<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, For Use of the
[X] Definitive Proxy Statement Commission Only (as permitted
[_] Definitive Additional Materials by Rule 14a-6(e)(2))
[_] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
ADVANCED RADIO TELECOM CORP.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)
Payment of Filing Fee (check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[_] Fee paid previously with preliminary materials:
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount previously paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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[Letterhead of Advanced Radio Telecom Corp. appears here]
500 108th Avenue NE, Suite 2600
Bellevue, Washington 98004
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Notice of Annual Meeting of Stockholders
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September 8, 1999
Our 1999 annual meeting is being held the Bellevue Hilton, 100 112th Avenue
NE, Bellevue, WA 98004, on September 8, 1999 at 10:00 a.m. PDT. The purposes of
the annual meeting are to:
1. Approve a $251 million equity investment in ART.
2. Approve a 4 million share increase in the number of shares issuable
under our restated equity incentive plan.
3. Elect two class III directors.
4. Attend to any other business properly presented at the annual meeting.
Proposal 1 and Proposal 2 must each be approved by a majority of the shares
of our common stock voted on that proposal. The nominees for director who
receive the greatest number of votes will be elected directors. Only
stockholders of record at the close of business on July 23, 1999 can vote at
the meeting. To grant a proxy to vote your shares, you must complete and return
the enclosed proxy card.
The Board of Directors recommends that you vote in favor of Proposals 1 and
2 and for the election of the nominees for director.
By Order of the Board of Directors
[Signature appears here]
Thomas M. Walker
Secretary
Bellevue, Washington
July 29, 1999
Please vote your shares promptly. Whether or not you plan to attend the
annual meeting in person, please complete, sign and return the enclosed proxy
card. If stockholders do not return proxies in sufficient numbers, we will have
to incur the expense of follow-up solicitations.
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Advanced Radio Telecom Corp.
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Proxy Statement
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Information About the Annual Meeting and Voting
Time and Place of Meeting
The annual meeting of stockholders will be held on September 8, 1999, at
10:00 a.m PDT at the Bellevue Hilton, 100 112th Avenue NE, Bellevue, WA 98004
and at any adjournment.
Voting Rights and Votes Required
Our stockholders who hold their shares of record as of the close of business
on July 23, 1999 are entitled to vote at the annual meeting. On the record date
there were approximately 27,292,272 shares of our common stock outstanding and
entitled to vote at the annual meeting.
The investment and the increase in shares for our restated equity incentive
plan must each be approved by a majority of the shares of our common stock
voted on that proposal. The nominees who receive the greatest number of votes
properly cast for the election of directors will be elected directors.
Voting Your Shares and Changing Your Vote
To be voted, your proxy must be completed, signed and returned to us prior
to voting at the annual meeting. If you are a registered stockholder (that is,
if you hold your stock in your own name), you may also vote by proxy telephone
or electronically through the internet by following the instructions included
with your proxy card. If you hold your shares in "street name," the materials
sent you by your broker will tell you if you will be able to vote by telephone
or electronically. You may revoke a proxy at any time before it is voted by:
. delivering to us another properly signed proxy relating to the same
shares dated a later date,
. casting another proxy vote relating to the same shares by telephone or
the internet at a later date,
. otherwise delivering a written notice to our secretary, dated a later
date, stating that the proxy is revoked, or
. attending the annual meeting or any adjournment and voting the shares
covered by the proxy in person. Attendance at the annual meeting will
not, by itself, revoke your proxy.
At the meeting, we will vote all proxies received in time and not revoked.
Unless you instruct us otherwise, we will vote your proxy to:
. approve the $251 million equity investment in ART.
. increase the number of shares issuable under our restated equity
incentive plan from 4 million to 8 million.
. elect both of the nominees for Class III director.
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How Proxies Are Counted
Our election inspector will count votes cast by proxy or in person. The
election inspector will count shares represented by proxies that reflect
abstentions and so-called broker non-votes as shares that are present and
entitled to vote on the matter for purposes of determining the presence of a
quorum. Broker non-votes are shares represented at the meeting held by brokers
or nominees as to which (a) instructions have not been received from the
beneficial owners or persons entitled to vote, and (b) the broker or nominee
does not have the discretionary voting power on a particular matter.
Abstentions and broker non-votes will have no effect on the outcome of voting
on the investment, the proposed amendment to our restated equity incentive plan
or the election of directors.
Cost of Solicitation
We will bear the cost of soliciting proxies. We will solicit proxies by
mail, telephone, telegraph or otherwise, and some of our officers and employees
may assist in the solicitation without additional compensation. We have also
engaged a professional proxy solicitation firm, Corporate Investor
Communications, Inc., to assist us in soliciting proxies. We will reimburse
brokers for their reasonable charges and expenses in forwarding soliciting
materials to beneficial owners. We estimate that we will spend approximately
$10,000 to solicit proxies for the annual meeting.
Where You Can Find More Information
The Securities Exchange Act of 1934 requires us to file reports, proxy
statements and other information with the SEC. You may inspect and copy such
reports, proxy statements and other information at the public reference
facilities maintained by the SEC at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and at the regional offices of the SEC located at 7
World Trade Center, 13th Floor, New York, New York 10048, and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. You may obtain
more information about the public reference facilities by calling the SEC at 1-
800-SEC-0330. In addition, you may access such reports, proxy statements and
other information electronically by means of the SEC's web site at
http://www.sec.gov. Our common stock is quoted on the Nasdaq National Market
under the symbol "ARTT," and you may also inspect copies of any documents filed
with the SEC at the offices of Nasdaq, 1735 K Street, Washington, D.C. 20006.
Incorporation by Reference
The Exchange Act allows us to "incorporate by reference" information into
this proxy statement. This means that we can disclose important information to
you by referring you to another document filed separately with the SEC. This
proxy statement incorporates by reference the following documents that we have
previously filed with the SEC:
. ART's Annual Report on Form 10-K for the year ended December 31, 1998,
filed April 15, 1999.
. ART's first amendment to its Annual Report on Form 10-K/A for the year
ended December 31, 1998, filed April 19, 1999.
. ART's second amendment to its Annual Report on Form 10-K/A for the year
ended December 31, 1998, filed April 30, 1999.
. ART's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999
filed May 17, 1999.
. ART's Current Report on Form 8-K, filed June 8, 1999.
This proxy statement also incorporates by reference additional documents
that we may file pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange
Act between the date of this proxy statement and the annual meeting.
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Obtaining Copies From ART
You may obtain copies of documents incorporated by reference in this proxy
statement (except exhibits to those documents which are not specifically
incorporated by reference into a publicly filed document), without charge, upon
written or oral request to Advanced Radio Telecom Corp., 500 108th Avenue, NE,
Suite 2600, Bellevue, WA 92004, Attention: Investor Relations (telephone number
(425) 688-8700).
Note Regarding Forward-looking Statements
Some statements about us and our industry under the captions "Questions and
Answers" and "Approval of the Investment" and elsewhere in this proxy statement
are "forward-looking statements." There are also forward-looking statements in
the documents incorporated by reference. These forward-looking statements
include statements about our plans, objectives, expectations, intentions and
assumptions and other statements in this document that are not historical
facts. When we use the words "estimate," "project," "believe," "anticipate,"
"intend," "plan," "expect" and similar expressions in this document, we
generally intend to identify forward-looking statements. Because these forward-
looking statements involve risks and uncertainties, including those in the risk
factors identified in Exhibit 99 to ART's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998, actual results could differ materially
from those expressed or implied by these forward-looking statements. We caution
you not to place undue reliance on these forward-looking statements. Forward-
looking statements speak only as of the date of the document in which they are
made. We do not undertake any obligation to publicly release any revisions to
these forward-looking statements to reflect new information, future events or
otherwise.
iii
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Table of Contents
<TABLE>
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Page
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<S> <C>
Information About the Annual Meeting and Voting........................... i
Where You Can Find More Information....................................... ii
Note Regarding Forward-looking Statements................................. iii
Questions and Answers..................................................... 1
Proposal 1: Approval of the Investment.................................... 5
Proposal 2: Proposed Amendment to ART's Restated Equity Incentive Plan.... 19
Election of Directors..................................................... 23
Compensation and Related Matters.......................................... 25
Security Ownership of Certain Beneficial Owners and Management............ 34
Description of Capital Stock.............................................. 35
Stockholder Proposals..................................................... 38
Other Business............................................................ 38
</TABLE>
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Questions and Answers
The following questions and answers are designed to help you understand the
investment proposal, the proposed amendment to our restated equity incentive
plan and the proxy voting process. These questions and answers only highlight
information in this document. We strongly encourage you to read the full text
of this proxy statement and the documents which we have filed with the SEC. For
information on how to obtain these documents, see "Where You Can Find More
Information" on page ii.
Throughout this proxy statement when we refer to "ART," the "company," "we,"
or "us," we mean Advanced Radio Telecom Corp. By the "investment," we mean the
proposed $251 million equity investment in ART contemplated by the preferred
stock purchase agreement described on pages 7-11. When we refer to the
"investors," we mean U.S. Telesource, Inc., or UST, a subsidiary of Qwest
Communications International Inc., or Qwest, the investment funds led by Oak
Investment Partners, or Oak, and the investment funds associated with our
current stockholders, Advent International Corporation, or Advent, and Columbia
Capital Corporation, or Columbia. The investment and the investors are
described in more detail on pages 6-7.
The Proposed Investment
Q.What is the proposed investment?
A.We have entered into a preferred stock purchase agreement with investors who
have agreed to make a $251 million investment in ART. They will purchase
2,635,909 shares of our newly-created Series A convertible preferred stock and
501,591 shares of our newly-created Series B non-voting convertible preferred
stock at $80.00 per share. This preferred stock is ultimately convertible into
common stock on a 10-for-1 basis. The terms of the preferred stock are
described on pages 7 and 8. The investors have loaned ART $50 million of the
purchase price as a bridge loan, which will be due when the investment closes.
Q.Who are the investors?
A.There are three groups of investors, including (1) UST, a subsidiary of
Qwest, a major internet telecommunications company, (2) leading high-technology
investment funds led by Oak, and (3) investment funds associated with current
stockholders Advent and Columbia. The investment funds led by Oak are
associated with Oak, MeriTech Capital Partners, Accel Partners, Brentwood
Venture Capital, Worldview Technology Partners, Bessemer Venture Partners, Cove
Ventures and Adams Capital. We believe this investor group gives us the
desirable combination of a strategic relationship with Qwest, institutional
investors experienced in high technology data telecommunications, and continued
support from our existing institutional investors.
Q.Will your board of directors change after the investment?
A.Oak and Qwest will each designate a nominee to our board following the
closing of the investment. To maintain a seven person board, two of our current
directors, Mr. Demetree and Mr. Cook, have agreed to resign immediately prior
to the closing. Two of our other current directors, Mr. Fillat, who is
associated with Advent, and Mr. Murray, who is associated with Columbia, are
standing for re-election to our board. The standstill agreement discussed on
page 12 prohibits the directors associated with Advent and Columbia or Advent
and Columbia themselves from forming a group with the other investors,
including for purposes of voting their shares, except to elect the Oak and UST
nominees.
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Q.How much of the voting interest in ART will the investors have?
A.When issued, the Series A preferred stock will represent 45% of our voting
stock. The stockholders agreement, described on page 13, could give the
investors significant influence over matters requiring stockholder approval:
. All of the investors have agreed to vote in favor of the Oak and UST
nominees to the ART board.
. The investors, except Advent and Columbia, will hold approximately 38%
of our voting stock and have agreed to vote on all other matters as Oak
and Qwest mutually direct. If Oak and Qwest disagree on a matter, the
investors may each vote on the matter in their own discretion.
. If either Oak, together with the funds associated with MeriTech and
Worldview, or UST sells a significant portion of its stock, the
stockholders agreement may allow the non-selling investor to
individually direct the voting of the remaining investor stock so long
as the non-selling investor continues to hold a significant portion of
its stock.
Q.What will be the investors' equity interest in ART as a result of the
investment?
A.Because the investors will also purchase Series B non-voting preferred stock,
the total equity interest, as opposed to voting interest, that the investors
will purchase in ART will be approximately 53% of our outstanding capital
stock. During the term of the standstill agreement, described on page 12, the
investors, other than Columbia and Advent, generally will not be permitted to
increase their equity interest in ART.
Q.Why are you proposing this investment?
A.Our board of directors believes the investment is in the best interests of
ART. Our financial resources are extremely limited. Without the $50 million
bridge loan provided by the investors, we expected to run out of operating
funds in July 1999. To build our wireless broadband data networks and execute
our business plan, we need a very significant amount of capital. We have
engaged in numerous discussions with various potential investors over the past
year, and our board believes that this investment represents the best available
alternative and a very attractive opportunity for current investors to realize
long term value. The investment will supply us with a significant amount of
much-needed capital. We have also established a strategic relationship with
Qwest through a private-line agreement, broadband services agreement, co-
location agreement and coordinated marketing agreement with Qwest. We believe
that this strategic relationship as well as the high-tech experience of Oak and
the other investors will reduce the execution risks associated with building
out our networks and meeting the goals of our business plan.
Q.Is the investment fair from a financial point of view?
A.Our directors think so, and so does our financial advisor, Morgan Stanley &
Co. Incorporated. Prior to entering into the agreement with the investors, our
board received an opinion from Morgan Stanley that, as of the date of such
opinion, the investment terms were fair to ART from a financial point of view.
Q.Why are you seeking stockholder approval?
A.Our common stock trades on the Nasdaq National Market. The rules of the
National Association of Securities Dealers require a Nasdaq National Market
company like ART to receive stockholder approval before selling or issuing
common stock or stock convertible into common stock that represents 20% or more
of the company's outstanding common stock if the stock is issued at a price
below market value at the time the parties agree to the investment. Because the
as-converted price of $8.00 per share of common stock at which
2
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we are selling stock to the investors was below the trading price of our common
stock on Nasdaq at the time of our agreement with the investors, we must have
the approval of a majority of the stockholders who vote on the investment
proposal.
Q.If the stockholders approve the investment, when will it occur?
A.We expect to close the investment as soon as possible after the annual
meeting.
Q.Will the investment change ART's business and strategy?
A.We will use the $251 million we receive from the investment, after payment of
fees and transaction expenses estimated to be approximately $7 million, to
accelerate the implementation of our business plan. We now plan to build
broadband, wireless, high-speed metropolitan area networks in 40 of the top 50
markets in the United States over the next three years. Qwest will provide our
fiber-optic network backbone, and we will provide Qwest with broadband local
wireless access. We will co-locate equipment with Qwest where desirable, and
our two companies will jointly market our products where desirable. We also
plan to explore growth strategies related to our international assets.
Q.How will the investment affect my shares of common stock?
A.The investment will not directly affect your shares of common stock. Our
common stock will continue to trade on the Nasdaq National Market under the
symbol "ARTT." However, the Series A preferred stock is convertible into common
stock at any time at the option of the investors. In addition, subject to the
restrictions on conversion of Series B preferred stock, the preferred stock
automatically converts into common stock upon the occurrence of specific
events. Full conversion would significantly increase the number of outstanding
shares of common stock. We cannot predict what effect the issuance of the
preferred stock or the issuance or sale of common stock on its conversion will
have on the price of our common stock.
Q.What has to happen in order for the investment to be made?
A.In addition to stockholder approval, the waiting period under the Hart-Scott-
Rodino Act must expire or be terminated. We must also obtain the consent of the
holders of two-thirds of the principal amount of our 14% senior notes to
material amendments to the indenture relating to those notes. We are currently
soliciting this consent. There are a number of other customary closing
conditions.
Q.Can the investors choose not to make the investment?
A.The investors, acting as a group, may terminate the agreement without our
consent only if:
. a court or other governmental entity takes any action to prohibit the
purchase of the preferred stock;
. the investment does not close by the second business day following the
date the bridge loan is due;
. our representations or warranties in the agreement (without regard to
materiality qualifiers) are incorrect, or we materially breach any
covenant in the agreement, in such a manner as to cause a material
adverse effect on ART;
. stockholder approval is not obtained by October 29, 1999, or a later
date agreed by the parties; or
. ART or our board of directors authorizes or recommends an alternative
transaction or withdraws the board's approval of the investment or
modifies it in any way that is adverse to the investors.
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Q.What will happen if the stockholders do not approve the investment proposal?
A.If the stockholders do not approve the investment proposal:
. The investors would have the right to terminate the agreement.
. On termination of the agreement, the $50 million bridge loan will be
immediately due and payable. Unless we have alternative financing, we
would be unable to repay the bridge loan. This would cause a default and
right to accelerate under our $135 million aggregate principal amount
14% senior notes and our $35 million of borrowings from Lucent
Technologies, Inc.
. We would also need to obtain alternative financing to continue operating
our business.
. The five-year warrants to purchase one million shares of our common
stock at $.01 per share, which were issued to investors as a termination
fee, would become exercisable.
The Proposed Amendment to the Restated Equity Incentive Plan
Q.How are you proposing to amend the plan?
A.We are asking you to approve an amendment to our restated equity incentive
plan that would increase the number of shares of common stock issuable under
the plan from 4 million to 8 million shares.
Q.Why are you proposing this amendment?
A.We have used all shares currently authorized under the plan. We believe that
additional shares of common stock must be made available for awards under the
plan in order to continue the plan's success in attracting, retaining and
rewarding persons who can make significant contributions to our success.
Options and other equity incentive awards also strengthen the commonality of
interest between employees and stockholders necessary to build long-term,
sustainable stockholder value. Finally, under the agreement we are obligated to
seek this increase.
Q.How does the board of directors suggest that I vote?
A.The board of directors recommends that you vote "FOR" the investment, the
proposed amendment to the plan and the election of directors.
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Proposal 1: Approval of the Investment
About ART
ART intends to become a leading provider of broadband data services to
businesses not directly served by fiber-optic networks. Utilizing our national
footprint of 38 GHz spectrum licenses, we are building fixed wireless, packet-
switched broadband networks utilizing internet protocol, fast ethernet and
asynchronous transfer mode technology. We currently serve Seattle, Washington,
Portland, Oregon, and Phoenix, Arizona. We currently offer an integrated
package of data solutions including internet access, web hosting, web based
content, virtual private networks, web design and internet portal service and
intend to also offer electronic commerce applications, multimedia services,
voice and fax over internet protocol and other value-added data services.
The investment will allow ART to significantly accelerate the implementation
and evolution of its business plan. We plan to build broadband wireless high-
speed metropolitan area networks in 40 of the top 50 U.S. markets over the next
three years. In connection with the investment, Qwest and ART have agreed to
integrate their wireless and fiber-optic networks. Our spectrum licenses and
high-speed data communications infrastructure combined with Qwest's fiber
network will enable us to deliver broadband network applications and services
to more than 50 percent of U.S. businesses.
The Investment
You are being asked to vote upon a proposal to approve the investment
contemplated by the preferred stock purchase agreement among ART and the
investors. On the date of the agreement, the investors loaned us $50,000,000 as
a bridge loan. The bridge loan is due on the earlier of the closing of the
investment and October 29, 1999.
Following shareholder approval and the satisfaction or waiver of other
conditions to closing, we will issue 2,635,909 shares of Series A convertible
preferred stock and 501,591 shares of Series B non-voting convertible preferred
stock to the investors. The Series A convertible preferred stock is convertible
at the option of the investors at any time into ten shares of common stock. The
Series B non-voting convertible stock is ultimately convertible into ten shares
of common stock. In return, the investors will pay us $251 million.
Reasons for the Investment
As we previously announced, we engaged Morgan Stanley & Co., Incorporated to
seek private investment capital when we were unable to complete our May 1998
high-yield debt offering. After an extensive search, we entered into
negotiations with two potential investor groups other than the investors, and
our management concluded that this investment had features that were superior
to our other alternatives and had better economic terms. In May 1999, ART's
executives, legal counsel and investment bankers engaged in extensive arm's
length discussions with the investors and the investors' counsel to negotiate
the agreement and related documents. After lengthy discussion, our board of
directors approved the investment on May 28, 1999, including the issuance of
shares of the Series A preferred stock and Series B preferred stock to the
investors, and the agreement was signed on June 1, 1999. Our board of directors
approved and recommended this investment for the following principal reasons:
. superior economic and other transaction terms;
. greater invested capital to fund and accelerate the implementation of
our business plan;
. strategic relationship with Qwest; and
. financial investors knowledgeable in high-technology data
telecommunications.
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Our board believes, after careful review, that the investment represents the
best available alternative and a very attractive opportunity for current
investors to realize long-term value.
Reason for Seeking Stockholder Approval
Companies listed on the Nasdaq National Market must receive stockholder
approval before issuing or selling common stock or securities convertible into
common stock that represents 20% or more of the outstanding common stock at a
price below market value at the time the parties agree to the investment. A
failure to comply with this requirement could result in delisting from the
Nasdaq National Market. The preferred stock to be issued in the investment
reflects an as-converted price of $8.00 per share of common stock. Our stock
closed at $11.313 on May 28, 1999, the last business day prior to the
announcement of our agreement with the investors, and therefore, we must have
the approval of a majority of the stockholders who vote on the investment
proposal.
The Investors
The investors listed below or investment funds associated with the investors
listed below have agreed to invest the following amounts in ART. Additional
information about the lead investors is provided below.
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Investors Investment
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U.S. Telesource, Inc. (a wholly-owned subsidiary of Qwest)... $ 90,000,000
Oak Capital Partners......................................... $ 40,000,000
MeriTech Capital Partners.................................... $ 25,000,000
Advent International Corporation............................. $ 20,000,000
Columbia Capital Corporation................................. $ 20,000,000
Accel Partners............................................... $ 15,000,000
Brentwood Venture Capital.................................... $ 15,000,000
Worldview Technology Partners................................ $ 15,000,000
Bessemer Venture Partners.................................... $ 5,000,000
Cove Ventures, LLC........................................... $ 3,000,000
Adams Capital Management..................................... $ 3,000,000
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Total...................................................... $251,000,000
============
</TABLE>
UST/Qwest
Qwest is a leader in reliable and secure broadband internet-based data,
voice and image communications for businesses and consumers. Qwest also
provides high-volume voice and conventional private line services to
communications providers, internet service providers and other data service
companies and installs fiber optic systems for itself and for other
communications providers. Qwest expects to complete a 18,500 mile fiber network
in the U.S. in mid-1999, has formed a venture to build and operate a high-
capacity 9,100 mile European fiber-optic, internet protocol based network
planned to be completed to 2001, and has almost completed a 1,400 mile Mexican
network. UST, a subsidiary of Qwest, has agreed to purchase $90 million of
preferred stock.
Oak Investment Partners
Oak is a venture capital fund that finances technology and communications
companies. Oak has organized eight partnerships with over $1.6 billion in
committed capital. These partnerships have invested in over 290 companies, and
past investments have included Actel, Compaq Computer, Exodus, Inktomi, Network
Equipment Technology, Octel, Parametric Technology, PictureTel, Seagate,
Stratus, SanDisk, Sybase, Synopsys, Ungerman-Bass and Wellfleet. Funds managed
by Oak have agreed to purchase $40 million of our preferred stock in the
investment. Oak led the group of investors other than UST, Advent and Columbia.
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The Existing Stockholder Investors
Advent has been an investor in ART since March 1996 and Columbia has been an
investor in ART since February 1997. Advent is a private equity investment firm
with $3.5 billion under management. Funds managed by Advent invest in companies
in a variety of industries worldwide. Advent's past investments have included
Lightbridge, Worldgate Communications, Cascade Communications, P-Com, Seachange
International, Acer, Versant Object Technology, Eunet International, PrimaCom
AG and WNP Communications. Columbia is a private equity firm focused
exclusively on the telecommunications and information technology industries.
Columbia's past investments have included Nextel Communications, Saville
Systems, Digital Television Services, Torrent Networking Technologies and WNP
Communications. Funds managed by Advent and Columbia have each agreed to
purchase $20 million of preferred stock.
Summary of the Preferred Stock Purchase Agreement
The Bridge Loan
The investors have loaned us $50,000,000 at 11% interest as a bridge loan.
The bridge loan is due on the earlier of the closing of the investment and
October 29, 1999, unless two-thirds of the investors agree to extend the due
date.
We are relying on the proceeds of the investment to repay the bridge loan.
If stockholders do not approve the investment, the agreement may be terminated
by the investors, and the bridge loan will become immediately due. Unless we
have alternative financing in place when the agreement is terminated, we will
be unable to repay the bridge loan. This will cause a default of our $135
million 14% senior notes and our $35 million of financing from Lucent
Technologies, Inc. We cannot assure you that we would be able to arrange for
replacement financing. In such an event, we could face bankruptcy proceedings.
Sale of the Preferred Stock
The investors have agreed to purchase 2,635,909 shares of Series A
convertible preferred stock and 501,591 shares of Series B non-voting
convertible preferred stock, each at a price of $80.00 per share.
Summary of Preferred Stock
Series A Preferred Stock
Voting. The Series A preferred stock votes on an as-converted basis with the
common stock. This means that each share of Series A preferred stock will
initially have ten votes. The Series A preferred stock will represent 45% of
our total outstanding voting stock.
Dividends. In any year, we may not pay any cash dividend on common stock or
the Series C preferred stock described below unless in that year we have paid a
cash dividend of $80.00 per share on the Series A preferred stock.
Liquidation Preference. The holders of the Series A preferred stock are
entitled to an initial liquidation preference of $80 per share, subject to
adjustments, plus any declared and unpaid dividends. On liquidation, after
payment of the initial $80 preference amount, Series A preferred stock also
participates on a pro rata basis with the common stock and the Series C
preferred stock until each share of Series A preferred stock has received a
total liquidation amount of $160.
No Redemption. We are not required to redeem the Series A preferred stock.
Conversion. Holders of the Series A preferred stock may convert their Series
A preferred stock at any time into ten shares of common stock. The conversion
ratio may be increased or decreased as a result of stock
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spits, dividends, recapitalizations and similar events. The Series A preferred
stock automatically converts into common stock if:
. we sell stock yielding net proceeds of at least $75,000,000 at a price
of not less than $18 per share;
. our common stock trades at not less than $18 for 30 of 40 consecutive
trading days at any time after June 1, 2001;
. two-thirds of the then-outstanding preferred stock agree to convert into
common stock; or
. 75% of the preferred stock originally issued in the investment has
converted into common stock.
Series B Non-Voting Preferred Stock
The Series B non-voting preferred stock is like the Series A preferred stock
except that it is non- voting and has different conversion rights.
Voting. The Series B preferred stock will not vote on matters generally
submitted to the stockholders. However, under Delaware law, the Series B
preferred stock is entitled to vote as a class on matters that adversely
affects it as a class.
Conversion. Series B preferred stock will automatically convert on a 1-for-1
basis into Series A preferred stock whenever the voting power of the investors
falls below 45% of our outstanding voting stock. Common stock either held by
Advent and Columbia prior to the investment or purchased by them later is not
included in the voting power of the investors for this purpose. The conversion
rate is subject to proportional adjustment for stock splits, stock dividends,
combinations and recapitalizations. In addition, any outstanding Series B
preferred stock will automatically convert on a 1-for-1 basis into Series C
non-voting junior preferred stock if the Series A preferred stock automatically
converts into common stock.
Series C Non-Voting Junior Preferred Stock
One share of Series C non-voting junior preferred stock has the same rights
as ten shares of common stock, except that the Series C preferred stock is non-
voting. See pages 35 and 36 for a description of our common stock.
Voting. The Series C preferred stock will not vote on matters generally
submitted to the stockholders. However, under Delaware law, the Series C
preferred stock is entitled to vote as a class on matters that adversely
affects it as a class.
Conversion. Series C preferred stock automatically converts into common
stock on a 10-for-1 basis whenever the voting power of the investors falls
below 45% of our outstanding voting stock. The common stock held by Advent and
Columbia prior to the investment or purchased after the investment is not
included in the voting power of the investors for this purpose. The conversion
ratio is subject to proportional adjustment for stock splits, stock dividends,
combinations and recapitalizations.
Warrants Issued To Serve As a Termination Fee
We issued warrants to the investors that will function as a termination fee
if the investment does not occur for specific reasons. The warrants are five-
year warrants to purchase an aggregate of one million shares of common stock at
$.01 per share. They are exercisable only if the agreement is terminated
because:
. stockholder approval is not obtained by October 29, 1999 or a later date
agreed to by the parties;
. our representations or warranties in the agreement (without regard to
materiality qualifiers) are incorrect or we materially breach any
covenant in the agreement in such manner as to cause a material adverse
effect on ART; or
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. ART or our board of directors authorizes or recommends an alternative
transaction or withdraws the board's approval of this investment or
modifies it in a way that is adverse to the investors.
Representations and Warranties
In the agreement, the investors made a number of representations to us about
themselves and their qualifications to purchase the preferred stock, which are
standard in contracts of this type. In addition, we made a number of
representations and warranties to the investors that are standard in contracts
of this type. Our representations and warranties are statements about ART and
its business, including descriptions of our current corporate structure,
financial condition, liabilities, the status of our licenses and regulatory
compliance.
Agreements to Take Further Actions
We also agreed to take various actions in the future. For instance, we
agreed to make required filings with the Federal Trade Commission and to obtain
consents and approvals necessary to close the investment. In addition, we
agreed to the following:
Alternative Transactions. We agreed not to enter into any agreement,
solicit, initiate or encourage any inquiry or proposal, participate in any
discussions, or furnish any information regarding transactions that could serve
as an alternative to the financing provided by the investment. In particular,
we may not solicit or encourage any of the following alternative transactions:
. the acquisition from us of stock representing 25% or more of our total
outstanding capital stock;
. a merger or consolidation transaction that causes our current
stockholders to own less than 75% of our equity securities outstanding
immediately after such transaction;
. the sale of all or a substantial portion of our assets; and
. any transaction where a majority of the board members after the closing
were not members of or nominees to our board before such transaction.
Despite this prohibition, we may entertain an unsolicited proposal, may
accept the proposal, and may make a recommendation to stockholders that we
enter into the alternative transaction instead of the investment, but only if
we have:
. first determined that the alternative proposal is both more favorable to
us and that our board is required in the exercise of its fiduciary
duties to consider the alternative;
. promptly furnished all relevant information that was provided to the
prospective new investors to the investors; and
. promptly informed the investors that we propose to accept an alternative
proposal and negotiated for two business days with the investors before
accepting any alternative proposal.
UST and Oak To Designate Two Nominees for Director. UST will be entitled to
designate a nominee to be a Class II director for so long as it and its
affiliates own at least one-quarter of the shares it purchased in the
investment. Oak will be entitled to designate a nominee to be a Class I
director for so long as it and the other investors, other than Advent, Columbia
and UST, own at least one-quarter of the shares they purchased in the
investment. We have agreed to use our best efforts to ensure that our board
nominates and presents to our stockholders the proposed election of those
designees. Any board committee must include one of the investors' nominees.
Following the closing, our board will elect these two designees. Two of our
current board members, Mark C. Demetree and James D. Cook, have agreed to
resign immediately prior to the closing of the investment to make room for the
investors' designees.
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By class vote, the investors will have the right to elect their two
designees for as long as they hold two-sevenths of our outstanding voting stock
on an as-converted basis and will have the right to elect one nominee so long
as they hold one-seventh of our outstanding voting stock on an as-converted
basis.
Special Stock Purchase Rights. If we raise capital through the issuance of
equity securities, we have agreed to let the investors purchase those
securities in proportion to their stock holdings at the time of the issuance.
These rights do not apply to securities issued:
. under any ART equity incentive plan or benefit plan;
. in connection with any stock split, stock dividend or other similar
event;
. pursuant to our stockholders rights plan;
. in a private placement customarily known as a "144A Offering;"
. to financial institutions or other lenders in connection with any debt
offering or borrowing;
. in a registered public offering;
. as consideration for the acquisition or an investment in another
company; and
. on conversion of preferred stock or exercise of outstanding securities.
Conditions That Must Be Met Before Closing the Investment
The agreement provides that the following conditions must be met before
either ART or the investors will be obligated to close the investment:
Stockholder Approval. We must receive the approval of at least a majority of
the votes cast on this proposal at the annual meeting.
No Injunctions Restraining the Investment. There must be no court order
restraining the investment.
Performance of Obligations, Receipt of Consents. ART must have performed its
obligations under the agreement in all material respects and obtained all
consents and permits that must have been performed or obtained by closing
unless the failure would not result in a material adverse effect on ART.
Hart-Scott-Rodino Approval. ART, UST and Oak have received approval from the
Federal Trade Commission under the Hart-Scott-Rodino Act as required by the
agreement.
In addition, the following conditions must be met before the investors will
be obligated to close the investment:
Representations and Warranties. All of our representations and warranties
must be true and correct on the day of closing except where failure to be true
would not result in a material adverse effect on ART.
Amendment of ART's Senior Note Indenture. ART has obtained the consent of
holders of its 14% senior notes to material amendments to the indenture as
required by the agreement.
Circumstances Under Which The Investors or ART Can Terminate the Agreement
We can agree with the investors to terminate the agreement at any time. The
investors, acting by two-thirds in interest, may also terminate the agreement
if:
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. a court or other governmental entity has prohibited the investment;
. the investment does not close by the second business day following the
date the bridge loan is due;
. our representations or warranties in the agreement are not true or we
have breached our agreements and in either case we have not fixed the
problem in 45 days;
. stockholder approval is not obtained by either October 29, 1999, or any
later date agreed to by the investors and us; and
. ART or our board of directors authorizes or recommends an alternative
transaction, or withdraws the board's approval of the investment or
modifies it in a way that is materially adverse to the investors.
We may also terminate the agreement if:
. a court or other governmental entity has prohibited the investment;
. the investment does not close by the second business day following the
date the bridge loan is due;
. the representations or warranties of the investors in the agreement are
not true or the investors have breached their agreements and in either
case the investors have not fixed the problem in 45 days;
. our board of directors determines that an unsolicited bona fide proposal
from a third party is superior to the investment and concludes in good
faith that it is required to consider the proposal in the exercise of
their fiduciary duties. If our board reaches this conclusion, it must
give the investors two business days notice of its intention to
terminate the agreement and must negotiate with the investors during
that two day period with respect to concluding this investment instead
of the other proposal.
Payment of Fees and Expenses Related to the Investment
We have agreed to pay up to $150,000 of the fees and expenses of the
investors in connection with the preparation and delivery of the agreement and
the agreements documenting the investment. We have also agreed to pay up to
$180,000 of the fees and expenses of the investors in connection with the
filings required by the Hart-Scott-Rodino Act.
Summary of the Standstill Agreement
Standstill Provisions
We have entered into a standstill agreement with the investors, other than
Columbia and Advent. The investors that are parties to the standstill agreement
may not:
. acquire more of our equity securities, other than pursuant to the
purchase rights described above under "Special Stock Purchase Rights"
and other limited exceptions;
. participate in any proxy solicitation;
. join any group for purposes of voting our securities or acquiring our
securities or assets, other than to the extent provided for in the
stockholders agreement described below;
. seek representation on our board, other than their right described above
to nominate up to two directors; or
. propose, or discuss with third parties, transactions involving the
acquisition of ART.
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The standstill agreement ends on the earliest of:
. the fourth anniversary of the closing of the investment;
. the termination of the agreement; and
. the date neither UST nor Oak has a representative on our board or the
right to designate nominees, which will occur when both UST, on the one
hand, and Oak, together with MeriTech and Worldview, on the other hand,
have sold at least 75% of the stock that they purchased in the
investment.
Some of these restrictions would be temporarily suspended if, prior to the
closing of the investment, we receive an acquisition proposal from a third
party, and (a) we announce that we are considering the proposal or have engaged
in discussions with respect to the proposal, (b) withdraw or modify our
approval of the investment, or (c) notify the investors of our intent to
terminate the agreement.
After the closing, these restrictions and the transfer restrictions
described below would be temporarily suspended if:
. a tender offer for more than 50% of our voting power is commenced by a
third party and either (a) we do not recommend against accepting the
offer within ten days or (b) we eliminate any of our take-over defenses,
such as our rights plan;
. we do not reject a bona fide written acquisition proposal received from
a third party within 15 days;
. we have a change of control or enter into an agreement that would result
in a change of control;
. we make a public announcement that ART is "for sale;"
. a third party launches a proxy solicitation to obtain control of our
board and we do not timely recommend against the solicitation; or
. we have liquidated or entered into a plan of liquidation.
Transfer Restrictions
During the term of the standstill agreement, but only until the second
anniversary of the closing of the investment, the investors, other than
Columbia and Advent, may not transfer any of our equity securities except for
transfers:
. to affiliates that agree to be bound by the standstill agreement;
. that are distributions by partnerships to limited partners that are not
affiliates;
. to the public under Rule 144 under the Securities Act of 1933 or
pursuant to their exercise of registration rights;
. to any person who is not an affiliate of the investor that would then
own less than 10% of our voting power; or
. to various funds managed by institutional managers.
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Summary of Stockholders Agreement
Voting to Elect Nominees
The investors have entered into a stockholders agreement which will become
effective when the investment closes. We are not a party to this agreement. All
of the investors have agreed to vote in favor of the election of the UST and
Oak designees to our board. Shares owned by affiliates of Advent and Columbia
Capital that are not acquired in this investment are not governed by this
agreement.
Voting on Other Matters
The investors other than Advent and Columbia have agreed to vote as agreed
by Oak and UST on all other matters to come before our stockholders. However,
if Oak and UST are unable to agree as to how to vote on any matter, each
investor may vote on its own. Either Oak or UST or Oak will have the sole right
to control the voting of all remaining investors if UST, on the one hand, or if
Oak, together with MeriTech and Worldview, on the other hand, sells more than
one half of the shares it originally purchased. This provision could permit as
much as 36% of our voting stock to vote as a block under the direction of one
investor, and would give that one investor significant influence over any
matters requiring stockholder approval.
Transfer Restrictions
Under the stockholders agreement, until the Series A preferred stock is
automatically converted into common stock, the investors, other than Advent and
Columbia, may not transfer their shares except to their limited partners or
affiliates or when exercising the investors' registration rights described
below. No transfers to their limited partners are allowed until the day after
the day on which the directors to be elected at our 2000 annual meeting of
stockholders are in fact elected.
Summary of Our Commercial Agreements with Qwest
We have entered into a private line agreement, a co-location license
agreement, a broadband services agreement and a coordinated marketing agreement
with Qwest. In these contracts, we agreed to integrate our local broadband
wireless networks with Qwest's fiber-optic network using Qwest as our exclusive
provider of fiber-optic network backbone, agreed to co-locate equipment with
Qwest where desirable and agreed to jointly market our products with Qwest
where desirable. If the agreement is terminated, either ART or Qwest may
terminate these agreements. We entered into these agreements because we believe
that Qwest will be a valuable strategic partner for us. However, we can not
assure you that our partnership with Qwest will benefit ART or that the planned
partnership will be successful.
Summary of the Registration Rights Agreement
We have entered into a registration rights agreement with the investors. The
investors are entitled to require that we register with the SEC the common
stock issuable on conversion of their preferred stock on six occasions, so long
as the market value of the shares registered at any one time is at least $25
million. In addition, the investors are entitled to require us to register
shares on a short-form registration statement, or Form S-3, an unlimited number
of times, so long as the market value of the shares registered at any one time
is at least $20 million. We are not obligated to file more than two
registrations in any 12 month period. In addition, the investors are entitled
to include their shares of common stock in any registered offering we complete
either on our behalf or on behalf of other investors, subject to some
restrictions. We have agreed not to give additional registration rights to
third parties unless the rights are junior to the investors' rights and all
other outstanding registration rights. This agreement terminates on June 1,
2004.
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Interests of Our Directors and Officers
You should be aware that the investment may benefit our officers and
directors. The investment will qualify as a change of control under our
executive officers' change of control agreements, entitling them to various
benefits if they are terminated within 24 months of the investment, including
cash payments, vesting of stock options, and continued life and medical
insurance benefits. See "Compensation--Employment Agreements" on pages 27-29.
In addition, under our restated equity incentive plan, if, after the
investment, an officer is terminated without cause or resigns with good reason,
all unvested options held by the officer will vest, all options will be
exercisable for the shorter of four years or their original duration and all
other awards will vest. Our compensation committee may also award this benefit
to an officer who resigns after a change of control.
The investment is also a change of control under our current equity
incentive plan for non-employee directors and its predecessor plan for non-
employee directors. Under both plans, if any non-employee director ceases to be
a director from two days before until the second anniversary of the closing,
any options granted under the plans to such director will vest and become
immediately exercisable, and will remain exercisable until the earlier of (a)
the fourth anniversary of the director's termination and (b) the last date on
which such option could have otherwise been exercisable.
Two of our current directors are affiliated with two of the investors. Mr.
Fillat is a Managing Director of Advent and Mr. Murray is a Managing Director
of Columbia. Neither Advent nor Columbia took part in the negotiations of the
investment with ART, and both Mr. Fillat and Mr. Murray recused themselves from
all action on the investment. Both Advent and Columbia agreed to participate in
the investment on whatever terms were negotiated by the lead investors.
Recommendation of ART's Board of Directors
Our board of directors believes that the investment is fair and in the best
interests of ART and recommends that you vote "FOR" the investment. Because of
the participation of Advent and Columbia in the investment, Mr. Fillat and Mr.
Murray abstained from this recommendation.
Opinion of Financial Advisor
In June 1998, ART retained Morgan Stanley & Co. Incorporated to act as ART's
financial advisor in connection with a proposed sale of minority equity
interests in ART. At the May 28, 1999 meeting of ART's board of directors,
Morgan Stanley delivered its oral opinion that, as of that date and subject to
the various considerations in its opinion, the consideration to be received by
ART in the investment was fair from a financial point of view to ART. Morgan
Stanley confirmed its oral opinion by subsequently delivering a written opinion
dated May 28, 1999 to ART's board of directors.
The full text of Morgan Stanley's written opinion, which describes the
assumptions Morgan Stanley made, the procedures it followed, the matters it
considered and the limitations on its review is attached as Attachment A to
this proxy statement. Morgan Stanley's opinion is directed to ART's board and
addresses only the fairness of the consideration received by ART in the
investment from a financial point of view as of the date of the opinion. It
does not address any other aspect of the investment and is not an opinion or a
recommendation as to how you should vote at the annual meeting. This is only a
summary of Morgan Stanley's opinion. You should read all of Morgan Stanley's
opinion, which is attached to this proxy statement.
In arriving at its opinion, Morgan Stanley:
. reviewed certain publicly available financial statements and other
information of ART;
. reviewed certain internal financial statements and other financial and
operating data concerning ART prepared by the management of ART;
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. analyzed certain financial projections prepared by the management of
ART;
. discussed the past and current operations and financial condition and
the prospects of ART with senior executives of ART;
. discussed ART's business plan and long-term strategic objectives with
senior executives of ART;
. reviewed the reported prices and trading activity for ART's common
stock;
. compared the financial performance of ART and the prices and trading
activity of ART's common stock with that of certain other comparable
publicly-traded companies and their securities;
. reviewed the financial terms, to the extent publicly available, of
certain comparable transactions;
. participated in discussions and negotiations among representatives of
ART, the investors and certain other parties and their financial and
legal advisors;
. reviewed a draft of the Preferred Stock Purchase Agreement dated May 27,
1999, a draft of the Certificate of Designation, Preferences and Rights
of the Series A Convertible Preferred Stock the Series B Non Voting
Convertible Preferred Stock and the Series C Junior Preferred Stock
dated May 27, 1999 and certain documents related to the foregoing;
. reviewed drafts of certain agreements between ART and Qwest, including a
draft of the Coordinated Marketing Agreement dated May 19, 1999, a draft
of the Collocation License Agreement dated May 27, 1999, a draft of the
Advanced Radio Telecom Broadband Services Agreement dated May 27, 1999
and a draft of the Qwest Communications Corporation Private Line
Services Agreement dated May 27, 1999; and
. performed such other analyses and considered such other factors as it
had deemed appropriate.
In rendering its opinion, Morgan Stanley assumed and relied upon, without
independent verification, the accuracy and completeness of the information
reviewed by Morgan Stanley for purposes of its opinion. With respect to the
financial projections, Morgan Stanley assumed they had been reasonably prepared
on bases reflecting the best currently available estimates and judgments of the
future financial performance of ART. Morgan Stanley did not make any
independent valuation or appraisal of the assets or liabilities of ART, nor was
it furnished with any such appraisals. Morgan Stanley assumed the investment
would be consummated in accordance with the terms set forth in the preferred
stock purchase agreement. Morgan Stanley was not engaged to, and in arriving at
its opinion did not, evaluate nor solicit transactions which may be available
to ART other than minority equity investments. Morgan Stanley's opinion is
necessarily based on economic, market and other conditions as in effect on, and
the information made available to Morgan Stanley as of, the date of its
opinion.
The following is a brief summary of the material analyses that Morgan
Stanley performed and that ART's board reviewed in connection with Morgan
Stanley's delivery of its opinion to ART's board. Some of these summaries of
financial analyses include information presented in tabular format. In order to
fully understand the financial analyses that Morgan Stanley used, you should
read the tables together with the text of each summary. The tables alone do not
completely describe the financial analyses.
Assessment of ART's Liquidity and Funding Requirements. Morgan Stanley noted
several qualitative factors when making its presentation to ART's board. Morgan
Stanley observed that ART failed to raise high yield debt capital in early to
mid-1998 and that ART needed a significant near-term capital infusion in order
to continue to operate its business in the manner anticipated by its business
plan. Morgan Stanley noted that certain alternative sources of financing, such
as a public offering of equity or debt, were unavailable to ART. Morgan Stanley
noted that it contacted a substantial number of potential investors to solicit
a minority equity
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investment in ART but had limited success. Morgan Stanley reviewed its analyses
in light of the fact that ART needed a significant near-term capital infusion
to continue operating. Morgan Stanley noted that the potential values of ART
produced by some of its analyses were only relevant if ART were to receive a
significant investment of equity capital, since these analyses viewed ART as a
going concern.
Historical Stock Performance Analysis. Morgan Stanley's analysis of the
performance of ART's common stock consisted of a historical analysis of closing
prices and trading volumes from the date of ART's initial public offering of
stock on November 5, 1996 through and including May 24, 1999. During this
period, ART's common stock achieved a high price of $16.38 and a low price of
$2.13, based on its closing share prices. Morgan Stanley also calculated the
following average closing share prices for ART's common stock as of March 30,
1999, the day prior to ART's announcement that ART was in negotiations with
several parties for significant equity investments in ART, and the
premiums/discounts implied by the transaction price:
<TABLE>
<CAPTION>
Average Closing
Share Price of Transaction Price
Period Ending March 30, 1999 Common Stock Premium/(Discount)
---------------------------- --------------- ------------------
<S> <C> <C>
Since Initial Public Offering (November
14, 1996).............................. $ 9.29 (13.9)%
Last 24 Months.......................... $ 8.66 (7.6)%
Last 18 Months.......................... $ 8.67 (7.8)%
Last 12 Months.......................... $ 7.91 1.2 %
Last 6 Months........................... $ 6.44 24.2 %
Last 3 Months........................... $ 8.43 (5.1)%
Last 1 Month............................ $ 9.31 (14.1)%
Last 1 Week............................. $11.08 (27.8)%
</TABLE>
Broadband Spectrum Valuation Analysis. Morgan Stanley reviewed and analyzed
public information relating to the financial terms of two related transactions
involving broadband wireless spectrum licenses. The transactions reviewed
included the acquisitions by NEXTLINK Communications, Inc. of WNP
Communications, Inc. and a 50% interest in NEXTBAND Communications, LLC. Morgan
Stanley noted that the primary assets of both WNP and NEXTBAND were broadband
wireless spectrum licenses and that neither company was providing
telecommunications services using its respective spectrum. Morgan Stanley's
analysis included a review of the aggregate value paid expressed as a multiple
of several measures of WNP's and NEXTBAND's wireless spectrum. Based on this
analysis, Morgan Stanley estimated a range of $2.97 to $11.55 equity value per
share for ART's licensed domestic spectrum. Morgan Stanley noted that the
implied offer price of $8.00 per share was within this range.
No transaction utilized in the selected transactions analysis is identical
to the investment. In evaluating the selected transactions, Morgan Stanley made
judgments and assumptions about industry performance and about general
business, economic, market and financial conditions. Morgan Stanley also
considered other matters, many of which are beyond ART's control. Some of these
uncontrollable matters are the impact of competition on ART's business and the
industry generally, industry growth, and assumed the absence of any adverse
material change in ART's financial condition and prospects or in the industry
or the financial markets in general. Mathematical analysis, such as
computations of averages or medians, is not a meaningful method of using
selected transactions data unless other factors are also taken into
consideration.
Selected Companies Analysis. Morgan Stanley reviewed and compared certain
financial and operating information relating to ART to corresponding
information for a group of selected publicly traded telecommunications
companies, consisting of WinStar Communications, Inc., Teligent, Inc. and
NEXTLINK. The selected companies were chosen as representative of wireless
telecommunications service companies based on their general business, operating
and financial characteristics. Morgan Stanley noted that none of the selected
companies was in need of a significant near-term capital infusion to continue
operating, limiting the usefulness of any comparison.
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In its analysis, Morgan Stanley reviewed each company's respective aggregate
value, calculated as market value of equity plus net debt and preferred stock,
expressed as a multiple of various financial and operating statistics compared
to ART. Among those statistics were revenues, gross invested capital, net
invested capital (which is gross invested capital net of cash, cash equivalents
and marketable securities), gross property plant and equipment, "pops" (an
industry term which means the population residing in areas covered by a
company's licenses), "channel pops" (an industry term which means the
population residing in areas covered by a company's licenses multiplied by the
number of 100 MHz equivalent channels covering such areas), and a company's
total amount of spectrum, measured in MHz. Generally, the multiples expressed
by the investment valuation were within the range of multiples expressed by the
selected company's valuations. The multiples appear as dollars where the
statistic considered is a non-financial statistic.
<TABLE>
<CAPTION>
Aggregate Value as a ART at Implied $8.00 Range of Multiples
Multiple of: Transaction Price of the Selected Companies
-------------------- -------------------- -------------------------
<S> <C> <C>
1998 Revenues............... 455.11x 18.6x to 3,803.3x
Estimated 1999 Revenues..... 100.7x 11.1x to 101.4x
Estimated 2000 Revenues..... 8.9x 6.8x to 23.8x
Gross Invested Capital...... 1.0x 1.6x to 3.5x
Net Invested Capital........ 1.0x 1.9x to 5.1x
Gross Property, Plant &
Equipment.................. 13.7x 5.2x to 15.3x
Pops........................ $2.06 $24.54 to $38.77
Channel Pops................ $1.03 $4.03 to $9.61
Spectrum.................... $11,775 $91,147 to $259,316
</TABLE>
No company used in the selected companies analysis is identical to ART. In
evaluating the selected companies, Morgan Stanley made judgments and
assumptions about industry performance and about general business, economic,
market and financial conditions. Morgan Stanley also considered other matters,
many of which are beyond ART's control. Some of these uncontrollable matters
were the impact of competition on ART's business and the industry generally,
industry growth, and the assumed absence of any adverse material change in
ART's financial condition and prospects or in the industry or the financial
markets in general. Mathematical analysis, such as computation of averages or
medians, is not in itself a meaningful method of using selected companies
analysis unless other factors are also taken into consideration.
Discounted Cash Flow Analysis. Morgan Stanley also performed a discounted
cash flow analysis using ART's management's projections, noting that such
projections assumed ART would receive a significant near-term infusion of
equity capital to continue operating. Morgan Stanley used discount rates
ranging from 15% to 30% and a range of terminal trailing earnings before
interest, taxes, depreciation and amortization multiples of 6.0x to 10.0x to
calculate the present value of ART's future cash flows for the years 2000
through 2004 and the present value of ART's liquidation value in the year 2004
. The discounted cash flow valuation based on these assumptions ranged from $13
to $41 per share of ART's common stock.
Limitations of the Fairness Opinion. The preparation of a fairness opinion
is a complex process and is difficult to convey in summary form. In arriving at
its opinion, Morgan Stanley considered the results of all of its analyses as a
whole and did not attribute any particular weight to any particular analysis or
factor it considered. Furthermore, Morgan Stanley believes that excerpting any
portion of its analyses, without considering all analyses, would create an
incomplete view of the process underlying its opinion. In addition, Morgan
Stanley may have given various analyses and factors more or less weight than
other analyses and factors and may have deemed various assumptions more or less
probable than other assumptions, so that the ranges of valuations produced by
any particular analysis described above should not be taken to be Morgan
Stanley's actual valuation of ART.
In performing its analyses, Morgan Stanley made numerous assumptions
regarding industry performance, general business and economic conditions and
other matters, many of which are beyond ART's control. The analyses performed
by Morgan Stanley are not necessarily indicative of actual values, which might
be higher or
17
<PAGE>
lower. The analyses were prepared solely as a part of Morgan Stanley's opinion
regarding the financial fairness of the investment that Morgan Stanley provided
to ART's board or directors. The analyses do not purport to be appraisals or to
reflect the prices at which ART might actually be sold. In addition, as
described above, the opinion, including its presentation to ART's board, was
one of many factors taken into consideration by the ART's board in making its
determination to approve the investment. Consequently, Morgan Stanley's
analyses described above should not be viewed as describing ART's board's view
of the value of ART or whether ART's board would have been willing to agree to
a different transaction on different terms.
About Morgan Stanley. ART's board of directors retained Morgan Stanley based
upon its experience and expertise. Morgan Stanley is an internationally
recognized investment banking and advisory firm. Morgan Stanley, as part of its
investment banking business, is continually engaged in the valuation of
businesses and securities in connection with mergers and acquisitions,
negotiated underwriting, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for corporate
and other purposes. Morgan Stanley is also a full-service securities firm
engaged in securities trading and brokerage activities. In the ordinary course
of its trading and brokerage activities, Morgan Stanley or its affiliates may
at any time hold long or short positions and may trade or otherwise effect
transactions, for its own account or the accounts of customers, in securities
of ART or Qwest.
According to an agreement between ART and Morgan Stanley, if the investment
is consummated, ART will pay Morgan Stanley a transaction fee equal to
approximately $6.3 million. In addition to this compensation, ART has agreed to
reimburse Morgan Stanley for its reasonable expenses and to indemnify Morgan
Stanley and its affiliates for liabilities and expenses related to or arising
out of the agreement and any connected transactions, including liabilities
under federal securities laws. In the past, Morgan Stanley and its affiliates
have provided financial advisory and financing services for certain of the
investors, and have received fees for the rendering of these services.
18
<PAGE>
Proposal 2: Proposed Amendment to
ART's Restated Equity Incentive Plan
The Proposed Amendment
Our board of directors adopted an amendment to our restated equity incentive
plan increasing the number of shares of common stock issuable under the plan
from 4 million shares to 8 million shares. The proposed amendment is subject to
stockholder approval.
Our restated equity incentive plan helps to attract, retain and reward
persons who significantly contribute to our success. The plan also strengthens
the commonality of interest between these persons and the stockholders. To
continue to meet the plan's objectives, we consider it essential to increase
the number of shares available for awards. We have already granted options and
other equity incentives with respect to the 4 million shares authorized under
the plan. In the agreement we agreed to seek stockholder approval of this
increase in shares issuable under the plan.
Grants Made Subject to Stockholder Approval
We have granted, subject to stockholder approval, ten-year options to
purchase 103,250 shares of our common stock to 5 of our executive officers in
the following amounts at an exercise price of $7.063 per share, the fair market
values on the date of the grant. If stockholders withhold approval of the
amendment, these options become void. On July 23, 1999, our common stock closed
at $12.875 on the Nasdaq National Market.
<TABLE>
<CAPTION>
Name and Position Number of Provisional Options
----------------- -----------------------------
<S> <C>
Henry C. Hirsh........................... 31,768
Chairman and Chief Executive Officer
William J. Maxwell....................... 23,836
President and Chief Operating Officer
Thomas P. Boyhan......................... 15,882
Executive Vice President Sales and
Marketing
Robert S. McCambridge.................... 15,882
Executive Vice President and Chief
Financial Officer
George R. Olexa.......................... 15,882
Executive Vice President and Chief
Technology Officer
</TABLE>
Except as described above, we have not named particular individuals who will
receive options or rights under the plan, we have not set the number of shares
to be covered by any options or rights granted to a single individual, and we
have not set the number of individuals who will receive grants of such options
or rights. We will use the proceeds from the sale of stock pursuant to the plan
for the general purposes of the company. In addition, our board of directors
will determine uses for proceeds from the receipt of payment in shares of
common stock, including redelivery of the shares received upon exercise of
options.
Summary of Our Restated Equity Incentive Plan
Our restated equity incentive plan provides for grants or awards of
incentive stock options; non-qualified stock options; stock appreciation
rights; restricted stock; unrestricted stock; deferred stock grants;
performance awards; loans; supplemental grants and combinations of the above.
Unless the board of directors otherwise determines, a committee of at least
two directors from the board must administer the restated equity incentive
plan. Currently, the compensation committee of the board of directors
administers the plan. The compensation committee has authority to set and
change the terms of all
19
<PAGE>
grants made under the plan. Eligibility for participation in the plan is open
to all of our employees and other persons, including our non-employee
directors, who the compensation committee determines are in a position to make
significant contributions to our success. As of June 1, 1999, we employed
approximately 144 people.
Stock Options. The plan authorizes the compensation committee to grant
incentive stock options and non-qualified stock options. The difference between
the two types of options is that incentive stock options are intended to
qualify for special beneficial tax treatment, described below, and therefore
must meet requirements imposed by federal tax laws. Under the plan, the
exercise price of incentive stock options granted under the plan must be at
least 100% of the fair market value of our common stock at the time of the
grant, and the exercise price of incentive stock options granted to our 10%
stockholders must be at least 110% of the fair market value of our common stock
at the time of grant. The compensation committee may set any exercise price for
non-qualified stock options granted under the plan. The compensation committee
may set the terms and vesting for both types of options, so long as the term
does not exceed ten years. In the case of incentive stock options granted to
10% stockholders, the committee may not set a term in excess of five years.
Option holders may make payment for the option price by cash or check or,
subject to compensation committee approval, by tendering shares of common
stock, by using a promissory note, by giving a broker's unconditional and
irrevocable undertaking to pay the exercise price, or by a combination of the
above. If the exercise price of an option exceeds the common stock's market
price at exercise, the compensation committee may cancel an option at the
option holder's request and pay the option holder, in cash or common stock, the
difference between the fair market value of the stock purchasable under the
option and the aggregate exercise price which would have been paid.
Stock Appreciation Rights. A stock appreciation right entitles the holder on
exercise to receive an amount of cash or stock equal to the appreciation in the
fair market value of a share of stock measured from the date of the grant to
the date of exercise, or any other performance standard set by the compensation
committee. The compensation committee may grant stock appreciation rights alone
or together with stock options. If granted together with stock options, the
terms of the stock appreciation right will mirror the options and the stock
appreciation right must be exercised with the option and vice versa. Stock
appreciation rights not granted together with options are exercisable at such
time, and on such conditions, as the compensation committee may specify. The
compensation committee may grant stock appreciation rights which, following a
change in control, entitle the holder to receive a cash payment equal to
specified common stock values or averages of values measured prior to the
control change, as specified by the compensation committee.
Stock Awards. The plan provides for awards of nontransferable shares of
restricted common stock that are subject to forfeiture as well as of
unrestricted shares of common stock. The compensation committee may specify a
purchase price for such stock awards. If a participant's employment is
terminated, the company may purchase restricted stock back from the participant
at the original purchase price. Restricted securities will become freely
transferable upon the completion of the restricted period set by the
compensation committee and satisfaction of any conditions to vesting. The
compensation committee, in its sole discretion, may waive all or part of the
restrictions and conditions at any time.
The plan also provides for deferred stock grants entitling the recipient to
receive future shares of common stock, at times and on conditions specified by
the compensation committee. It also provides for performance awards entitling
the recipient to receive cash or common stock following the attainment of
performance goals. Performance conditions and provisions for deferred stock may
also attach to other awards under the restated equity incentive plan.
The plan allows for loans in connection either with the purchase of common
stock under an award or with the payment of any federal, state and local tax
for income recognized as a result of an award. The compensation committee will
determine the terms of any loan, including the interest rate, which may be
zero. No loan term may exceed a ten-year duration. In connection with any
award, the compensation committee may also grant a cash award to offset
federal, state and local income taxes.
20
<PAGE>
Except as provided by the compensation committee, if a participant dies, the
participant's executor, administrator or transferee may exercise the
participant's exercisable options and stock appreciation rights for one year,
or for the remainder of their original term, if less. Options and stock
appreciation rights not exercisable at a participant's death terminate.
Outstanding awards of restricted common stock revert back to ART upon a
participant's death. Also upon death, the participant will forfeit any deferred
common stock grants, performance awards and supplemental awards.
Except as otherwise determined by the compensation committee, when a
participant leaves ART his or her options and stock appreciation rights will
remain exercisable for three months or the remainder of their original term, if
less, to the extent they were exercisable immediately prior to leaving. If not
exercisable immediately prior to leaving, the participant's options and stock
appreciation rights will terminate. The compensation committee may terminate
all of a participant's options and stock appreciation rights immediately if the
participant is terminated for cause, which, in the committee's opinion, casts
such discredit upon the participant to justify immediate termination of such
awards.
Except as otherwise provided by the compensation committee at the time of
grant, in the event of a change of control--which is defined to mean a
consolidation or merger in which ART is not the surviving corporation or a
transaction which results in the acquisition of substantially all of ART's
outstanding common stock by a single person, entity or group, or the sale or
transfer of substantially all of ART's assets--the following will occur:
. each outstanding option and stock appreciation right will become
immediately exercisable;
. each outstanding share of restricted common stock will immediately
become free of all restrictions and conditions;
. all conditions on deferred grants, performance awards, supplemental
grants and other awards will be removed; and
. all loans under the restated equity incentive plan will be forgiven.
Alternatively, the compensation committee may instead arrange to have the
surviving or acquiring corporation or affiliate assume any award held by a
participant or grant a replacement award.
If ART terminates the optionee without cause after a change in control--
which for this purpose also includes the investment described in this proxy
statement--all unvested options will vest, all options will be exercisable for
the shorter of four years or their original duration and all other awards will
vest. The compensation committee may also give this benefit to some optionees
holding particular positions who resign with good reason within two years
following a change in control.
Federal Income Tax Consequences
The following discussion, based on the effective law as of January 1, 1999,
summarizes federal income tax consequences associated with stock option awards
under the plan. This summary does not purport to cover federal employment tax
or other federal tax consequences, or state, local or non-U.S. tax consequences
potentially associated with such awards nor does it address the tax
consequences associated with other awards under the plan.
In general, an optionee realizes no taxable income and ART receives no
deductions upon the grant of a stock option under the plan. The character of
the stock option determines the tax consequences associated with the exercise
of a stock option or the disposition of shares acquired upon exercise. In
general, no taxable income for regular income tax purposes or deductions to ART
result from an incentive stock option exercise. If the optionee disposes the
shares after two years from the date of grant or one year after exercise, the
optionee realizes a long-term capital gain or loss upon a subsequent sale, and
ART receives no deduction. If an optionee
21
<PAGE>
disposes of shares purchased under an incentive stock option within these one-
and two-year holding periods, the optionee realizes ordinary income equal, in
general, to the option spread at time of exercise, and ART receives a
corresponding deduction.
In general, on the exercise of a non-qualified stock option an optionee
realizes ordinary income equal to the option spread, and ART receives a
corresponding deduction. Upon a subsequent sale of the shares, an optionee
recognizes a capital gain or loss for which ART receives no deduction. In
general, the plan treats an incentive stock option exercised more than three
months after termination of employment as a non-qualified stock option. The
plan also treats incentive stock options as non-qualified stock options to the
extent they first become exercisable by an individual in any calendar year for
shares having a fair market value in excess of $100,000, determined at the date
of grant.
For shares subject to a substantial risk of forfeiture, special tax rules
may defer the recognition or measurement of income associated with the exercise
of stock options under the restated equity incentive plan, or the disposition
of shares acquired upon exercise.
Under Section 162(m) of the Internal Revenue Code, ART may not deduct more
than $1 million for payments made to any of its five highest paid executive
officers. However, no limits restrict other forms of employee compensation,
including performance-based compensation. ART intends incentive stock options
and non-qualified stock options awarded under the plan, if granted with an
exercise price at least equal to the fair market value of the common stock on
the date of grant, to qualify for the performance-based exception from the $1
million deduction limitation.
Under the so-called "golden parachute" provisions of the Internal Revenue
Code, we may have to value and take into account the vesting or accelerated
exercisability of stock options in connection with a change in control of ART
in determining whether participants received compensatory payments, contingent
on the change in control that exceed limits set by the tax laws. If
compensatory payments exceed these limits, a substantial portion of amounts
payable to the participant, including payments taken into account by reason of
the grant, vesting or exercise of options under the plan, may be subject to
additional federal tax and may be nondeductible to ART.
Recommendation:
Our board of directors recommends a vote "FOR" the approval of the amendment
to the restated equity incentive plan.
22
<PAGE>
Election of Directors
Under the terms of our amended and restated certificate of incorporation and
restated and amended by-laws, the board of directors is composed of three
classes of similar size. Each class is elected in a different year, so that
only one class will be elected each year. All directors serve for a three-year
term and until their respective successors are duly elected and qualified. The
board of directors currently consists of seven members.
Unless otherwise instructed, the persons named in the enclosed proxy intend
to vote each share of common stock as to which a proxy has been properly
executed, returned and not revoked in favor of the election of the two nominees
named below as Class III directors for three-year terms that expire in 2002. We
expect that each nominee will be able to serve, but if any nominee is unable to
serve, all proxies may be voted for a substitute nominee designated by our
board of directors, as determined by the persons named in the enclosed proxy in
their discretion.
Set forth below is information concerning each of the nominees and the other
incumbent directors:
Nominees and Members of the Board of Directors
Nominations for Class III Directors
Term Expires 1999
<TABLE>
<CAPTION>
Director
Name Age Principal Occupation Since
---- --- -------------------- --------
<S> <C> <C> <C>
James B. Murray, Jr. 52 Managing Director of Columbia since 1997
March 1989; President of Randolph
Cellular Corp., a cellular
communications company, from 1990 to
1993; Director of Seville Systems P.C.
Andrew I. Fillat 51 Managing Director of Advent since 1995 1995
and Vice President of Advent from 1989
to 1995; Director of Interlink
Computer Sciences, Light bridge, Inc.
and Voxware, Inc.
Incumbent Class I Directors
Term Expires 2000
<CAPTION>
Director
Name Age Principal Occupation Since
---- --- -------------------- --------
<S> <C> <C> <C>
Mark C. Demetree 43 President of U.S. Salt Corporation 1995
since 1998; President of North
American Salt Company from 1993 to
1998; Director of J.C. Nichols
Company.
Henry C. Hirsch 57 Chairman of the Board of Directors, 1997
and Chief Executive Officer of ART
since November 1997; Vice Chairman and
Chief Executive Officer of Williams
Communications Group, a wholly-owned
subsidiary of the Williams Companies
that provides businesses with
enterprise network solutions, services
and advanced multimedia applications
from 1996 to 1997; President and Chief
Operating Officer of Williams
Telecommunications Systems, a
nationwide systems integration company
from 1992 to 1996.
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
Director
Name Age Principal Occupation Since
---- --- -------------------- --------
<C> <S> <C> <C>
Alan Z. Senter 57 Chairman of Senter Associates, a 1996
financial advisory firm since 1996 and
from 1993 to 1994; Executive Vice
President and Chief Financial Officer
of NYNEX Corporation from 1994 to
1996; Executive Vice President and
Chief Financial Officer of GAF/ISP
Corporation from 1992 to 1993.
Director of Exec Ltd. and InterVu Inc.
Incumbent Class II Directors
Term Expires 2001
<CAPTION>
Director
Name Age Principal Occupation Since
---- --- -------------------- --------
<C> <S> <C> <C>
James C. Cook 39 Senior Vice President of First Union 1996
Capital Partners, Inc., a private
equity investment affiliate of First
Union Corporation, since 1995 and a
Vice President of First Union Capital
Partners, Inc. from 1989 to 1995.
Thomas J. Wynne 59 Retired. President and Chief Operating 1998
Officer of LCI International, Inc., a
long distance telecommunications
company, from 1991 to 1998.
</TABLE>
Board of Directors and Committees
During the year ended December 31, 1998, our board of directors held 11
meetings. During 1998, each director attended at least 75% of the meetings of
the board held and at least 75% of the meetings of each committee on which he
served.
Our board of directors currently has an audit committee and a compensation
committee. We do not have a standing nominating committee.
The compensation committee has responsibility for reviewing and
administering our program with respect to the compensation of its officers,
employees and consultants, and it reviews transactions our officers, directors
and affiliates. The compensation committee also reviews, interprets and
administers our restated equity incentive plan, prescribes rules and
regulations relating to the plan and determines the stock options and other
equity incentives that we grant to our employees. As a policy, the compensation
committee directs us to pay our officers, directors and affiliates for services
rendered outside the scope of their ordinary respective obligations in
accordance with industry standards for such services. Such services may include
introducing major transactions or providing legal services. Messrs. Demetree,
Murray and Wynne currently serve on the compensation committee. Mr. Wynne
joined the committee in December 1998. The compensation committee held 3
meetings in 1998.
The audit committee recommends the engagement of independent accountants to
audit our financial statements and perform services related to the audit. The
audit committee also reviews the scope and results of the audit with the
accountants, reviews our year-end operating results with management and the
accountants, and considers the adequacy of internal accounting procedures.
Messrs. Cook, Fillat and Senter currently serve on the audit committee. The
audit committee held 3 meetings in 1998.
Recommendation:
Our board of directors recommends that you vote "FOR" the election of each
nominee.
24
<PAGE>
Compensation and Related Matters
Executive Compensation
The following table sets forth information with respect to compensation paid
to or accrued in each of the last three completed fiscal years, if applicable,
to our Named Executive Officers, being our Chief Executive Officer, each of our
other executive officers who were serving as executive officers on December 31,
1998 and one other individual who was one of our executive officers but was not
serving as an executive officer on December 31, 1998. Unless otherwise noted,
amounts listed as other compensation reflect payment of life insurance
premiums. Option grants to Messrs. Hirsch, Maxwell, Boyhan and Olexa in 1998
reflect the cancellation and replacement of options granted prior to October
15, 1998.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Compensation Awards
---------------------
Annual Compensation Restricted Securities
------------------------- Stock Underlying All Other
Name and Position Year Salary Bonus Awards Options Compensation
- ----------------- ---- -------- -------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Henry C. Hirsch......... 1998 $325,008 $325,000 -- 800,000 $304,755(1)
Chairman, and Chief 1997 54,168(2) 54,167 100,000 800,000 $ 113
Executive Officer 1996 -- -- -- -- --
William J. Maxwell...... 1998 259,992 260,000 35,000 550,000 $ 78,376(3)
President & Chief 1997 5,999 -- -- 550,000 --
Operating Officer 1996 -- -- -- -- --
Thomas P. Boyhan........ 1998 58,333(2) 67,222 50,000 500,000(4) $ 288
Executive Vice 1997 -- -- -- -- --
President
Sales and Marketing 1996 -- -- -- -- --
Robert S. McCambridge... 1998 24,848(2) 32,083 -- 200,000 $ 144
Executive Vice 1997 -- -- -- -- --
President and
Chief Financial Officer 1996 -- -- -- -- --
George R. Olexa......... 1998 167,024 175,000 -- 230,000 $ 11,370(5)
Executive Vice 1997 -- -- -- 200,000 --
President and
Chief Technology 1996 -- -- -- -- --
Officer
Thomas A. Grina(6)...... 1998 181,246 -- -- -- $352,806(7)
Executive Vice 1997 210,600 -- -- 228,666 $ 26
President and
Chief Financial Officer 1996 122,190(2) -- -- 181,818 $ 25,000(8)
</TABLE>
- --------
(1) Reflects term life insurance premiums, health medical benefits and
relocation.
(2) Reflects compensation for a partial year. See "--Employment Agreements"
beginning on page 27.
(3) Reflects term life insurance premiums and relocation.
(4) Reflects options to purchase 250,000 shares which were canceled on October
15, 1998.
(5) Reflects term life insurance premiums and relocation.
(6) Mr. Grina resigned from ART in August 1998.
(7) Reflects severance costs and term life insurance premiums.
(8) Reflects relocation.
25
<PAGE>
Option Grants
The following table sets forth information regarding stock option grants
made during 1998 to our Named Executive Officers. Option grants to Messrs.
Hirsch, Maxwell, Boyhan and Olexa in 1998 reflect the cancellation and
replacement of options granted prior to October 15, 1998. 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. These numbers are calculated based on the requirements of
the SEC and do not reflect our estimate of future stock price growth.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants
----------------------------------------------------
Potential Realization
Value at Assumed
Number of Percent of Annual Rates of
Securities Total Options Stock Price Appreciation
Underlying Granted to for Option Term
Options Employees in Exercise Price Expiration -------------------------
Name Granted Fiscal Year per Share Date 5% 10%
- ---- ---------- ------------- -------------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Henry C. Hirsch......... 400,001 11.8% $2.1875 10/15/08 $ 549,002 $ 1,393,004
399,999 11.8% 8.50(1) 10/15/08 -- --
William J. Maxwell...... 275,000 8.1% 2.1875 10/15/08 373,438 957,688
275,000 8.1% 8.50(1) 10/15/08 -- --
Thomas P. Boyhan........ 125,000(2) 3.7% 3.00 8/31/08 -- --
75,000(2) 2.2% 9.00 8/31/08 -- --
50,000(2) 1.5% 15.00 8/31/08 -- --
125,001 3.7% 2.1875 10/15/08 171,564 435,316
124,999 3.7% 8.50(1) 10/15/08 -- --
George R. Olexa......... 115,000 3.4% 2.1875 10/15/08 157,838 400,488
115,000 3.4% 8.50(1) 10/15/08 -- --
Robert S. McCambridge... 100,000 3.0% 2.1875 10/15/08 137,571 348,571
50,000 1.5% 6.00 10/15/08 -- --
50,000 1.5% 10.00 10/15/08 -- --
Thomas A. Grina(3)...... 50,000 1.5% 8.75 02/24/08 -- --
</TABLE>
- --------
(1) The exercise price of these options was set by our board of directors in
February 1999. See "Compensation Committee Report on Repricing of Options"
on page 30.
(2) Reflects options canceled on October 15, 1998.
(3) Mr. Grina resigned from ART effective August 1998, and the options granted
to Mr. Grina during 1998 were canceled.
26
<PAGE>
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, 1998
of shares underlying unexercised options held by Named Executive Officers. As
of December 31, 1998, none of the executive officers had exercised any stock
options. The value of unexercised in-the-money options at fiscal year and was
calculated based on the last sales price of our common stock reported on the
Nasdaq National Market on December 31, 1998 of $7.50 per share, less the
exercise price payable upon exercise of such options.
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
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Henry C. Hirsch............. -- 800,000 -- $2,125,005
William J. Maxwell.......... -- 550,000 -- 1,460,938
Thomas P. Boyhan............ -- 250,000 -- 664,068
George R. Olexa............. -- 230,000 -- 610,938
Robert S. McCambridge....... -- 200,000 -- 606,250
Thomas A. Grina(1).......... 228,666 -- $17,568 --
</TABLE>
- --------
(1) Mr. Grina resigned from ART effective August 1998.
Director Compensation
Each director who is not our full-time employee receives $10,000 per year
for services rendered as a director, $500 for each board meeting attended in
person, and $500 for each committee meeting attended in person.
Also, non-employee directors are eligible to participate in our current
equity incentive plan for non-employee directors. Under this plan, we give each
eligible director an initial grant of options to purchase 20,000 shares of
common stock, and each newly elected non-employee director receives a similar
grant upon his or her first appointment or election to our board of directors.
In addition, under this plan, we grant each non-employee director options to
purchase 7,000 shares of common stock at each annual meeting at which such
director is reelected or is continuing as a director. These options have an
exercise price equal to the fair market value of our common stock on the date
of the grant, expire five years after the date of grant, and become exercisable
on the day before each of the first, second and third annual stockholders
meeting following the date of grant. Also, each eligible director may elect
annually in advance to receive their fees for being a director and attending
meetings in the form of deferred grants of common stock, rather than cash. The
deferred grants of common stock are payable on the earlier of (a) the first
business day of the third January following the date of grant, (b) a change of
control or (c) the date the eligible director ceases to be our director.
On February 11, 1999, we granted each of our non-employee directors a
discretionary option grant of 10,000 shares, fully exercisable on the date of
grant at an exercise price of $7.063, the fair market value on the date of
grant.
Employment Agreements
Our employment agreement with Henry C. Hirsch, provides for Mr. Hirsch's
full-time employment as Chairman and Chief Executive Officer through December
31, 2000 at an annual salary of $325,000 for 1998, $350,000 for 1999 and
$400,000 for 2000. Under this agreement, Mr. Hirsch is guaranteed an annual
bonus of at least $325,000 for 1998 and $87,500 for 1999. The agreement further
provides that Mr. Hirsch's annual targeted bonus for years other than 1998 and
1999 will be not less than 50% of his base salary, and that his maximum
incentive bonus will be 100% of his base salary, pursuant to such bonus or
incentive compensation
27
<PAGE>
plan as is available to our executives generally or, if there is no such plan,
as determined by the board of directors based on performance criteria set
annually. Pursuant to the agreement, Mr. Hirsch was granted five-year stock
options under our restated equity incentive plan for an aggregate of 800,000
shares of common stock. We also granted Mr. Hirsch 100,000 shares of deferred
stock deliverable on January 2, 2001. We also loaned Mr. Hirsch $887,500 to
purchase 100,000 shares of common stock at $8.875 per share. Interest on the
loan accrues at the lowest rate allowed by federal tax law. The loan is payable
in 2003 and is secured by the shares purchased. We also paid Mr. Hirsch
$300,000 for relocation expenses. The agreement precludes Mr. Hirsch from
competing with us for two years after the cessation of his employment, or a
period equal to the length of his employment up to two years, if he is
terminated without cause. The agreement may be terminated at any time by either
party and provides that, if we terminate Mr. Hirsch without cause, Mr. Hirsch's
employment is terminated due to his disability or death, or Mr. Hirsch
terminates his employment as a result of constructive termination, Mr. Hirsch
will be entitled to continue to receive the full amount of his base salary and
bonus for the remainder of the agreement term at the guaranteed amount for 1997
and 1998 and at the target amounts for 1999 and 2000. If Mr. Hirsch is
terminated after December 31, 1999, he will be entitled to be paid his base
salary and target bonus in effect for 2000 for 12 months. Upon termination
before or after December 31, 1999, Mr. Hirsch will also be entitled to receive
medical and term life insurance for the remainder of the employment term, but
no less than 12 months and no more than 18 months following termination. In
addition, all options granted to Mr. Hirsch not yet vested will vest and remain
exercisable for the lesser of one year or their original term.
Our change of control agreement with Mr. Hirsch entitles him to various
benefits if his employment with ART is terminated, other than for cause or his
disability or death, or if he resigns for good reason within 24 months of any
change of control of ART. In May 1999, we amended Mr. Hirsch's change of
control agreement so that the definition of a change of control includes the
investment. Upon such a termination, the agreement provides that:
. we will pay Mr. Hirsch a cash payment equal to his annual base salary at
the time of termination, to the extent not theretofore paid for the
year, plus a prorated portion of his maximum incentive bonus for the
year and any accrued and unpaid vacation pay;
. any stock, stock option or other awards that we previously granted to
Mr. Hirsch will immediately vest and become exercisable in full and
shall remain exercisable for the lesser of four years or their original
term;
. we will pay Mr. Hirsch a cash payment equal to the greater of (a) Mr.
Hirsch's aggregate base salary plus maximum incentive compensation for
the period from termination through December 31, 2000 and (b) two times
his base salary rate at the date of termination plus either his maximum
incentive compensation for the year in which termination occurs, or his
maximum incentive compensation in effect immediately prior to the change
of control, whichever is higher;
. we will continue to insure Mr. Hirsch and his dependents in our life and
medical insurance plans for up to two years after termination; and
. Mr. Hirsch may return the 100,000 shares of common stock pledged to
secure the promissory note described above in full satisfaction of the
promissory note if the fair market value of the common stock is less
than the amount due on the note.
In addition, if any payment or benefit provided by us under the agreement
will be subject to an excise tax under Section 4999 of the Internal Revenue
Code, then we will provide Mr. Hirsch with a payment to cover such tax.
We have employment agreements with William J. Maxwell, George Ron Olexa,
Thomas P. Boyhan and Robert S. McCambridge. Our employment agreement with Mr.
Maxwell, provides for his full-time employment
28
<PAGE>
through December 31, 2000 at an annual salary of $260,000. In February 1999,
our board of directors increased Mr. Maxwell's salary to $300,000. We also paid
Mr. Maxwell for relocation expenses. Our employment agreement with Mr. Olexa,
provides for his full-time employment through December 31, 2000 at an annual
salary of $175,000. In February 1999, our board of directors increased Mr.
Olexa's salary to $200,000. Our employment agreement with Mr. McCambridge
provides for his full-time employment through December 31, 2000 at an annual
salary of $175,000. In February, our board of directors increased Mr.
McCambridge's salary to $200,000. Under all of these employment agreements, the
executive's maximum incentive bonus is 100% of his base salary. The agreements
preclude the executives from competing with us for one year after the cessation
of their employment. Each agreement may be terminated at any time by either us
or the executive and provides that, if we terminate the executive without
cause, the executive's employment is terminated due to his disability or death,
or the executive terminates his employment as a result of constructive
termination, the executive will be entitled to continue to receive the full
amount of his base salary and target bonus for 12 months. Upon such
termination, the executive will also be entitled to receive medical and term
life insurance for 12 months. In addition, all options granted to the executive
not yet vested will vest and remain exercisable for the lesser of one year or
their original term.
We also have amended and restated change of control agreements with Mr.
Maxwell, Mr. Olexa, Mr. Boyhan and Mr. McCambridge entitling each to various
benefits if his employment with us is terminated, other than for cause or his
disability or death, or if he resigns for good reason within 24 months of any
change of control. In May 1999, we amended the change of control agreements to
change the definition of a change of control to include the investment. Upon
such a termination, each agreement provides that:
. we will pay such executive a cash payment equal to his annual base
salary at the time of termination, to the extent not theretofore paid
for the year, plus a prorated portion of his maximum incentive bonus for
the year and any accrued and unpaid vacation pay;
. any stock, stock option or other awards that we granted to such
executive will immediately vest and become exercisable in full and shall
remain exercisable for the lesser of four years or their original term;
. we will pay such executive a cash payment equal to the greater of (a)
such executive's aggregate base salary plus maximum incentive
compensation for the period from termination through December 31, 2000
and (b) his base salary at the date of termination plus either his
maximum incentive compensation for the year in which termination occurs
or his maximum incentive compensation in effect immediately prior to the
change of control, whichever is higher; and
. we will continue to insure such executive and his dependents in our life
and medical insurance plans for up to two years after termination.
In addition, the agreement also provides that if any payment or benefit
provided by us under the agreement will be subject to an excise tax under
Section 4999 of the Internal Revenue Code, then we will provide such executive
with a payment to cover such tax.
In August 1998, our employment agreement with Thomas A. Grina was terminated
other than for cause, and we entered into a settlement and release agreement
with Mr. Grina pursuant to which we agreed to pay him an aggregate total amount
of $352,500 over seven months. In addition, all options previously granted to
Mr. Grina have vested and will remain exercisable for three years.
Compensation Committee Interlocks and Insider Participation
Messrs. Demetree, Murray and Wynne served on the compensation committee
during 1998. Mr. Wynne began serving on the Compensation Committee in December
1998.
29
<PAGE>
Compensation Committee Report on Repricing of Options
On October 15, 1998, the board of directors canceled options granted after
October 15, 1997 held by employees electing to participate in the repricing and
issued them new options. Fifty percent of each new option was exercisable at
$2.1875, the fair market value of the common stock on that date. The exercise
price of the remaining options was to be set by a formula based on the average
closing price of ART's common stock over a 15 day trading period immediately
following the announcement of a financing event. In the case of executive
officers, the exercise price of half of the remaining options, or 25% of the
total, was to be set using this formula and the exercise price of the remaining
25% was to be set at twice this formula price. Employees who elected to
participate in the repricing received a new vesting schedule in October 1998.
The option repricing did not increase the number of outstanding employee stock
options, as re-issued options replaced earlier options that were canceled.
The compensation committee realized that in certain types of transactions
the operation of the formula pricing would result in the options expiring
without becoming exercisable. They concluded that this would be unfair to ART's
employees who elected to reprice and would not provide the incentive the
committee had anticipated when it approved the repricing. To prevent this
unfair outcome, the compensation committee decided in February 1999 to set a
fixed price which would represent the committee's best estimate of the price
which the formula would yield. On February 11, 1999, the committee fixed the
exercise price for all options priced at the formula at $8.50, which
represented their best judgment, after consultation with Morgan Stanley, of the
price the formula would have yielded in light of the then-current market price
of ART's common stock, which was $7.063.
Our option plan is an integral part of our overall employee compensation and
benefit program providing for participation by employees key to our overall
strategic goals. The option policy has encouraged a long-term focus by
employees, helped align employees' interests with those of our stockholders,
provided incentives to employees to maximize financial objectives, and helped
maintain compensation levels which are comparable to those at other
telecommunications companies. The aggressive environment in the
telecommunications industry and in our markets makes it essential that we have
a competitive stock option program in order to attract, retain and motivate
high-quality personnel. Furthermore, our stock option program enables us to
compensate employees competitively while conserving cash for execution of our
business plan.
The compensation committee believes that option repricing should be used
sparingly so as not to contradict the fundamental incentive and motivating
nature of employee stock options. Nonetheless, the compensation committee
believes that we properly considered option repricing and the potential
compensation charge involved in light of competitive industry standards and
what was in the best overall interest our company and our stockholders.
Furthermore, for these reasons, among other things, the compensation committee
believes it was reasonable to lengthen the vesting requirements of the re-
issued options as compared with the outstanding options that were canceled.
The compensation committee believes that it would have been detrimental to
our future performance, particularly at this critical juncture in the
telecommunications market, to have an employee workforce that was not fully
motivated. Furthermore, the compensation committee believes that in the tight
telecommunications job market it was important to maintain a competitive
compensation program in order to prevent the loss of valuable employees.
Therefore, the compensation committee believes that the repricing of the
options was a reasonable course of action designed to eliminate such adverse
factors on our future performance.
COMPENSATION COMMITTEE
Mark C. Demetree
James B. Murray, Jr.
Thomas J. Wynne
30
<PAGE>
Option Repricing Since Inception
We have had two option repricing since our inception. The following table
sets forth information regarding the repricing of options held by our executive
officers:
<TABLE>
<CAPTION>
Number of
Securities Market Price Exercise
Underlying of Stock at Price at New Expiration
Repriced Time of Time of Exercise Date of Replaced
Name Date Options Repricing Repricing Price Options
---- -------- ---------- ------------ --------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Henry
C.
Hirsch 10/15/98 300,001 $2.1875 $ 8.875 $2.1875 10/15/08
10/15/98 299,999 2.1875 8.875 8.50(1) 10/15/08
10/15/98 100,000 2.1875 12.50 2.1875 10/15/08
10/15/98 100,000 2.1875 12.50 8.50(1) 10/15/08
William
J.
Maxwell 10/15/98 25,000 2.1875 8.75 2.1875 10/15/08
10/15/98 25,000 2.1875 8.75 8.50(1) 10/15/08
10/15/98 150,000 2.1875 9.25 2.1875 10/15/08
10/15/98 150,000 2.1875 9.25 8.50(1) 10/15/08
10/15/98 50,000 2.1875 12.125 2.1875 10/15/08
10/15/98 50,000 2.1875 12.125 8.50(1) 10/15/08
10/15/98 50,000 2.1875 15.00 2.1875 10/15/08
10/15/98 50,000 2.1875 15.00 8.50(1) 10/15/08
Thomas
P.
Boyhan 10/15/98 62,501 2.1875 3.00 2.1875 10/15/08
10/15/98 62,499 2.1875 3.00 8.50(1) 10/15/08
10/15/98 37,500 2.1875 9.00 2.1875 10/15/08
10/15/98 37,500 2.1875 9.00 8.50(1) 10/15/08
10/15/98 25,000 2.1875 15.00 2.1875 10/15/08
10/15/98 25,000 2.1875 15.00 8.50(1) 10/15/08
George
R.
Olexa 10/15/98 50,000 2.1875 8.1880 2.1875 10/15/08
10/15/98 50,000 2.1875 8.1880 8.50(1) 10/15/08
10/15/98 25,000 2.1875 15.00 2.1875 10/15/08
10/15/98 25,000 2.1875 15.00 8.50(1) 10/15/08
10/15/98 25,000 2.1875 11.594 2.1875 10/15/08
10/15/98 25,000 2.1875 11.594 8.50(1) 10/15/08
10/15/98 15,000 2.1875 8.75 2.1875 10/15/08
10/15/98 15,000 2.1875 8.75 8.50(1) 10/15/08
</TABLE>
- --------
(1) The exercise price of these options was fixed by our board of directors in
February 1999. See "Compensation Committee Report on Repricing of Options"
on page 30.
Compensation Committee Report on Executive Compensation
Our executive compensation program is designed to reward and retain
executives who are capable of leading us in achieving its strategic and
financial objectives in the competitive and rapidly evolving telecommunications
industry.
We rely on three compensation components: salary, incentive cash bonuses and
stock-based incentive compensation. Each of our executive officers has an
annual base salary, established by an employment agreement or otherwise, at a
level we believe is competitive for comparable companies in its industry and
geographic area and allows it to attract and retain experienced executives
capable of managing its growth. The compensation committee relies in part on
annual industry salary surveys and has occasionally commissioned independent
surveys.
We have developed an incentive bonus program under which our executives are
eligible to receive incentive cash bonuses as determined by our board of
directors for each fiscal year. Our chairman was entitled under his employment
agreement to a minimum bonus for 1998, but generally bonuses are intended to
reward executives when we achieve our business objectives.
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<PAGE>
The compensation committee believes that long-term stock price appreciation
will reflect our achievement of our strategic goals and objectives.
Accordingly, we seek to create long-term performance incentives for our
employees and directors by aligning their economic interest with the interests
of our long-term stockholders through our stock-based incentive compensation
program. Stock options have generally been granted at a price equal to the fair
market value of our common stock on the date of grant, and as a result, receipt
of value by the employee is dependent upon an increase in the fair market value
of our common stock. Awards are based on the anticipated contributions by such
employees in helping us achieve our strategic goals and objectives.
Mr. Hirsch's base salary and bonus for 1998 were determined pursuant to an
employment agreement we entered into with Mr. Hirsch in November 1997. We also
repriced options to purchase 400,001 shares of common stock to an exercise
price of $2.1875 per share and options to purchase 399,499 shares of common
stock to an exercise price of $8.50 per share. The compensation committee
believes that this repricing was appropriate in light of Mr. Hirsch's
successful repositioning of the company to help motivate Mr. Hirsch and
encourage his retention beyond the term of his employment agreement.
In adopting and administering executive compensation plans and arrangements,
the compensation committee will consider whether the deductibility of such
compensation will be limited under Section 162(m) of the Internal Revenue Code
and, in appropriate cases, may serve to structure arrangements so that any such
limitation will not apply.
With respect to the above matters, the compensation committee submits this
report.
COMPENSATION COMMITTEE
Mark C. Demetree
James B. Murray, Jr.
Thomas J. Wynne
Certain Transactions
In May 1998, we acquired 38 GHz licenses from Columbia and one of its
affiliates in exchange for 1,335,750 shares of common stock. We also have a
right of first offer for all 38 GHz authorizations that the FCC may grant
Columbia. Mr. Murray was originally elected a director as a condition to an
earlier acquisition of licenses.
In November 1997, we loaned Mr. Hirsch, our Chairman of the Board of
Directors and Chief Executive Officer, $887,500 pursuant to his employment
agreement to purchase 100,000 shares of common stock at $8.875 per share, the
fair market value of the stock on the date of the loan. The loan bears interest
at the minimum allowed by federal tax law, is payable in 2003, and is secured
by the shares purchased.
32
<PAGE>
Performance Graph
The following stock price performance graph compares the cumulative total
return on our common stock with the cumulative total return of the Standard &
Poor's Composite 500 Index and of the CRSP Nasdaq Telecommunications Peer Group
Index from November 5, 1996, the date of our initial public offering, through
December 31, 1998 assuming a $100 initial investment in each case. The stock
price performance on the graph below is not necessarily indicative of future
price performance.
[LINE GRAPH APPEARS HERE]
- --------------------------------------------------------------------------------
11/5/96 12/31/96 12/31/97 12/31/98
Advanced Radio Telecom Corp. [] $100.00 $75.00 $53.33 $50.00
S&P 500 + $100.00 $103.72 $135.89 $179.08
CRSP NASDAQ Telecommunications o $100.00 $101.02 $149.55 $244.27
Peer Group Index
- --------------------------------------------------------------------------------
Independent Auditors
Our board of directors selected the firm of PricewaterhouseCoopers L.L.P. to
audit our financial statements for the fiscal year ended December 31, 1999 and
to report on the results of their audit. A representative of
PricewaterhouseCoopers L.L.P. is expected to be present at the annual meeting
with the opportunity to make a statement if he or she desires and to respond to
appropriate questions.
33
<PAGE>
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information with respect to the beneficial
ownership of shares of our common stock as of July 23, 1999 by (i) our Named
Executive Officers, (ii) each of our directors, (iii) all of our executive
officers and directors as a group and (iv) each person, including any "group"
as that term is used in Section 13(d)(3) of the Exchange Act, that we know to
be the beneficial owners of more than five percent of our outstanding common
stock. Except as noted below, each of the persons listed has sole investment
and voting power with respect to the shares indicated:
<TABLE>
<CAPTION>
Beneficial Ownership
-----------------------
Name Number Percent
---- ------------ ----------
<S> <C> <C>
WinStar Communications, Inc......................... 3,313,864 12.2%
Thomas P. Boyhan(1)................................. 12,500 *
James C. Cook(2).................................... 12,500 *
Mark C. Demetree(3)................................. 306,810 1.1%
Andrew I. Fillat (4)................................ 19,868 *
Thomas A. Grina(5).................................. 238,666 *
Henry C. Hirsch(6).................................. 325,000 1.2%
William J. Maxwell(7)............................... 52,750 *
Robert S. McCambridge(8)............................ 12,500 *
James B. Murray, Jr.(9)............................. 157,122 *
George R. Olexa(10)................................. 16,000 *
Alan Z. Senter(11).................................. 16,000 *
Thomas J. Wynne(12)................................. 10,000 *
All executive officers and directors as a
group(13).......................................... 1,252,903 4.6%
</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 NE,
Suite 2600, Bellevue, Washington 98004.
*Less than 1.0%.
(1) Includes 12,500 shares of common stock issuable upon exercise of options
exercisable within 60 days of July 23, 1999.
(2) Includes 8,000 shares of common stock issuable upon exercise of warrants
and 19,868 shares of common stock issuable upon exercise of options
exercisable within 60 days of July 23, 1999.
(3) Includes 19,868 shares of common stock issuable upon exercise of options
exercisable within 60 days of July 23, 1999. Does not include 117,999
shares of common stock issuable upon exercise of 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 3740 Beach Blvd., Suite
306, Jacksonville, FL 32207.
(4) Includes 19,868 shares of common stock issuable upon exercise of options
exercisable within 60 days of July 23, 1999. Mr. Fillat is an officer of
Advent. Does not include shares of common stock issuable upon exercise of
warrants held by various partnerships of which Advent is the general
partner, of which Mr. Fillat disclaims beneficial ownership.
(5) Includes 228,666 shares of common stock issuable upon exercise of options
exercisable within 60 days of July 23, 1999.
(6) Includes 25,000 shares of common stock issuable upon exercise of options
exercisable within 60 days of July 23, 1999.
(7) Includes 12,500 shares of common stock issuable upon exercise of options
exercisable within 60 days of July 23, 1999.
(8) Includes 18,750 shares of common stock issuable upon exercise of options
exercisable within 60 days of July 23, 1999.
34
<PAGE>
(9) Includes 18,401 shares of common stock issuable upon exercise of options
exercisable within 60 days of July 23, 1999. Mr. Murray is a Managing
Director of Columbia. Excludes shares held by Columbia, CCC Millimeter and
Millimeter. See Footnote 1. Mr. Murray's address is c/o Columbia Capital
Corporation, 201 North Union Street, Suite 300, Alexandria, VA 22314.
(10) Includes 12,500 shares of common stock issuable upon exercise of options
exercisable within 60 days of July 23, 1999.
(11) Includes 31,117 shares of common stock issuable upon exercise of options
exercisable within 60 days of July 23, 1999.
(12) Includes 10,000 shares of common stock issuable upon exercise of options
exercisable within 60 days of July 23, 1999.
(13) Includes 437,032 shares of common stock issuable upon exercise of options
and warrants exercisable within 60 days of July 23, 1999.
Description of Capital Stock
Our authorized capital stock consists of 100,000,000 shares of common stock,
par value $0.001 per share, and 10,000,000 shares of non-designated preferred
stock, par value $0.001 per share. At closing we will designate 2,635,909
shares of Series A preferred stock, 501,591 shares of Series B preferred stock
and 5,015,910 shares of Series C preferred stock, leaving us 1,846,590 shares
of non-designated, authorized preferred stock.
The following summary description of our capital stock is not intended to be
complete and is qualified by reference to the provisions of applicable law and
to our certificate of incorporation and by-laws, filed as exhibits to our
filings with the SEC. See "Where I Can Get More Information" on page .
Common Stock
As of July 23, 1999, there were 27,292,272 shares of our common stock
outstanding. In addition, as of July 23, 1999, there were outstanding stock
options for the purchase of a total of 3,674,870 shares of our common stock.
Holders of common stock are entitled to one vote per share for each share
held of record on all matters submitted to a vote of stockholders and do not
have cumulative voting rights. Directors are elected by a plurality of the
votes of the shares present in person or by proxy at the stockholders' meeting.
The holders of common stock are entitled to receive ratably such lawful
dividends as may be declared by the board of directors. However, such dividends
are subject to preferences that may be applicable to the holders of outstanding
shares of preferred stock. In the event of a liquidation, dissolution or
winding up of our affairs, whether voluntarily or involuntarily, the holders of
common stock will be entitled to receive pro rata all of our remaining assets
available for distribution after payment of any liquidation preferences of the
outstanding shares of preferred stock. The common stock has no preemptive,
redemption, conversion or subscription rights. All outstanding shares of common
stock are fully paid an non assessable. The rights, powers, preferences and
privileges of holders of common stock are subject to, and may be adversely
affected by, the rights of the holders of the existing series of preferred
stock and any series of preferred stock that ART may designate and issue in the
future.
35
<PAGE>
Preferred Stock
The board of directors is authorized without further stockholder approval,
subject to any limitations prescribed by Delaware law, to issue from time to
time up to an aggregate of 10,000,000 shares of preferred stock, in one or more
series. The board of directors is also authorized, subject to the limitations
prescribed by Delaware law, to establish the number of shares to be included in
each series and fix the voting powers, preferences, qualifications and special
or relative rights or privileges of each series. The board of directors is
authorized to issue preferred stock with voting, conversion and other right and
preferences that could adversely affect the voting power or other rights of the
holders of common stock. We have no current plans to issue any preferred stock
other than the Series A and Series B preferred stock to be issued in the
investment and the Series C junior preferred stock issuable upon conversion of
the Series B preferred stock. However, the issuance of preferred stock or
rights to purchase preferred stock could have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
attempting to acquire, a majority of our outstanding common stock.
Anti-Takeover Effects of Provisions of ART's Certificate of Incorporation, By-
Laws and Delaware Law
Provisions of our amended and restated certificate of incorporation and by-
laws, which are summarized in the following paragraphs, may have an anti-
takeover effect and may delay, defer or prevent a tender offer or takeover
attempt that some stockholders might consider in their best interest, including
those attempts that might result in a premium over the market price for shares
held by stockholders.
Classified Board of Directors
Our board of directors is divided into three classes of directors serving
staggered three-year terms. Upon expiration of the term of a class of
directors, the directors in that class will be elected for three-year terms at
the annual meeting of stockholders in the year in which their term expires.
With respect to each class, a director's term is subject to the election and
qualification of their successors, or their earlier death, resignation or
removal for cause. These provisions, when coupled with the provision of our
amended and restated certificate of incorporation authorizing the board of
directors to fill vacant directorships or increase the size of the board of
directors, may delay a stockholder from removing incumbent directors and
simultaneously gaining control of the board of directors by filling the
vacancies created by such removal with its own nominees.
Cumulative Voting
Our amended and restated certificate of incorporation expressly denies
stockholders the right to cumulate votes in the election of directors.
Stockholder Action; Special Meeting of Stockholders
Our amended and restated certificate of incorporation eliminates the ability
of stockholders to act by written consent. Our restated and amended by-laws
provide that special meetings of our stockholders may be called only by our
board of directors or any officer instructed to call such meeting by our board
of directors.
Advance Notice Requirements for Stockholder Proposals and Directors Nominations
Our restated and amended by-laws provide that stockholders seeking to bring
business before an annual meeting of stockholders, or to nominate candidates
for election as directors at an annual meeting of stockholders, must provide
timely notice thereof in writing. To be timely, a stockholder's notice must be
received at our principal executive offices not less than 90 days nor more than
120 days prior to the anniversary date of the immediately preceding annual
meeting of stockholders. In the event that the annual meeting is called for a
date that is not within 30 days before or 70 days after the anniversary date,
in order to be timely, notice from the stockholder must be received no later
than the tenth day following the date on which notice of
36
<PAGE>
the annual meeting was mailed to stockholders or made public, whichever
occurred earlier. In the case of a special meeting of stockholders called for
the purpose of electing directors, notice by the stockholder in order to be
timely must be received no later than 90 days nor more than 120 days prior to
the special meeting. If notice of the special meeting was mailed or the first
public disclosure of the annual meeting was made less than 100 days prior to
the date of the special meeting, notice by a stockholder in order to be timely
must be received no later than the close of business on the tenth day following
the day on which notice was mailed or public disclosure of the date of the
special meeting was made, whichever first occurs. Our restated and amended
bylaws also specify requirements as to the form and content of a stockholder's
notice. These provisions may preclude stockholders from bringing matters before
an annual meeting of stockholders or from making nominations for directors at
an annual meeting of stockholders.
Authorized But Unissued Shares
The authorized but unissued shares of common stock and preferred stock are
available for future issuance without stockholder approval. These additional
shares may be utilized for a variety of corporate purposes, including future
public offerings to raise additional capital, corporate acquisitions and
employee benefit plans. The existence of authorized but unissued shares of
common stock and preferred stock could render more difficult or discourage an
attempt to obtain control of us by means of a proxy contest, tender offer,
merger or otherwise.
Amendments; Supermajority Vote Requirements
The Delaware General Corporation Law provides generally that the affirmative
vote of a majority of the shares entitled to vote on any matter is required to
amend a corporation's certificate of incorporation or bylaws, unless a
corporation's certificate of incorporation or bylaws, as the case may be,
requires a greater percentage. Our amended and restated certificate of
incorporation imposes supermajority vote requirements in connection with the
amendment of provisions of our certificate of incorporation and restated and
amended bylaws, including those provisions relating to the classified board of
directors and the ability of stockholders to call special meetings.
Indemnification of Directors and Officers and Limitation of Director Liability
Our amended and restated certificate of incorporation contains provisions
that eliminate the personal liability of our directors to the fullest extent
permitted by the Delaware General Corporate Law for monetary damages resulting
from breaches of their fiduciary duty. The certificate of incorporation also
contains provisions requiring the indemnification of our directors and officers
to the fullest extent permitted by the Delaware General Corporate Law against
liabilities which arise out of their service as director of officer. We
believes that these provisions are necessary to attract and retain qualified
persons as directors and officers.
Section 203 of the Delaware General Corporation Law
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law. Subject to exceptions, 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 other party became an interested stockholder, unless
the stockholder attained such status with the approval of its board of
directors or unless the business combination is approved in a prescribed
manner. A "business combination" includes mergers, asset sales or other
transactions resulting in a financial benefit to the interested stockholder. An
"interested stockholder" is generally a person who, together with affiliates
and associates, owns, or owned within the past three years, 15% or more of the
corporation's voting stock. We have approved the investment by Qwest and the
group created by the stockholders agreement for purposes of Section 203.
37
<PAGE>
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is EquiServe L.P.
Listing
Our common stock is quoted on the Nasdaq Stock Market under the symbol
"ARTT".
Stockholder Proposals
In order for us to consider stockholder proposals for inclusion in the proxy
material for our 2000 annual meeting, we must received them on or before March
31, 2000. We suggest that proponents submit their proposals by certified mail,
return receipt requested, addressed to the secretary at our principal executive
offices, Advanced Radio Telecom Corp., 500 108th Avenue NE, Suite 2600,
Bellevue, WA 98004.
Under our by-laws, stockholders who wish to make a proposal at the 2000
annual meeting--other than one that will be included in our proxy materials--
must notify us no earlier than May 11, 2000 and no later than June 10, 2000. If
a stockholder who wishes to present a proposal fails to notify us by June 10,
2000, the proxies that management solicits for the meeting will confer
discretionary authority to vote on the stockholder's proposal if it is properly
brought before the meeting.
Other Business
Our board of directors knows of no business to be brought before the annual
meeting which is not referred to in the accompanying notice of annual meeting
of stockholders. However, should any such matters be presented, the persons
named in the enclosed proxy will have discretionary authority to take such
action in regard to such matters as in their judgment seems advisable.
38
<PAGE>
Attachment A
[Letterhead of Morgan Stanley & Co. Incorporated]
May 28, 1999
Board of Directors
Advanced Radio Telecom Corp.
500 - 108th Avenue NE
Suite 2600
Bellevue, WA 98004
Members of the Board:
We understand that Advanced Radio Telecom Corp. (the "Company") and a group
comprised of U.S. Telesource, Inc. (a subsidiary of Qwest Communications
Corporation ("Qwest")), Oak Investment Partners, MeriTech Capital Partners,
Accel Partners, Brentwood Venture Capital, Columbia Capital, Advent
International, Worldview Technology Partners, Bessemer Ventures, Cove Ventures
and Adams Capital Management (collectively, the "Purchasers") propose to enter
into a Preferred Stock Purchase Agreement (the "Agreement"), which provides,
among other things, for the issuance by the Company of 2,635,908 shares of
Series A Convertible Preferred Stock, $0.001 par value per share (the "Series A
Preferred Stock") and of 501,592 shares of Series B Non-Voting Convertible
Preferred Stock, $0.001 par value per share (the "Series B Preferred Stock"), to
the Purchasers at a purchase price of $80.00 per share (the "Stock Purchase").
We further understand that, in connection with the Stock Purchase, the Company
and Qwest intend to enter into certain Commercial Agreements (as defined below).
The terms and conditions of the Stock Purchase are more fully set forth in the
Agreement.
You have asked for our opinion as to whether the consideration to be received by
the Company pursuant to the Stock Purchase is fair from a financial point of
view to the Company.
For purposes of the opinion set forth herein, we have, among other things:
(i) reviewed certain publicly available financial statements and other
information of the Company;
(ii) reviewed certain internal financial statements and other financial and
operating data concerning the Company prepared by the management of
the Company;
(iii) analyzed certain financial projections prepared by the management of
the Company;
(iv) discussed the past and current operations and financial condition and
the prospects of the Company with senior executives of the Company;
<PAGE>
(v) discussed the Company's business plan and long-term strategic
objectives with senior executives of the Company;
(vi) reviewed the reported prices and trading activity for the Common
Stock;
(vii) compared the financial performance of the Company and the prices
and trading activity of the Common Stock with that of certain
other comparable publicly-traded companies and their securities;
(viii) reviewed the financial terms, to the extent publicly available, of
certain comparable transactions;
(ix) participated in discussions and negotiations among representatives
of the Company, the Purchasers and certain other parties and their
financial and legal advisors;
(x) reviewed a draft of the Agreement dated May 27, 1999, a draft of
the Certificate of Designation, Preferences and Rights of the
Series A Convertible Preferred Stock the Series B Non-Voting
Convertible Preferred Stock and the Series C Junior Preferred
Stock dated May 27, 1999 and certain documents related to the
foregoing;
(xi) reviewed drafts of certain agreements between the Company and
Qwest, including a draft of the Coordinated Marketing Agreement
dated May 19, 1999, a draft of the Collocation License Agreement
dated May 27, 1999, a draft of the Advanced Radio Telecom
Broadband Services Agreement dated May 27, 1999 and a draft of the
Qwest Communications Corporation Private Line Services Agreement
dated May 27, 1999 (collectively, the "Commercial Agreements");
and
(xii) performed such other analyses and considered such other factors as
we have deemed appropriate.
We have assumed and relied upon without independent verification the accuracy
and completeness of the information reviewed by us for the purposes of this
opinion. With respect to the financial projections, we have assumed that they
have been reasonably prepared on bases reflecting the best currently available
estimates and judgments of the future financial performance of the Company. We
have not made any independent valuation or appraisal of the assets or
liabilities of the Company, nor have we been furnished with any such appraisals.
We have assumed that the Stock Purchase will be consummated in accordance with
the terms set forth in the Agreement. We were not engaged to, and in arriving at
our opinion did not, evaluate nor solicit transactions which may be available to
the Company other than minority equity investments. Our opinion is necessarily
based on economic, market and other conditions as in effect on, and the
information made available to us as of, the date hereof.
<PAGE>
We have acted as financial advisor to the Board of Directors of the Company in
connection with this transaction and will receive a fee for our services. In the
past, Morgan Stanley & Co. Incorporated and its affiliates have provided
financial advisory and financing services for certain of the Purchasers, and
have received fees for the rendering of these services.
It is understood that this letter is for the information of the Board of
Directors of the Company and may not be used for any other purpose without our
prior written consent, except that this opinion may be included in its entirety
in any filing made by the Company in respect of the transaction with the
Securities and Exchange Commission. In addition, Morgan Stanley expresses no
opinion or recommendation as to how the stockholders of the Company should vote
at the stockholder meeting held in connection with transactions contemplated by
the Agreement.
Based on and subject to the foregoing, we are of the opinion on the date hereof
that the consideration to be received by the Company pursuant to the Stock
Purchase is fair from a financial point of view to the Company.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ Scott W. Matlock
----------------------------------------
Scott W. Matlock
Principal
<PAGE>
FORM OF PROXY
ADVANCED RADIO TELECOM CORP.
500 108th Ave., NE - Suite 2600 - Bellevue, Washington 98004
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Henry C. Hirsch, Robert S. McCambridge
and Thomas M. Walker, and each of them, each with power to appoint his
substitute, as proxies to vote and act at the annual meeting of stockholders of
Advanced Radio Telecom Corp. to be held on September 21, 1999, 10:00 a.m. (local
time) at the Bellevue Hilton, 100 112th Avenue NE, Bellevue, WA 98004, or any
adjournment thereof with respect to the number of shares of common stock of
Advanced Radio Telecom Corp. as to which the undersigned may be entitled to vote
or act. The undersigned instructs such proxies to vote as designated below on
the matter specified below, as described in the accompanying notice of annual
meeting and proxy statement, receipt of which is acknowledged. All proxies
heretofore given by the undersigned in respect of the annual meeting are hereby
revoked.
APPROVAL OF THE INVESTMENT DESCRIBED IN THE PROXY STATEMENT:
FOR approval of the investment [_]
AGAINST approval of the investment [_]
ABSTENTION [_]
APPROVAL OF THE AMENDMENT TO THE RESTATED EQUITY INCENTIVE PLAN:
FOR approval of the amendment [_]
AGAINST approval of the amendments [_]
ABSTENTION [_]
ELECTION OF DIRECTORS:
FOR the election of all nominees listed below [_]
(except as marked as contrary below)
WITHHOLD AUTHORITY [_]
to vote for the election of all nominees below
(Instruction: to withhold authority to vote for either nominee,
strike a line through the nominee's name below.)
James B. Murray, Jr. Andrew I. Fillat
(continued and to be signed on reverse side)
<PAGE>
Unless otherwise specified in the boxes on the reverse side hereof or by marking
though a name, this proxy will be voted FOR the approval of the investment
described in the proxy statement, the approval of the amendment to the restated
equity incentive plan, the election of all nominees for directors and in the
discretion of the named proxies as seems in their judgment advisable as to any
other matter that may come before the annual meeting or any adjournment thereof.
Date: _______________________________________, 1998
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Signature
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Signature
Please sign exactly as name appears hereon. When
shares are held by joint tenants, both should sign.
When signing as attorney, executor, administrator,
trustee or guardian, please give full title. If a
corporation, please sign in full corporate name by
president or other authorized officer. If a
partnership, please sign in partnership name by
authorized person.
Please mark, sign, date and return the proxy card promptly, using the enclosed
envelope.
