO COMPANY.
Any money deposited with the Trustee or any Paying Agent, or then held by
the Company, in trust for the payment of the principal of, premium, if any, or
interest on any Note and remaining unclaimed for two years after such principal,
and premium, if any, or interest has become due and payable shall be paid to the
Company on its written request or (if then held by the Company) shall be
discharged from such trust; and the Holder of such Note shall thereafter, as a
creditor, look only to the Company for payment thereof, and all liability of the
Trustee or such Paying Agent with respect to such trust money, and all liability
of the Company as trustee thereof, shall thereupon cease; PROVIDED, HOWEVER,
that the Trustee or such Paying Agent, before being required to make any such
repayment, may at the expense of the Company cause to be published once, in the
New York Times and The Wall Street Journal (national edition), notice that such
money remains unclaimed and that, after a date specified therein, which shall
not be less than 30 days from the date of such notification or publication, any
unclaimed balance of such money then remaining shall be repaid to the Company.
SECTION 8.07. REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any United States Dollars
or Government Securities in accordance with Section 8.02 or 8.03, as the case
may be, by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application, then
the Company's obligations under this Indenture and the Notes shall be revived
and reinstated as though no deposit had occurred pursuant to Section 8.02 or
8.03 until such time as the Trustee or Paying Agent is permitted to apply all
such money in accordance with Section 8.02 or 8.03, as the case may be;
PROVIDED, HOWEVER, that, if the Company makes any payment of principal of,
premium, if any, or interest on any Note following the reinstatement of its
obligations, the Company shall be subrogated to the rights of the Holders of
such Notes to receive such payment from the money held by the Trustee or Paying
Agent.
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ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
SECTION 9.01. WITHOUT CONSENT OF HOLDERS OF NOTES.
Notwithstanding Section 9.02 hereof, the Company and the Trustee may amend
or supplement this Indenture, the Pledge Agreement or the Notes without the
consent of any Holder of a Note, (a) to cure any ambiguity, defect or
inconsistency, (b) to provide for uncertificated Notes in addition to or in
place of certificated Notes, (c) to provide for the assumption of the Company's
obligations to Holders of the Notes in the case of a merger or consolidation in
accordance with Section 5.01 hereof, (d) to make any change that would provide
any additional rights or benefits to the Holders of the Notes or that does not
adversely affect the legal rights under this Indenture of any such Holder, or
(e) to comply with requirements of the Commission in order to effect or maintain
the qualification of this Indenture under the Trust Indenture Act.
Upon the request of the Company accompanied by a resolution of the Board of
Directors of the Company authorizing the execution of any such amended or
supplemental indenture, and upon receipt by the Trustee of the documents
described in Section 9.06, the Trustee shall join with the Company in the
execution of any amended or supplemental indenture authorized or permitted by
the terms of this Indenture and to make any further appropriate agreements and
stipulations which may be therein contained, but the Trustee shall not be
obligated to enter into such amended or supplemental indenture which affects its
own rights, duties or immunities under this Indenture or otherwise.
SECTION 9.02. WITH CONSENT OF HOLDERS OF NOTES.
The Company and the Trustee may amend or supplement this Indenture, the
Pledge Agreement or the Notes or any amended or supplemental indenture with the
written consent of the Holders of Notes of not less than a majority in aggregate
principal amount of the then outstanding Notes (including consents obtained in
connection with a tender offer or exchange offer for the Notes), and any
existing Default and its consequences or compliance with any provision of this
Indenture, the Pledge Agreement or the Notes may be waived with the consent of
the Holders of a majority in principal amount of the then outstanding Notes
(including consents obtained in connection with a tender offer or exchange offer
for the Notes).
Upon the request of the Company accompanied by a resolution of the Board of
Directors of the Company authorizing the execution of any such amended or
supplemental indenture, and upon the filing with the Trustee of evidence
satisfactory to the Trustee of the consent of the Holders of Notes as aforesaid,
and upon receipt by the Trustee of the documents described in Section 9.06, the
Trustee shall join with the Company in the execution of such amended or
supplemental indenture unless such amended or supplemental indenture affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise, in
which case the Trustee may in its discretion, but shall not be obligated to,
enter into such amended or supplemental indenture.
It shall not be necessary for the consent of the Holders of Notes under
this Section 9.02 to approve the particular form of any proposed amendment or
waiver, but it shall be sufficient if such consent approves the substance
thereof.
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After an amendment, supplement or waiver under this Section becomes
effective, the Company shall mail to the Holders of Notes affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such amended or supplemental
indenture or waiver. Subject to Sections 6.04 and 6.07, the Holders of a
majority in aggregate principal amount of the then outstanding Notes may waive
compliance in a particular instance by the Company with any provision of this
Indenture or the Notes. However, without the consent of each Holder affected,
an amendment or waiver may not (with respect to any Notes held by a non-
consenting Holder of Notes): (i) reduce the percentage in principal amount
outstanding of Notes whose Holders shall consent to an amendment, supplement or
waiver or consent to take any action under this Indenture or the Notes; (ii)
reduce the principal or extend the fixed maturity of any Note or alter the
provisions with respect to the redemption of the Notes (other than Section 4.11
or Section 4.15 hereof); (iii) reduce the rate of or change the time for payment
of interest on any Notes; (iv) waive a Default or Event of Default in the
payment of principal of or premium, if any, or interest on the Notes (except a
rescission of acceleration of the Notes by the holders of at least a majority in
aggregate principal amount of the Notes and a waiver of the payment default that
resulted from such acceleration); (v) make any Note, or any premium or accrued
interest thereon, payable in money other than that stated in the Notes; (vi)
make any change in the provisions of this Indenture relating to waivers of past
Defaults or the rights of holders of Notes to receive payments of principal of,
premium, if any, or interest on the Notes; (vii) waive a redemption payment with
respect to any Note (other than a payment required by Section 4.11 or Section
4.15 hereof); (viii) make any change in the foregoing amendment and waiver
provisions; (ix) impair the right to institute suit for the enforcement of any
payment on or with respect to the Notes; (x) adversely affect the ranking of the
Notes in a manner adverse to the holders of the Notes; or (xi) release any
Collateral from the Lien created by the Pledge Agreement, except in accordance
with the terms thereof.
In addition, without the consent of the holders of at least 66 2/3% in
principal amount of the then outstanding Notes (including consents obtained in
connection with a tender offer or exchange offer for Notes), no amendment to
this Indenture may make any change in, and no waiver may be made with respect to
any Default in the performance of, Section 4.11 or Section 4.15 hereof.
SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT.
Every amendment or supplement to this Indenture or the Notes shall be set
forth in an amended or supplemental indenture that complies with the TIA as then
in effect.
SECTION 9.04.REVOCATION AND EFFECT OF CONSENTS.
Until an amendment, supplement or waiver becomes effective, a consent to it
by a Holder of a Note is a continuing consent by the Holder of a Note and every
subsequent Holder of a Note or portion of a Note that evidences the same debt as
the consenting Holder's Note, even if notation of the consent is not made on any
Note. However, unless such amendment, supplement or waiver provides otherwise,
any such Holder of a Note or subsequent Holder of a Note may revoke the consent
as to its Note if the Trustee receives written notice of revocation before the
date the waiver, supplement or amendment becomes effective. An amendment,
supplement or waiver becomes effective in accordance with its terms and
thereafter binds every Holder of a Note.
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The Company may fix a record date for determining which Holders of the
Notes shall consent to such amendment, supplement or waiver. If the Company
fixes a record date, the record date shall be fixed at (i) the later of 30 days
prior to the first solicitation of such consent or the date of the most recent
list of Holders of Notes furnished to the Trustee prior to such solicitation
pursuant to Section 2.05 or (ii) such other date as the Company shall designate.
SECTION 9.05. NOTATION ON OR EXCHANGE OF NOTES.
The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Note thereafter authenticated. The Company in
exchange for all Notes may issue and the Trustee shall authenticate new Notes
that reflect the amendment, supplement or waiver.
Failure to make the appropriate notation or issue a new Note shall not
affect the validity and effect of such amendment, supplement or waiver.
SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall sign any amended or supplemental indenture authorized
pursuant to this Article 9 if the amendment or supplement does not adversely
affect the rights, duties, liabilities or immunities of the Trustee. The
Company may not sign an amendment or supplemental indenture until the Board of
Directors approves it. If it does, the Trustee may, but need not, sign it. In
signing such amendment or supplemental indenture, the Trustee shall be entitled
to receive, and, subject to Section 7.01 hereof, shall be fully protected in
relying upon, an Officers' Certificate and an Opinion of Counsel as conclusive
evidence that such amendment or supplemental indenture is authorized or
permitted by this Indenture, that it is not inconsistent herewith, and that it
shall be valid and binding upon the Company in accordance with its terms. The
Company may not sign an amendment or supplemental indenture until the Board of
Directors approves it.
ARTICLE 10
MISCELLANEOUS
SECTION 10.01. TRUST INDENTURE ACT CONTROLS.
If any provision of this Indenture limits, qualifies or conflicts with the
duties imposed by TIA Section 318(c), the imposed duties shall control.
SECTION 10.02. NOTICES.
Any notice or communication by the Company or the Trustee to the other is
duly given if in writing and delivered in Person or mailed by first class mail
(registered or certified, return receipt requested), telecopier or overnight air
courier guaranteeing next day delivery, to the other's address:
If to the Company:
Advanced Radio Telecom Corp.
500 108th Avenue, N.E., Suite 2600
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Bellevue, Washington 98004
Telecopier No.: (206) 688-0703
Attention: Chief Financial Officer
If to the Trustee:
The Bank of New York
101 Barclay Street, 21st Floor
New York, New York 10286
Telecopier No.: (212) 815-5915
Attention: Corporate Trust Trustee Administration
The Company or the Trustee, by notice to the other may designate additional
or different addresses for subsequent notices or communications.
All notices and communications (other than those sent to Holders of Notes)
shall be deemed to have been duly given: at the time delivered by hand, if
Personally delivered; five Business Days after being deposited in the mail,
postage prepaid, if mailed; when receipt acknowledged, if telecopied; and the
next Business Day after timely delivery to the courier, if sent by overnight air
courier guaranteeing next day delivery.
Any notice or communication to a Holder of a Note shall be sufficiently
given when mailed by first class mail, or when delivered to a courier for
guaranteed delivery not later than the next day , to such Holder's address shown
on the register kept by the Registrar. Any notice or communication shall also
be so mailed to any Person described in TIA Section 313(c), to the extent
required by the TIA. Failure to mail a notice or communication to a Holder of a
Note or any defect in it shall not affect its sufficiency with respect to other
Holders of Notes.
If a notice or communication is mailed in the manner provided above within
the time prescribed, it is duly given, whether or not the addressee receives it.
If the Company mails a notice or communication to the Holders of Notes, it
shall mail a copy to the Trustee and each Agent at the same time.
SECTION 10.03. COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF NOTES.
Holders of the Notes may communicate pursuant to TIA Section 312(b) with
other Holders of Notes with respect to their rights under this Indenture or the
Notes. The Company, the Trustee, the Registrar and anyone else shall have the
protection of TIA Section 312(c).
SECTION 10.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company to the Trustee to take any
action under this Indenture, the Company shall furnish to the Trustee:
(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth
in Section 10.05) stating that, in the opinion
55
<PAGE>
of the signers, all conditions precedent and covenants, if any, provided
for in this Indenture relating to the proposed action have been satisfied;
and
(b) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth
in Section 10.05) stating that, in the opinion of such counsel, all such
conditions precedent and covenants have been satisfied.
SECTION 10.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture (other than a certificate provided
pursuant to TIA Section 314(a)(4)) shall include:
(a) a statement that the Person making such certificate or
opinion has read such covenant or condition;
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition
has been satisfied; and
(d) a statement as to whether or not, in the opinion of such
Person, such condition or covenant has been satisfied.
SECTION 10.06. RULES BY TRUSTEE AND AGENTS.
The Trustee may make reasonable rules for action by or at a meeting of
Holders of Notes. The Registrar or Paying Agent may make reasonable rules and
set reasonable requirements for its functions.
SECTION 10.07. NO PERSONAL LIABILITY OF PARTNERS, DIRECTORS, OFFICERS, EMPLOYEES
AND STOCKHOLDERS.
No director, officer, employee, incorporator or stockholder of the Company,
as such, shall have any liability for any obligations of the Company under the
Notes or this Indenture or for any claim based on, in respect of, or by reason
of, such obligations or their creation. Each Holder of the Notes by accepting a
Note waives and releases all such liability. The waiver and release are part of
the consideration for issuance of the Notes.
SECTION 10.08. GOVERNING LAW.
The internal laws of the State of New York shall govern and be used to
construe this Indenture and the Notes without giving effect to the principles of
conflicts of law thereof.
SECTION 10.09. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret another indenture, loan or debt
agreement of the Company or its Subsidiaries. Any such indenture, loan or debt
agreement may not be used to interpret this Indenture.
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<PAGE>
SECTION 10.10. SUCCESSORS.
All agreements of the Company in this Indenture and the Notes shall bind
its successors. All agreements of the Trustee in this Indenture shall bind its
successor.
SECTION 10.11. SEVERABILITY.
In case any provision in this Indenture or in the Notes shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
SECTION 10.12. COUNTERPART ORIGINALS.
The parties may sign any number of copies of this Indenture. Each signed
copy shall be an original, but all of them together represent the same
agreement.
SECTION 10.13. TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and Headings of the Articles
and Sections of this Indenture have been inserted for convenience of reference
only, are not to be considered a part of this Indenture and shall in no way
modify or restrict any of the terms or provisions hereof.
[Signatures on following page]
57
<PAGE>
SIGNATURES
ADVANCED RADIO TELECOM CORP.
By:
-----------------------------
Name:
Title:
THE BANK OF NEW YORK,
as Trustee
By:
-----------------------------
Name:
Title:
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<PAGE>
EXHIBIT A
(Face of Note)
THE NOTES EVIDENCED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED IN UNITS WITH
WARRANTS OF THE COMPANY. EACH UNIT CONSISTS OF $1,000 PRINCIPAL AMOUNT OF THE
NOTES AND 15 WARRANTS, EACH WARRANT REPRESENTING THE RIGHT TO PURCHASE 1.349
SHARES OF COMMON STOCK. UNTIL THE EARLIEST OF (I) ________, 1997, (II) A CHANGE
IN CONTROL OF THE COMPANY AND (III) SUCH DATE AS THE UNDERWRITERS OF THE UNIT
OFFERING MAY, IN THEIR DISCRETION, DEEM APPROPRIATE, THE NOTES EVIDENCED BY THIS
CERTIFICATE MAY BE TRANSFERRED ONLY IN INTEGRAL MULTIPLES OF $1,000 PRINCIPAL
AMOUNT OF NOTES AND ONLY WITH THE SIMULTANEOUS TRANSFER TO THE TRANSFEREE OF 15
WARRANTS FOR EACH $1,000 PRINCIPAL AMOUNT OF NOTES SO TRANSFERRED.
FOR PURPOSES OF SECTIONS 1272, 1273 AND 1275 OF THE INTERNAL REVENUE CODE OF
1986, AS AMENDED, THIS SECURITY IS BEING ISSUED WITH ORIGINAL ISSUE DISCOUNT;
FOR EACH $1,000 PRINCIPAL AMOUNT OF THIS SECURITY, THE ISSUE PRICE IS $______,
THE AMOUNT OF ORIGINAL ISSUE DISCOUNT IS $________, THE ISSUE DATE IS ________,
1997 AND THE YIELD TO MATURITY IS ____% PER ANNUM.
__% Senior Note due 2007
No. _______ $__________
CUSIP NO. 00754U AA 9
Advanced Radio Telecom Corp.
promises to pay to
_______________________________
or its registered assigns
the principal sum of _________________________
Dollars on _______, 2007.
Interest Payment Dates: __________ and ________, commencing __________, 1997.
Record Dates: __________ and _________ (whether or not a Business Day).
ADVANCED RADIO TELECOM CORP.
By:
-------------------------------------
Name:
Title:
(SEAL)
Attest:
<PAGE>
By:
-------------------------------------
Name:
Title:
Dated: __________, 1997
This is one of the Notes
referred to in the within-
mentioned Indenture:
THE BANK OF NEW YORK,
as Trustee
By:
--------------------------
Authorized Signatory
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<PAGE>
(Back of Note)
__% Senior Note due 2007
Capitalized terms used herein have the meanings assigned to them in the
Indenture (as defined below) unless otherwise indicated.
1. INTEREST. Advanced Radio Telecom Corp., a Delaware corporation (the
"COMPANY"), promises to pay interest on the principal amount of this Note at the
rate and in the manner specified below. Cash interest on the Notes shall 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 shall 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 shall 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 shall accrue at the rate
of interest borne by the Notes.
2. METHOD OF PAYMENT. The Company shall pay interest on the Notes (except
defaulted interest) to the Persons who are registered Holders of Notes at the
close of business on the record date next preceding the Interest Payment Date,
even if such Notes are cancelled after such record date and on or before such
Interest Payment Date. The Holder hereof shall surrender this Note to a Paying
Agent to collect principal payments. The Company shall pay principal and
interest in money of the United States that at the time of payment is legal
tender for payment of public and private debts. Principal of, premium, if any,
and interest on the Notes shall be payable, and the Notes shall be exchangeable
and transferable, at the office or agency of the Company in The City of New York
maintained for such purposes (which initially shall 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 shall be issued only in fully registered form without coupons and only
in denominations of $1,000 and any integral multiple thereof. No service charge
shall be made for any registration of transfer, exchange or redemption of Notes,
but the Company may require payment in certain circumstances of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
therewith. Unless otherwise designated by the Company, the Company's office or
agency shall be the office of the Trustee maintained for such purpose.
3. PAYING AGENT AND REGISTRAR. Initially, the Trustee shall act as Paying
Agent and Registrar. The Company may change any Paying Agent, Registrar or
co-registrar without prior notice to any Holder of a Note. The Company may act
in any such capacity.
4. INDENTURE. The Company issued the Notes under an Indenture, dated as
of February ____, 1997 (the "INDENTURE"), between the Company and the Trustee.
The terms of the Notes include those stated in the Indenture and those made part
of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15
U.S. Code Sections 77aaa-77bbbb), as in effect on the date of the Indenture.
The Notes are subject to all such terms, and Holders of Notes are referred to
the Indenture and such act for a statement of such terms. The terms of the
Indenture shall govern any inconsistencies between the Indenture and the Notes.
The Notes are obligations of the Company limited to the sum of $135,000,000 in
aggregate face amount of Notes to be issued on the Issue Date.
5. SECURITY. The Company shall enter into the Pledge Agreement and use a
portion of the net proceeds of the sale of the Notes to purchase the Pledged
Securities to be pledged to the Collateral Agent
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for its benefit and the ratable benefit of the Holders of the Notes in an amount
sufficient upon receipt of scheduled interest and principal payments thereon, in
the opinion of 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 when and as due. The Pledged
Securities shall be pledged by the Company to the Collateral Agent for its
benefit and the ratable benefit of the Holders of the Notes and shall be held by
the Collateral Agent in the Pledge Account pending disbursement pursuant to the
Pledge Agreement.
6. OPTIONAL REDEMPTION. The Notes shall 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
(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:
REDEMPTION
YEAR PRICE
---- -----
2002................................ %
2003................................ %
2004................................ %
2005 and thereafter................100.000%
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 of 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 shall 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.
7. MANDATORY REDEMPTION. The Company is not required to make mandatory
sinking fund payments with respect to the Notes. However, (i) upon the
occurrence of a Change in Control, the Company is obligated to make an offer to
purchase all outstanding Notes at a price of 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. Holders of Notes that are the subject of an Offer to Purchase
shall receive an Offer to Purchase from the Company prior to any related
purchase date and may elect to have such Notes purchased by completing the form
entitled "Option of Holder to Elect Purchase" appearing below.
8. NOTICE OF REDEMPTION. Notice of redemption shall be mailed at least 45
days but not more than 60 days before the redemption date to each Holder whose
Notes are to be redeemed at its registered address. Notes may be redeemed in
part but only in whole multiples of $1,000, unless all of the Notes held by a
Holder of Notes are to be redeemed. On and after the redemption date, interest
ceases to accrue on Notes or portions of them called for redemption.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form
without coupons in denominations of $1,000 and integral multiples of $1,000.
The transfer of Notes may be registered and
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<PAGE>
Notes may be exchanged as provided in the Indenture. The Registrar and the
Trustee may require a Holder of a Note, among other things, to furnish
appropriate endorsements and transfer documents and to pay any taxes and fees
required by law or permitted by the Indenture. Neither the Company nor the
Registrar need exchange or register the transfer of any Note or portion of a
Note selected for redemption. Also, neither the Company nor the Registrar need
exchange or register the transfer of any Notes for a period of 15 days before a
selection of Notes to be redeemed.
10. PERSONS DEEMED OWNERS. Prior to due presentment to the Trustee for
registration of the transfer of this Note, the Trustee, any Agent and the
Company may deem and treat the Person in whose name this Note is registered as
its absolute owner for the purpose of receiving payment of principal of,
premium, if any, and interest on this Note and for all other purposes
whatsoever, whether or not this Note is overdue, and neither the Trustee, any
Agent nor the Company shall be affected by notice to the contrary. The
registered Holder of a Note shall be treated as its owner for all purposes.
11. AMENDMENTS, SUPPLEMENTS AND WAIVERS. Subject to certain exceptions,
the Indenture, the Pledge Agreement or the Notes may be amended or supplemented
with the consent of the Holders of at least a majority in principal amount of
the then outstanding Notes, and any existing default or compliance with any
provision of the Indenture, the Pledge Agreement or the Notes may be waived with
the consent of the Holders of a majority in principal amount of the then
outstanding Notes. Without the consent of any Holder of a Note, the Indenture,
the Pledge Agreement or the Notes may be amended or supplemented to cure any
ambiguity, defect or inconsistency, to provide for uncertificated Notes in
addition to or in place of certificated Notes, to provide for the assumption of
the Company's obligations to Holders of the Notes in case of a merger or
consolidation in accordance with Section 5.01 of the Indenture, to make any
change that would provide any additional rights or benefits to the Holders of
the Notes or that does not adversely affect the legal rights under the Indenture
of any such Holder, or to comply with the requirements of the Commission in
order to effect or maintain the qualification of the Indenture under the Trust
Indenture Act. However, without the consent of each Holder affected, an
amendment or waiver may not (with respect to any Notes held by a non-consenting
Holder of Notes): reduce the percentage in principal amount outstanding of Notes
whose Holders shall consent to an amendment, supplement or waiver or consent to
take any action under the Indenture or the Notes; reduce the principal or extend
the fixed maturity of any Note or alter the provisions with respect to the
redemption of the Notes (other than Section 4.11 or Section 4.15 of the
Indenture); reduce the rate of or change the time for payment of interest on any
Notes; waive a Default or Event of Default in the payment of principal of or
premium, if any, or interest on the Notes (except a rescission of acceleration
of the Notes by the holders of at least a majority in aggregate principal amount
of the Notes and a waiver of the payment default that resulted from such
acceleration); make any Note, or any premium or accrued interest thereon,
payable in money other than that stated in the Notes; make any change in the
provisions of this Indenture relating to waivers of past Defaults or the rights
of holders of Notes to receive payments of principal of, premium, if any, or
interest on the Notes; waive a redemption payment with respect to any Note
(other than a payment required by Section 4.11 or Section 4.15 of the
Indenture); make any change in the foregoing amendment and waiver provisions;
impair the right to institute suit for the enforcement of any payment on or with
respect to the Notes; adversely affect the ranking of the Notes in a manner
adverse to the holders of the Notes; or release any Collateral from the Lien
created by the Pledge Agreement, except in accordance with the terms thereof.
In addition, without the consent of the holders of at least 662/3% in principal
amount of the then outstanding Notes (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, Section 4.11 or Section 4.15 thereof.
12. DEFAULTS AND REMEDIES. The following events are "Events of Default"
under the Indenture: (i) default in the payment of interest on the Notes when it
becomes due and payable as to any interest
A-5
<PAGE>
payment date on or prior to ____________, 2000, and continuance of such default
for a period of five (5) days or more; or default in the payment of interest on
the Notes when it becomes due and payable as to any interest payment date after
____________, 2000, and continuance of such default for a period of thirty (30)
days or more; (ii) default in the payment of principal of, or premium, if any,
on the Notes when due; (iii) default in the performance, or breach, of any
covenant described under Sections 4.07, 4.09, 4.11, 4.15, and 4.18(a) and
Article 5 of the Indenture; (iv) default in the performance, or breach, of any
covenant in the Indenture (other than defaults specified in clause (i), (ii) or
(iii) above), and the continuance of such default or breach for a period of 30
days or more after written notice to the Company by the Trustee or to the
Company and the Trustee by the holders of at least 25% in aggregate principal
amount of the then outstanding Notes (in each case, when such notice is deemed
received in accordance with the Indenture); (v) default under any mortgage,
indenture or instrument under which there may be issued or by which there may be
secured or evidenced any Indebtedness for money borrowed by the Company or any
of its Restricted Subsidiaries (or the payment of which is Guaranteed by the
Company or any of its Restricted Subsidiaries) whether such Indebtedness or
Guarantee now exists, or is created after the Issue Date, which default (A) is
caused by a failure to pay principal of or premium, if any, or interest on such
Indebtedness prior to the expiration of the grace period provided in such
Indebtedness on the date of such default (a "PAYMENT DEFAULT") or (B) results in
the acceleration of such Indebtedness prior to its express maturity and, in each
case, the principal amount of any such Indebtedness, together with the principal
amount of any other such Indebtedness under which there has been a Payment
Default, or the maturity of which has been so accelerated, aggregates $5.0
million or more; (vi) any final judgment or order (not covered by insurance) for
the payment of money in excess of $5.0 million in the aggregate for all such
final judgments or orders against all such Persons (treating any deductibles,
self-insurance or retention as not so covered) shall be rendered against the
Company or any Significant Subsidiary and shall not be paid or discharged, and
there shall be any period of 60 consecutive days following entry of the final
judgment or order that causes the aggregate amount for all such final judgments
or orders outstanding and not paid or discharged against all such Persons to
exceed $5.0 million during which a stay of enforcement of such final judgment or
order, by reason of a pending appeal or otherwise, shall not be in effect; or
(vii) certain events of bankruptcy or insolvency with respect to the Company or
any Significant Subsidiary. If any Event of Default (other than an Event of
Default specified in clause (vii) 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 then
outstanding Notes shall, declare the principal of, and any accrued and unpaid
interest on, all outstanding Notes to be immediately due and payable and upon
any such declaration such amounts shall become immediately due and payable. If
an Event of Default specified in clause (vii) 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. Holders of the Notes may not enforce the
Indenture or the Notes except as provided in the Indenture. Subject to certain
limitations, Holders of a majority in principal amount of the then outstanding
Notes may direct the Trustee in its exercise of any trust or power. The Trustee
may withhold from Holders of the Notes notice of any continuing Default or Event
of Default (except a Default or Event of Default relating to the payment of
principal or interest) if it determines that withholding notice is in their
interest. The Holders of a majority in aggregate principal amount of the then
outstanding Notes, by notice to the Trustee, may on behalf of the Holders of all
of the Notes waive any existing Default or Event of Default and its consequences
under the Indenture except a continuing Default or Event of Default in the
payment of interest or premium on, or the principal of, the Notes. The Company
is required to deliver to the Trustee annually a statement regarding compliance
with the Indenture, and the Company is required upon becoming aware of any
Default or Event of Default, to deliver to the Trustee a statement specifying
such Default or Event of Default.
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<PAGE>
13. TRUSTEE DEALINGS WITH COMPANY. The Trustee under the Indenture, in
its individual or any other capacity, may make loans to, accept deposits from,
and perform services for the Company or its Affiliates, and may otherwise deal
with the Company or its Affiliates, as if it were not Trustee; however, if the
Trustee acquires any conflicting interest, it shall eliminate such conflict
within 90 days or resign.
14. NO PERSONAL LIABILITIES OF DIRECTORS, OFFICERS, EMPLOYEES AND
STOCKHOLDERS. No director, officer, employee, incorporator or stockholder of
the Company, as such, shall have any liability for any obligations of the
Company under the Notes or the Indenture or for any claim based on, in respect
of, or by reason of, such obligations or their creation. Each Holder of the
Notes by accepting a Note waives and releases all such liability. The waiver
and release are part of the consideration for issuance of the Notes.
15. AUTHENTICATION. This Note shall not be valid until authenticated by
the manual signature of the Trustee or an authenticating agent.
16. GOVERNING LAW. The internal laws of the State of New York shall
govern and be used to construe the Indenture and the Notes.
17. ABBREVIATIONS. Customary abbreviations may be used in the name of a
Holder of a Note or an assignee, such as: TEN COM (= tenants in common), TEN
ENT (= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (=
Uniform Gifts to Minors Act).
18. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes and has directed the Trustee to use
CUSIP numbers in notices of redemption as a convenience to Holders of Notes. No
representation is made as to the accuracy of such numbers either as printed on
the Notes or as contained in any notice of redemption and reliance may be placed
only on the other identification numbers placed thereon.
The Company shall furnish to any Holder of a Note upon written request and
without charge a copy of the Indenture. Request may be made to:
Advanced Radio Telecom Corp.
500 108th Avenue, N.E., Suite 2600
Bellevue, Washington 98004
Attention: Chief Financial Officer
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<PAGE>
ASSIGNMENT FORM
To assign this Note, fill in the form below: (I) or (we) assign and
transfer this Note to
_______________________________________________________________________________
(Insert assignee's soc. sec. or tax I.D. no.)
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint ___________________________________________________
agent to transfer this Note on the books of the Company. The agent may
substitute another to act for him.
_______________________________________________________________________________
Date: ______________
Your Signature: _____________________________________
(Sign exactly as your name appears on the face of this
Note)
Signature Guarantee.
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<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have all or any part of this Note purchased by the
Company pursuant to Section 4.11 or Section 4.15 of the Indenture check the
appropriate box:
/ / Section 4.11 / / Section 4.15
If you want to have only part of the Note purchased by the Company pursuant
to Section 4.11 or Section 4.15 of the Indenture, state the amount you elect to
have purchased:
$ _______________
Date:____________
Your Signature:_____________________________
(Sign exactly as your name appears on the face of this
Note)
Signature Guarantee.
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<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ADVANCED RADIO TELECOM CORP.
135,000 Units Consisting of
$135,000,000 Aggregate Principal Amount of
___% Senior Notes due 2007 and Warrants
to Purchase 2,731,725 Shares of Common Stock
COLLATERAL PLEDGE AND SECURITY AGREEMENT
Dated as of February ___, 1997
THE BANK OF NEW YORK
Trustee
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THIS COLLATERAL PLEDGE AND SECURITY AGREEMENT (this "Pledge Agreement") is
made and entered into as of February ___, 1997 by Advanced Radio Telecom Corp.,
a Delaware corporation (the "Pledgor"), having its principal office at 500 108th
Avenue, N.E., Suite 2600, Bellevue, Washington 98004, in favor of The Bank of
New York, a New York banking corporation, having an office at 101 Barclay
Street, 21st Floor, New York 10286, as collateral agent (the "Collateral Agent")
for the holders (the "Holders") of the Senior Notes (as defined herein) of the
Pledgor.
WHEREAS, the Pledgor and The Bank of New York, as trustee, have entered
into that certain indenture dated as of February ___, 1997 (as amended,
restated, supplemented or otherwise modified from time to time, the
"Indenture"), pursuant to which the Pledgor is issuing on the date hereof up to
$135,000,000 in aggregate principal amount of ___% Senior Notes due 2007 (the
"Senior Notes") in connection with an offering (the "Offering") of 135,000
Units, each Unit consisting of $1,000 principal amount of Senior Notes and 15
Warrants, each Warrant representing the right to purchase 1.349 shares of Common
Stock of the Pledgor. Capitalized terms used herein and not otherwise defined
herein shall have the meanings given to such terms in the Indenture; and
WHEREAS, pursuant to the Indenture, the Pledgor agreed to: (i) purchase
Government Securities with a portion of the net proceeds from the Offering to be
deposited in the Pledge Account (as defined) (such Government Securities,
together with any substitute securities, the "Pledged Securities") in an amount
sufficient upon receipt of scheduled interest and principal payments thereon, in
the opinion of a nationally recognized firm of independent public accountants
selected by the Pledgor, to provide for payment in full of the first six
scheduled interest payments on the Senior Notes when and as due (the "Subject
Interest Payments") and (ii) place such Pledged Securities in an account
established in the name of the Collateral Agent for the deposit of the Pledged
Securities and held by the Collateral Agent for the benefit of Holders of the
Senior Notes (the "Pledge Account"); and
WHEREAS, the Pledgor is the legal and beneficial owner of the Pledged
Securities; and
WHEREAS, to secure its existing and future, absolute and contingent
obligations hereunder and under the Indenture and the Senior Notes (the
"Obligations"), the Pledgor has agreed to: (i) pledge to the Collateral Agent,
for its benefit and the ratable benefit of the Holders of Senior Notes, and
grant to the Collateral Agent, for its benefit and the ratable benefit of the
Holders of Senior Notes, a first priority perfected security interest in, the
Pledged Securities and the Pledge Account, and (ii) execute and deliver this
Pledge Agreement in order to secure the due and punctual payment and performance
by the Pledgor of the Obligations;
NOW, THEREFORE, in order to induce the Holders of Senior Notes to purchase
the Senior Notes, and for good and valuable consideration, the receipt of which
is hereby acknowledged, the Pledgor hereby agrees with the Collateral Agent, for
its benefit and for the ratable benefit of the Holders of Senior Notes, as
follows:
SECTION 1. PLEDGE AND GRANT OF SECURITY INTEREST. The Pledgor hereby
pledges to the Collateral Agent for its benefit and for the ratable benefit of
the Holders of Senior Notes, and grants to the Collateral Agent, for its benefit
and for the ratable benefit of the Holders of Senior Notes, a continuing first
priority perfected security interest in and to (a) all of Pledgor's now owned
and existing and hereafter arising or acquired right, title and interest in and
to the Pledged Securities and the Pledge Account, (b) the certificates or other
evidences of ownership representing any Pledged Securities or the Pledge Account
and (c) all proceeds of any of the Pledged Securities,
<PAGE>
including, without limitation, all dividends, interest, principal payments,
cash, options, warrants, rights, instruments, investment property, subscriptions
and other property or proceeds from time to time received, receivable or
otherwise distributed or distributable in respect of or in exchange for any or
all of the Pledged Securities (collectively, for so long as held pursuant to the
Pledge Agreement, the "Collateral").
SECTION 2. SECURITY FOR OBLIGATIONS. This Pledge Agreement secures the
prompt and complete payment and performance when due (whether at stated
maturity, by acceleration or otherwise) of all Obligations.
SECTION 3. DELIVERY OF COLLATERAL; PLEDGE ACCOUNT; INTEREST;
SUBSTITUTION OF COLLATERAL.
(a) All certificates or instruments representing or evidencing any of the
Collateral shall be delivered to and held by or on behalf of the Collateral
Agent pursuant hereto and shall be in suitable form for transfer by delivery, or
shall be accompanied by duly executed instruments of transfer or assignment in
blank, all in form and substance satisfactory to the Collateral Agent.
(b) Concurrently with the execution and delivery hereof, the Collateral
Agent shall establish the Pledge Account at its office at 101 Barclay Street,
21st Floor, New York, New York 10286. Subject to the other terms and
conditions of this Pledge Agreement, all funds or other property accepted by the
Collateral Agent pursuant to this Pledge Agreement shall be held in the Pledge
Account for the benefit of the Collateral Agent and the ratable benefit of the
Holders of Senior Notes.
(c) All interest earned on any Collateral shall be retained in the Pledge
Account (or reinvested, as the case may be), pending disbursement pursuant to
the terms hereof.
(d) At any time, the Pledgor may substitute Temporary Cash Investments of
the types described in clauses (i) through (v) in the definition thereof in the
Indenture for any or all of the Government Securities originally pledged as
Collateral ("Substitute Investments"); PROVIDED, HOWEVER, that (A) any
Substitute Investments must have scheduled principal and interest payments
which, together with the remaining scheduled interest and principal payments on
the remaining Collateral for which no substitution is made and proceeds of
Collateral in the form of cash and Temporary Cash Investments, in the opinion of
a nationally recognized firm of independent public accountants selected by the
Pledgor, will be sufficient to provide for payment in full of each of the
Subject Interest Payments when and as due, and (B) (other than Government
Securities so substituted) the aggregate scheduled principal and interest
payable on the Substitute Investments, in the opinion of a nationally recognized
firm of independent public accountants selected by the Pledgor, must be at least
equal to 125.0% of the amount of that portion of the Subject Interest Payments
to be funded by such Substitute Investments pursuant to (A) above. Concurrently
with such substitution, the Pledgor will deliver to the Collateral Agent a
certificate signed by the Chairman, President, Chief Financial Officer or
Treasurer of the Pledgor, (each, an "Executive Officer") certifying that (i) the
conditions for effecting such substitution have been satisfied and (ii) the
representations and warranties set forth in Sections 5(a) through (g) hereof are
true and correct with respect to the Substitute Investments.
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(e) Pending disbursement of funds from the Pledge Account as contemplated
hereby, (i) the Collateral Agent will, upon a written direction (such direction
to specify the particular investment) of the Pledgor, reinvest any interest
payments received in respect of the Pledged Securities in Temporary Cash
Investments, PROVIDED that any monies so reinvested and the securities acquired
thereby must be: (A) held as Collateral in the Pledge Account, (B) subject to
the security interest created hereby, and (C) otherwise subject to the terms
hereof, and (ii) the Collateral Agent will do all things necessary to obtain and
maintain a perfected security interest in the Collateral for the benefit of the
Collateral Agent and the ratable benefit of the Holders of Senior Notes.
SECTION 4. DISBURSEMENTS.
Unless the Pledgor notifies the Collateral Agent below that it intends to
take the action provided in Section 4(b), the Collateral Agent is authorized and
directed to transfer from the Pledge Account to the Payment Agent the following
amounts on the following dates and shall take any action necessary to make such
payments from the proceeds of the Pledged Securities:
Date Amount
---- ------
[One business day before [Amount of Subject Interest Payment]
Subject Interest Payment]
(b) If the Pledgor elects to make any Subject Interest Payment or portion
thereof from a source of funds other than the Collateral (such other funds,
"Pledgor Funds"), the Pledgor shall so notify the Collateral Agent at least five
(5) business days prior to the date of the Subject Interest Payment, and the
Pledgor may, after payment in full of such interest payment, request the
Collateral Agent in writing to release to the Pledgor an amount of funds from
the Pledge Account not in excess of the amount of Pledgor Funds so expended.
Upon receipt of a written request from the Pledgor and any other documentation
reasonably satisfactory to the Collateral Agent to substantiate such use of
Pledgor Funds by the Pledgor (including the certificate described in the
following sentence), the Collateral Agent is hereby authorized and directed, and
hereby agrees, to take any action necessary to enable it to pay over to the
Pledgor the requested amount. Concurrently with any release of funds to the
Pledgor pursuant to this subparagraph (b), the Pledgor will deliver to the
Collateral Agent a certificate signed by an Executive Officer certifying (i) the
amount of Pledgor Funds expended to make such Subject Interest Payment or
portion thereof, (ii) that such use of Pledgor Funds has been duly authorized by
all necessary corporate action, and does not contravene, or constitute a default
under, any provision of applicable law or regulation or of the certificate of
incorporation of the Pledgor or of any agreement, judgment, injunction, order,
decree or other instrument binding upon the Pledgor or result in the creation or
imposition of any Lien on any assets of the Pledgor, and (iii) no Default or
Event of Default exists and is continuing as of the date of such certificate.
(c) At any time the Pledgor may request the Collateral Agent in writing
to, and the Collateral Agent shall, return to the Pledgor any Collateral in
excess of the Collateral required such
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that the remaining principal and interest payments on the Collateral not
returned to the Pledgor ("Remaining Collateral"), together with any other
proceeds of Collateral in the form of cash and Temporary Cash Investments, in
the opinion of a nationally recognized firm of independent public accounts
selected by the Pledgor, are sufficient to provide for payment in full of the
Subject Interest Payments when and as due, PROVIDED that the aggregate remaining
scheduled principal and interest payable on any Remaining Collateral which were
Substitute Investments (other than the Government Securities), in the opinion of
a nationally recognized firm of independent public accountants selected by the
Pledgor, equals or exceeds 125.0% of the amount of that portion of the Subject
Interest Payments to be funded by such Substitute Investments in the foregoing
calculation. The Pledgor shall provide the Collateral Agent with a certificate
of an Executive Officer specifying the Collateral to be released and certifying
satisfaction with the foregoing condition.
(d) If the Pledgor proposes to effect a Legal Defeasance or a Covenant
Defeasance, upon notice from the Pledgor, the Collateral Agent shall deposit the
Collateral with the Trustee on behalf of the Pledgor pursuant to Section 8.04 of
the Indenture. Such notice shall be accompanied by a certificate of an
Executive Officer of the Pledgor certifying that the Pledgor is effecting a
Legal Defeasance or a Covenant Defeasance and that upon deposit of the
Collateral with the Trustee shall have satisfied all conditions thereto provided
in Section 8.04 of the Indenture.
(e) Upon payment in full of the Subject Interest Payments, PROVIDED that
the Obligations have not previously been declared to be due and payable pursuant
to the Indenture, the security interest in the Collateral evidenced by this
Pledge Agreement will terminate and be of no further force and effect.
Furthermore, upon the release of any Collateral from the Pledge Account in
accordance with the terms of this Pledge Agreement, whether upon release of
Collateral to the Paying Agent in full or partial payment of any Subject
Interest Payment, to the Pledgor, to the Trustee pursuant to Section 4(d) hereof
or otherwise, the security interest evidenced by this Pledge Agreement in the
Collateral so released will terminate and be of no further force and effect.
SECTION 5. REPRESENTATIONS AND WARRANTIES. The Pledgor hereby
represents and warrants that:
(a) The execution, delivery and performance by the Pledgor of this Pledge
Agreement are within the Pledgor's corporate powers, have been duly authorized
by all necessary corporate action, and do not contravene, or constitute a
default under, any provision of applicable law or regulation or of the
certificate of incorporation of the Pledgor or of any agreement, judgment,
injunction, order, decree or other instrument binding upon the Pledgor or result
in the creation or imposition of any Lien on any assets of the Pledgor, except
for the security interests granted under this Pledge Agreement.
(b) The Pledgor is the beneficial owner of the Pledged Securities, and
will be the beneficial owner of any Substitute Investments, free and clear of
any Lien or claims of any person or entity (except for the security interests
granted under this Pledge Agreement). No financing statement covering the
Pledged Securities is on file in any public office other than the financing
statements filed pursuant to this Pledge Agreement.
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(c) This Pledge Agreement has been duly executed and delivered by the
Pledgor and constitutes a valid and binding obligation of the Pledgor,
enforceable against the Pledgor in accordance with its terms, except as such
enforceability may be limited by the effect of any applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
creditors' rights generally or general principles of equity and commercial
reasonableness.
(d) Upon (i) the delivery to the Collateral Agent of any certificates
representing the Pledged Securities, (ii) the crediting any uncertificated
Pledged Securities to the Pledge Account and (iii) the filing of any financing
statements that may be required by or desirable under the Uniform Commercial
Code (the "UCC") with respect to any of the Collateral, the pledge of the
Collateral pursuant to this Pledge Agreement will create a valid and first
priority perfected security interest in and to the Collateral, securing the
payment of the Obligations for the benefit of the Collateral Agent and the
ratable benefit of the Holders of Senior Notes.
(e) No consent of any other Person and no consent, authorization,
approval, or other action by, and no notice to or filing with, any governmental
authority or regulatory body is required for either (i) the pledge by the
Pledgor of the Collateral pursuant to this Pledge Agreement or for the
execution, delivery or performance of this Pledge Agreement by the Pledgor
(except for any filings necessary to perfect Liens on the Collateral) or (ii)
the exercise by the Collateral Agent of the rights provided for in this Pledge
Agreement or the remedies in respect of the Collateral pursuant to this Pledge
Agreement.
(f) No litigation, proceeding, or, to the knowledge of the Pledgor,
investigation of or before any arbitrator or governmental authority is pending
or, to the knowledge of the Pledgor, threatened by or against the Pledgor with
respect to this Pledge Agreement or any of the transactions contemplated hereby,
except as disclosed in the Offering Memorandum.
(g) The pledge of the Collateral pursuant to this Pledge Agreement is not
prohibited by any applicable law or governmental regulation, release,
interpretation or opinion of the Board of Governors of the Federal Reserve
System or other regulatory agency (including, without limitation, Regulations G,
T, U and X of the Board of Governors of the Federal Reserve System).
SECTION 6. FURTHER ASSURANCE. The Pledgor will, promptly upon request
of the Collateral Agent, execute and deliver or cause to be executed and
delivered, or use its best efforts to procure, all stock or bond powers,
proxies, assignments, instruments and other documents, all in form and substance
satisfactory to the Collateral Agent, deliver any instruments to the Collateral
Agent and take any other actions that are necessary or, in the reasonable
opinion of the Collateral Agent, desirable to perfect, continue the perfection
of, or protect the first priority of the Collateral Agent's security interest in
and to the Collateral, to protect the Collateral against the rights, claims, or
interests of third persons or to effect the purposes of this Pledge Agreement.
The Pledgor also hereby authorizes the Collateral Agent to file any financing or
continuation statements with respect to the Collateral without the signature of
the Pledgor (to the extent permitted by applicable law). The Pledgor will pay
all costs incurred by it in connection with any of the foregoing.
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<PAGE>
SECTION 7. COVENANTS. The Pledgor covenants and agrees with the
Collateral Agent and the Holders of Senior Notes from and after the date of this
Pledge Agreement until the earlier of payment in full in cash of (A) each of the
Subject Interest Payments or (B) all obligations due and owing hereunder, under
the Indenture and under the Senior Notes in the event such obligations become
due and payable prior to the payment of the Subject Interest Payments:
(a) The Pledgor will not (i) sell or otherwise dispose of, or grant any
option or warrant with respect to, any of the Collateral or (ii) create or
permit to exist any Lien upon or with respect to any of the Collateral (except
for the lien created pursuant to this Pledge Agreement) and at all times will be
the sole beneficial owner of the Collateral.
(b) The Pledgor will not (i) enter into any agreement or understanding
that purports to or may restrict or inhibit the Collateral Agent's rights or
remedies hereunder, including, without limitation, the Collateral Agent's right
to sell or otherwise dispose of the Collateral or (ii) fail to pay or discharge
any tax, assessment or levy of any nature not later than five days prior to the
date of any proposed sale under any judgement, writ or warrant of attachment
with regard to the Collateral.
SECTION 8. POWER OF ATTORNEY. In addition to all of the powers granted
to the Collateral Agent pursuant to Article 6 of the Indenture, the Pledgor
hereby appoints and constitutes the Collateral Agent as the Pledgor's
attorney-in-fact to exercise to the fullest extent permitted by law all of the
following powers upon and at any time after the occurrence and during the
continuance of an Event of Default: (a) collection of proceeds of any
Collateral; (b) conveyance of any item of Collateral to any purchaser thereof;
(c) giving of any notices or recording of any Liens under Section 6 hereof;
(d) making of any payments or taking any acts under Section 9 hereof and
(e) paying or discharging taxes or Liens levied or placed upon the Collateral,
the legality or validity thereof and the amounts necessary to discharge the same
to be determined by the Collateral Agent in its sole discretion, and such
payments made by the Collateral Agent to become the Obligations of the Pledgor
to the Collateral Agent, due and payable immediately upon demand. The
Collateral Agent's authority hereunder shall include, without limitation, the
authority to endorse and negotiate any checks or instruments representing
proceeds of Collateral in the name of the Pledgor, execute and give receipt for
any certificate of ownership or any document constituting Collateral, transfer
title to any item of Collateral, sign the Pledgor's name on all financing
statements (to the extent permitted by applicable law) or any other documents
deemed necessary or appropriate by the Collateral Agent to preserve, protect or
perfect the security interest in the Collateral and to file the same, prepare,
file and sign the Pledgor's name on any notice of Lien, and to take any other
actions arising from or incident to the powers granted to the Collateral Agent
in this Pledge Agreement. This power of attorney is coupled with an interest
and is irrevocable by the Pledgor.
SECTION 9. COLLATERAL AGENT MAY PERFORM. If the Pledgor fails to
perform any agreement contained herein in accordance with the terms hereof, the
Collateral Agent may itself perform, or cause performance of, such agreement,
and the expenses of the Collateral Agent (including those of its agents and
counsel) incurred in connection therewith shall be payable by the Pledgor under
Section 13 hereof.
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SECTION 10. NO ASSUMPTION OF DUTIES; REASONABLE CARE. The rights and
powers granted to the Collateral Agent hereunder are being granted in order to
preserve and protect the Collateral Agent's and the Holders' of Senior Notes
security interest in and to the Collateral granted hereby and shall not be
interpreted to, and shall not, impose any duties on the Collateral Agent in
connection therewith other than those imposed under applicable law. Except as
provided by applicable law, the Collateral Agent shall be deemed to have
exercised reasonable care in the custody and preservation of the Collateral in
its possession if the Collateral is accorded treatment substantially equal to
that which the Collateral Agent accords similar property in similar situations,
it being understood that the Collateral Agent shall not have any responsibility
for (a) ascertaining or taking action with respect to calls, conversions,
exchanges, maturities, tenders or other matters relative to any Collateral,
whether or not the Collateral Agent has or is deemed to have knowledge of such
matters or (b) taking any necessary steps to preserve rights against any parties
with respect to any Collateral. To the extent applicable, the Collateral Agent
acting pursuant to this Pledge Agreement shall be held to the same standards as
those set forth in the Indenture with respect to the Trustee acting as trustee
thereunder.
SECTION 11. INDEMNITY. The Pledgor shall indemnify, hold harmless and
defend the Collateral Agent and its directors, officers, agents and employees,
from and against any and all claims, actions, obligations and liabilities,
including defense costs, investigative fees and costs, legal fees, and claims
for damages, arising from the Collateral Agent's performance under this Pledge
Agreement, except to the extent that such claim, action, obligation or liability
is directly attributable to the bad faith, gross negligence or willful
misconduct of such indemnified person. IT IS THE INTENT OF THE PLEDGOR TO
INDEMNIFY AND HOLD HARMLESS THE COLLATERAL AGENT FOR CLAIMS, ACTIONS,
OBLIGATIONS OR LIABILITIES ARISING FROM THE COLLATERAL AGENT'S PERFORMANCE UNDER
THIS PLEDGE AGREEMENT INCLUDING ITS OWN NEGLIGENCE.
SECTION 12. REMEDIES UPON EVENT OF DEFAULT.
If an Event of Default under the Indenture shall have occurred and be
continuing:
(a) The Collateral Agent and the Holders of Senior Notes shall have, in
addition to all other rights given by law or by this Pledge Agreement or the
Indenture, all of the rights and remedies with respect to the Collateral of a
secured party under the UCC in effect in the State of New York at that time. In
addition, with respect to any Collateral that shall then be in or shall
thereafter come into the possession or custody of the Collateral Agent, the
Collateral Agent may sell or cause the same to be sold at a public or private
sale, in one or more sales or lots, at such price or prices as the Collateral
Agent may deem best, for cash or on credit or for future delivery, without
assumption of any credit risk. The purchaser of any or all Collateral so sold
shall thereafter hold the same absolutely, free from any claim, encumbrance or
right of any kind whatsoever created by or through the Pledgor. Unless any of
the Collateral threatens, in the reasonable judgment of the Collateral Agent, to
decline speedily in value or is or becomes of a type sold on a recognized
market, the Collateral Agent will give the Pledgor reasonable notice of the time
and place of any public sale thereof, or of the time after which any private
sale or other intended disposition is to be made. Any sale of the Collateral
conducted in conformity with
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reasonable commercial practices of banks, insurance companies, commercial
finance companies, or other financial institutions disposing of property similar
to the Collateral shall be deemed to be commercially reasonable. Any
requirements of reasonable notice shall be met if such notice is mailed to the
Pledgor as provided in Section 15(a) herein, at least fifteen (15) days before
the time of the sale or disposition. The Collateral Agent or any Holder of
Senior Notes may, in its own name or in the name of a designee or nominee, buy
any of the Collateral at any public sale and, if permitted by applicable law, at
any private sale. All expenses (including court costs and reasonable attorneys'
fees, expenses and disbursements) of, or incident to, the enforcement of any of
the provisions hereof shall be recoverable from the proceeds of the sale or
other disposition of the Collateral.
(b) The Pledgor further agrees to use its best efforts to do or cause to
be done all such other acts as may be necessary to make such sale or sales of
all or any portion of the Collateral pursuant to this Section 12 valid and
binding and in compliance with any and all other applicable requirements of law.
The Pledgor further agrees that a breach of any of the covenants contained in
this Section 12 will cause irreparable injury to the Collateral Agent and the
Holders of Senior Notes, that the Collateral Agent and the Holders of Senior
Notes have no adequate remedy at law in respect of such breach and, as a
consequence, that each and every covenant contained in this Section 12 shall be
specifically enforceable against the Pledgor, and the Pledgor hereby waives and
agrees not to assert any defenses against an action for specific performance of
such covenants except for a defense that no Event of Default has occurred.
SECTION 13. EXPENSES. The Pledgor will upon demand pay to the
Collateral Agent at the agreed upon times the agreed upon fees for its services
provided hereunder and the amount of any and all reasonable expenses, including,
without limitation, the reasonable fees, expenses and disbursements of its
counsel, experts and agents retained by the Collateral Agent that the Collateral
Agent may incur in connection with (a) the acceptance or administration of this
Pledge Agreement, (b) the custody or preservation of, or the sale of, collection
from, or other realization upon, any of the Collateral, (c) the exercise or
enforcement of any of the rights of the Collateral Agent and the Holders of
Senior Notes hereunder, or (d) the failure by the Pledgor to perform or observe
any of the provisions hereof.
SECTION 14. SECURITY INTEREST ABSOLUTE. All rights of the Collateral
Agent and the Holders of Senior Notes and security interests hereunder, and all
obligations of the Pledgor hereunder, shall be absolute and unconditional
irrespective of:
(a) any lack of validity or enforceability of the Indenture or any other
agreement or instrument relating thereto;
(b) any change in the time, manner or place of payment of, or in any other
term of, all or any of the Obligations, or any other amendment or waiver of or
any consent to any departure from the Indenture;
(c) any exchange, surrender, release or non-perfection of any Liens on any
other collateral for all or any of the Obligations; or
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(d) to the extent permitted by applicable law, any other circumstance
which might otherwise constitute a defense available to, or a discharge of, the
Pledgor in respect of the Obligations or of this Pledge Agreement.
SECTION 15. MISCELLANEOUS PROVISIONS.
(a) NOTICES. Any notice, approval, consent or other communication by the
Pledgor or the Collateral Agent to the other, required or desired to be given
hereunder, is duly given if in writing and delivered in person or mailed by
first class mail (registered or certified, return receipt requested), telecopier
or overnight air courier guaranteeing next day delivery, to the other's address:
If to the Pledgor:
Advanced Radio Telecom Corp.
500 108th Avenue, N.E., Suite 2600
Bellevue, Washington 98004
Telecopier No.: (206) 688-0703
Attention: Chief Financial Officer
If to the Collateral Agent:
The Bank of New York
101 Barclay Street, 21st Floor
New York, New York 10286
Telecopier No.: (212) 815-5915
Attention: Corporate Trust Trustee Administration
The Pledgor or the Collateral Agent, by notice to the other may designate
additional or different addresses for subsequent notices or communications.
All notices and communications (other than those sent to Holders of Senior
Notes) shall be deemed to have been duly given: at the time delivered by hand,
if personally delivered; five Business Days after being deposited in the mail,
postage prepaid, if mailed; when receipt acknowledged, if telecopied; and the
next Business Day after timely delivery to the courier, if sent by overnight air
courier guaranteeing next day delivery.
Any notice or communication to a Holder of a Senior Note shall be mailed by
first class mail or by overnight air courier guaranteeing next day delivery to
its address shown on the register kept by the Registrar.
If a notice or communication is mailed in the manner provided above within
the time prescribed, it is duly given, whether or not the addressee receives it.
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If the Pledgor mails a notice or communication to Holders of Senior Notes,
it shall mail a copy to the Collateral Agent and each Agent at the same time.
(b) NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS. This Pledge Agreement
may not be used to interpret another pledge, security or debt agreement (other
than the Indenture) of the Pledgor or any subsidiary thereof and no such pledge,
security or debt agreement (other than the Indenture) may be used to interpret
this Pledge Agreement.
(c) SEVERABILITY. The provisions of this Pledge Agreement are severable,
and if any clause or provision shall be held invalid, illegal or unenforceable
in whole or in part in any jurisdiction, then such invalidity or
unenforceability shall affect in that jurisdiction only such clause or
provision, or part thereof, and shall not in any manner affect such clause or
provision in any other jurisdiction or any other clause or provision of this
Pledge Agreement in any jurisdiction.
(d) HEADINGS. The headings in this Pledge Agreement have been inserted
for convenience of reference only, are not to be considered a part hereof and
shall in no way modify or restrict any of the terms or provisions hereof.
(e) COUNTERPART ORIGINALS. This Pledge Agreement may be signed in two or
more counterparts, each of which shall be deemed an original, but all of which
shall together constitute one and the same agreement.
(f) BENEFITS OF PLEDGE AGREEMENT. Nothing in this Pledge Agreement,
express or implied, shall give to any person, other than the parties hereto and
their successors hereunder, and the Holders of Senior Notes, any benefit or any
legal or equitable right, remedy or claim under this Pledge Agreement.
(f) AMENDMENTS, WAIVERS AND CONSENTS. Any amendment or waiver of any
provision of this Pledge Agreement and any consent to any departure by the
Pledgor from any provision of this Pledge Agreement shall be effective only if
made or duly given in compliance with all of the terms and provisions of the
Indenture, and neither the Collateral Agent nor any Holder of Senior Notes shall
be deemed, by any act, delay, indulgence, omission or otherwise, to have waived
any right or remedy hereunder or to have acquiesced in any Default or Event of
Default or in any breach of any of the terms and conditions hereof. Failure of
the Collateral Agent or any Holder of Senior Notes to exercise, or delay in
exercising, any right, power or privilege hereunder shall not operate as a
waiver thereof. No single or partial exercise of any right, power or privilege
hereunder shall preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. A waiver by the Collateral Agent or any
Holder of Senior Notes of any right or remedy hereunder on any one occasion
shall not be construed as a bar to any right or remedy that the Collateral Agent
or such Holder of Senior Notes would otherwise have on any future occasion. The
rights and remedies herein provided are cumulative, may be exercised singly or
concurrently and are not exclusive of any rights or remedies provided by law.
(h) INTERPRETATION OF AGREEMENT. All terms not defined herein or in the
Indenture shall have the meaning set forth in the applicable Uniform Commercial
Code, except where the context
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otherwise requires. To the extent a term or provision of this Pledge Agreement
conflicts with the Indenture, the Indenture shall control with respect to the
subject matter of such term or provision. Acceptance of or acquiescence in a
course of performance rendered under this Pledge Agreement shall not be relevant
to determine the meaning of this Pledge Agreement even though the accepting or
acquiescing party had knowledge of the nature of the performance and opportunity
for objection.
(i) CONTINUING SECURITY INTEREST; TERMINATION.
(1) This Pledge Agreement shall create a continuing security interest
in and to the Collateral and shall, unless otherwise provided in the
Indenture or in this Pledge Agreement, remain in full force and effect
until the earlier of payment in full in cash of (A) each of the Subject
Interest Payments or (B) all obligations due and owing under the Indenture
and the Senior Notes in the event such obligations become payable prior to
the payment of the Subject Interest Payments. This Pledge Agreement shall
be binding upon the Pledgor, its successors and assigns, and shall inure,
together with the rights and remedies of the Collateral Agent hereunder, to
the benefit of the Collateral Agent, the Holders of Senior Notes and their
respective successors, transferees and assigns.
(2) Subject to the provisions of Section 15(j) hereof, this Pledge
Agreement shall terminate upon the earlier of payment in full in cash of
(A) each of the Subject Interest Payments or (B) all obligations due and
owing under the Indenture and the Senior Notes in the event such
obligations become payable prior to the payment of the Subject Interest
Payments. At such time, the Collateral Agent shall, at the written request
of the Pledgor, reassign and redeliver to the Pledgor all of the Collateral
hereunder that has not been sold, disposed of, retained or applied by the
Collateral Agent in accordance with the terms of this Pledge Agreement and
the Indenture. Such reassignment and redelivery shall be without warranty
(either express or implied) by or recourse to the Collateral Agent, except
as to the absence of any prior assignments by the Collateral Agent of its
interest in the Collateral, and shall be at the expense of the Pledgor.
(j) SURVIVAL OF PROVISIONS. All representations, warranties and covenants
of the Pledgor contained herein shall survive the execution and delivery of this
Pledge Agreement, and shall terminate only upon the termination of this Pledge
Agreement; PROVIDED, HOWEVER, that the provisions of Sections 11 and 13 shall
survive the termination of this Pledge Agreement.
(k) WAIVERS. The Pledgor waives presentment and demand for payment of any
of the Obligations, protest and notice of dishonor or default with respect to
any of the Obligations, and all other notices to which the Pledgor might
otherwise be entitled, except as otherwise expressly provided herein or in the
Indenture.
(l) AUTHORITY OF THE COLLATERAL AGENT.
(1) The Collateral Agent shall have and be entitled to exercise all
powers hereunder that are specifically granted to the Collateral Agent by
the terms hereof, together with such powers as are reasonably incident
thereto. The Collateral Agent may perform
11
<PAGE>
any of its duties hereunder or in connection with the Collateral by or
through agents or employees and shall be entitled to retain counsel of its
selection and to act in reliance upon the advice of counsel concerning all
such matters. Neither the Collateral Agent, any director, officer,
employee, attorney or agent of the Collateral Agent nor the Holders of
Senior Notes shall be liable to the Pledgor for any action taken or omitted
to be taken by it or them hereunder, except for its or their own bad faith,
gross negligence or willful misconduct, nor shall the Collateral Agent be
responsible for the validity, effectiveness or sufficiency hereof or of any
document or security furnished pursuant hereto. The Collateral Agent and
its directors, officers, employees, attorneys and agents shall be entitled
to rely on any communication, instrument or document reasonably believed by
it or them to be genuine and correct and to have been signed or sent by the
proper person or persons.
(2) The Pledgor acknowledges that the rights and responsibilities of
the Collateral Agent under this Pledge Agreement with respect to any action
taken by the Collateral Agent or the exercise or non-exercise by the
Collateral Agent of any option, right, request, judgment or other right or
remedy provided for herein or resulting or arising out of this Pledge
Agreement shall, as between the Collateral Agent and the Holders of Senior
Notes, be governed by the Indenture and by such other agreements with
respect thereto as may exist from time to time among them, but, as between
the Collateral Agent and the Pledgor, the Collateral Agent shall be
conclusively presumed to be acting as agent for the Holders of Senior Notes
with full and valid authority so to act or refrain from acting, and the
Pledgor shall not be obligated or entitled to make any inquiry respecting
such authority.
(m) LIMITATION BY LAW. All rights, remedies and powers provided herein
may be exercised only to the extent that they will not render this Pledge
Agreement not entitled to be recorded, registered or filed under provisions of
any applicable law.
(n) FINAL EXPRESSION. This Pledge Agreement, together with any other
agreement executed in connection herewith, is intended by the parties as a final
expression of this Pledge Agreement and is intended as a complete and exclusive
statement of the terms and conditions thereof.
(o) RIGHTS OF HOLDERS OF SENIOR NOTES. No Holder of Senior Notes shall
have any independent rights hereunder other than those rights granted to
individual Holders of Senior Notes pursuant to Section 6.07 of the Indenture;
PROVIDED that nothing in this subsection shall limit any rights granted to the
Collateral Agent under the Senior Notes or the Indenture.
(p) GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL;
WAIVER OF DAMAGES.
(1) THIS PLEDGE AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED UNDER
THE LAWS OF THE STATE OF NEW YORK, AND ANY DISPUTE ARISING OUT OF,
CONNECTED WITH, RELATED TO, OR INCIDENTAL
12
<PAGE>
TO THE RELATIONSHIP ESTABLISHED BETWEEN THE PLEDGOR, THE COLLATERAL AGENT
AND THE HOLDERS OF SENIOR NOTES IN CONNECTION WITH THIS PLEDGE AGREEMENT,
AND WHETHER ARISING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE
RESOLVED IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO THE CONFLICTS
OF LAWS PROVISIONS) OF THE STATE OF NEW YORK.
(2) THE PLEDGOR AGREES THAT THE COLLATERAL AGENT SHALL, IN ITS
CAPACITY AS COLLATERAL AGENT OR IN THE NAME AND ON BEHALF OF ANY HOLDER OF
SENIOR NOTES, HAVE THE RIGHT, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TO
PROCEED AGAINST THE PLEDGOR OR ITS PROPERTY IN A COURT IN ANY LOCATION
REASONABLY SELECTED IN GOOD FAITH (AND HAVING PERSONAL OR IN REM
JURISDICTION OVER THE PLEDGOR OR ITS PROPERTY, AS THE CASE MAY BE) TO
ENABLE THE COLLATERAL AGENT TO REALIZE ON SUCH PROPERTY, OR TO ENFORCE A
JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF THE COLLATERAL AGENT.
THE PLEDGOR AGREES THAT IT WILL NOT ASSERT ANY COUNTERCLAIMS, SETOFFS OR
CROSS CLAIMS IN ANY PROCEEDING BROUGHT BY THE COLLATERAL AGENT TO REALIZE
ON SUCH PROPERTY OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF
THE COLLATERAL AGENT, EXCEPT FOR SUCH COUNTERCLAIMS, SETOFFS OR CROSS
CLAIMS WHICH, IF NOT ASSERTED IN ANY SUCH PROCEEDING, COULD NOT OTHERWISE
BE BROUGHT OR ASSERTED. THE PLEDGOR WAIVES ANY OBJECTION THAT IT MAY HAVE
TO THE LOCATION OF THE COURT IN WHICH THE COLLATERAL AGENT HAS COMMENCED A
PROCEEDING DESCRIBED IN THIS PARAGRAPH INCLUDING, WITHOUT LIMITATION, ANY
OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON
CONVENIENS.
(3) THE PLEDGOR AND THE COLLATERAL AGENT EACH WAIVE ANY RIGHT TO HAVE
A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT,
TORT, OR OTHERWISE ARISING OUT OF, CONNECTED WITH, RELATED TO OR INCIDENTAL
TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS PLEDGE
AGREEMENT. INSTEAD, ANY DISPUTES RESOLVED IN COURT WILL BE RESOLVED IN A
BENCH TRIAL WITHOUT A JURY.
(4) THE PLEDGOR AGREES THAT NEITHER THE COLLATERAL AGENT NOR ANY
HOLDER OF SENIOR NOTES SHALL HAVE ANY LIABILITY TO THE PLEDGOR (WHETHER
SOUNDING IN TORT, CONTRACT OR OTHERWISE) FOR LOSSES SUFFERED BY THE PLEDGOR
IN CONNECTION WITH, ARISING OUT OF, OR IN ANY WAY RELATED TO, THE
TRANSACTIONS CONTEMPLATED AND THE RELATIONSHIP ESTABLISHED BY THIS PLEDGE
AGREEMENT, OR ANY ACT, OMISSION OR EVENT OCCURRING IN CONNECTION THEREWITH,
UNLESS IT IS DETERMINED BY A FINAL AND
13
<PAGE>
NONAPPEALABLE JUDGMENT OF A COURT THAT IS BINDING ON THE COLLATERAL AGENT
OR SUCH HOLDER OF SENIOR NOTES, AS THE CASE MAY BE, THAT SUCH LOSSES WERE
THE RESULT OF ACTS OR OMISSIONS ON THE PART OF THE COLLATERAL AGENT OR SUCH
HOLDER OF SENIOR NOTES, AS THE CASE MAY BE, CONSTITUTING BAD FAITH, GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT.
(5) TO THE EXTENT PERMITTED BY APPLICABLE LAW, AND EXCEPT AS
OTHERWISE PROVIDED IN THIS PLEDGE AGREEMENT, THE PLEDGOR WAIVES ALL RIGHTS
OF NOTICE AND HEARING OF ANY KIND PRIOR TO THE EXERCISE BY THE COLLATERAL
AGENT OR ANY HOLDER OF SENIOR NOTES OF ITS RIGHTS DURING THE CONTINUANCE OF
AN EVENT OF DEFAULT TO REPOSSESS THE COLLATERAL WITH JUDICIAL PROCESS OR TO
REPLEVY, ATTACH OR LEVY UPON THE COLLATERAL OR OTHER SECURITY FOR THE
OBLIGATIONS. TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE PLEDGOR WAIVES
THE POSTING OF ANY BOND OTHERWISE REQUIRED OF THE COLLATERAL AGENT OR ANY
HOLDER OF SENIOR NOTES IN CONNECTION WITH ANY JUDICIAL PROCESS OR
PROCEEDING TO OBTAIN POSSESSION OF, REPLEVY, ATTACH OR LEVY UPON THE
COLLATERAL OR OTHER SECURITY FOR THE OBLIGATIONS, TO ENFORCE ANY JUDGMENT
OR OTHER COURT ORDER ENTERED IN FAVOR OF THE COLLATERAL AGENT OR ANY HOLDER
OF SENIOR NOTES, OR TO ENFORCE BY SPECIFIC PERFORMANCE, TEMPORARY
RESTRAINING ORDER OR PRELIMINARY OR PERMANENT INJUNCTION, THIS PLEDGE
AGREEMENT OR ANY OTHER AGREEMENT OR DOCUMENT BETWEEN THE PLEDGOR ON THE ONE
HAND AND THE COLLATERAL AGENT AND/OR THE HOLDERS OF SENIOR NOTES ON THE
OTHER HAND.
[SIGNATURE PAGE FOLLOWS]
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<PAGE>
IN WITNESS WHEREOF, the Pledgor and the Collateral Agent have each caused
this Pledge Agreement to be duly executed and delivered as of the date first
above written.
Pledgor:
ADVANCED RADIO TELECOM CORP.,
a Delaware corporation
By:
-----------------------------------
Name:
Title:
Collateral Agent:
THE BANK OF NEW YORK,
as Collateral Agent
By:
-----------------------------------
Name:
Title:
<PAGE>
Exhibit 4-3(a)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Advanced Radio Telecom Corp.
135,000 Units Consisting of
$135,000,000 Aggregate Principal Amount of
___% Senior Notes due 2007 and Warrants to
Purchase 2,731,725 Shares of Common Stock
WARRANT AGREEMENT
Dated as of February 6, 1997
Continental Stock Transfer and Trust Company
Warrant Agent
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
WARRANT AGREEMENT dated as of February 6, 1997 between Advanced Radio
Telecom Corp., a Delaware corporation (the "Company"), and Continental Stock
Transfer and Trust Company, a New York limited purpose trust company, as warrant
agent (the "Warrant Agent").
WHEREAS, the Company proposes to issue warrants (the "Warrants") to
initially purchase up to an aggregate of 2,731,725 shares of Common Stock, par
value $.001 per share (the "Common Stock"), of the Company (the Common Stock
issuable on exercise of the Warrants being referred to herein as the "Warrant
Shares"), in connection with the offering (the "Offering") by the Company of
135,000 Units (the "Units"), each consisting of $1,000 principal amount of the
Company's ___% Senior Notes due 2007 (the "Notes") and 15 Warrants, each Warrant
representing the right to purchase 1.349 Warrant Shares.
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing so to act, in connection with the
issuance of Warrant Certificates (as defined) and other matters as provided
herein;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, the parties hereto agree as follows:
SECTION 1. Appointment of Warrant Agent. The Company hereby appoints
the Warrant Agent to act as agent for the Company in accordance with the
instructions set forth hereinafter in this Agreement, and the Warrant Agent
hereby accepts such appointment.
SECTION 2. Warrant Certificates. The certificates evidencing the
Warrants (the "Warrant Certificates") to be delivered pursuant to this Agreement
shall be in registered form only and shall be substantially in the form set
forth in Exhibit A attached hereto and shall, prior to the Separation Date (as
defined), bear the legend set forth in Exhibit B attached hereto.
SECTION 3. Execution of Warrant Certificates. (a) Warrant Certificates
shall be signed on behalf of the Company by its Chairman of the Board, Chief
Executive Officer, its President or a Vice President and by its Secretary or an
Assistant Secretary under its corporate seal. Each such signature upon the
Warrant Certificates may be in the form of a facsimile signature of the present
or any future Chairman of the Board, Chief Executive Officer, President, Vice
President, Secretary or Assistant Secretary and may be imprinted or otherwise
reproduced on the Warrant Certificates and for that purpose the Company may
adopt and use the facsimile signature of any person who shall have been Chairman
of the Board, Chief Executive Officer, President, Vice President, Secretary or
Assistant Secretary, notwithstanding the fact that at the time the Warrant
Certificates shall be countersigned and delivered or disposed of he shall have
ceased to hold such office. The seal of the Company may be in the form of a
facsimile thereof and may be impressed, affixed, imprinted or otherwise
reproduced on the Warrant Certificates.
(b) In case any officer of the Company who shall have signed any of the
Warrant Certificates shall cease to be such officer before the Warrant
Certificates so signed shall have been countersigned by the Warrant Agent, or
disposed of by the Company, such Warrant Certificates nevertheless may be
countersigned and delivered or disposed of as though such person had not ceased
to be such officer of the Company; and any Warrant Certificate may be signed on
behalf of the Company by any person who, at the actual date of the execution of
such Warrant Certificate, shall be a proper officer of the Company to sign such
Warrant Certificate, although at the date of the execution of this Warrant
Agreement any such person was not such officer.
<PAGE>
(c) Warrant Certificates shall be dated the date of countersignature by
the Warrant Agent.
SECTION 4. Registration and Countersignature. (a) The Warrant Agent,
on behalf of the Company, shall number and register the Warrant Certificates in
a register as they are issued by the Company.
(b) Warrant Certificates shall be manually countersigned by the Warrant
Agent and shall not be valid for any purpose unless so countersigned. The
Warrant Agent shall, upon written instructions of the Chairman of the Board, the
Chief Executive Officer, the President, a Vice President, the Treasurer or the
Controller of the Company, initially countersign, issue and deliver Warrants
entitling the holders thereof to purchase not more than the number of Warrant
Shares referred to above in the first recital hereof and shall countersign and
deliver Warrants as otherwise provided in this Agreement.
(c) The Company and the Warrant Agent may deem and treat the registered
holder(s) of the Warrant Certificates as the absolute owner(s) thereof
(notwithstanding any notation of ownership or other writing thereon made by
anyone) for all purposes, and neither the Company nor the Warrant Agent shall be
affected by any notice to the contrary.
SECTION 5. Registration of Transfers and Exchanges. (a) The Warrant
Agent shall from time to time, subject to the limitations of Section 6 hereof,
register the transfer of any outstanding Warrant Certificates upon the records
to be maintained by it for that purpose, upon surrender thereof accompanied (if
so required by it) by a written instrument or instruments of transfer in form
satisfactory to the Warrant Agent, duly executed by the registered holder or
holders thereof or by the duly appointed legal representative thereof or by a
duly authorized attorney. Upon any such registration of transfer and subject to
Section 8 hereof, a new Warrant Certificate shall be issued to the transferee(s)
and the surrendered Warrant Certificate shall be cancelled by the Warrant Agent.
Cancelled Warrant Certificates shall thereafter be disposed of in a manner
satisfactory to the Company.
(b) Warrant Certificates may be exchanged at the option of the holder(s)
thereof, when surrendered to the Warrant Agent at its office for another Warrant
Certificate or other Warrant Certificates of like tenor and representing in the
aggregate a like number of Warrants. Warrant Certificates surrendered for
exchange shall be cancelled by the Warrant Agent. Such cancelled Warrant
Certificates shall then be disposed of by such Warrant Agent in a manner
satisfactory to the Company.
(c) The Warrant Agent is hereby authorized to countersign, in accordance
with the provisions of this Section 5 and of Section 4 hereof, the new Warrant
Certificates required pursuant to the provisions of this Section 5.
(d) No service charge shall 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
2
<PAGE>
governmental charge that may be imposed in connection with any registration,
transfer or exchange of Warrant Certificates.
SECTION 6. Separation of Warrants; Terms of Warrants; Exercise of
Warrants.(a) The Notes and Warrants will not be separately transferable prior
to the close of business of the earlier of (i) ____________, 1997, (ii) a
Change in Control (as defined in the indenture relating to the Notes) of the
Company and (iii) such date as the underwriters in the Offering may, in their
discretion, deem appropriate (the "Separation Date"), at which time such
Warrants shall become separately transferable. Subject to the terms of this
Agreement, each Warrant holder shall have the right, which may be exercised
during the period commencing at the opening of business on ________, 1997 and
until 5:00 p.m., New York City time on _______, 2007 (the "Exercise Period"),
to receive from the Company the number of fully paid and nonassessable
Warrant Shares which the holder may at the time be entitled to receive on
exercise of such Warrants and payment of the exercise price (the "Exercise
Price") then in effect for such Warrant Shares; provided that holders shall
be able to exercise their Warrants only if a registration statement relating
to the Warrant Shares is then if effect, or the exercise of such Warrants is
exempt from the registration requirements of the Securities Act of 1933, as
amended (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. Each holder may exercise its right, during the Exercise Period, to
receive Warrant Shares on a net basis, such that, without the exchange of any
funds, the holder receives that number of Warrant Shares otherwise issuable
(or payable) upon exercise of its Warrants less that number of Warrant Shares
having an aggregate fair market value (as defined) at the time of exercise
equal to the aggregate Exercise Price that would otherwise have been paid by
the holder of the Warrant Shares. For purposes of the foregoing sentence,
"fair market value" of the Warrant Shares will be determined in good faith by
the Board of Directors of the Company as of the date of any such exercise.
Each Warrant not exercised prior to 5:00 p.m., New York City time, on
_______, 2007 (the "Expiration Date") shall become void and all rights
thereunder and all rights in respect thereof under this agreement shall cease
as of such time. No adjustments as to dividends will be made upon exercise
of the Warrants.
(b) A Warrant may be exercised upon surrender to the Company at the
principal office of the Warrant Agent of the certificate or certificates
evidencing the Warrants to be exercised with the form of election to purchase on
the reverse thereof duly filled in and signed, which signature shall be
medallion guaranteed by an institution which is a member of a Securities
Transfer Association recognized signature guarantee program, and upon payment to
the Warrant Agent for the account of the Company of the Exercise Price, which is
set forth in the form of Warrant Certificate attached hereto as Exhibit A, as
adjusted as herein provided, for the number of Warrant Shares in respect of
which such Warrants are then exercised. Payment of the aggregate Exercise Price
shall be made (i) in cash or by certified or official bank check payable to the
order of the Company or (ii) in the manner provided in Section 6(a) hereof.
(c) Subject to the provisions of Section 7 hereof, upon such surrender of
Warrants and payment of the Exercise Price, the Warrant Agent shall deliver or
cause to be delivered with all reasonable dispatch, to or upon the written order
of the holder and in such name or names as the
3
<PAGE>
Warrant holder may designate, a certificate or certificates for the number of
whole Warrant Shares issuable upon the exercise of such Warrants or other
securities or property to which such holder is entitled hereunder, together
with cash as provided in Section 12 hereof; provided that if any consolidation,
merger or lease or sale of assets is proposed to be effected by the Company as
described in Section 11(m) hereof, or a tender offer or an exchange offer for
shares of Common Stock of the Company shall be made, upon such surrender of
Warrants and payment of the Exercise Price as aforesaid, the Warrant Agent
shall, as soon as possible, but in any event not later than two business
days thereafter, deliver or cause to be delivered the full number of Warrant
Shares issuable upon the exercise of such Warrants in the manner described in
this sentence or other securities or property to which such holder is entitled
hereunder, together with cash as provided in Section 12 hereof. Such
certificate or certificates shall be deemed to have been issued and any person
so designated to be named therein shall be deemed to have become a holder of
record of such Warrant Shares as of the date of the surrender of such
Warrants and payment of the Exercise Price.
(d) The Warrants shall be exercisable, at the election of the holders
thereof, either in full or from time to time in part and, in the event that a
certificate evidencing Warrants is exercised in respect of fewer than all of the
Warrant Shares issuable on such exercise at any time prior to the date of
expiration of the Warrants, a new certificate evidencing the remaining Warrant
or Warrants will be issued, and the Warrant Agent is hereby irrevocably
authorized to countersign and to deliver the required new Warrant Certificate or
Certificates pursuant to the provisions of this Section and of Section 3 hereof,
and the Company, whenever required by the Warrant Agent, will supply the Warrant
Agent with Warrant Certificates duly executed on behalf of the Company for such
purpose.
(e) All Warrant Certificates surrendered upon exercise of Warrants shall
be cancelled by the Warrant Agent. Such cancelled Warrant Certificates shall
then be disposed of by the Warrant Agent in a manner satisfactory to the
Company. The Warrant Agent shall account promptly to the Company with respect to
Warrants exercised and concurrently pay to the Company all monies received by
the Warrant Agent for the purchase of the Warrant Shares through the exercise of
such Warrants.
(f) The Warrant Agent shall keep copies of this Agreement and any notices
given or received hereunder available for inspection by the holders during
normal business hours at its office. The Company shall supply the Warrant Agent
from time to time with such numbers of copies of this Agreement as the Warrant
Agent may request.
SECTION 7. Payment of Taxes. The Company will pay all documentary
stamp taxes attributable to the initial issuance of Warrant Shares upon the
exercise of Warrants; provided that the Company shall not be required to pay any
tax or taxes which may be payable in respect of any transfer involved in the
issue of any Warrant Certificates or any certificates for Warrant Shares in a
name other than that of the registered holder of a Warrant Certificate
surrendered upon the exercise of a Warrant, and the Company shall not be
required to issue or deliver such Warrant Certificates unless or until the
person or persons requesting the issuance thereof shall have paid to
4
<PAGE>
the Company the amount of such tax or shall have established to the satisfaction
of the Company that such tax has been paid.
SECTION 8. Mutilated or Missing Warrant Certificates. In case any of
the Warrant Certificates shall be mutilated, lost, stolen or destroyed, the
Company may in its discretion issue and the Warrant Agent may countersign, in
exchange and substitution for and upon cancellation of the mutilated Warrant
Certificate, or in lieu of and substitution for the Warrant Certificate lost,
stolen or destroyed, a new Warrant Certificate of like tenor and representing an
equivalent number of Warrants, but only upon receipt of evidence satisfactory to
the Company and the Warrant Agent of such loss, theft or destruction of such
Warrant Certificate and indemnity, if requested, also satisfactory to them.
Applicants for such substitute Warrant Certificates shall also comply with such
other reasonable regulations and pay such other reasonable charges as the
Company or the Warrant Agent may prescribe.
SECTION 9. Reservation of Warrant Shares. (a) The Company will at all
times reserve and keep available, free from preemptive rights, out of the
aggregate of its authorized but unissued Common Stock or its authorized and
issued Common Stock held in its treasury, for the purpose of enabling it to
satisfy any obligation to issue Warrant Shares upon exercise of Warrants, the
maximum number of shares of Common Stock which may then be deliverable upon the
exercise of all outstanding Warrants.
(b) The Company or, if appointed, the transfer agent for the Common Stock
(the "Transfer Agent") and every subsequent transfer agent for any shares of the
Company's capital stock issuable upon the exercise of any of the rights of
purchase aforesaid will be irrevocably authorized and directed at all times to
reserve such number of authorized shares as shall be required for such purpose.
The Company will keep a copy of this Agreement on file with the Transfer Agent
and with every subsequent transfer agent for any shares of the Company's capital
stock issuable upon the exercise of the rights of purchase represented by the
Warrants. The Warrant Agent is hereby irrevocably authorized to requisition
from time to time from such Transfer Agent the stock certificates required to
honor outstanding Warrants upon exercise thereof in accordance with the terms of
this Agreement. The Company will supply such Transfer Agent with duly executed
certificates for such purposes and will provide or otherwise make available any
cash which may be payable as provided in Section 12 hereof. The Company will
furnish such Transfer Agent a copy of all notices of adjustments, and
certificates related thereto, transmitted to each holder pursuant to Section 14
hereof.
(c) Before taking any action which would cause an adjustment pursuant to
Section 11 hereof to reduce the Exercise Price below the then par value (if any)
of the Warrant Shares, the Company will take any corporate action which may, in
the opinion of its counsel (which may be counsel employed by the Company), be
necessary in order that the Company may validly and legally issue fully paid and
nonassessable Warrant Shares at the Exercise Price as so adjusted.
(d) The Company covenants that all Warrant Shares which may be issued upon
exercise of Warrants will, upon issue, be fully paid, nonassessable, free of
preemptive rights and free from all taxes, liens, charges and security interests
with respect to the issuance thereof.
5
<PAGE>
SECTION 10. Obtaining Stock Exchange Listings. The Company will from
time to time take all action which may be necessary so that the Warrant Shares,
immediately upon their issuance upon the exercise of Warrants, will be listed on
the principal securities exchanges and markets within the United States of
America, if any, on which other shares of Common Stock are then listed.
SECTION 11. Adjustment of Exercise Price and Number of Warrant Shares
Issuable. The Exercise Price and the number of Warrant Shares issuable upon the
exercise of each Warrant are subject to adjustment from time to time upon the
occurrence of the events enumerated in this Section 11. For purposes of this
Section 11, "Common Stock" means shares now or hereafter authorized of any class
of common stock of the Company and any other stock of the Company, however
designated, that has the right (subject to any prior rights of any class or
series of preferred stock) to participate in any distribution of the assets or
earnings of the Company without limit as to per share amount.
(a) Adjustment for Change in Capital Stock. If the Company (i) pays a
dividend or makes a distribution on its Common Stock in shares of its Common
Stock,(ii) subdivides its outstanding shares of Common Stock into a greater
number of shares,(iii) combines its outstanding shares of Common Stock into a
smaller number of shares,(iv) makes a distribution on its Common Stock in shares
of its capital stock other than Common Stock or (v) issues by reclassification
of its Common Stock any shares of its capital stock; then the Exercise Price in
effect immediately prior to such action shall be proportionately adjusted so
that the holder of any Warrant thereafter exercised may receive the aggregate
number and kind of shares of capital stock of the Company which he would have
owned immediately following such action if such Warrant had been exercised
immediately prior to such action.
The adjustment shall become effective immediately after the record date in
the case of a dividend or distribution and immediately after the effective date
in the case of a subdivision, combination or reclassification. If, after an
adjustment, a holder of a Warrant upon exercise of it may receive shares of two
or more classes of capital stock of the Company, the Company shall determine the
allocation of the adjusted Exercise Price between the classes of capital stock.
After such allocation, the exercise privilege and the Exercise Price of each
class of capital stock shall thereafter be subject to adjustment on terms
comparable to those applicable to Common Stock in this Section 11. Such
adjustment shall be made successively whenever any event listed above shall
occur.
(b) Adjustment for Rights Issue. If the Company distributes any
rights, options or warrants to all holders of its Common Stock entitling them
for a period expiring within 60 days after the record date mentioned below to
purchase shares of Common Stock at a price per share less than the current
market price per share on that record date, the Exercise Price shall be adjusted
in accordance with the formula:
O + N x P
-----
E' = E x M
--------------------
O + N
6
<PAGE>
where:
E' = the adjusted Exercise Price.
E = the current Exercise Price.
O = the number of shares of Common Stock outstanding on the record
date.
N = the number of additional shares of Common Stock offered.
P = the offering price per share of the additional shares.
M = the current market price per share of Common Stock on the record
date.
The adjustment shall be made successively whenever any such rights, options
or warrants are issued and shall become effective immediately after the record
date for the determination of stockholders entitled to receive the rights,
options or warrants. If at the end of the period during which such rights,
options or warrants are exercisable, not all rights, options or warrants shall
have been exercised, the Exercise Price shall be immediately readjusted to what
it would have been if "N" in the above formula had been the number of shares
actually issued.
(c) Adjustment for Other Distributions. If the Company distributes to all
holders of its Common Stock any of its assets or debt securities or any rights
or warrants to purchase debt securities, assets or other securities of the
Company, the Exercise Price shall be adjusted in accordance with the formula:
E' = E x M - F
-----------
M
where:
E' = the adjusted Exercise Price.
E = the current Exercise Price.
M = the current market price per share of Common Stock on the record
date mentioned below.
F = the fair market value on the record date of the assets,
securities, rights or warrants to be distributed in respect of to
one share of Common Stock. The Board of Directors shall
determine the fair market value.
The adjustment shall be made successively whenever any such distribution is
made and shall become effective immediately after the record date for the
determination of stockholders entitled to receive the distribution.
7
<PAGE>
This Section 11(c) does not apply to cash dividends or cash distributions
paid out of consolidated current or retained earnings as shown on the books of
the Company prepared in accordance with generally accepted accounting
principles. Also, this Section 11(c) does not apply to rights, options or
warrants referred to in Section 11(b) hereof.
(d) Self-Tenders. In case of the consummation of an issuer bid or a
tender or exchange offer (other than an odd-lot tender offer or a normal
course issuer bid) made by the Company or any subsidiary of the Company for
all or any portion of the Common Stock to the extent that the cash and value
of any other consideration included in such payment per share of Common Stock
exceeds the first reported sales price per share of Common Stock on the
trading day next succeeding the Expiration Time (as defined below), the
Exercise Price shall be reduced so that the same shall equal the price
determined by multiplying the Exercise Price in effect immediately prior to
the last time tenders or exchanges made pursuant to such issuer bid or tender
or exchange offer (the "Expiration Time") by a fraction of which the
numerator shall be the number of shares of Common Stock outstanding
(including any tendered or exchanged shares) on the Expiration Time
multiplied by the first reported sales price of the shares of Common Stock on
the trading day next succeeding the Expiration Time, and the denominator
shall be the sum of (A) the fair market value (determined by the board of
directors of the Company (the "Board of Directors"), whose determination
shall be conclusive and described in a resolution of the Board of Directors)
of the aggregate consideration payable to stockholders based on the
acceptance (up to any maximum specified in the terms of the issuer bid or
tender or exchange offer) of all shares validly tendered or exchanged and not
withdrawn as of the Expiration Time (the shares deemed so accepted, up to any
such maximum, being referred to as the "Purchased Shares") and (B) the
product of the number of shares of Common Stock outstanding (less any
Purchased Shares) on the Expiration Time and the first reported sales price
of the shares of Common Stock on the trading day next succeeding the
Expiration Time, such reduction to become effective immediately prior to the
opening of business on the day following the Expiration Time.
(e) [INTENTIONALLY OMITTED]
(f) Current Market Price. In Sections 11(b) and (c) hereof, the current
market price per share of Common Stock on any date is the average of the
Quoted Prices of the Common Stock for 30 consecutive trading days commencing
45 trading days prior to the date in question. The "Quoted Price" of the
Common Stock is the last reported sales price of the Common Stock as reported
by the Nasdaq National Market or, if the Common Stock is listed on a
securities exchange, the last reported sales price of the Common Stock on
such exchange which shall be for consolidated trading if applicable to such
exchange, or, if neither so reported or listed, the last reported bid price
of the Common Stock. In the absence of one or more such quotations, the
Board of Directors of the Company shall determine the current market price on
the basis of such quotations as it in good faith considers appropriate.
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(g) [INTENTIONALLY OMITTED]
(h) When De Minimis Adjustment May Be Deferred. No adjustment in the
Exercise Price need be made unless the adjustment would require an increase or
decrease of at least 1% in the Exercise Price. Any adjustments that are not
made shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this Section 11 shall be made to the nearest
cent or to the nearest 1/100th of a share, as the case may be.
(i) When No Adjustment Required. No adjustment need be made for a
transaction referred to Section 11(a), (b), (c) or (d) hereof, if Warrant
holders are to participate in the transaction on a basis and with notice that
the Board of Directors determines to be fair and appropriate in light of the
basis and notice on which holders of Common Stock participate in the
transaction. No adjustment need be made for (i) rights to purchase Common Stock
pursuant to a Company plan for reinvestment of dividends or interest, (ii) a
change in the par value or no par value of the Common Stock, (iii) the issuance
by the Company of 6,000,000 shares of Common Stock to CommcoCCC, Inc. in
connection with the acquisition of certain assets therefrom, or (iv) the
issuance by the Company of warrants to purchase Common Stock in accordance with
CIBC Agreements (as defined in the Purchase Agreement relating to the Offering).
To the extent the Warrants become convertible into cash, no adjustment need be
made thereafter as to the cash. Interest will not accrue on the cash.
(j) Notice of Adjustment. Whenever the Exercise Price is adjusted, the
Company shall provide the notices required by Section 13 hereof.
(k) Voluntary Reduction. The Company from time to time may reduce the
Exercise Price by any amount for any period of time, if the period is at least
20 days and if the reduction is irrevocable during the period; provided that in
no event may the Exercise Price be less than the par value of a share of Common
Stock. Whenever the Exercise Price is reduced, the Company shall mail to
Warrant holders a notice of the reduction. The Company shall mail the notice at
least 15 days before the date the reduced Exercise Price takes effect. The
notice shall state the reduced Exercise Price and the period in which it will be
in effect. A reduction of the Exercise Price does not change or adjust the
Exercise Price otherwise in effect for purposes of Sections 11(a), (b), (c) and
(d) hereof.
(l) Notice of Certain Transactions. If (i) the Company takes any action
that would require an adjustment in the Exercise Price pursuant to Section
11(a), (b), (c) or (d) hereof and if the Company does not arrange for Warrant
holders to participate pursuant to Section 11(i) hereof,(ii) the Company takes
any action that would require a supplemental Warrant Agreement pursuant to
Section 11(m) hereof or (iii) there is a liquidation or dissolution of the
Company, then the Company shall mail to Warrant holders a notice stating the
proposed record date for a dividend or distribution or the proposed effective
date of a subdivision, combination, reclassification, consolidation, merger,
transfer, lease, liquidation or dissolution. The Company shall mail the notice
at least 15 days before such date. Failure to mail the notice or any defect in
it shall not affect the validity of the transaction.
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(m) Reorganization of Company. If the Company consolidates or merges with
or into, or transfers or leases all or substantially all its assets to, any
person, upon consummation of such transaction the Warrants shall automatically
become exercisable for the kind and amount of securities, cash or other assets
which the holder of a Warrant would have owned immediately after the
consolidation, merger, transfer or lease if the holder had exercised the Warrant
immediately before the effective date of the transaction. Concurrently with the
consummation of such transaction, the corporation formed by or surviving any
such consolidation or merger if other than the Company, or the person to which
such sale or conveyance shall have been made, shall enter into a supplemental
Warrant Agreement so providing and further providing for adjustments which shall
be as nearly equivalent as may be practical to the adjustments provided for in
this Section 11(m). The successor Company shall mail to Warrant holders a
notice describing the supplemental Warrant Agreement. If the issuer of
securities deliverable upon exercise of Warrants under the supplemental Warrant
Agreement is an affiliate of the formed, surviving, transferee or lessee
corporation, that issuer shall join in the supplemental Warrant Agreement. If
this Section 11(m) applies, Sections 11(a), (b), (c) and (d) hereof do not
apply.
(n) Company Determination Final. Any determination that the Company or
the Board of Directors must make pursuant to Section 11(a), (c), (d), (f) or (i)
hereof is conclusive.
(o) Warrant Agent's Disclaimer. The Warrant Agent has no duty to
determine when an adjustment under this Section 11 should be made, how it should
be made or what it should be. The Warrant Agent has no duty to determine
whether any provisions of a supplemental Warrant Agreement under Section 11(m)
hereof are correct. The Warrant Agent makes no representation as to the
validity or value of any securities or assets issued upon exercise of Warrants.
The Warrant Agent shall not be responsible for the Company's failure to comply
with this Section 11.
(p) When Issuance or Payment May Be Deferred. In any case in which this
Section 11 shall require that an adjustment in the Exercise Price be made
effective as of a record date for a specified event, the Company may elect to
defer until the occurrence of such event (i) issuing to the holder of any
Warrant exercised after such record date the Warrant Shares and other capital
stock of the Company, if any, issuable upon such exercise over and above the
Warrant Shares and other capital stock of the Company, if any, issuable upon
such exercise on the basis of the Exercise Price and (ii) paying to such holder
any amount in cash in lieu of a fractional share pursuant to Section 12 hereof;
provided that the Company shall deliver to such holder a due bill or other
appropriate instrument evidencing such holder's right to receive such additional
Warrant Shares, other capital stock and cash upon the occurrence of the event
requiring such adjustment.
(q) Adjustment in Number of Shares. Upon each adjustment of the Exercise
Price pursuant to this Section 11, each Warrant outstanding prior to the making
of the adjustment in the Exercise Price shall thereafter evidence the right to
receive upon payment of the adjusted Exercise Price that number of shares of
Common Stock (calculated to the nearest hundredth) obtained from the following
formula:
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N' = N x E
------
E'
where:
N' = the adjusted number of Warrant Shares issuable upon exercise of a
Warrant by payment of the adjusted Exercise Price.
N = the number or Warrant Shares previously issuable upon exercise of
a Warrant by payment of the Exercise Price prior to adjustment.
E' = the adjusted Exercise Price.
E = the Exercise Price prior to adjustment.
(r) Form of Warrants. Irrespective of any adjustments in the Exercise
Price or the number or kind of shares purchasable upon the exercise of the
Warrants, Warrants theretofore or thereafter issued may continue to express the
same price and number and kind of shares as are stated in the Warrants initially
issuable pursuant to this Agreement.
SECTION 12. Fractional Interests. The Company shall not be required to
issue fractional Warrant Shares on the exercise of Warrants. If more than one
Warrant shall be presented for exercise in full at the same time by the same
holder, the number of full Warrant Shares which shall be issuable upon the
exercise thereof shall be computed on the basis of the aggregate number of
Warrant Shares purchasable on exercise of the Warrants so presented. If any
fraction of a Warrant Share would, except for the provisions of this Section 12,
be issuable on the exercise of any Warrants (or 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.
SECTION 13. Notices to Warrant holders. (a) Upon any adjustment of the
Exercise Price pursuant to Section 11 hereof, the Company shall promptly
thereafter (i) cause to be filed with the Warrant Agent a certificate of a firm
of independent public accountants of recognized standing selected by the Board
of Directors of the Company (who may be the regular auditors of the Company)
setting forth the Exercise Price after such adjustment and setting forth in
reasonable detail the method of calculation and the facts upon which such
calculations are based and setting forth the number of Warrant Shares (or
portion thereof) issuable after such adjustment in the Exercise Price, upon
exercise of a Warrant and payment of the adjusted Exercise Price, which
certificate shall be conclusive evidence of the correctness of the matters set
forth therein, and (ii) cause to be given to each of the registered holders of
Warrants at his address appearing on the Warrant register written notice of such
adjustments by first-class mail, postage prepaid. Where appropriate, such
notice may be given in advance and included as a part of the notice required to
be mailed under the other provisions of this Section 13.
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(b) In case:
(i) the Company shall authorize the issuance to all holders of shares
of Common Stock of rights, options or warrants to subscribe for or purchase
shares of Common Stock or of any other subscription rights or warrants;
(ii) the Company shall authorize the distribution to all holders of
shares of Common Stock of evidences of its indebtedness or assets (other
than cash dividends or cash distributions payable out of consolidated
earnings or earned surplus or dividends payable in shares of Common Stock
or distributions referred to in Section 11(a) hereof);
(iii) of any consolidation or merger to which the Company is a
party and for which approval of any stockholders of the Company is
required, or of the conveyance or transfer of the properties and assets of
the Company substantially as an entirety, or of any reclassification or
change of Common Stock issuable upon exercise of the Warrants (other than a
change in par value, or from par value to no par value, or from no par
value to par value, or as a result of a subdivision or combination), or a
tender offer or exchange offer for shares of Common Stock;
(iv) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company; or
(v) the Company proposes to take any action (other than actions of
the character described in Section 11(a) hereof) which would require an
adjustment of the Exercise Price pursuant to Section 11 hereof;
then the Company shall cause to be filed with the Warrant Agent and shall cause
to be given to each of the registered holders of Warrants at his address
appearing on the Warrant register, at least 20 days (or 10 days in any case
specified in clauses (i) or (ii) above) prior to the applicable record date
hereinafter specified, or promptly in the case of events for which there is no
record date, by first-class mail, postage prepaid, a written notice stating (x)
the date as of which the holders of record of shares of Common Stock to be
entitled to receive any such rights, options, warrants or distribution are to be
determined, (y) the initial expiration date set forth in any tender offer or
exchange offer for shares of Common Stock, or (z) the date on which any such
consolidation, merger, conveyance, transfer, dissolution, liquidation or winding
up is expected to become effective or consummated, and the date as of which it
is expected that holders of record of shares of Common Stock shall be entitled
to exchange such shares for securities or other property, if any, deliverable
upon such reclassification, consolidation, merger, conveyance, transfer,
dissolution, liquidation or winding up. The failure to give the notice required
by this Section 13 or any defect therein shall not affect the legality or
validity of any distribution, right, option, warrant, consolidation, merger,
conveyance, transfer, dissolution, liquidation or winding up, or the vote upon
any action.
(c) Nothing contained in this Agreement or in any of the Warrant
Certificates shall be construed as conferring upon the holders of Warrants the
right to vote or to consent or to receive
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notice as stockholders in respect of the meetings of stockholders or the
election of directors of the Company or any other matter, or any rights
whatsoever as stockholders of the Company.
SECTION 14. Merger, Consolidation or Change of Name of Warrant Agent.
(a) Any corporation into which the Warrant Agent may be merged or with which it
may be consolidated, or any corporation resulting from any merger or
consolidation to which the Warrant Agent shall be a party, or any corporation
succeeding to the business of the Warrant Agent, shall be the successor to the
Warrant Agent hereunder without the execution or filing of any paper or any
further act on the part of any of the parties hereto, provided that such
corporation would be eligible for appointment as a successor warrant agent under
the provisions of Section 16 hereof. In case at the time such successor to the
Warrant Agent shall succeed to the agency created by this Agreement, and in case
at that time any of the Warrant Certificates shall have been countersigned but
not delivered, any such successor to the Warrant Agent may adopt the
countersignature of the original Warrant Agent; and in case at that time any of
the Warrant Certificates shall not have been countersigned, any successor to the
Warrant Agent may countersign such Warrant Certificates either in the name of
the predecessor Warrant Agent or in the name of the successor to the Warrant
Agent; and in all such cases such Warrant Certificates shall have the full force
and effect provided in the Warrant Certificates and in this Agreement.
(b) In case at any time the name of the Warrant Agent shall be changed and
at such time any of the Warrant Certificates shall have been countersigned but
not delivered, the Warrant Agent whose name has been changed may adopt the
countersignature under its prior name, and in case at that time any of the
Warrant Certificates shall not have been countersigned, the Warrant Agent may
countersign such Warrant Certificates either in its prior name or in its changed
name, and in all such cases such Warrant Certificates shall have the full force
and effect provided in the Warrant Certificates and in this Agreement.
SECTION 15. Warrant Agent. The Warrant Agent undertakes the duties and
obligations imposed by this Agreement upon the following terms and conditions,
by all of which the Company and the holders of Warrants, by their acceptance
thereof, shall be bound:
(a) The statements contained herein and in the Warrant Certificates shall
be taken as statements of the Company and the Warrant Agent assumes no
responsibility for the correctness of any of the same except such as describe
the Warrant Agent or action taken or to be taken by it. The Warrant Agent
assumes no responsibility with respect to the distribution of the Warrant
Certificates except as herein otherwise provided.
(b) The Warrant Agent shall not be responsible for any failure of the
Company to comply with any of the covenants contained in this Agreement or in
the Warrant Certificates to be complied with by the Company.
(c) The Warrant Agent may consult at any time with counsel satisfactory to
it (who may be counsel for the Company) and the Warrant Agent shall incur no
liability or responsibility to the Company or to any holder of any Warrant
Certificate in respect of any action taken, suffered
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<PAGE>
or omitted by it hereunder in good faith and in accordance with the opinion or
the advice of such counsel.
(d) The Warrant Agent shall incur no liability or responsibility to the
Company or to any holder of any Warrant Certificate for any action taken in
reliance on any Warrant Certificate, certificate of shares, notice, resolution,
waiver, consent, order, certificate, or other paper, document or instrument
believed by it to be genuine and to have been signed, sent or presented by the
proper party or parties.
(e) The Company agrees to pay to the Warrant Agent reasonable compensation
for all services rendered by the Warrant Agent in the execution of this
Agreement, to reimburse the Warrant Agent for all expenses, taxes and
governmental charges and other charges of any kind and nature incurred by the
Warrant Agent in the execution of this Agreement and to indemnify the Warrant
Agent and save it harmless against any and all liabilities, including judgments,
costs and counsel fees, for anything done or omitted by the Warrant Agent in the
execution of this Agreement except as a result of its negligence or bad faith.
(f) The Warrant Agent shall be under no obligation to institute any
action, suit or legal proceeding or to take any other action likely to involve
expense unless the Company or one or more registered holders of Warrants shall
furnish the Warrant Agent with reasonable security and indemnity for any costs
and expenses which may be incurred, but this provision shall not affect the
power of the Warrant Agent to take such action as it may consider proper,
whether with or without any such security or indemnity. All rights of action
under this Agreement or under any of the Warrants may be enforced by the Warrant
Agent without the possession of any of the Warrant Certificates or the
production thereof at any trial or other proceeding relative thereto, and any
such action, suit or proceeding instituted by the Warrant Agent shall be brought
in its name as Warrant Agent and any recovery of judgment shall be for the
ratable benefit of the registered holders of the Warrants, as their respective
rights or interests may appear.
(g) The Warrant Agent, and any stockholder, director, officer or employee
of it, may buy, sell or deal in any of the Warrants or other securities of the
Company or become pecuniarily interested in any transaction in which the Company
may be interested, or contract with or lend money to the Company or otherwise
act as fully and freely as though it were not Warrant Agent under this
Agreement. Nothing herein shall preclude the Warrant Agent from acting in any
other capacity for the Company or for any other legal entity.
(h) The Warrant Agent shall act hereunder solely as agent for the Company,
and its duties shall be determined solely by the provisions hereof. The Warrant
Agent shall not be liable for anything which it may do or refrain from doing in
connection with this Agreement except for its own negligence or bad faith.
(i) The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of any Warrant Certificate to make or cause to be
made any adjustment of the Exercise Price or number of the Warrant Shares or
other securities or property deliverable as provided in this Agreement, or to
determine whether any facts exist which may require any of such
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<PAGE>
adjustments, or with respect to the nature or extent of any such adjustments,
when made, or with respect to the method employed in making the same. The
Warrant Agent shall not be accountable with respect to the validity or value
or the kind or amount of any Warrant Shares or of any securities or property
which may at any time be issued or delivered upon the exercise of any Warrant
or with respect to whether any such Warrant Shares or other securities will
when issued be validly issued and fully paid and nonassessable, and makes no
representation with respect thereto.
SECTION 16. Change of Warrant Agent. If the Warrant Agent shall become
incapable of acting as Warrant Agent, the Company shall appoint a successor to
such Warrant Agent. If the Company shall fail to make such appointment within a
period of 30 days after it has been notified in writing of such incapacity by
the Warrant Agent or by the registered holder of a Warrant Certificate, then the
registered holder of any Warrant may apply to any court of competent
jurisdiction for the appointment of a successor to the Warrant Agent. Pending
appointment of a successor to such Warrant Agent, either by the Company or by
such a court, the duties of the Warrant Agent shall be carried out by the
Company. The holders of a majority of the unexercised Warrants shall be
entitled at any time to remove the Warrant Agent and appoint a successor to such
Warrant Agent. Such successor to the Warrant Agent need not be approved by the
Company or the former Warrant Agent. After appointment the successor to the
Warrant Agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Warrant Agent without
further act or deed; provided that the former Warrant Agent shall deliver and
transfer to the successor to the Warrant Agent any property at the time held by
it hereunder and execute and deliver any further assurance, conveyance, act or
deed necessary for the purpose. Failure to give any notice provided for in this
Section 16, however, or any defect therein, shall not affect the legality or
validity of the appointment of a successor to the Warrant Agent.
SECTION 17. Registration. Holders shall be able to exercise their
Warrants only if a registration statement relating to the Warrant Shares is then
if 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.
(a) The Company shall prepare and cause to be filed with the Securities and
Exchange Commission (the "Commission") pursuant to Rule 415 under the Securities
Act a shelf registration statement on the appropriate form relating to the offer
and sale by the Company of the Warrant Shares to the holders of Warrants upon
exercise of the Warrants and resales of the Warrant Shares by the holders
thereof (the "Registration Statement").
(b) The Company shall use its best efforts to cause such Registration
Statement to be declared effective by the Commission no later than ____________,
1997.
(c) The Company shall use its best efforts to keep the Registration
Statement continuously effective under the Securities Act in order to permit the
prospectus included therein to be lawfully delivered by the Company to the
holders exercising the Warrants until the Expiration
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Date or such shorter period that will terminate when all the Warrants have been
exercised; provided that, except as provided below with respect to any Black
Out Period (as defined), the Company shall be deemed not to have used its
best efforts to keep the Registration Statement effective during the requisite
period if it voluntarily takes any action that would result in it not being
able to offer and sell the Warrant Shares upon exercise of the Warrants during
that period, unless such action is required by applicable law. Notwithstanding
the foregoing, the Company shall not be required to amend or supplement the
Registration Statement, any related prospectus or any document incorporated
therein by reference, for a period (a "Black Out Period") not to exceed, for
so long as this Agreement is in effect, an aggregate of 90 days in any calendar
year, in the event that (i) an event occurs and is continuing as a result of
which the Registration Statement, any related prospectus or any document
incorporated therein by reference as then amended or supplemented would, in
the Company's good faith judgment, contain an untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, and (ii)(A) the Company determines in its good faith judgment that
the disclosure of such event at such time would have a material adverse effect
on the business, operations or prospects of the Company or (B) the disclosure
otherwise relates to a material business transaction which has not yet been
publicly disclosed; provided that no Black Out Period may be in effect during
the six months prior to the Expiration Date.
(d) The Company shall cause the Registration Statement and the related
prospectus and any amendment or supplement thereto, as of the effective date of
the Registration Statement, amendment or supplement, (i) to comply in all
material respects with the applicable requirements of the Securities Act and the
rules and regulations of the Commission and (ii) not to contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
(e) The Company shall give prompt written notice to the holders of the
Warrants and the Warrant Agent of (i) the effectiveness of the Registration
Statement or any post-effective amendment thereto,(ii) the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or the initiation or threatening of any proceedings for that
purpose,(iii) the receipt by the Company or its legal counsel of any
notification with respect to the suspension of the qualification of the Warrant
Shares for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose,(iv) the happening of any event that requires the
Company to make changes in the Registration Statement or the prospectus in order
to make the statements therein not misleading and (v) the commencement and
termination of any Black Out Period.
(f) The Company shall use its best efforts to prevent the issuance or
obtain the withdrawal of any order suspending the effectiveness of the
Registration Statement at the earliest possible time.
(g) Upon the occurrence of any event contemplated by Section 17(e)(iv) or
(v) hereof (subject to the last sentence of Section 17(c) hereof) the Company
shall promptly prepare a post-
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effective amendment to the Registration Statement or a supplement to the related
prospectus or file any other required document so that, as thereafter delivered
to holders of the Warrants, the prospectus will not contain an untrue statement
of a material fact or omit to state any material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading and will contain the current information required by the
Securities Act.
(h) Not later than the effective date of the Registration Statement, the
Company will provide a CUSIP number for the Warrant Shares and provide the
Warrant Agent with printed certificates for the Warrant Shares in a form
eligible for deposit with the Depository Trust Company.
(i) The Company will comply with all rules and regulations of the
Commission to the extent and so long as they are applicable to the Registration
Statement and will make generally available to its securities holders (or
otherwise provide in accordance with Section 11(a) of the Securities Act) an
earnings statement satisfying the provisions of Section 11(a) of the Securities
Act, no later than 45 days (plus any extension permitted by Rule 12b-25 under
the Exchange Act) after the end of a 12-month period (or 90 days, if such period
is a fiscal year (plus any extension permitted by Rule 12b-25 under the Exchange
Act)) beginning with the first month of the Company's first fiscal quarter
commencing after the effective date of the Registration Statement, which
statement shall cover shall 12-month period.
(j) The Company shall register or qualify or cooperate with the holders
in connection with the registration or qualification of the Warrant Shares
for offer and sale by the Company upon exercise of the Warrants under the
securities or blue sky laws of such states of the United States as any holder
reasonably requests and do any and all other acts or things necessary or
advisable to enable such offer and sale in such jurisdictions; provided that
the Company shall not be required to (i) qualify to do business in any
jurisdiction in which it is not then so qualified or (ii) take any action
which would subject it to general service of process or to taxation in any
jurisdiction in which it is not then so subject.
(k) The Company shall bear all expenses incurred by it in connection with
the performance of its obligations under this Section 17.
(l) The Company acknowledges and agrees that any remedy at law for breach
of any provision of this Section 17 will be inadequate and that, in addition to
any other remedies that the holder may have, the holders shall be entitled to
the remedy of specific performance to ensure the Company performs its
obligations under this Section 17. The election of any one or more remedies by
the holders hereunder shall not constitute a waiver of the right to pursue other
available remedies.
(m) No person is entitled to include any securities of the Company held by
such person in, or to have such securities registered under, the Registration
Statement.
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SECTION 18. Reports.
(a) Whether or not required by the rules and regulations of the Securities
and Exchange Commission (the "Commission"), so long as any Warrants are
outstanding, the Company shall furnish to the holders of Warrants (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 shall file a copy of all such information and
reports with the Commission for public availability (unless the Commission shall
not accept such a filing) and make such information available to securities
analysts and prospective investors upon request.
(b) The Company shall provide the Warrant Agent with a sufficient number
of copies of all such reports that the Warrant Agent may be required to deliver
to the holders of the Warrants under this Section 18.
SECTION 19. Notices to Company and Warrant Agent. Any notice or demand
authorized by this Agreement to be given or made by the Warrant Agent or by the
registered holder of any Warrant to or on the Company shall be sufficiently
given or made when and if deposited in the mail, first class or registered,
postage prepaid, addressed (until another address is filed in writing by the
Company with the Warrant Agent) as follows:
Advanced Radio Telecom Corp.
500 108th Avenue, N.E., Suite 2600
Bellevue, WA 98004
Telephone: (206) 688-8700
Telecopy: (206) 688-0703
Attention: Chief Financial Officer
In case the Company shall fail to maintain such office or agency or shall
fail to give such notice of the location or of any change in the location
thereof, presentations may be made and notices and demands may be served at the
principal office of the Warrant Agent.
Any notice pursuant to this Agreement to be given by the Company or by the
registered holder(s) of any Warrant to the Warrant Agent shall be sufficiently
given when and if deposited in the mail, first-class or registered, postage
prepaid, addressed (until another address is filed in writing by the Warrant
Agent with the Company) to the Warrant Agent as follows:
Continental Stock Transfer and Trust Company
2 Broadway
New York, NY 10004
Attention: Steven Nelson
18
<PAGE>
SECTION 20. Supplements and Amendments. The Company and the Warrant
Agent may from time to time supplement or amend this Agreement without the
approval of any holders of Warrants in order to cure any ambiguity or to correct
or supplement any provision contained herein which may be defective or
inconsistent with any other provision herein, or to make any other provisions in
regard to matters or questions arising hereunder which the Company and the
Warrant Agent may deem necessary or desirable and which shall not in any way
adversely affect the interests of the holders of Warrants. Any amendment or
supplement to this Agreement that has a material adverse effect on the interests
of the holders of 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 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 this Agreement.
SECTION 21. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Warrant Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
SECTION 22. Termination. This Agreement shall terminate at 5:00 p.m.,
New York City time on _________, 2007. Notwithstanding the foregoing, this
Agreement will terminate on any earlier date if all Warrants have been
exercised. The provisions of Section 15 shall survive such termination.
SECTION 23. Governing Law. This Agreement and each Warrant Certificate
issued hereunder shall be deemed to be a contract made under the laws of the
State of New York and for all purposes shall be construed in accordance with the
internal laws of said State.
SECTION 24. Benefits of This Agreement. Nothing in this Agreement shall
be construed to give to any person or corporation other than the Company, the
Warrant Agent and the registered holders of Warrants any legal or equitable
right, remedy or claim under this Agreement; but this Agreement shall be for the
sole and exclusive benefit of the Company, the Warrant Agent and the registered
holders of Warrants.
SECTION 25. Counterparts. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and all such counterparts shall together constitute but one
and the same instrument.
[Signature Page Follows]
19
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
ADVANCED RADIO TELECOM CORP.
By:_________________________________
Name:
Title:
[Seal]
Attest: ______________________
Secretary
CONTINENTAL STOCK TRANSFER AND TRUST COMPANY,
as Warrant Agent
By _________________________________
Name:
Title:
[Seal]
Attest: _______________________
Secretary
20
<PAGE>
EXHIBIT A
FORM OF WARRANT
[Face of Warrant Certificate]
THE WARRANTS EVIDENCED BY THIS CERTIFICATE ARE NOT TRANSFERABLE SEPARATELY FROM
THE NOTES ORIGINALLY SOLD AS A UNIT WITH SUCH WARRANTS UNTIL THE EARLIER OF (I)
____________, 1997 (II) A CHANGE IN CONTROL (AS DEFINED IN THE INDENTURE
RELATING TO SUCH NOTES) AND (III) SUCH DATE AS THE UNDERWRITERS IN THE OFFERING
HEREOF MAY, IN THEIR DISCRETION, DEEM APPROPRIATE). PRIOR TO SUCH DATE, THE
WARRANTS EVIDENCED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN INTEGRAL
MULTIPLES OF 15 WARRANTS AND ONLY WITH THE SIMULTANEOUS TRANSFER TO THE
TRANSFEREE OF $1,000 PRINCIPAL AMOUNT OF NOTES FOR EACH 15 WARRANTS SO
TRANSFERRED.
EXERCISABLE ON OR AFTER _____________, 1997.
No. _____ __________Warrants
Warrant Certificate
ADVANCED RADIO TELECOM CORP.
This Warrant Certificate certifies that ______________, or registered
assigns, is the registered holder of Warrants expiring __________, 2007 (the
"Warrants") to purchase common stock, par value $.001 per share (the "Common
Stock"), of Advanced Radio Telecom Corp, a Delaware corporation (the "Company").
Each Warrant entitles the holder upon exercise to receive from the Company
commencing _____________, 1997 until 5:00 p.m. New York City Time on
_____________, 2007, 1.349 fully paid and nonassessable shares of Common Stock
(the "Warrant Shares") at the initial exercise price (the "Exercise Price") of
$______ payable in lawful money of the United States of America upon surrender
of this Warrant Certificate and payment of the Exercise Price at the office or
agency of the Warrant Agent, but only subject to the conditions set forth herein
and in the Warrant Agreement referred to on the reverse hereof. Notwithstanding
the foregoing, Warrants may be exercised without the exchange of funds pursuant
to the net exercise provisions of Section 6 of the Warrant Agreement. The
Exercise Price and number of Warrant Shares issuable upon exercise of the
Warrants are subject to adjustment upon the occurrence of certain events set
forth in the Warrant Agreement. No Warrant may be exercised after 5:00 p.m.,
New York City Time on _____________, 2007, and to the extent not exercised by
such time such Warrants shall become void. Reference is hereby made to the
further provisions of this Warrant Certificate set forth on the reverse hereof
and such further provisions shall for all purposes have the same effect as
though fully set forth at this place. This Warrant Certificate shall not be
valid
A-1
<PAGE>
unless countersigned by the Warrant Agent, as such term is used in the Warrant
Agreement. This Warrant Certificate shall be governed and construed in
accordance with the internal laws of the State of New York.
IN WITNESS WHEREOF, Advanced Radio Telecom Corp. has caused this Warrant
Certificate to be signed by its Chief Executive Officer and by its Secretary and
has caused its corporate seal to be affixed hereunto or imprinted hereon.
Dated: ___________ , 1997
ADVANCED RADIO TELECOM CORP.
By:________________________________
Vernon L. Fotheringham
Chief Executive Officer
By:________________________________
W. Theodore Pierson, Jr.
Secretary
Countersigned:
CONTINENTAL STOCK TRANSFER AND TRUST COMPANY
as Warrant Agent
By:________________________________
Name:
Title:
A-2
<PAGE>
[Reverse of Warrant Certificate]
The Warrants evidenced by this Warrant Certificate are part of a
duly authorized issue of Warrants expiring ____________, 2007 entitling the
holder on exercise to receive shares of Common Stock, par value $.001 per
share, of the Company (the "Common Stock"), and are issued or to be issued
pursuant to a Warrant Agreement dated as of February 6, 1997 (the "Warrant
Agreement"), duly executed and delivered by the Company to Continental Stock
Transfer and Trust Company, a New York limited purpose trust company, as
warrant agent (the "Warrant Agent"), which Warrant Agreement is hereby
incorporated by reference in and made a part of this instrument and is hereby
referred to for a description of the rights, limitation of rights,
obligations, duties and immunities thereunder of the Warrant Agent, the
Company and the holders (the words "holders" or "holder" meaning the
registered holders or registered holder) of the Warrants. A copy of the
Warrant Agreement may be obtained by the holder hereof upon written request
to the Company.
Warrants may be exercised at any time on or after __________, 1997 and on
or before _____________, 2007; provided that holders shall 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 holder of Warrants evidenced by this Warrant Certificate
may exercise them by surrendering this Warrant Certificate, with the form of
election to purchase set forth hereon properly completed and executed, together
with payment of the Exercise Price in cash at the office of the Warrant Agent.
In the event that upon any exercise of Warrants evidenced hereby the number of
Warrants exercised shall be less than the total number of Warrants evidenced
hereby, there shall be issued to the holder hereof or his assignee a new Warrant
Certificate evidencing the number of Warrants not exercised. No adjustment
shall be made for any dividends on any Common Stock issuable upon exercise of
this Warrant.
The Warrant Agreement provides that upon the occurrence of certain events
the Exercise Price set forth on the face hereof may, subject to certain
conditions, be adjusted. If the Exercise Price is adjusted, the Warrant
Agreement provides that the number of shares of Common Stock issuable upon the
exercise of each Warrant shall be adjusted. No fractions of a share of Common
Stock will be issued upon the exercise of any Warrant, but the Company will pay
the cash value thereof determined as provided in the Warrant Agreement.
The Company has agreed under the terms of the Warrant Agreement to file and
use its best efforts to make effective no later than ______________, 1997 and
(subject to Black Out Periods) maintain effective until expiration or exercise
of all Warrants a shelf registration statement (the "Registration Statement") on
an appropriate form under the Securities Act covering the issuance and sale of
Warrant Shares upon exercise of the Warrants.
A-3
<PAGE>
Warrant Certificates, when surrendered at the office of the Warrant Agent
by the registered holder thereof in person or by legal representative or
attorney duly authorized in writing, may be exchanged, in the manner and subject
to the limitations provided in the Warrant Agreement, but without payment of any
service charge, for another Warrant Certificate or Warrant Certificates of like
tenor evidencing in the aggregate a like number of Warrants.
Upon due presentation for registration of transfer of this Warrant
Certificate at the office of the Warrant Agent a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided in the Warrant Agreement,
without charge except for any tax or other governmental charge imposed in
connection therewith.
The Company and the Warrant Agent may deem and treat the registered
holder(s) thereof as the absolute owner(s) of this Warrant Certificate
(notwithstanding any notation of ownership or other writing hereon made by
anyone), for the purpose of any exercise hereof, of any distribution to the
holder(s) hereof, and for all other purposes, and neither the Company nor the
Warrant Agent shall be affected by any notice to the contrary. Neither the
Warrants nor this Warrant Certificate entitles any holder hereof to any rights
of a stockholder of the Company.
A-4
<PAGE>
Form of Election to Purchase
(To Be Executed Upon Exercise Of Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to receive __________ shares of Common
Stock and herewith tenders payment for such shares to the order of Advanced
Radio Telecom Corp. in the amount of $______ in accordance with the terms hereof
unless the holder is exercising Warrants pursuant to the net exercise provisions
of Section 6 of the Warrant Agreement. The undersigned requests that a
certificate for such shares be registered in the name of ________________, whose
address is _______________________________ and that such shares be delivered to
________________ whose address is ___________ ______________________. If said
number of shares is less than all of the shares of Common Stock purchasable
hereunder, the undersigned requests that a new Warrant Certificate representing
the remaining balance of such shares be registered in the name of
______________, whose address is _________________________, and that such
Warrant Certificate be delivered to _________________, whose address is
__________________.
Date: ______________, ____
__________________________
(Signature)
__________________________
(Signature Guaranteed)
A-5
<PAGE>
EXHIBIT B
FORM OF TRANSFER LEGEND
Each Certificate evidencing Warrants originally issued as part of a Unit of
Notes and Warrants issued by the Company (and each Certificate evidencing
Warrants issued on registration of transfer thereof or in exchange or
substitution therefor prior to the close of business on the Separation Date (as
defined)) shall bear a legend, which may be affixed by stamp or sticker, in
substantially the following form:
The Warrants evidenced by this Certificate are not transferable
separately from the Notes originally sold as a Unit with such Warrants
until the earlier of (i) ____________, 1997 (ii) a Change in Control
(as defined in the indenture relating to such Notes) and (iii) such
date as the Underwriters in the Offering hereof may, in their
discretion, deem appropriate. Prior to such date, the Warrants
evidenced by this Certificate may be transferred only in integral
multiples of 15 Warrants and only with the simultaneous transfer to
the Transferee of $1,000 of principal amount of Notes for each 15
Warrants so transferred.
B-1
<PAGE>
Exhibit 5.1
Hahn & Hessen LLP
Attorneys
Empire State Building
350 Fifth Avenue
New York, N.Y. 10118-0075
(212) 736-1000
February 3, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Advanced Radio Telecom Corp.
Registration No. 333-19295
Ladies/Gentlemen:
We are acting as counsel to Advanced Radio Telecom Corp., a Delaware
corporation (the "Company") with respect to the registration by the Company
under the Securities Act of 1933, as amended, (the "Act"), of 135,000 units (the
"Units"), each Unit consisting of $1,000 principal amount at maturity of the
Company's Senior Notes due 2007 (the "Notes") and 15 warrants (collectively, the
"Warrants") each exercisable to purchase 1.349 shares of Common Stock, par value
$.001 per share (the "Warrant Shares"), to be sold by the Company under
Registration Statement No. 333-19295 on Form S-1, as amended, relating to the
Units, Notes and Warrants, as filed with the Securities and Exchange
Commission (the "Registration Statement"). The Notes are to be issued under
an Indenture (the "Indenture") between the Company and The Bank of New York,
as trustee (the "Trustee") to be dated as of the closing date of the offering
of the Units.
We are familiar with (i) the proceedings of the Company relating to the
authorization of the Units, Notes and Warrants and (ii) the forms of the
Purchase Agreement (the "Purchase Agreement") to be entered into by the Company,
Merrill Lynch, Pierce Fenner & Smith Incorporated and CIBC Wood Gundy Securities
Corp., and the Warrant Agreement ("Warrant Agreement") to be entered into
between the Company and Continental Stock Transfer and Trust Company, as Warrant
Agent, filed as exhibits to the Registration Statement. In addition, we have
made such further examination of law and fact as we have deemed appropriate in
connection with the opinion hereinafter set forth.
On the basis of the foregoing, we are of the opinion that, (i) the Units
have been duly authorized by the Company and when issued and delivered in
accordance with the Purchase Agreement will be legally issued, (ii) the Notes
have been duly authorized by
<PAGE>
the Company and when issued and authenticated in accordance with the terms of
the Indenture will constitute valid and binding obligations of the Company in
accordance with and subject to their terms and the terms of the Indenture,
subject to laws relating to bankruptcy, insolvency, moratorium, fraudulent
transfer and other laws relating to the enforcement of creditors' rights
generally and subject to general equitable principles (regardless of whether
such enforcement is considered in a proceeding in equity or law), (iii) the
Warrants have been duly authorized and when issued and delivered pursuant to
the Warrant Agreement and the Purchase Agreement, will be legally issued and
(iv) the Warrant Shares, when issued and delivered upon exercise of the
Warrants against payment of the Exercise Price as provided in the Warrant
Agreement, will have been duly issued and will be fully paid and
non-assessable.
We consent to the filing of this opinion as an exhibit to the Registration
Statement and to the reference to our firm under the caption "Legal Matters" in
the Prospectus constituting a part of the Registration Statement. In giving
such consent, we do not thereby admit that we are within the category of persons
whose consent is required under Section 7 of the Act, or under the rules and
regulations of the Securities and Exchange Commission.
Very truly yours,
/s/ Hahn & Hessen LLP
HAHN & HESSEN LLP
<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 $18,705,640
Interest expense, including amortization of deferred financing costs and
discounts........................................................................ 1,396,943 26,577,589
-------------- --------------
Net loss before taxes............................................................. $20,378,377 $45,283,229
-------------- --------------
-------------- --------------
Fixed charges:
Interest expense, including amortization of deferred financing costs and
discounts...................................................................... $1,396,943 $26,577,589
-------------- --------------
Total fixed charges............................................................... $1,396,943 $26,577,589
-------------- --------------
-------------- --------------
Deficiency of net loss to cover fixed charges..................................... $20,378,377 $45,283,229
-------------- --------------
-------------- --------------
</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 $2,735,598
Interest expense, including amortization of deferred financing costs and
discounts........................................................................ 131,540 32,658,543
-------------- --------------
Net loss before taxes............................................................. $3,234,843 $35,394,121
-------------- --------------
-------------- --------------
Fixed charges:
Interest expense, including amortization at deferred financing costs and
discounts...................................................................... $131,540 $32,658,543
-------------- --------------
Total fixed charges............................................................... $131,540 $32,658,543
-------------- --------------
-------------- --------------
Deficiency of net loss to cover fixed charges..................................... $3,234,843 $35,394,121
-------------- --------------
-------------- --------------
</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 21
SUBSIDIARIES OF THE REGISTRANT
1. ART Licensing Corp.
2. Advanced Radio Telecom Sweden AB
3. Advanced Radio Telecom Limited
<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 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, 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 31, 1997
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) |__|
----------------------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
48 Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
----------------------
ADVANCED RADIO TELECOM CORP.
(Exact name of obligor as specified in its charter)
Delaware 52-1869023
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
Advanced Radio Telecom Corp.
500 108th Avenue, N.E., Suite 2600
Bellevue, Washington 98004
(Address of principal executive offices) (Zip code)
----------------------
% Senior Notes due 2007
(Title of the indenture securities)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO WHICH
IT IS SUBJECT.
- --------------------------------------------------------------------------------
Name Address
- --------------------------------------------------------------------------------
Superintendent of Banks of the State of 2 Rector Street, New York,
New York N.Y. 10006, and Albany, N.Y.
12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
(b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Yes.
2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
None.
16. LIST OF EXHIBITS.
EXHIBITS IDENTIFIED IN PARENTHESES BELOW, ON FILE WITH THE COMMISSION, ARE
INCORPORATED HEREIN BY REFERENCE AS AN EXHIBIT HERETO, PURSUANT TO RULE
7A-29 UNDER THE TRUST INDENTURE ACT OF 1939 (THE "ACT") AND RULE 24 OF THE
COMMISSION'S RULES OF PRACTICE.
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which contains the
authority to commence business and a grant of powers to exercise
corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1
filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to
Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1
to Form T-1 filed with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1
filed with Registration Statement No. 33-31019.)
-2-
<PAGE>
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No.
33-44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or examining
authority.
-3-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New York,
a corporation organized and existing under the laws of the State of New York,
has duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in The City of New York, and State
of New York, on the 29th day of January, 1997.
THE BANK OF NEW YORK
By: /S/VIVIAN GEORGES
-----------------------------------
Name: VIVIAN GEORGES
Title: ASSISTANT VICE PRESIDENT
-4-
