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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Year Ended December 31, 1999
[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from to
Commission File Number 000-21091
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ADVANCED RADIO TELECOM CORP.
(Exact name of registrant as specified in its charter)
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<S> <C>
Delaware 52-1869023
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
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500 108th Avenue, NE, Suite 2600, Bellevue, Washington 98004
(Address of principal executive offices)
(425) 688-8700
(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act:
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<S> <C>
Name of Each Exchange
Title of Each Class on Which Registered
None None
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Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class: Common Stock ($.001 Par Value)
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Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in the definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of the registrant's voting stock held by non-
affiliates was approximately $1,273,999,064 on March 21, 2000, based on the
closing sales price of the registrant's common stock as reported on the Nasdaq
National Market as of such date.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of the latest practicable date: 28,837,430 shares
of common stock, $.001 par value at March 21, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated herein by reference: Part III:
Portions of the Registrants's definitive Proxy Statement to be filed with the
Securities and Exchange Commission in connection with the Registrant's 2000
Annual Meeting of Stockholders.
Exhibit Index is on page 33.
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PART I
ITEM 1. BUSINESS
Advanced Radio Telecom Corp. ("ART" or the "Company") intends to become the
leading provider of broadband services to carriers and service providers whose
customers are not served by fiber-optic networks. Utilizing its national
footprint of 39 GHz spectrum licenses, the Company plans to serve forty major
metropolitan markets over the next three years. The Company is building its
own fixed wireless, packet-based broadband metropolitan networks on the
Internet Protocol ("IP") standard.
From its inception in 1993 through 1997, the Company was primarily involved
in the acquisition of spectrum rights, hiring management and other key
personnel, raising capital, acquiring equipment and roof rights and developing
operating and support systems to support its initial business of selling
connectivity to various telecommunications companies as a wholesale carriers'
carrier. The Company altered its strategy in 1998 to sell a variety of
broadband internet services to end-user customers and began offering such
services in the Seattle, Washington, Portland, Oregon and Phoenix, Arizona
markets. During 1999, the Company's strategy evolved to that of providing high
speed broadband IP services to businesses, and in September 1999, the Company
introduced 100 Mbps internet access service to businesses in the San Jose,
California area. In September 1999, the Company completed a convertible
preferred stock offering which raised $251 million, and in November 1999
entered into a purchase agreement and funding commitment for network buildout
financing potentially up to $175 million.
ART is prepared to meet the needs of a fast-growing market segment--that of
businesses requiring multi-megabit metropolitan network access to high
capacity network backbones for the purpose of running IP applications. The
potential opportunity in the local access market is driven by the rapid growth
in Internet traffic, data applications and IP services for all companies.
The local exchange carrier ("LEC") copper circuit infrastructure was
designed for voice calls, not data transport. The copper is generally not
consistently capable of high data speeds due to the line quality and/or
distance between the end user and a central office. Competitive Access
Provider fiber provides for very high capacity links, however its availability
is limited to its installation in only 3% of commercial buildings in the U.S.
The demand for multi-megabit bandwidth is fast growing and ART provides a
viable alternative to these traditional, legacy infrastructures. ART's metro
network service excels in its effectiveness at delivering multi-megabit
service, its cost effectiveness and its ease of deployment.
The Company is a Delaware corporation organized in 1993 under the name of
Advanced Radio Technologies Corporation. In October 1996, the Company through
a wholly owned subsidiary merged with Advanced Radio Telecom Corp., a
corporation organized by the Company and others in 1995 to acquire licenses
and to operate its business jointly with the Company. Upon the merger,
Advanced Radio Telecom Corp. became a wholly owned subsidiary of the Company
and changed its name to ART Licensing Corp., and the Company changed its name
to Advanced Radio Telecom Corp. In 1997 the Company acquired 129 39 GHz
licenses in exchange for 6 million shares of common stock and acquired the
remaining 50% interest in a partnership jointly owned by the Company for $6
million.
Business Strategy
As an Internet Protocol Service Provider ("IPSP"), ART anticipates meeting
the needs of service providers and carriers that require a multi-megabit IP
metro network to deliver and expand their services. ART's metro networks will
allow carrier and service providers to extend their backbone capacity to the
customer premises and develop advanced IP service offerings.
ART intends to be the leading IPSP delivering carrier-class, multi-megabit,
wireless broadband connectivity. The Company is implementing the following
initiatives to achieve this objective:
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Provide Wholesale Multi-megabit Metro IP Network Access. ART plans to
provide IP metropolitan network access to Internet service providers ("ISP"),
interexchange carriers ("IXC"), building local exchange carriers ("BLEC") and
application service providers ("ASP"). Developing the wholesale channel puts
ART in a position to enable carriers to extend high-speed backbone performance
and data center applications seamlessly to their customers. ART's focus on
data transport for the wholesale channel will optimize ART's ability to
rapidly deploy networks and provide excellent customer service.
Target Off-Fiber Businesses. Multi-megabit metro network coverage has been
limited to the reach of fiber optic cable installations. ART uses 39 GHz
licensed spectrum to provide a multi-megabit transport alternative to fiber.
The Company targets building clusters in high-density off-fiber areas
containing businesses with strong potential for multi-megabit data
requirements, such as high-technology companies that are typically located
outside cities' main business districts.
Rapid Market Coverage. Leveraging its 39 GHz licenses, which cover 90 of the
top 100 U.S. markets, ART intends to rapidly deploy metro networks in 40 major
markets over the next three years. ART plans to leverage its outsource
partners, such as Cisco Systems and Wireless Facilities, Inc., to accomplish
this objective.
Strategic Network Build Out. In each new market, ART identifies existing
carrier hotels (POPs) that allow service providers to peer traffic with major
backbone providers. Demographic and geographic information systems are used to
identify clusters of commercial buildings around the POP that are not
otherwise linked to high-speed data services. Working with the service
providers and the demographic information in each market, ART intends to
rapidly deploy its network to the most promising opportunities within each
cluster.
Success-Based Capital Requirements. ART is designing its metro networks so
that the Company's capital will be spent incrementally as ART attracts
customers. ART's networks are designed to be scaleable and rapidly enable
sales opportunities for ART's partners as networks are built out. As needs
change, ART's equipment can be economically and rapidly deployed or relocated.
Develop Strategic Business Relationships. ART intends to continue to forge
alliances with property management companies to give carriers and service
providers connectivity to tenants in buildings outside the fiber network. ART
will establish customer relationships with ISPs, IXCs, BLECs and ASPs to meet
their emerging needs in their regions of operations.
Provide Excellent Customer Service. ART plans to provide excellent customer
service, with e-business service features such as web interfaces for self-
service, 24-hour-a-day, seven-day-a-week call center, a network quality
control system and comprehensive customer support services.
State of the Art Business Systems. ART is building operational support
systems that enable efficient management of our networks and effective
internal and customer business operations. Off-the-shelf software systems are
selected through a rigorous requirements process to meet business needs,
including network inventory, provisioning, network utilization, capacity
planning and management, billing, and internal functions for financial, sales,
and human resources.
ART's Competitive Advantages
The Company will compete in offering multi-megabit broadband IP service to
off-fiber commercial buildings by deploying a wireless solution. ART's metro
networks, built on the Internet Protocol, provide a direct IP network
connection between the service provider and customer premises.
Advantages of ART's 100 Mbps IP metro network include:
Focus on Data. ART believes it is currently the only fixed wireless
telecommunications company focusing exclusively on broadband data services.
ART's networks are built on Internet Protocol, providing a packet-switched
network engineered for performance and designed for applications built on
standard IP. Circuit-based
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metro infrastructures, built with copper, cannot achieve multi-megabit data
rates. Alternatives such as metropolitan fiber and aggregated private lines
are costly and limited in availability.
High-Capacity Metro Networks. ART's multi-megabit metro networks are being
engineered to provide high-capacity packet-switched local access with quality
superior to copper and comparable to fiber. Technology is available to expand
ART's product line to offer two-way data transfer rates to 155 megabits per
second.
Lower Cost Network. The Company expects its networks to cost less than its
competitors' fiber networks. The Company's fixed wireless networks do not
require the same magnitude of installation and maintenance costs as required
by fiber networks. The Company expects this cost differential to increase over
time as the cost of deploying fiber involves substantial labor and right-of-
way costs, which the Company does not expect to decrease, while the cost of
ART's networks involves substantial electronic equipment costs, which have and
are expected to continue to decline. The Company's network will be entirely
packet-based, and therefore the Company will not have to invest in the more
expensive circuit switches required by voice networks.
ART's Network
ART is deploying state-of-the-art packet-based broadband networks using
wireless facilities interfaced with the fiber backbone in metropolitan areas
to provide high-bandwidth IP access services. ART's network is based on Fast
Ethernet radios and switches deployed in a fault-tolerant ring architecture.
Each ring connects via ART's fiber network at "Gateway" buildings. The
Gateways in each city are interconnected at a Point Of Presence (POP), where
traffic is routed to ART's customers.
Traffic between Gateways and POPs will be carried over a backhaul network
that will be a combination of wireless links and fiber-optic transmission
facilities. Equipment at the Gateways and POPs is fully redundant. At the POP,
ART's wholesale customers can connect to ART using DS-3, OC-3, Packet Over
SONET, or Fast Ethernet. Multiple subscriber connections can be routed onto a
single wholesale customer interface. All of these links and networks are
monitored 24 hours a day, 7 days a week.
Products and Services
ART's IP metro network service is available in the multi-megabit range from
3 Mbps to native LAN speed (100 Mbps), providing higher capacity data services
than otherwise available to many businesses. The Company may offer specific
bandwidth speeds to service providers on a case-by-case basis. The scarcity
and cost of alternative ways to receive multi-megabit speeds give ART a market
segment with latent demand.
IPSP network service features will enable advanced IP services by service
providers such as ASPs and voice over IP (VoIP) providers. These service
providers need big bandwidth capacity and an IP connection to their customer
to maximize the performance of their services.
The Company's 100 Mbps fault-tolerant ring architecture complements the
service provider's broadband WAN backbone and allows for seamless
interconnection of high-speed end-to-end connectivity. Service providers can
choose between several increments of burstable IP ports' between their
customer and their network interface to ART. ART's IP metro networks will
enable service providers to increase the number of multi-megabit service
customers and extend value added services to them by using ART as an
outsourced network solution.
One interface for all customer traffic gives service providers a single,
manageable interface at ART's POP.
ART is a certified Cisco Powered Network TM service provider, building its
infrastructure with the strength of Cisco solutions. CPN is a distinction by
Cisco that signifies quality, high availability, reliability, scalability, and
security. ART and Cisco currently work together to design and implement state-
of-the-art network services.
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ART Sales and Marketing
The Company will establish regional centers throughout the United States to
establish local points of contact. Each regional center will be an interface
between the local market offices and the corporate office of our service
provider. Sales teams will formulate key partnerships with service providers
to assist in the launch of each market with wholesale customers' requirements
leading the development of the networks.
ART's national sales team plans to launch all markets by securing revenue
commitments from national service providers. ART's regional sales teams will
establish contracts with regional service providers while assisting in the
support of national accounts within their territory. These two teams will work
with their respective service providers to extend their ability to provide
wireless fiber quality metro network service to their customers.
39 GHz Wireless Broadband Licenses
The FCC has allocated the 38.6-40.0 GHz (the "39 GHz") band for wireless
broadband transmissions consisting of fourteen 100 MHz channels for the
provision of wireless telecommunications services within a specified
geographic footprint.
The Company holds 39 GHz licenses for 352 channels. Taken together, these
licenses allow the Company to provide 39 GHz wireless broadband services in
210 U.S. markets, allowing it to provide between 100 and 500 MHz of
transmission capacity in 90 of the top 100 U.S. markets. The Company may
selectively utilize other radio frequencies to provide its services under
certain circumstances. The Company may seek to acquire additional licenses or
businesses which hold licenses to expand its geographic footprint or to
enhance its ability to provide service within its current markets. In this
regard, the Company has entered into certain agreements to acquire additional
39 GHz licenses--see Recent Developments in Managements Discussion and
Analysis of Financial Condition and Results of Operations--and has filed an
application to participate in the 39 GHz auction scheduled for April 2000--see
FCC Licensing in Federal Regulation. The Company also has pending actions,
including a petition for reconsideration filed on January 7, 2000, and may
have rights arising from applications for new 39 GHz authorizations filed with
the FCC prior to the FCC's application processing freeze. While the Company is
not relying on such licenses in its business plan, any licenses granted would
add value to the Company's network.
Foreign Licenses
Foreign subsidiaries of the Company have been granted broadband wireless
authorizations covering Norway, Denmark and the United Kingdom which allow the
provision of broadband wireless connectivity for communications services with
certain limitations. Other foreign subsidiaries have applied for licenses in
other countries. There can be no assurance that any of these entities will be
able to acquire, retain or exploit licenses, comply with applicable license
restrictions, obtain any other necessary governmental approvals, obtain
financing, implement business plans or operate in any country on a profitable
basis or at all.
Competition
The Company intends to be the leading IPSP delivering carrier-class, multi-
megabit, wireless broadband connectivity. However, ART currently faces
competition from network service providers that currently or could in the
future deliver multi-megabit data services over copper wire, fiber and
wireless networks including ILECs, CLECs, fiber service providers, cable
television operators, wireless service providers and satellite communications
companies. Consolidation of telecommunications companies, formation of
strategic alliances and cooperative relationships in the telecommunications
and related industries, as well as the development of new technologies, could
give rise to significant new competitors to the Company.
Many of the Company's competitors have long-standing relationships with
customers and suppliers, greater name recognition and greater financial,
technical and marketing resources than the Company. As a result, these
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competitors, among other things, may be able to develop and exploit new or
emerging technologies or adapt to changes in customer requirements more
quickly than the Company or devote greater resources to the marketing and sale
of their services than the Company.
ILECs' Copper Networks. The Company faces significant competition from
incumbent LECs, which typically deliver data services over copper networks.
Incumbent LECs have long-standing relationships with their customers and
substantial name recognition. In addition, the incumbent LECs have employed or
will likely employ digital subscriber line products such as ADSL (asymmetrical
digital subscriber line), which is currently available. Commercial DSL
services currently are limited to 7 megabits of throughput downstream and 1
megabit of throughput upstream. ART currently has the capability to provide
much higher bandwidth.
Fiber Networks. The Company also faces competition from expanding fiber-
optic networks owned by incumbent and competitive LECs, IXCs, electric
utilities and other companies. Many of these companies have greater name
recognition and greater financial, technical and marketing resources than the
Company. Fiber-optic service generally offers broadband connectivity that is
comparable, if not superior to, the company's wireless broadband connections.
In addition, fiber technology may enjoy a greater degree of market acceptance
than wireless broadband technology.
Coaxial Cable Networks. The Company is likely to face competition from cable
television operators deploying cable modems, which provide high-speed data
capability over installed coaxial cable television networks, and there can be
no assurance that such competition will not be significant. Notwithstanding
the cable industry's interest in rapid deployment of cable modems, the Company
believes that in order to provide broadband capacity to a significant number
of businesses and government users, cable operators will be required to spend
significant time and capital in order to upgrade their existing networks to a
more advanced hybrid fiber coaxial network architecture and to extend these
networks to reach businesses. However, there can be no assurance that cable
modems will not emerge as a significant source of competition.
Other Fixed Wireless Networks. The Company also faces competition from other
fixed wireless service providers within its market areas including WinStar
Communications, Inc., Teleport Communications Group, Inc. ("TCG") and
Teligent, Inc. ("Teligent"). In many cases, one or all of these service
providers hold licenses to operate in the Company's market areas. WinStar and
Teligent have positioned themselves as wireless CLECs, and therefore will
compete with the Company in offering off-fiber connectivity to businesses and
buildings, with the potential to offer broadband data services. TCG, which
AT&T has acquired, also has the ability to provide wireless broadband
services. All three companies have substantially greater financial resources
than the Company.
Various other entities also have 39 GHz and other wireless broadband
licenses. Due to the relative ease and speed of deployment of fixed wireless
technology, the Company could face intense price competition and competition
for customers from other service providers.
The Company also faces potential competition from new entrants acquiring
licenses from FCC auctions. The FCC has recently auctioned 28 GHZ LMDS
licenses in all markets for the provision of high-capacity, wide-area fixed
wireless point-to-multipoint systems. LMDS licensees may use the spectrum to
offer a variety of services such as multichannel video programming, telephony,
video communications and data services in competition with the Company. The
FCC has announced an auction of geographical wide area licenses for the
operation of fixed wireless point-to-point and point-to-multipoint
communications services in the 39 GHz band.
MMDS service, provided at the 2 GHz spectrum band, also known as "wireless
cable," and ISM service also compete for metropolitan wireless broadband
services. At present, wireless cable licenses are used primarily for the
distribution of video programming and have only a limited capability to
provide two-way communications needed for wireless broadband
telecommunications services, but there can be no assurance that this will
continue to be the case.
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In January 1997, the FCC allocated 300 MHz of spectrum in the 5 GHz band for
unlicensed devices to provide short-range, high-speed wireless digital
communications. These frequencies must be shared with incumbent users without
causing interference. The allocation was designed to facilitate the creation of
new wireless local area networks, and thus may compete with the Company's
strategy of providing wireless connections between LANs. It is too early to
predict, however, how and to what extent this particular frequency may be used
in competition with the Company.
Mobile Wireless Networks. Cellular, personal communications services and
other mobile service providers may also offer data services over their licensed
frequencies. The FCC has also allocated a number of spectrum blocks for use by
wireless devices that do not require site or network licensing. A number of
vendors have developed such devices, which may provide competition to the
Company particularly for certain low-speed data transmission services. However,
ART has positioned itself to provide high-speed Internet services, and mobile
wireless networks generally offer lower transmission speeds.
Satellite Networks. Many other companies have filed applications with the FCC
to develop global broadband satellite systems which may be used to provide
broadband voice and date services. Satellite is currently a broadcast medium in
which two-way communications are not readily available. However, if the
satellite providers can develop two-way communications, this could represent a
significant competitive threat.
Government Regulation
The Company's wireless broadband services are subject to regulation by
federal, state and local governmental agencies. At the federal level, the FCC
has jurisdiction over the use of the electromagnetic spectrum (i.e., wireless
services) and has exclusive jurisdiction over all interstate telecommunications
services, that is, those that originate in one state and terminate in another
state. State regulatory commissions have jurisdiction over intrastate
communications, that is, those that originate and terminate in the same state.
Municipalities may regulate limited aspects of the Company's business by, for
example, imposing zoning requirements and requiring installation permits.
Federal Regulation
FCC Licensing. The Communications Act of 1934, as amended, and the FCC Rules
and Regulations ("Communications Laws") impose requirements on radio licensees
and carriers, including, among other things, regulations on the ownership,
operation, acquisition and sale of the broadband operating radio systems that
are needed to provide the services offered by the Company. On October 24, 1997,
the FCC adopted a Report and Order and Second Notice of Proposed Rulemaking
("Order") that substantially modified the regulations applied to 39 GHz
licensees, such as the Company. The Order allocated new spectrum at 37.0-38.6
GHz; conformed the rules for operation in the 37.0-38.6 GHz band with the rules
for operation in the 38.6-40.0 GHz band; modified certain operational rules for
both bands; adopted a competitive bidding licensing scheme for authorizing new
spectrum in these bands over defined geographic areas; and adopted rules for
the protection of incumbent licensees, such as the Company. These rules were
reaffirmed, but modified, in part, by the FCC's Memorandum Opinion and Order,
released on July 29, 1999.
The new operational rules generally expand the flexibility of licensees
operating in the 37.0-40.0 GHz band. For example, licensees are now permitted
to offer point-to-multipoint and point to point services, and will be permitted
to provide mobile services upon adoption of inter-licensee coordination
policies.
All of the 39 GHz licenses currently owned and many of the 39 GHz licenses to
be acquired by the Company are due to expire in February of 2001. Under the new
operational rules, the Company will be entitled to a "renewal expectancy," a
dispositive preference in renewal proceedings, for a license if the Company can
demonstrate that it is providing "substantial service" within the licensed area
when it files its renewal application. The FCC has not provided definitive
guidance on what constitutes "substantial" service, but has stated that
"[a]lthough a finding of substantial service will depend upon the particular
type of service offered by the licensee, one example of a substantial service
showing for a traditional point-to-point licensee might consist
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of four links per million population within a service area." Under the 39 GHz
rules, licensees are exempted from a prior ruling requiring operation within 18
months from the initial date of license grant, because the performance
standards required at build-out are combined with the requirements for the
showing of "substantial service" at the time of license renewal. If the Company
were not to receive a renewal expectancy, the Company's operations could be
adversely affected.
Court appeals of various aspects of the Order, including but not limited to
the treatment of pending applications and amendments, have been filed by a
number of parties. It is not possible to determine when the Courts will act on
these appeals or what changes, if any, will be made to the final rules. Thus,
there can be no assurance that the final rules will not have a material adverse
effect on the Company's operations.
The FCC has scheduled an auction for licenses in the 38.6 to 40.0 GHz Band
for April 12, 2000. The Company has filed an application to participate in the
auction. Other applicants pursuing licenses in the auction include AT&T and
other existing 39 GHz licensees, among others. While the Company has developed
a strategy for participation in the auction the Company does not know whether
it will be successful in obtaining additional licenses it desires and, if it
does obtain such licenses, the cost of such licenses. The Company is seeking to
participate in the auction as a "very small business" under the FCC's rules,
which would entitle it to a 35% bidding credit during the auction. While the
Company believes it is a "very small business" under such rules there is no
guarantee that the FCC will accept this designation. As a final matter, the
Company will not know until the conclusion of the auction, whether additional
competitors to its services will emerge.
Licenses in the 39 GHz band are subject to an interim arrangement between the
FCC and the Department of Industry of Canada regarding sharing between
broadband wireless systems along the U.S.-Canada border. Additionally, this
band is subject to satellite power flux density limits that are subject to
change. The FCC is working to develop a proposal that would establish a
harmonized global plan covering the 37.5-42.5 GHz band. The FCC intends to
present this proposal at the World Radiocommunication Conference in May, 2000.
The FCC is seeking adoption of certain proposals that would reduce the impact
of satellite operations on terrestrial users of the 39 GHz band. There can be
no assurance that the ultimate resolution of these issues will not adversely
affect the Company's operations.
Section 271 Regulation. In September 1999, the Company and Qwest
Communications International Inc. ("Qwest") entered into an arrangement whereby
Qwest invested in the Company in exchange for convertible preferred stock.
Under the arrangement, Qwest holds shares of convertible preferred stock that,
if converted, would represent slightly over 17 percent of the Company's common
stock on a fully-diluted basis. Pursuant to a shareholder's agreement, Qwest is
precluded from converting its preferred shares if it would own more than
19.9 percent of ART's common stock at any time.
Qwest and U S West have announced an intent, and been granted FCC consent to
merge their operations, which is anticipated to take place during the second
quarter of 2000 at the earliest. Upon consummation of the merger, Qwest would
acquire U S West's status as a Bell Operating Company ("BOC") under the
Communications Act and the Company would be considered an "affiliate" of the
combined entity and would be subject to certain restrictions placed upon BOCs.
Specifically, the Company would be subject to the interLATA prohibition in
Section 271 of the Communications Act for traffic originating in U S West's
"in-region States." The restrictions in Section 271 are based upon LATAs, or
Local Access and Transport Areas. Section 271 would preclude the Company from
(1) providing any service over physical facilities that cross a LATA boundary;
(2) providing or marketing any end-to-end service whereby interLATA traffic is
originated in U S West territory; and (3) engaging in certain joint marketing
arrangements with carriers providing interLATA services.
While the Company has available alternatives that will permit the
restructuring of its offerings consistent with the requirements of Section 271,
in the event that the Company is considered a BOC affiliate, there can be no
assurance that the Section 271 restrictions will not adversely affect the
Company's operations.
Competition. Over the last several years, the FCC has issued a series of
decisions and Congress has recently enacted legislation making the interstate
access services market more competitive by requiring reasonable and fair
interconnection by LECs. The Telecommunications Act of 1996 substantially
departs from
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prior legislation in the telecommunications industry by establishing local
exchange competition as a national policy through the removal of state
regulatory barriers to competition and the preemption of laws restricting
competition in the local exchange market. The provisions of the
Telecommunications Act are designed to ensure that regional Bell operating
companies ("RBOCs") take affirmative steps to level the playing field for their
competitors so that Competitive Access Providers, CLECs and others can compete
effectively. The FCC, with advice from the United States Department of Justice,
and the states are given jurisdiction to enforce these requirements. There can
be no assurance, however, that the states and the FCC will implement the
Telecommunications Act in a manner favorable to the Company.
State Regulation
Many of the Company's services, either now or in the future, may be
classified as intrastate and therefore may be subject to state regulation.
Under current state regulatory schemes, entities can compete with ILECs in the
provision of (i) local access services, (ii) dedicated access services, (iii)
private network services, including WAN services, for businesses and other
entities and (iv) long distance toll services.
Employees
As of March 1, 2000 the Company had a total of 105 employees. None of the
Company's employees is represented by a collective bargaining agreement.
ITEM 2. PROPERTIES
The Company leases approximately 36,000 square feet of office space in
Bellevue, Washington, under leases expiring in 2002 and approximately 17,000
square feet of distribution center facilities in Kent, Washington under a lease
expiring in 2002. In addition, the Company leases antenna sites pursuant to
operating lease agreements expiring in 2000 to 2017.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material litigation. In the normal course
of business, the Company has various legal claims and other contingent matters
outstanding. Management believes that any ultimate liability arising from these
actions would not have a material adverse effect on the Company's financial
condition, liquidity or operating results.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matter to a vote of security holders during
the fourth quarter of 1999.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
At December 31, 1999, the Company's sole executive officer is Robert S.
McCambridge, 41, President and Chief Operating Officer since December, 1999,
and previously Executive Vice President and Chief Financial Officer of the
Company since October 1998. From September 1996 to October 1998, Mr.
McCambridge was Executive Vice President and earlier Vice President and Chief
Financial Officer of One Comm, formerly Cable Plus Holding Company. From May
1995 to September 1996, Mr. McCambridge was President of the Robert S.
McCambridge Company. From March 1994 to May 1995 Mr. McCambridge was Senior
Vice President and Director of Pacific Northwest Corporate Finance of Dain
Bosworth Inc. From December 1991 to January 1994 Mr. McCambridge was Treasurer
and Vice President of Corporate Development of Ceridian Corporation, formerly
Control Data Corporation.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
ART's common stock is traded in the over-the-counter market and is reported
on the Nasdaq National Market under the symbol "ARTT." The following table
sets forth for periods indicated high and low bid information of ART common
stock as reported on the Nasdaq National Market. Such transactions reflect
inter-dealer prices, without retail markup, markdown or commission and may not
necessarily represent actual transactions.
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Price Range
------------
High Low
------ -----
<S> <C> <C>
1999 First Quarter......................................... $13.31 $5.81
Second Quarter........................................... $16.62 $9.37
Third Quarter............................................ $15.12 $7.50
Fourth Quarter........................................... $24.87 $9.87
1998 First Quarter......................................... $17.00 $7.50
Second Quarter........................................... $16.37 $9.69
Third Quarter............................................ $10.00 $2.94
Fourth Quarter........................................... $ 7.50 $2.12
</TABLE>
On March 21, 2000, the last sale price of common stock as reported on the
Nasdaq National Market was $35.12 per share. As of March 21, 2000 there were
156 holders of record of ART's common stock.
ART has not paid any cash dividends on its common stock in the past and does
not anticipate paying any cash dividends on its common stock in the
foreseeable future. ART's Board of Directors intends to retain earnings to
finance the expansion of ART's business and fund ongoing operations for the
foreseeable future. In addition, terms of the indenture relating to the
Company's 14% Senior Notes due 2007, and terms of Series A and B preferred
stock restrict the Company's ability to pay dividends on common stock.
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data presented below has been derived from and should be
read in conjunction with the Company's audited consolidated financial
statements and management's discussion and analysis of financial condition and
results of operations (in thousands except per share data):
<TABLE>
<CAPTION>
Year ended December 31
-----------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues.................. $ 1,341 $ 841 $ 1,106 $ 2,908 $ 6
Loss before extraordinary
item..................... (96,698) (46,983) (61,729) (29,330) (3,235)
Net loss.................. (96,698) (46,983) (61,729) (30,670) (3,235)
Basic and diluted net loss
per share(1)............. (7.65) (1.89) (3.23) (3.97) (0.54)
<CAPTION>
As of December 31
-----------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital
(deficit)................ $169,754 $ (2,930) $ 25,609 $ (9,624) $(3,009)
Total assets.............. 398,136 265,721 232,560 36,649 9,877
Long-term debt............ 109,427 118,371 108,299 4,977 6,450
Convertible Preferred
Stock.................... 243,536 -- -- -- --
Total stockholders' equity
(deficit)................ (7,935) 82,355 76,257 19,950 (313)
</TABLE>
- --------
(1) Includes $4.10 loss per share relating to deemed preferred dividend in
1999 and $0.17 loss per share relating to extraordinary loss on early
retirement of debt in 1996.
10
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Cautionary Statement
This Item and other Items in this Report include "forward-looking"
information, as that term is defined in the Private Securities Litigation
Reform Act of 1995 or by the Securities and Exchange Commission in its rules,
regulations and releases, regarding the Company's financial and business
prospects, deployment of it's network, and capital requirements. The Company
cautions investors that any such statements are not guarantees of future
performance and that known and unknown risks, uncertainties and other factors
may cause actual results to differ materially from those in the forward-
looking statements. Those risks include, without limitation, ability to raise
additional capital, ability to achieve the benefits contemplated by the
preferred stock investment and the commercial agreements with Qwest, effect of
the Qwest-US WEST merger, capital requirements and other financial risks,
customer demand, technological risks, management of growth, competition and
government regulation, as described in Exhibit 99 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1999. The Company does not
undertake to update or revise its forward-looking statements publicly even if
experience or future changes make it clear that any projected results
expressed or implied herein will not be realized.
Overview
In September 1999, ART refocused its strategy to providing broadband
internet protocol services to businesses. As a result, revenues for most of
1999, 1998 and 1997 represent sales to customers and for businesses that are
not part of the current strategy. Revenues and results for those periods are
not indicative of the Company's current business. The Company plans to deploy
high speed internet protocol metropolitan networks in ten U.S. markets in 2000
and in an additional thirty markets over the next three years. The Company
expects its operating expenses to increase as it deploys its network and
expands its business.
Results of Operations
Service revenue for 1999 was $1.3 million compared to $841,000 for 1998 and
$709,000 for 1997. Revenue for 1997 also included $397,000 of equipment sales
and construction revenues.
Technical and network operations expenses were $17.7 million in 1999
compared to $9.2 million in 1998 and $7.9 million in 1997. The increase in
1999 resulted primarily from the deployment and operation of network in four
markets.
Sales and marketing expenses were significantly higher in 1997 than in 1998
and 1999 reflecting the Company's efforts to market its services in an earlier
strategy pursued in 1977.
General and administrative expenses include severance costs of $4.5 million
in 1999, $650,000 in 1998 and $1.0 million in 1997 and non-cash stock-based
compensation charges of $1.7 million in 1999, $1.3 million in 1998 and $1.2
million in 1997. During 1998, ART also recorded a charge of $2.4 million
related to accrued sales, use and property taxes.
ART recorded equipment impairment charges of approximately $20.0 million in
1999, $2.8 million in 1998 and $7.2 million in 1997 primarily related to the
write-down of certain equipment and other network costs not expected to be an
integral part of the Company's broadband data network.
Depreciation and amortization expense increased to $14.4 million in 1999
from $7.4 million in 1998 and $6.0 million in 1997 as a result of the
deployment of networks and the acquisition of FCC licenses in 1998. As a
result of recording equipment impairment charges in 1999 and until the network
build-out is deployed, depreciation expense may decrease in year 2000 as
compared to 1999.
Interest and other expenses, net increased in 1999 to $24.1 million from
$20.0 million in 1998 and $16.8 million in 1997 primarily due to amortization
of the value ascribed to warrants issued in equipment financings in 1998 and
increased borrowing under these facilities.
11
<PAGE>
Deferred income tax benefits were $2.2 million in 1999, $9.1 million in 1998
and $1.3 million in 1997. The higher effective tax rate in 1998 resulted from
a change in the tax law effective in 1998.
In February of 1999, the Company cancelled and reissued approximately 1
million stock options, which under proposed interpretations of Accounting
Principles Board Opinion No. 25, would be accounted for as variable options
prospectively from July 1, 2000, the effective date of the interpretation,
until such options have been exercised. The potential exposure related to
these stock options will not be determinable until the effective date of the
interpretation.
Liquidity and Capital Resources
Since its inception, ART has financed its operations, capital expenditures,
and acquisitions from issuances of debt and equity securities, asset sales and
vendor financing.
In February 1997, ART raised $84 million through the public offering of $135
million of senior notes and warrants ($51 million of the gross proceeds were
used to purchase securities to fund interest through February 2000). In 1998
and 1999, ART borrowed from Lucent pursuant to equipment and working capital
facilities.
In September 1999, ART raised $251 million from the private placement of
convertible preferred stock to investors led by Qwest Communications and Oak
Investment partners. In November 1999, ART entered into an agreement with
Cisco Systems Capital Corporation to provide up to $175 million to cover ART's
purchase of Cisco equipment and for other network installation and integration
costs.
The Company will require significant additional capital to fully fund its
operations and its long-term broadband data network build-out and business
plan. The Company currently estimates that it may require in excess of $750
million over the next several years to fund capital expenditures, working
capital and operations. Proceeds from the preferred stock investment are
expected to be used to accelerate implementation of the Company's business
plan. However, the Company needs to raise substantial additional capital to
fully implement its business plan. While the Company has raised substantial
capital in the past, there can be no assurance that the Company will be able
to obtain additional financing, or, if available, that it will be able to
obtain such additional financing on acceptable terms. Actual capital
requirements will be affected, possibly materially, by various factors
including the speed of the Company's build-out, the cost and amount of
equipment acquired, the number of markets served and the penetration of those
markets, customer acceptance and demand and the prices charged for services,
competition and technological change. The Company expects to be able to adjust
its capital requirements in part in response to customer demand by changing
the rate at which it adds new markets and builds out existing markets.
Recent Developments
ART entered into a binding letter of intent in March of 2000 to acquire up
to all of the 39GHz licenses of Broadstream Communications Corporation and its
affiliates ("Broadstream"). ART would issue as consideration shares with a
value of up to approximately $365 million for Broadstream's licenses, which
cover a population of approximately up to 258 million, including 37 of the top
50 markets. The letter of intent provides that ART will provide Broadstream
with a bridge loan of up to $30 million at the signing of definitive
agreements. ART has also entered into definitive agreements in March of 2000
to acquire all of the 39 GHz licenses of Bachow Communications Incorporated
("Bachow"). ART will issue approximately 2.2 million shares as consideration
for Bachow's 14 licenses, which cover a population of approximately 37
million, including the Atlanta, Boston, Buffalo, Cincinnati, Indianapolis, Las
Vegas, Los Angeles, Milwaukee, Portland, San Diego, Washington and Baltimore
markets. ART expects to close both the Broadstream and Bachow transaction in
the second half of the year. Closing of both transactions are subject to
various conditions, including FCC approval and, in the case of the Broadstream
transaction, entering into definitive agreements, receipt of a fairness
opinion, agreement of the Series A stockholders, board and shareholder
approval and for 104 of the licenses, license renewal.
12
<PAGE>
Inflation
Management believes that its business has not been affected by inflation to
a significantly different extent than has the general economy.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's exposure to market risk for changes in interest rates relates
primarily to its investment portfolio. The Company's existing long-term debt
has a fixed interest rate, however future borrowings may bear interest at
variable rates and accordingly, the Company's exposure to market risk for
changes in interest rates may change in the future.
The Company's investment portfolio includes only highly liquid instruments
with an original maturity of less than one year. The Company places its
investments with high quality credit issuers and limits the amount of credit
exposure to any one issuer. The Company's first priority is to reduce the risk
of principal loss; consequently, the Company seeks to preserve its invested
funds by limiting default risk, market risk and reinvestment risk. The Company
mitigates default risk by investing in only high quality credit securities
that it believes to be low risk and by positioning its portfolio to respond
appropriately to a significant reduction in a credit rating of any investment
issuer. The portfolio includes only marketable securities with active
secondary or resale markets to ensure portfolio liquidity. As of December 31,
1999, the Company's investments, which approximate $184 million including cash
and cash equivalents and short-term investments, have a weighted average
interest rate of 6.1% and mature within one month. The fair value of the
Company's investment portfolio or related income would not be significantly
impacted by changes in interest rates since the investment maturities are
short. The Company has had no holdings of derivative financial or commodity
instruments in the past and has no current plans to do so in the future. The
Company has not conducted business in foreign currencies in the past; this may
or may not change in the future.
The Company's $135 million of long-term debt bears interest at 14% and is
due in full in 2007. Other long-term debt, which is not significant in amount,
bears interest at market rates and is scheduled for repayments within three
years.
13
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Advanced Radio Telecom Corp.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity (deficit) and
of cash flows present fairly, in all material respects, the financial position
of Advanced Radio Telecom Corp. and Subsidiaries at December 31, 1999 and
1998, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999 in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
Seattle, Washington
February 15, 2000
14
<PAGE>
ADVANCED RADIO TELECOM CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
December 31,
--------------------
1999 1998
--------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents............................... $ 108,161 $ 11,864
Short-term investments.................................. 75,887 --
Pledged securities...................................... 9,407 18,504
Accounts receivable..................................... 234 126
Prepaid expenses and other current assets............... 227 714
--------- ---------
Total current assets................................. 193,916 31,208
Pledged securities, net of current portion.............. -- 8,854
Property and equipment, net............................. 14,747 33,202
FCC licenses, net....................................... 180,754 186,514
Deferred financing costs, net........................... 8,345 5,503
Other assets............................................ 374 440
--------- ---------
Total assets......................................... $ 398,136 $265,721
========= =========
Current liabilities:
Working capital facility borrowings..................... $ 16,229
Accounts payable........................................ $ 5,780 2,534
Accrued compensation and benefits....................... 3,022 2,936
Accrued taxes other than income......................... 5,034 3,225
Other accrued liabilities............................... 2,826 1,535
Accrued interest payable................................ 7,120 7,154
Current portion of long-term debt....................... 380 525
--------- ---------
Total current liabilities............................ 24,162 34,138
Long-term debt, net of current portion.................... 109,047 117,846
Deferred income tax liabilities........................... 29,326 31,382
--------- ---------
Total liabilities.................................... 162,535 183,366
--------- ---------
Commitments and contingencies (Note 8)
Convertible Preferred Stock:
Series A convertible preferred stock, $.001 par value,
3.25 million shares authorized 2,288,289 shares issued
and outstanding........................................ 195,796
Series B convertible preferred stock, $.001 par value,
902,893 shares authorized, 849,211 shares issued and
outstanding............................................ 47,740
---------
Total convertible preferred stock.................... 243,536
---------
Stockholders' equity (deficit):
Common stock, $.001 par value, 100 million shares
authorized, 27,967,975 and 26,707,036 shares issued and
outstanding............................................ 28 27
Additional paid-in capital.............................. 231,485 225,967
Note receivable from stockholder........................ (887) (887)
Accumulated other comprehensive income.................. 889 --
Accumulated deficit..................................... (239,450) (142,752)
--------- ---------
Total stockholders' equity (deficit)................. (7,935) 82,355
--------- ---------
Total liabilities, convertible preferred stock and
stockholders' equity (deficit).................... $ 398,136 $ 265,721
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
15
<PAGE>
ADVANCED RADIO TELECOM CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share data)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1999 1998 1997
--------- -------- --------
<S> <C> <C> <C>
Revenues:
Service revenue............................... $ 1,341 $ 841 $ 709
Equipment sales and construction revenue...... -- -- 397
--------- -------- --------
Total revenues............................. 1,341 841 1,106
--------- -------- --------
Costs and expenses:
Technical and network operations.............. 17,703 9,198 7,928
Sales and marketing........................... 6,154 5,679 13,470
General and administrative.................... 17,853 11,993 12,790
Provision for equipment impairment............ 20,043 2,753 7,167
Depreciation and amortization................. 14,408 7,354 6,018
--------- -------- --------
Total costs and expenses................... 76,161 36,977 47,373
--------- -------- --------
Loss from operations............................ (74,820) (36,136) (46,267)
--------- -------- --------
Interest and other:
Interest expense.............................. 28,806 22,177 21,631
Other......................................... (696) 495 --
Interest income............................... (4,057) (2,693) (4,814)
--------- -------- --------
Loss before income taxes.................... (98,873) (56,115) (63,084)
Deferred income tax benefit..................... 2,175 9,132 1,355
--------- -------- --------
Net loss........................................ $ (96,698) $(46,983) $(61,729)
========= ======== ========
Net loss........................................ $ (96,698) $(46,683) $(61,729)
Deemed preferred dividend....................... (111,880) -- --
--------- -------- --------
Net loss applicable to common stockholders...... $(208,578) $(46,983) $(61,729)
========= ======== ========
Basic and diluted net loss per common share,
including $4.10 loss per share relating to
deemed preferred dividend in 1999.............. $ (7.65) $ (1.89) $ (3.23)
========= ======== ========
Weighted average common shares.................. 27,272 24,890 19,083
========= ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
16
<PAGE>
ADVANCED RADIO TELECOM CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands)
<TABLE>
<CAPTION>
Note Accumulated
Common Stock Additional Receivable Other
---------------- Paid-In from Comprehensive Accumulated
Shares Par Value Capital Stockholder Income Deficit Total
------ --------- ---------- ----------- ------------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996................... 13,559 $13 $ 53,977 -- -- $ (34,040) $ 19,950
Common stock issued in
connection with
acquisition of FCC
licenses............... 6,000 6 87,744 -- -- -- 87,750
Value ascribed to
warrants issued with
Senior Notes........... -- -- 29,708 -- -- -- 29,708
Warrant issuance costs.. -- -- (1,255) -- -- -- (1,255)
Stock compensation
expense................ -- -- 450 -- -- -- 450
Stock options
exercised.............. 286 -- 496 -- -- -- 496
Warrants exercised...... 1,584 2 (2) -- -- -- --
Common stock issuable
for note receivable
from stockholder....... -- -- 887 $(887) -- -- --
Common stock issuable
under employment
agreement.............. -- -- 887 -- -- -- 887
Net loss................ -- -- -- -- -- (61,729) (61,729)
------ --- -------- ----- ----- --------- --------
Balance at December 31,
1997................... 21,429 21 172,892 (887) -- (95,769) 76,257
Common stock issued in
connection with
acquisition of FCC
licenses............... 4,530 5 48,343 -- -- -- 48,348
Common stock issued for
note receivable from
stockholder............ 100 -- -- -- -- -- --
Value ascribed to
warrants issued in
connection with working
capital facility....... -- -- 3,282 -- -- -- 3,282
Warrants exercised...... 632 1 19 -- -- -- 20
Stock options
exercised.............. 16 -- 94 -- -- -- 94
Stock compensation
expense................ -- -- 679 -- -- -- 679
Common stock issuable
under employment
agreements............. -- -- 658 -- -- -- 658
Net loss................ -- -- -- -- -- (46,983) (46,983)
------ --- -------- ----- ----- --------- --------
Balance at December 31,
1998................... 26,707 27 225,967 (887) -- (142,752) 82,355
Common stock issued in
connection with
acquisition of FCC
licenses............... 154 -- 848 -- -- -- 848
Value ascribed to
warrants issued in
connection with working
capital facility....... -- -- 1,242 -- -- -- 1,242
Warrants exercised...... 610 1 3 -- -- -- 4
Stock options
exercised.............. 255 -- 1,724 -- -- -- 1,724
Stock compensation
expense................ -- -- 1,195 -- -- -- 1,195
Common stock issuable
under employment
agreements............. 242 -- 506 -- -- -- 506
Value ascribed to
beneficial conversion
feature of Series A
Preferred Stock........ -- -- 111,880 -- -- -- 111,880
Deemed dividend of
beneficial conversion
feature of Series A
Preferred Stock........ -- -- (111,880) -- -- -- (111,880)
Comprehensive loss:
Net loss................ -- -- -- -- (96,698) (96,698)
Unrealized appreciation
on investments
available for sale..... -- -- -- -- $ 889 -- 889
--------
Comprehensive loss...... -- -- -- -- -- -- (95,809)
------ --- -------- ----- ----- --------- --------
Balance at December 31,
1999................... 27,968 $28 $231,485 $(887) $ 889 $(239,450) $ (7,935)
====== === ======== ===== ===== ========= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
17
<PAGE>
ADVANCED RADIO TELECOM CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss....................................... $(96,698) $(46,983) $(61,729)
Adjustments to reconcile net loss to net cash
used in operating activities:
Non-cash equipment impairment charges........ 20,043 2,753 8,101
Depreciation and amortization................ 14,408 7,354 6,018
Non-cash interest expense.................... 5,660 2,704 4,167
Non-cash stock-based compensation expense.... 1,701 1,336 1,337
Deferred income tax benefit.................. (2,175) (9,132) (1,355)
Changes in operating assets and liabilities:
Accrued interest payable................... (34) 41 7,096
Accrued interest on pledged securities..... (949) (1,928) (2,194)
Accounts payable and other current
liabilities............................... 6,432 4,164 1,098
Other........................................ (393) (431) 1,567
-------- -------- --------
Net cash used in operating activities........ (52,005) (40,122) (35,894)
-------- -------- --------
Cash flows from investing activities:
Purchases of property and equipment............ (13,037) (5,678) (24,052)
Additions to and acquisitions of FCC licenses.. (4,311) (518) (5,748)
Proceeds from sale of FCC licenses............. 6,872 -- --
Purchases of short-term investments............ (74,998) (9,127) (47,065)
Proceeds from sales of short-term investments.. -- 27,636 29,071
Purchases of pledged securities................ -- -- (51,245)
Proceeds from maturities of pledged
securities.................................... 18,900 18,630 8,863
Proceeds from maturities of restricted cash.... -- 1,000 --
Proceeds from disposition of property and
equipment..................................... 2,045 621 89
-------- -------- --------
Net cash provided (used) by investing
activities.................................. (64,529) 32,564 (90,087)
-------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of preferred stock, net
of issuance costs............................. 243,536 -- --
Proceeds from (repayments of) working capital
facility borrowings........................... (17,500) 17,500 --
Repayment of purchase money facility
borrowings.................................... (10,000) -- --
Proceeds from issuance of Senior Notes and
warrants...................................... -- -- 135,000
Warrant issuance costs......................... -- -- (1,255)
Proceeds from issuance of common stock......... 1,728 114 496
Increase (decrease) in checks issued in excess
of bank deposits.............................. -- (3,056) 3,056
Principal payments of long-term debt........... (430) (1,727) (2,019)
Additions to deferred financing costs.......... (4,503) (544) (4,136)
-------- -------- --------
Net cash provided by financing activities.... 212,831 12,287 131,142
-------- -------- --------
Net increase in cash and cash equivalents........ 96,297 4,729 5,161
Cash and cash equivalents, beginning of period... 11,864 7,135 1,974
-------- -------- --------
Cash and cash equivalents, end of period......... $108,161 $ 11,864 $ 7,135
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
18
<PAGE>
ADVANCED RADIO TELECOM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. The Company and Basis of Presentation
Advanced Radio Telecom Corp. (collectively with its subsidiaries, "ART" or
the "Company") is a broadband internet protocol service provider to
businesses. ART has a nationwide footprint of 39 GHz spectrum licenses in the
United States, and owns 26 GHz and/or 39 GHz spectrum licenses in the United
Kingdom and several Scandinavian countries. From its inception in 1993 through
1997, the Company was primarily involved in the acquisition of spectrum
rights, hiring management and other key personnel, raising capital, acquiring
equipment and roof rights and developing operating and support systems to
support its initial business of selling connectivity to various
telecommunications companies as a wholesale carriers' carrier. The Company
altered its strategy in 1998 to sell a variety of broadband Internet services
to end-user customers and began offering such services in the Seattle,
Washington, Portland, Oregon and Phoenix, Arizona markets.
During 1999, the Company's strategy evolved to that of providing high speed
broadband internet protocol services to businesses, and in September 1999, the
Company introduced 100 Mbps internet access service to businesses in the San
Jose, California area. In September 1999, the Company completed a convertible
preferred stock offering which raised $251 million, and in November 1999
entered into a purchase agreement and funding commitment for network buildout
financing of up to $175 million. The Company has announced plans to build
high-speed, internet protocol metropolitan area networks in 10 United States
markets in 2000.
The Company will require significant additional capital to fully fund its
operations and long-term broadband data network buildout and business plan.
The Company currently estimates that it may require in excess of $750 million
over the next several years to fund capital expenditures, working capital and
operations. Accordingly, the Company will need to raise substantial additional
capital to fully implement its business plan. While the Company has raised
substantial capital in the past, there can be no assurance that the Company
will be able to obtain additional financing, or, if available, that it will be
able to obtain such additional financing on acceptable terms. Actual capital
requirements will be affected, possibly materially, by various factors
including the speed of the Company's build-out, the cost and amount of
equipment acquired, the number of markets served and the penetration of those
markets, customer acceptance and demand and the prices charged for services,
competition and technological change. The Company expects to be able to adjust
its capital requirements in part in response to customer demand by changing
the rate at which it adds new markets and builds out existing markets.
Note 2. Summary of Significant Accounting Policies
Consolidation. The accompanying consolidated financial statements include
the accounts of the Company and all majority owned subsidiaries. Significant
intercompany transactions have been eliminated in consolidation.
Reclassification. Certain reclassifications within the consolidated
financial statements have been made to conform with current year
presentations.
Use of Estimates. Preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect amounts reported in the financial statements.
Actual results could differ from those estimates. Among the more significant
estimates made by management include estimated useful lives of licenses and
network equipment and recoverability of recorded values of long-lived assets.
Cash and Cash Equivalents. Cash and cash equivalents represent funds on
deposit with banks or investments purchased with remaining maturities of three
months or less that are readily convertible into cash and not subject to
significant risk from fluctuation in interest rates. The Company places its
temporary cash investments with major financial institutions in amounts which
may exceed Federally insured limits.
19
<PAGE>
ADVANCED RADIO TELECOM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 2. Summary of Significant Accounting Policies--(Continued)
Short-term investments. Short-term investments are comprised primarily of
commercial paper with remaining maturities in excess of three months when
purchased and are stated at market value, with unrealized appreciation on such
securities reported as other comprehensive income in stockholders' equity. The
Company classifies all short-term investments as available-for-sale and it is
the Company's intent to maintain a liquid portfolio not subject to significant
risk from fluctuation in interest rates. All of the Company's short-term
investments have remaining maturities less than three months at December 31,
1999.
Pledged Securities. Pledged securities consist of U.S. Treasury securities
that are held to maturity and are carried at amortized cost.
Property and Equipment. Property and equipment are stated at cost. Direct
costs of placing assets into service and major renewals and improvements are
capitalized, while maintenance and repairs are expensed as incurred.
Depreciation and amortization are computed utilizing straight-line methods
over estimated useful lives, generally two to five years. Cost and accumulated
depreciation for assets sold retired, or otherwise disposed of are removed
from the accounts, and resulting gains or losses recorded.
Capitalized Software. Purchased software used for internal purposes is
capitalized at cost and amortized over estimated useful lives, generally three
years.
FCC Licenses. Direct costs of obtaining radio spectrum licenses by grant
from the Federal Communication Commission ("FCC") or by purchase from others
and costs of perfecting such licenses are capitalized and amortized on a
straight-line basis over 40 years. Accumulated amortization as of December 31,
1999 and 1998 approximated $11.7 million and $7.2 million, respectively. All
of the Company's 39 GHz licenses expire in 2001 and it is management's
expectation that such licenses will be renewed by the FCC for successive ten
year periods.
Impairment of Long-Lived Assets. The Company evaluates its long-lived assets
for financial impairment and continues to evaluate them as events or changes
in circumstances indicate that the carrying amount of such assets may not be
fully recoverable. In cases where undiscounted expected cash flows associated
with such assets are less than their carrying value, an impairment provision
is recognized in an amount by which the carrying value exceeds the estimated
fair value of such assets. Recoverability of property and equipment and
capitalized FCC licenses is dependent on, among other things, successful
deployment of networks in each of the respective markets, or sale of such
assets. Management estimates that the Company will recover the carrying amount
of those costs from undiscounted cash flows generated by the networks once
deployed. However, it is reasonably possible that such estimates may change in
the near term as a result of technological, regulatory or other changes.
Financing Costs. Direct costs associated with obtaining debt financing are
deferred and charged to interest expense using the effective interest rate
method over the debt term. Direct costs associated with obtaining capital
stock are recorded as a reduction of proceeds. Costs associated with
financings not consummated are charged to interest expense, which, in 1998,
totaled $448,000. Direct costs of obtaining commitments for financing are
deferred and charged to expense over the commitment term; cost and accumulated
amortization are removed from the accounts upon borrowing repayments.
Accumulated amortization of deferred financing costs approximated $682,000 and
$1.3 million at December 31, 1999 and 1998, respectively.
Revenue Recognition. Revenue from telecommunications services is recognized
ratably over the period such services are provided. Equipment sales and
construction revenue is recorded at the time the equipment is delivered and
construction is completed. Cost of equipment sales are based on the average
cost method.
20
<PAGE>
ADVANCED RADIO TELECOM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 2. Summary of Significant Accounting Policies--(Continued)
Income Taxes. The Company accounts for income taxes under the liability
method of accounting. Under the liability method, deferred taxes are
determined based on differences between financial statement and tax bases of
assets and liabilities at enacted tax rates in effect in years in which
differences are expected to reverse. Valuation allowances are established,
when necessary, to reduce deferred tax assets to amounts expected to be
realized.
Stock Options. The Company applies the accounting provisions of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees,"
and related interpretations for its stock-based plans. Accordingly,
compensation costs for stock options granted to employees and directors is
measured as the excess, if any, of fair value of Company stock over exercise
price at the measurement date, except when the plan is determined to be
variable in nature. The Company accounts for equity stock options is granted
to non-employees at fair value.
Net Loss Per Share. Calculations of loss per share exclude the effect of
convertible preferred stock, options and warrants, together a total of
approximately 37.2 million shares, since inclusion in such calculations would
have been antidilutive. The net loss per share for 1999, gives effect to a
deemed preferred stock dividend of $111.9 million representing the beneficial
conversion feature of Series A preferred stock.
Note 3. Property and Equipment
Components of property and equipment were as follows at December 31 (in
thousands):
<TABLE>
<CAPTION>
1999 1998
-------- -------
<S> <C> <C>
Network equipment placed in service.................... $ 13,803 $14,240
Network equipment not yet placed in service............ 3,169 17,925
Computer systems....................................... 7,533 3,893
Furniture and equipment................................ 2,889 2,170
-------- -------
27,394 38,228
Accumulated depreciation............................... (12,647) (5,026)
-------- -------
$ 14,747 $33,202
======== =======
</TABLE>
Depreciation expense for 1999, 1998 and 1997 approximated $9.5 million, $3.1
million and $3.0 million, respectively.
During 1999, 1998 and 1997, the Company recorded non-cash equipment
impairment charges of approximately $20.0 million, $2.8 million and $8.1
million, respectively, primarily related to the write-down of certain
equipment and, in 1999, other network related costs, not expected to be an
integral part of the Company's expanded broadband data network. The amount of
write-downs are based on discounted projected future cash flows from such
equipment under current deployment plans or estimated salvage value. In 1999
and 1998, the Company sold certain non-integral radio equipment for cash of
approximately $2 million and $536,000, respectively.
Note 4. FCC Licenses
CommcoCCC Licenses. In 1996, the Company agreed to acquire certain 39 GHz
licenses from CommcoCCC, Inc. ("CommcoCCC") in exchange for 6 million shares
of Company common stock, which acquisition was consummated in February 1997.
The total acquisition cost was approximately $122.2 million,
21
<PAGE>
ADVANCED RADIO TELECOM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 4. FCC Licenses--(Continued)
comprised of the aggregate market value of common shares issued to CommcoCCC
of approximately $88 million, direct costs of approximately $3.2 million and
the related deferred tax liability of approximately $31.2 million. In
connection with transaction, the Company gave a stockholder of CommcoCCC an
option to acquire certain 39 GHz FCC licenses in specified markets, in which
the Company had more than one license. This option was exercised in July 1997
at an exercise price of approximately $6.9 million, determined based on the
sales price of Company common stock on the option exercise date and the
population covered by the licenses. Final terms under this option were reached
in November 1998 and in May 1999 the exercise price was received in cash by
the Company upon closing of the sale.
ART West Licenses. In 1997, the Company completed its acquisition from
Extended Communications, Inc. ("Extended") of the remaining 50% interest in
ART West, a partnership jointly controlled by Extended and the Company, for $6
million in cash, of which $3 million was paid in 1996. ART West held certain
39 GHz licenses that were transferred to the Company upon completion of the
acquisition.
Columbia Licenses. In 1998, the Company acquired from Columbia Capital
Corporation and one of its affiliates certain 39 GHz licenses for 1,335,750
shares of Company common stock. The total acquisition cost was approximately
$14.8 million, comprised of the fair value of Company common stock issued of
approximately $12.0 million, direct costs of approximately $92,000 and related
deferred tax liability of approximately $2.7 million.
DCT Licenses. In 1998, the Company acquired DCT Communications Inc., which
held certain 39 GHz licenses, in exchange for 3,124,875 shares of Company
common stock. The total acquisition cost was approximately $43.3 million,
comprised of the fair value of Company common stock issued of approximately
$35.2 million, direct costs of approximately $241,000 and related deferred tax
liability of approximately $7.9 million.
Other Licenses. In 1998, the Company acquired a certain 39 GHz license in
exchange for 68,895 shares of the Company's common stock. The total
acquisition cost was approximately $1.2 million, which consisted of the
aggregate market value of the shares issued and direct costs. In 1999, the
Company consummated acquisitions of certain 39 GHz Licenses for $4.3 million
in cash and certain other licenses for 154,114 shares of common stock, which
such shares were valued at approximately $848,000.
Note 5. Income Taxes
A reconciliation of the Company's effective tax rate and Federal statutory
rate for the years ended December 31, is summarized as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net loss before taxes................... $(98,873) $(56,115) $(63,084)
======== ======== ========
Federal statutory rate.................. 35.0 % 35.0 % 35.0 %
Non-deductible interest................. (0.5) (0.8) (0.6)
State income tax, net of Federal
benefit................................ 2.0 2.0 2.0
Other................................... (0.4) (0.1) (0.1)
Valuation allowance..................... (33.9) (19.8) (34.2)
-------- -------- --------
Effective income tax rate............... 2.2 % 16.3 % 2.1 %
======== ======== ========
</TABLE>
22
<PAGE>
ADVANCED RADIO TELECOM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 5. Income Taxes--(Continued)
Deferred tax assets and liabilities were as follows at December 31 (in
thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.................... $ 78,655 $ 49,283
Equipment depreciation and impairment............... 1,855 1,965
Accrued liabilities................................. 2,824 906
-------- --------
Total deferred tax assets......................... 83,334 52,154
Valuation allowance................................. (52,594) (20,165)
-------- --------
Net deferred tax assets........................... 30,740 31,989
Deferred tax liabilities relating to FCC Licenses..... (60,066) (63,371)
-------- --------
Net deferred tax liabilities...................... $(29,326) $(31,382)
======== ========
</TABLE>
Deferred tax assets have been reduced by a valuation allowance based on
management's determination that the recognition criteria for realization has
not been met. In 1999, 1998 and 1997, the Company reduced its deferred tax
asset valuation allowance by approximately $180,000, $10.8 million and $12.8
million, respectively, relating to deferred tax liabilities recorded arising
from certain FCC license acquisitions. During 1998, as a result of a change in
tax law increasing net operating loss carryforward periods, deferred income
tax benefits increased approximately $6 million.
At December 31, 1999, the Company has accumulated net operating loss
carryforwards for Federal income tax purposes of approximately $190 million
which expire between 2008 and 2019. Utilization of operating loss
carryforwards could be subject to annual limitations following certain stock
ownership changes.
Note 6. Working Capital Facility
In September 1998, the Company and Lucent Technologies Inc. ("Lucent")
entered into a credit facility (the "Working Capital Facility") for Lucent to
provide the Company with up to $25 million of unsecured revolving loans for
working capital purposes. As of December 31, 1998, the Company had drawn $17.5
million under the Working Capital Facility. Interest initially accrued at an
annual rate of LIBOR plus 5% (10.7% at December 31, 1998) and increased 0.5%
each month beginning January 1999. During 1999 the Company borrowed remaining
funds available up to $25 million. Loans made pursuant to the Working Capital
Facility, plus accrued interest, were due June 30, 1999. In May 1999, the
Working Capital Facility was amended to extend the maturity date of related
borrowings to October 29, 1999. In September 1999, the Company repaid all
Working Capital Facility borrowings and the facility terminated.
ART issued warrants to purchase approximately 278,000 shares of common stock
at an exercise price of $0.01 per share upon the Company obtaining the Working
Capital Facility commitment from Lucent, such warrants valued at approximately
$1.8 million and recorded as deferred financing costs and additional paid-in-
capital. Additionally, under terms of the Working Capital Facility, the
Company issued additional warrants to purchase common stock, at an exercise
price of $3.33 per share, each time a borrowing was made. In connection with
1999 and 1998 borrowings, the Company issued warrants to purchase
approximately 192,000 and 448,000 respectively, shares of Company common
stock. The aggregate value ascribed to these warrants approximated $1.2
million and $1.5 million in 1999 and 1998, respectively, and was recorded as a
debt discount and an increase in additional paid-in capital.
23
<PAGE>
ADVANCED RADIO TELECOM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 7. Long-term Debt, Bridge, and Other Financings
Components of long-term debt were as follows at December 31 (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Senior Notes, due 2007................................ $135,000 $135,000
Discount on Senior Notes.............................. (26,050) (27,536)
Purchase Money Facility............................... -- 10,000
Other................................................. 477 907
-------- --------
109,427 118,371
Less current portion.................................. (380) (525)
-------- --------
$109,047 $117,846
======== ========
</TABLE>
Future annual principal payments for long-term debt as of December 31, 1999
are $380,000 in 2000, $77,000 in 2001, $20,000 in 2002 and $135 million in
2007.
Senior Notes. In February 1997, the Company received $135 million of gross
proceeds from a public offering of $135 million of 14% Senior Notes (the
"Senior Notes") and warrants to purchase an aggregate of 2.7 million shares of
the Company's common stock at an exercise price of $0.01 per share.
Approximately $51 million of such proceeds were used to purchase a portfolio
of U.S. Treasury securities that provide for interest payments on the Senior
Notes through February 2000. The aggregate value ascribed to the warrants of
approximately $29.7 million, was recorded as debt discount and an increase in
additional paid-in capital. Debt discount amortization is determined utilizing
the effective interest rate method and is included as a component of interest
expense.
Senior Notes are unsecured senior obligations of the Company, due February
2007, with interest payable on February 15 and August 15 of each year and are
redeemable at the Company's option beginning in February 2002 at redemption
prices declining to par. Senior Notes were issued under an indenture which,
among other things, contains covenants limiting the Company's ability to incur
additional debt, pay dividends or make other distributions, incur liens, merge
or sell assets, or enter into certain transactions with related parties.
In 1999, the Company, with the consent of holders of Senior Notes, amended
certain covenants of the Senior Notes indenture to provide the Company with
greater flexibility to implement its business plan. The amendments were a
condition to the September 1999 preferred stock investment and became
operative upon closing of such investment. The Company paid to senior note
holders a consent fee of approximately $4 million. Consent fees and other
financing costs associated with obtaining consents of approximately $453,000
were deferred and charged to interest expense using the effective interest
rate method over the debt term.
Purchase Money Facility. In September 1998, the Company and Lucent entered
into a purchase money credit facility (the "Purchase Money Facility") setting
forth terms and conditions under which Lucent would provide financing in an
aggregate amount of up to $200 million, to be used to finance the purchase of
the Company's data network from Lucent. Under the Purchase Money Facility, as
of December 31, 1998, the Company had drawn $10 million. Interest initially
accrued at an annual rate of LIBOR plus 5% (10.7% at December 31, 1998) and
increased 0.5% each month beginning January 1999, and principal payments plus
accrued interest, were due in installments beginning in 2003. In September
1999, the Company repaid all of the $10 million borrowing under the Purchase
Money Facility and the facility terminated.
Bridge and Other Financings. In June 1999, the Company borrowed $50 million
pursuant to terms of 11% senior bridge notes, which matured and were repaid
with preferred stock upon closing of the September 1999 preferred stock
issuance. During 1998, an equipment financing note, collateralized by a
portion of Company equipment and a $1 million certificate of deposit, was
repaid in full.
24
<PAGE>
ADVANCED RADIO TELECOM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 8. Commitments and Contingencies
Leases. The Company has entered into operating leases for office space and
antenna sites which expire between 2000 and 2017. Rent expense approximated
$4.2 million, $2.5 million and $1.8 million for 1999, 1998 and 1997,
respectively. Future annual minimum lease payments as of December 31, 1999 are
as follows (in thousands):
<TABLE>
<S> <C>
2000............................................ $ 3,433
2001............................................ 3,166
2002............................................ 2,244
2003............................................ 1,151
2004............................................ 336
Thereafter...................................... 117
--------
$ 10,447
========
</TABLE>
Employment Agreements. The Company has entered into various employment
agreements, as amended, with certain executives that provide for, among other
things, annual base salaries and bonuses based on achievement of specific
performance goals. Additionally, the Company has entered into change of
control agreements, as amended, with certain executives that provide for,
among other things, cash payments and immediate vesting of any stock, stock
option or other awards granted to such executive. The September 1999 preferred
stock investment qualifies as a change of control event under the change of
control agreements, entitling certain executives to various benefits if they
are terminated or resign with good reason within 24 months of the event.
During 1999, pursuant to terms of the aforementioned employment agreements,
change of control agreements and equity incentive plans, the Company recorded
severance expense of approximately $4.5 million relating to resignations of
several senior executive officers, including the retirement of its chairman
and chief executive officer, and approximately 1.9 million options or stock
awards of Company common stock were immediately vested. In the event of future
departures of certain executives, additional severance expense could be
recorded and additional shares or options could be immediately vested.
Purchase and Financing Agreement with Cisco. In November 1999, the Company
entered into a purchase agreement, with no minimum purchase obligation, with
Cisco Systems Inc. ("Cisco"), and a commitment letter, subject to various
conditions, with Cisco Systems Capital Corporation for multi-year vendor
financing to be used to fund the Company's purchase of Cisco networking
hardware and for other costs associated with the network installation and
integration of such hardware. Funding potentially available under this
commitment is subject to usual and customary covenants, terms and conditions,
and increases from approximately $14 million at initial closing to $175
million.
Purchase Commitments with Lucent. In 1998, the Company and Lucent entered
into a purchase agreement, as amended, (the "Lucent Purchase Agreement") under
which Lucent agreed to design, engineer and construct the Company's wireless
broadband data networks. The Company's purchase commitment under the Lucent
Purchase Agreement was $240 million, based upon availability of the $200
million Purchase Money Facility from Lucent, and subject to various other
terms and conditions, including availability of additional financing. In 1999,
the Lucent Purchase Agreement was amended to eliminate the Company's minimum
purchase obligation.
Contingencies. The Company is party to certain claims and makes routine
filings with the FCC and state regulatory authorities. Management believes
that resolution of any such claims or matters arising from such filings, if
any, will not have a material adverse impact on the Company's consolidated
financial position, results of operations or cash flows. In the normal course
of business, the Company has various legal claims and other contingent matters
outstanding. Management believes that any ultimate liability arising from
these actions would not have a material adverse effect on the Company's
financial condition, liquidity or operating results.
25
<PAGE>
ADVANCED RADIO TELECOM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 9. Capital Stock
Preferred Stock. The Company is authorized to issue 10 million shares of
$0.001 par value serial preferred stock. Each series of preferred stock issued
is a separate class and, as a class, has a liquidation preference equal to the
aggregate purchase price paid for such class.
In September 1999, pursuant to terms of a stock purchase agreement entered
into with a group of investors, the Company sold 2,234,607 shares of Series A
convertible preferred stock and 902,893 shares of Series B non-voting
convertible preferred stock, each at $80 per share, to the investors in
exchange for an aggregate of $251 million (the "Investment"). At the closing
of the Investment, the Company designated 3.25 million shares of Series A
Preferred Stock, 902,893 shares of Series B Preferred Stock and 902,893 shares
of Series C Preferred Stock. Except as otherwise noted, shares of Series A
preferred stock and Series B preferred stock are identical and entitle holders
thereof to the same rights and privileges. The Series C preferred stock ranks
on a parity with Company common stock. Series A preferred stock and Series B
preferred stock are collectively referred to as the "Preferred Stock".
Series A preferred shares vote on an as-converted basis with the common
stock and represent approximately 45% of the Company's outstanding common
stock. Holders of the Series A preferred stock may convert Series A shares at
any time into ten shares of common stock. The conversion ratio may be
increased or decreased as a result of stock splits, dividends,
recapitalizations and similar events. Series A preferred stock automatically
converts into common stock if (i) the Company sells stock yielding net
proceeds of at least $75 million at a price of not less than $18 per share,
(ii) Company common stock trades at not less than $18 for 30 of 40 consecutive
trading days at any time after June 2001, (iii) two-thirds of the then-
outstanding preferred stock converts into common stock, or (iv) 75% of the
preferred stock originally issued in the Investment has converted into common
stock.
Series B preferred stock will not vote on matters generally submitted to
stockholders, however, will be entitled to vote as a class on matters that
adversely affects it as a class. Series B preferred stock will automatically
convert on a 1-for-1 basis into Series A preferred stock whenever the total
voting shares of the investors would otherwise be less than 45% (as defined)
of the Company's outstanding voting stock. 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 preferred stock if the
Series A preferred stock automatically converts into common stock. Based upon
the number of common shares outstanding as of December 31, 1999, which such
number had increased since the initial issuance of preferred stock as a result
of exercises of stock options and warrants, approximately 54,000 shares of
Series B preferred stock were automatically converted into that same number of
Series A preferred stock and the carrying amount of such shares, which
approximated $3.0 million, was reclassified from Series B to Series A.
The holders of 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, the Preferred Stock also participates on a pro rata basis with common
stock and Series C preferred stock until each share of Preferred Stock has
received a total liquidation amount of $160. The Company may not pay any cash
dividend on common stock or Series C preferred stock unless in that year a
cash dividend of $80 per share on the Preferred Stock has been paid. The total
preference in liquidation for Preferred Stock is $251 million.
One share of Series C preferred stock has the same rights as ten shares of
common stock, except that the Series C preferred stock is non-voting. Series C
preferred stock will not vote on matters generally submitted to stockholders,
however, will be entitled to vote as a class on matters that adversely affects
it as a class. Series C preferred stock automatically converts into common
stock on a 10-for-1 basis whenever the voting power of the
26
<PAGE>
ADVANCED RADIO TELECOM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 9. Capital Stock--(Continued)
investors falls below 45% (as defined) of the Company's outstanding voting
stock. The conversion rate is subject to proportional adjustment for stock
splits, stock dividends, combinations and recapitalizations.
Shares of preferred stock are subject to mandatory redemption requirements
under certain limited circumstances as defined in the certificate of
designation, preferences and rights of preferred stock. Those circumstances
include a consolidation, merger or sale of all or substantially all the assets
of the Company in which the stockholders of the Company immediately prior to
such consolidation, merger, or sale do not own, directly, or indirectly, a
majority of the outstanding voting power of the surviving corporation or
acquiring entity, as the case may be, immediately after such merger or sale,
and the holders of a majority of the then-outstanding shares of Series A
preferred stock elect not to treat any of the foregoing events as a
liquidation, dissolution or winding up by giving written notice thereof to the
Company. If such holders do not exercise their right to treat a consolidation,
merger or sale as a non-liquidating event, the holders of preferred stock
shall be entitled to receive out of the consideration paid in such conveyance
the amount payable to such holders in a manner similar to that for a
liquidation. Due to the mandatory redemption feature, preferred stock is
classified outside of stockholders' equity on the accompanying consolidated
balance sheet.
The investors include U.S. Telesource, Inc. ("UST"), a subsidiary of Qwest
Communications International Inc. ("Qwest"), investment funds led by Oak
Investment Partners ("Oak"), and investment funds of two of the Company's
existing major stockholders. The investors have entered into a stockholders
agreement to which the Company is not a party. All of the investors have
agreed to, among other things, vote shares acquired in the Investment in favor
of the election as directors of the designees of UST and Oak, and vote as
agreed by UST and Oak on all other matters to come before stockholders. The
Company also agreed to take certain further actions and entered into
additional agreements with the investors, including agreeing to entitle each
of UST and Oak to designate nominees to be a Company director. Additionally,
in the event the Company raises capital through the issuance of equity
securities (other than public and certain other offerings), the Company has
agreed to let investors participate in the purchase of such securities in
proportion to their stock holdings. The Company has also entered into
registration rights and standstill agreements with the investors.
Costs incurred in connection with the Investment, including investment
advisory, legal, regulatory filing and other fees, approximated $7.5 million
and are recorded as a reduction of amounts assigned to preferred stock. The
Company recorded the issuance of Series A and B preferred stock by allocating
net proceeds of approximately $243.5 million to Series A and B shares based on
their estimated relative fair values at the date of the Stock Purchase
Agreement, resulting in $192.7 million assigned to Series A shares and $50.8
million assigned to Series B shares. Based on the closing price of Company
common stock on the date of stockholder approval of the Investment, the
estimated fair value of Series A preferred stock on an as-converted to common
stock basis exceeded the amount assigned to the Series A shares by
approximately $108.9 million. The Company recorded the $108.9 million excess,
representing the estimated fair value of the beneficial conversion feature, as
an increase in additional paid-in-capital and a decrease in Series A preferred
stock. The beneficial conversion feature is recognized as a deemed dividend to
the preferred stock over the minimum period in which preferred stockholders
realize their return. Because Series A shares are immediately convertible, the
estimated fair value of the Series A beneficial conversion feature was
realizable upon closing of the Investment. Accordingly, a $108.9 million
deemed dividend as of the closing of the Investment was recognized as a charge
to additional paid-in capital and, for loss per share computations, net loss
applicable to common stockholders, and an increase in the carrying value of
Series A preferred stock. The remaining balance of the beneficial conversion
feature of approximately $50.8 million, which is not realizable until and
unless Series B shares are converted, was not recognized at closing and would
be recognized upon conversion. As a result of the automatic conversion of
approximately 54,000 shares of Series B into Series A, the Company recognized
an additional $3.0 million deemed dividend during the year ended December 31,
1999.
27
<PAGE>
ADVANCED RADIO TELECOM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 9. Capital Stock--(Continued)
Warrants to Purchase Common Stock. In connection with financing activities,
the Company has issued warrants to purchase shares of Company common stock.
Certain of such warrants contain anti-dilution provisions. A summary of shares
issuable pursuant to warrants follows (shares in thousands):
<TABLE>
<CAPTION>
Exercise Price Warrant
Shares per Share Expiration
------ -------------- -----------
<S> <C> <C> <C>
Balance at December 31, 1996............ 1,022 $0.01 - $17.19 2001
Warrants issued....................... 2,732 $ 0.01 2007
Warrants exercised.................... (1,584) $ 0.01
------
Balance at December 31, 1997............ 2,170 $0.01 - $17.19 2001 - 2007
Warrants issued....................... 725 $0.01 - $ 3.33 2008
Warrants exercised.................... (632) $ 0.01
------
Balance at December 31, 1998............ 2,263 $0.01 - $17.19 2001 - 2008
Warrants issued....................... 192 $ 3.33 2008
Warrants exercised.................... (610) $ 0.01
------
Balance at December 31, 1999............ 1,845 $0.01 - $17.19 2001 - 2008
======
</TABLE>
The following summarizes shares issuable pursuant to warrants outstanding at
December 31, 1999 (shares in thousands):
<TABLE>
<CAPTION>
Exercise Price Shares Warrant Expiration
-------------- ------ ------------------
<S> <C> <C>
$ 0.01 483 2001-2008
3.33 640 2008
15.00 204 2001
17.19 518 2001
-----
1,845
=====
</TABLE>
Stock Compensation. Pursuant to the Restated Equity Incentive Plan (the
"Plan"), the Company may grant incentive and non-qualified options and other
equity incentives with respect to up to 8 million shares to employees and
certain other persons or entities. Pursuant to the 1997 Equity Incentive Plan
for Non-Employee Directors, non-employee directors are provided annual stock
option grants and may annually elect to take fees in common stock to be issued
covering options and fees up to an aggregate of 500,000 shares.
During 1997, the Company canceled and reissued certain stock options
previously granted to employees under the Plan to have exercise prices equal
to the then current fair market value of $7.88 per share of common stock.
During 1998, the Company authorized the cancellation and reissuance, at the
election of the recipients, of certain other stock options previously granted
to employees under the Plan. Approximately 2.1 million stock options were
canceled and reissued, of which, 50% were issued with an exercise price equal
to the then current market value of $2.19 per share of common stock. The
exercise price of the remaining stock options were based on current fair
market value upon occurrence of certain future events. During 1999, exercise
prices of remaining options were established at the then current fair market
value of $8.50 per share of common stock; under proposed interpretations of
Accounting Principles Board Opinion No. 25, these remaining stock options
would be accounted for as variable options prospectively from July 1, 2000,
the effective date of the interpretation, until such options have been
exercised.
28
<PAGE>
ADVANCED RADIO TELECOM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 9. Capital Stock--(Continued)
A summary of the stock option activity follows (shares in thousands):
<TABLE>
<CAPTION>
Weighted Average
Shares Exercise Price
------ ----------------
<S> <C> <C>
Options outstanding, December 31, 1996............ 827 $ 9.95
Options granted................................. 2,320 10.23
Options exercised............................... (286) 1.74
Options canceled................................ (564) 15.87
------
Options outstanding, December 31, 1997............ 2,297 9.82
Options granted................................. 3,382 6.45
Options exercised............................... (16) 5.98
Options canceled................................ (2,657) 9.45
------
Options outstanding, December 31, 1998............ 3,006 6.15
Options granted................................. 1,508 8.93
Options exercised............................... (255) 5.42
Options canceled................................ (209) 7.20
------
Options outstanding December 31, 1999............. 4,050 $ 7.16
======
</TABLE>
The Company has adopted the disclosure provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
No. 123"). Assumptions utilized in estimating fair values for such disclosures
were (i) use of the Black-Scholes option pricing model, (ii) risk free
interest rates ranging from 4.6% to 6.0%, (iii) expected volatility rates
ranging from approximately 60% to 92%, (iv) assumed expected lives of 3 to 5
years, and (v) no expected dividends. Had the Company elected to recognize
compensation costs as provided for by SFAS No. 123, the Company's net loss and
per share amounts on a pro forma basis would have been as follows for the
years ended December 31 (in thousands, except per share data):
<TABLE>
<CAPTION>
1999 1998 1997
--------- -------- --------
<S> <C> <C> <C>
Pro Forma Net loss........................ $(108,206) $(51,651) $(63,849)
========= ======== ========
Pro Forma Basic and diluted net loss per
share.................................... $ (8.07) $ (2.08) $ (3.35)
========= ======== ========
</TABLE>
The weighted average fair value and exercise price of options granted were
as follows during the years ended December 31:
<TABLE>
<CAPTION>
Weighted Average
-----------------------------------
Exercise Price Fair Value
----------------- -----------------
Exercise Price at Grant 1999 1998 1997 1999 1998 1997
----------------------- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Equal to market....................... $8.93 $6.05 $8.69 $6.23 $3.84 $5.78
Greater than market................... -- 9.89 12.89 -- 0.98 4.80
Less than market...................... -- 8.75 -- -- 8.80 --
</TABLE>
29
<PAGE>
ADVANCED RADIO TELECOM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 9. Capital Stock--Continued
The following table summarizes information about options outstanding at
December 31, 1999 (options in thousands):
<TABLE>
<CAPTION>
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Exercise Options Contractual Exercise Options Exercise
Price Outstanding Life Price Exercisable Price
- -------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$2.19................... 1,056 4.7 $ 2.19 955 $ 2.19
$2.38 to 7.88........... 1,180 5.2 7.09 807 7.26
$8.50................... 1,006 4.2 8.50 980 8.50
$8.75 to 15.00.......... 808 7.0 12.43 225 11.18
----- -----
$2.19 to 15.00.......... 4,050 5.2 $ 7.16 2,967 $ 6.33
===== === ====== ===== ======
</TABLE>
During 1997, the Company entered into an employment agreement with its then
Chief Executive Officer providing for, among other things, issuance of 100,000
shares of common stock deliverable in 2001, resulting in a non-cash
compensation charge of $887,500 in 1997 and issuance of 100,000 shares of
common stock in exchange for a recourse note of $887,500 due 2001, with
interest at the minimum applicable federal rate. The note receivable was
repaid in full in January 2000. During 1998, the Company entered into
agreements with two of its officers to issue an aggregate of 85,000 shares of
common stock deliverable in 2001 and recorded a non-cash compensation charge
of $657,500 in 1998. Pursuant to terms of employment and changes of control
agreements and in connection with the resignations of these three executive
officers, shares deliverable in 2001 were issued and delivered in 1999.
Note 10. Related Party Transactions
During 1999, the Company 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, the Company agreed to
integrate it's local broadband wireless networks with Qwest's fiber-optic
network using Qwest as the Company's exclusive provider of fiber-optic network
backbone, agreed to co-locate equipment with Qwest where desirable, and agreed
to jointly market the Company's products with Qwest where desirable.
Note 11. Fair Values of Financial Instruments
Carrying amounts and estimated fair values of the Company's financial
instruments were as follows at December 31 (in thousands):
<TABLE>
<CAPTION>
1999 1998
----------------- ----------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Cash and cash equivalents................ $108,161 $108,161 $ 11,864 $11,864
Short-term investments................... 75,887 75,887 -- --
Pledged securities....................... 9,407 9,407 27,358 27,586
Senior Notes............................. 108,950 115,000 107,464 87,855
Working Capital Facility................. -- -- 16,229 16,602
Purchase Money Facility.................. -- -- 10,000 10,000
Other long-term debt..................... 477 477 907 907
</TABLE>
Carrying amounts reported in the balance sheet for cash, cash equivalents
and short-term investments approximate fair value. Fair values of pledged
securities are based on published market values. The fair value of Senior
Notes is based upon published market value. Fair values of other borrowings
are based upon interest rates currently available to the Company for issuance
of similar debt with similar terms and maturities.
30
<PAGE>
ADVANCED RADIO TELECOM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 12. Supplemental Cash Flow Information
Supplemental disclosures of cash flow information are summarized below for
years ended December 31 (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
Non-cash financing and investing activities:
Value ascribed and deemed dividend of beneficial
conversion feature of Series A preferred stock..... $111,880 -- --
Additions to property and equipment................. -- $10,818 $ 2,182
Value ascribed to warrants.......................... 1,242 3,282 29,707
Issuance of shares for licenses..................... 848 48,348 87,750
Termination of software license agreement........... -- -- 1,774
Common stock issuable in exchange for note
receivable......................................... -- -- 887
Interest paid......................................... 23,146 19,312 10,368
</TABLE>
Note 13. Subsequent Events (unaudited)
In March 2000, the Company entered into a letter of intent to acquire up to
all of the 39 GHz licenses of Broadstream Communications Corporation and its
affiliates ("Broadstream") in exchange for shares of the Company's common
stock having a value of up to approximately $365 million. The letter of intent
also provides for the Company to make available to Broadstream a bridge loan
of up to $30 million. In addition, the Company entered into definitive
agreements to acquire all of the 39 GHz licenses of Bachow Communications
Incorporated in exchange for approximately 2.2. million shares of the
Company's common stock. Closings of both transactions, which are anticipated
in the second half of 2000, are subject to various conditions, including FCC
approval and, in the case of the Broadstream transaction, entering into
definitive agreements, receipt of a fairness opinion, agreement of the Series
A stockholders, board and shareholder approval and for 104 the licenses,
license renewal.
Note 14. Quarterly Financial Data (unaudited)
Selected unaudited quarterly financial information is summarized as follows:
(in thousands, except per share data):
<TABLE>
<CAPTION>
Year ended December 31, 1999
--------------------------------------------------------
Quarter Ended Year Ended
-------------------------------------------- -----------
March 31 June 30 September 30 December 31 December 31
-------- -------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues................ $ 226 $ 339 $ 359 $ 417 $ 1,341
======== ======== ======== ======== ========
Net loss*............... $(23,531) $(19,477) $(18,047) $(35,643) $(96,698)
======== ======== ======== ======== ========
Basic and diluted net
loss per common
share**................ $ (0.87) $ (0.72) $ (4.65) $ (1.41) $ (7.65)
======== ======== ======== ======== ========
<CAPTION>
Year ended December 31, 1998
--------------------------------------------------------
Quarter Ended Year Ended
-------------------------------------------- -----------
March 31 June 30 September 30 December 31 December 31
-------- -------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues................ $ 237 $ 206 $ 187 $ 211 $ 841
======== ======== ======== ======== ========
Net loss***............. $ (9,101) $ (9,572) $(13,707) $(14,603) $(46,983)
======== ======== ======== ======== ========
Basic and diluted net
loss per common share.. $ (0.42) (0.39) $ (0.51) $ (0.57) $ ($1.89)
======== ======== ======== ======== ========
</TABLE>
31
<PAGE>
- --------
* Includes equipment impairment charges of $6.4 million and $13.6 million
during the quarters ended March 31 and December 31, respectively, and
severance related expense of $750,000 and $4.0 million during the
quarters ended September 30 and December 31, respectively.
** Includes $4.00 and $0.10 loss per share relating to deemed preferred
dividend during the quarters ended September 30 and December 31,
respectively.
*** Includes equipment impairment charges of approximately $2.8 million
during the quarter ended September 30 and provision for sales and
property taxes of $2.4 million during the quarter ended December 31.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information relating to the directors of the Company is incorporated herein
by reference to the information included under "Election of Directors" and
"Certain Transactions" in the Company's definitive Proxy Statement to be filed
with the Commission in connection with the Company's 2000 Annual Meeting of
Stockholders (the "Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under "Compensation" in the Proxy Statement is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under "Common Stock Ownership" in the Proxy
Statement is incorporated herein by reference.
For the sole purpose of calculating the aggregate market value of voting
stock held by non-affiliates of the Company as set forth on the cover page, it
was assumed that only directors, executive officers and greater than five
percent stockholders as of the calculation date constituted affiliates; no
acknowledgment by such persons of affiliate status is implied.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under "Certain Transactions" in the Proxy
Statement is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 1999 and 1998.
Consolidated Statements of Operations for the years ended
December 31, 1999, 1998 and 1997.
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1999, 1998 and 1997.
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997.
32
<PAGE>
(2) Financial Statement Schedules:
None.
(3) Exhibits:
The following Exhibits are, as indicated on the Exhibit Index, either
filed herewith or have heretofore been filed with the Securities and
Exchange Commission and are referred to and incorporated herein by
reference to such filings.
<TABLE>
<CAPTION>
Exhibit
No. Title
------- -----
<C> <S>
3.1 Amended and Restated Certificate of Incorporation.(7)
3.2 Corrected Certificate of Designation of Preferred Stock.
3.3 Restated and Amended Bylaws of Registrant.(12)
4.1 Specimen of Common Stock Certificate.(3)
4.2 Specimens of Series A and B Preferred Stock Certificates.
4.3 Indenture relating to the Company's 14% Senior Notes due 2007.(6)
4.4 Supplement to Indenture relating to Company's 14% Senior Notes due
2007.(16)
4.5 Specimen of Note.(6)
4.6 Collateral Pledge and Security Agreement relating to the Notes.(6)
4.7 Form of Warrant Agreement in connection with offering of Notes.(6)
4.8 Specimen of Warrant Certificate in connection with offering of
Notes.(6)
4.9 Shareholders Rights Agreement, as amended.(8)
4.10 Form of Rights Certificate.(8)
4.11 Form of Indemnity Warrant.(1)
4.12 Form of Subscription Agreement dated March 8, 1996, including Forms of
Bridge Note and Bridge Warrant.(2)
4.13 Option Agreement dated July 3, 1996 with Commco, L.L.C.(2)
4.14 Form of September Bridge Warrant.(5)
4.15 Form of CIBC Warrants.(4)
4.16 Form of Warrants issued to Lucent pursuant to the Working Capital
Facility.(13)
4.17 Form of Stock Purchase Warrant dated as of June 1, 1999.(14)
4.18 Form of Promissory Note dated as of June 1, 1999.(14)
4.19 First Supplemental Indenture dated as of July 23, 1999 between the
Company and the Bank of New York as trustee.(16)
10.1 Employment Agreement dated October 16, 1998 between Robert S.
McCambridge and the Company.(13)
10.2 Amended and Restated Change of Control Agreement dated February 3,
1999 between Robert S. McCambridge and the Company.(16)
10.3 Form of Director Indemnification Agreement.(1)
10.4 Company's Restated Equity Incentive Plan, as amended through May 26,
1999.(16)
10.5 Company's 1997 Equity Incentive Plan for Non-Employee Directors, as
amended through May 14, 1999.(16)
</TABLE>
33
<PAGE>
<TABLE>
<C> <S>
10.6 Company's 1996 Non-Employee Directors Incentive Stock Option Plan, as
amended through May 14, 1999.(16)
10.7 Second Restated and Amended Registration Rights Agreement dated July 3,
1996 with ART Licensing and the stockholders of each of ART Licensing
and the Company.(2)
10.8 Amendment No. 1 to Registration Rights Agreement dated as of October 16,
1996.(5)
10.9 Registration Rights Agreement dated August 26, 1999 between the Company
and Lucent.(13)
10.10 Asset Purchase Agreement dated as of August 6, 1998 between the Company
and ICG Telecom Group, Inc.(13)
10.11 Asset Purchase Agreement dated as of July 3, 1998 between the Company
and Astrolink Communications, Inc.(13)
10.12 First Amendment to Asset Purchase Agreement dated as of August 25, 1998
between the Company and Astrolink Communications, Inc.(13)
10.13 Preferred Stock Purchase Agreement among the Company and the purchasers
listed therein dated as of June 1, 1999.(14)
10.14 Standstill Agreement among the Company and certain of the purchasers
dated as of June 1, 1999.(14)
10.15 Registration Rights Agreement among the Company and the purchasers dated
as of June 1, 1999.(14)
10.16 First Amendment to Amended and Restated Purchase Agreement between the
Company and Lucent Technologies dated May 25, 1999.(14)
10.17 Amendment No. 1, Waiver and Consent between the Company and Lucent
Technologies dated May 26, 1999.(14)
10.18 Broadband Services Agreement dated June 1, 1999 between the Company and
Qwest Communications International Inc.(15)*
10.19 Private Line Services Agreement dated June 1, 1999 between the Company
and Qwest.(15)*
21 Subsidiaries of the Company.(17)
23 Consent of Independent Accountants.
27 Financial Data Schedule.
99 Risk Factors.
</TABLE>
- --------
(1) Previously filed with the Company's Registration Statement on Form S-1,
effective November 5, 1996 (SEC Reg. No. 333-04388) and incorporated by
reference herein.
(2) Previously filed with Amendment 1 to the Company's Registration
Statement on Form S-1, effective November 5, 1996 (SEC Reg. No. 333-
04388) and incorporated by reference herein.
(3) Previously filed with Amendment 2 to the Company's Registration
Statement on Form S-1, effective November 5, 1996 (SEC Reg. No. 333-
04388) and incorporated by reference herein.
(4) Previously filed with Amendment 8 to the Company's Registration
Statement on Form S-1, effective November 5, 1996 (SEC Reg. No. 333-
04388) and incorporated by reference herein.
(5) Previously filed with the Company's Registration Statement Form S-1,
effective February 3, 1997 (SEC Reg. No. 333-19295) and incorporated by
reference herein.
(6) Previously filed with Amendment 2 to the Company's Registration
Statement on Form S-1, effective February 3, 1997 (SEC Reg. No. 333-
19295) and incorporated by reference herein.
(7) Previously filed with the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996 and incorporated by reference
herein.
(8) Previously filed with the Company's Registration Statement on Form 8-A,
filed on July 10, 1997 (SEC Reg. No. 000-21091) and incorporated by
reference herein.
(9) Previously filed with the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended September 30, 1997 and incorporated by
reference herein.
34
<PAGE>
(10) Previously filed with the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997 and incorporated by reference
herein.
(11) Previously filed with the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended March 31, 1998 and incorporated by reference
herein.
(12) Previously filed with the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended June 30, 1998 and incorporated by reference
herein.
(13) Previously filed with the Company's Quarterly Report on Form 10-Q, for
the fiscal quarter ended September 30, 1998 and incorporated by
reference herein.
(14) Previously filed with the Company's Periodic Report on Form 8-K, dated
June 8, 1999 and incorporated by reference herein.
(15) Previously filed with the Company's Quarterly Report on Form 10-Q, for
the fiscal quarter ended June 30, 1999 (SEC Reg. No. 000-21091) and
incorporated by reference herein.
(16) Previously filed with the Company's Quarterly Report on Form 10-Q, for
the fiscal quarter ended September 30, 1999 and incorporated by
reference herein.
(17) Previously filed with the Company's Annual Report on Form 10-K/A, for
the fiscal year ended December 31, 1998 and incorporated by reference
herein.
- --------
* Confidential treatment requested for certain portions. The terms
"confidential treatment" and the mark "*" as used throughout this
exhibit means that the material has been omitted and separately filed
with the Commission.
(b) Reports on Form 8-K.
The Company did not file any Report on Form 8-K during the last quarter
of the year ended December 31, 1999.
35
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized on this 30th day
of March 2000.
Advanced Radio Telecom Corp.
/s/ R. S. McCambridge
By: _________________________________
R. S. McCAMBRIDGE
President,
Chief Operating Officer and
Principal Financial Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Robert S. McCambridge President and Chief March 30, 2000
______________________________________ Operating Officer
ROBERT S. McCAMBRIDGE
/s/ Bandel Carano Director March 30, 2000
______________________________________
BANDEL CARANO
/s/ Andrew I. Fillat Director March 30, 2000
______________________________________
ANDREW I. FILLAT
/s/ Richard T. Liebhaber Director March 30, 2000
______________________________________
RICHARD T. LIEBHABER
/s/ James B. Murray, Jr. Director March 30, 2000
______________________________________
JAMES B. MURRAY, JR.
/s/ Alan Z. Senter Director March 30, 2000
______________________________________
ALAN Z. SENTER
/s/ Marc B. Weisberg Director March 30, 2000
______________________________________
MARC B. WEISBERG
</TABLE>
36
<PAGE>
EXHIBIT 3.2
CORRECTED
CERTIFICATE OF DESIGNATION
of the
SERIES A CONVERTIBLE PREFERRED STOCK
the
SERIES B NON-VOTING CONVERTIBLE PREFERRED STOCK
and the
SERIES C JUNIOR PREFERRED STOCK
of
ADVANCED RADIO TELECOM CORP.
Pursuant to Section 103(f) of the General Corporation Law of the State of
Delaware, it is hereby certified that:
1. The name of the corporation (hereinafter called the "corporation") is
Advanced Radio Telecom Corp.
2. The Certificate of Designation of the Series A Convertible Preferred
Stock, the Series B Non-Voting Convertible Preferred Stock and the Series C
Junior Preferred Stock of the corporation, which was filed by the Secretary of
State of Delaware on September 8, 1999, is hereby corrected.
3. The inaccuracy to be corrected in said instrument is as follows:
i. The number of shares of Series B Non-Voting Convertible
Preferred Stock authorized for creation and issuance by the
corporation's Board of Directors was 902,893, not 510,000 as
indicated in the Certificate of Incorporation.
ii. The number of shares of Series C Junior Preferred Stock
authorized for creation and issuance by the corporation's
board of directors was 902,893, not 510,000 as indicated in
the Certificate of Incorporation.
<PAGE>
4. The entire instrument in corrected form is as follows:
CORRECTED
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
OF
ADVANCED RADIO TELECOM CORP.
Pursuant to Section 151 of the General Corporation
Law of the State of Delaware
We, Henry C. Hirsch, Chairman, and Thomas M. Walker, Secretary, of Advanced
Radio Telecom Corp. (the "Corporation"), a corporation organized and existing
under the laws of the State of Delaware, in accordance with Section 151 of the
Delaware General Corporation Law, certify:
FIRST: The Certificate of Incorporation of the Corporation authorizes the
issuance of up to 10,000,000 shares of preferred stock, par value $.001 per
share, in one or more series, with such designations, preferences and relative,
participating, optional or other special rights, and qualifications,
limitations, or restrictions thereof, as may be stated and expressed in a
resolution or resolutions providing for the issuance of any such series adopted
by the Board of Directors of the Corporation, pursuant to authority expressly
vested in the Board of Directors by the Certificate of Incorporation of the
Corporation.
SECOND: The Board of Directors of the Corporation duly adopted the
following resolution (i) authorizing the creation of a new series of such
preferred stock, to be known as "Series A Convertible Preferred Stock," stating
that 3,250,000 shares of the authorized and unissued preferred stock shall
constitute such series, and setting forth a statement of the voting powers,
designation,
-2-
<PAGE>
preferences and relative, participating, optional or other special rights, and
the qualifications, limitations and restrictions thereof as follows, (ii)
authorizing the creation of a new series of such preferred stock, to be known as
"Series B Non-Voting Convertible Preferred Stock," stating that 902,893 shares
of the authorized and unissued preferred stock shall constitute such series and
(iii) authorizing the creation of a new series of such preferred stock, to be
known as "Series C Junior Preferred Stock," stating that 902,893 shares of the
authorized and unissued preferred stock shall constitute such series, and
setting forth a statement of the voting powers, designation, preferences and
relative, participating, optional or other special rights, and the
qualifications, limitations and restrictions thereof as follows:
BE IT RESOLVED, that the terms of the Series A Convertible Preferred Stock,
of the Series B Non-Voting Convertible Preferred Stock and of the Series C
Junior Preferred Stock shall be as follows:
1. Designation of Preferred Stock. The rights, preferences, privileges and
restrictions granted to and imposed on the Series A Convertible Preferred Stock,
$0.001 par value (the "Series A Preferred Stock"), the rights, preferences,
privileges and restrictions granted to and imposed on the Series B Non-Voting
Convertible Preferred Stock (the "Series B Preferred Stock") and the rights,
preferences, privileges and restrictions granted to and imposed on the Series C
Junior Preferred Stock are set forth below. The number of shares of Series A
Preferred Stock shall initially be 3,250,000, the number of shares of Series B
Preferred Stock shall initially be 902,893, and the number of shares of Series C
Junior Preferred Stock shall initially be 902,893, subject in each case to
decrease (but not below the number of shares thereof (i) required to be issued
under the Stock Purchase Agreement or (ii) in the case of the Series A Preferred
Stock, required to be issued upon conversion of the Series B Preferred Stock as
provided in this Certificate or (iii) in the case of the Series C Junior
Preferred Stock, required to be issued upon conversion of the Series B Preferred
Stock as provided in this Certificate or (iv) then outstanding) from time to
time by action of the Board of Directors. Except as otherwise provided herein,
all shares of Series A Preferred Stock and Series B Preferred Stock will be
identical and will entitle holders thereof to the same rights and privileges.
The Series C Junior Preferred Stock shall rank on a parity with the Common
Stock, but shall be non-voting. The Series A Preferred Stock and Series B
Preferred Stock are collectively referred to as the "Preferred Stock".
2. Dividends and Distributions. No cash dividend or distribution may be paid
in any calendar year on the Common Stock, the Series C Junior Preferred Stock or
any other class or series of preferred stock ranking junior in rights and
preferences to the Preferred Stock (together with the Common Stock, "Junior
Stock"), unless a dividend shall have been declared and paid to the holders of
record of the Preferred Stock during such calendar year in an amount equal to
10% of the then Preference Amount. In the event any dividend or distribution,
including without limitation any distribution of securities or purchase rights,
but not including a dividend or distribution payable solely in cash or shares of
Junior Stock is declared and paid on any class of Junior Stock (a "Non-Common
Distribution"), a dividend or distribution, respectively, on each outstanding
share of Preferred Stock shall be concurrently declared and paid to holders of
record of the Preferred Stock
-3-
<PAGE>
on the record date for the determination of holders of Junior Stock entitled to
receive such Non-Common Distribution. Such dividend or distribution shall be in
an amount equal to the aggregate amount of any such dividend or distribution
payable (on an as-converted basis in the case of Junior Stock other than Common
Stock) with respect to one share of Common Stock multiplied by the number of
shares of Common Stock into which such share of Preferred Stock may be converted
pursuant to the provisions of Sections 5 and 6 on the record date for the
determination of holders of Common Stock entitled to receive such dividend or
distribution.
3. Liquidation, Dissolution or Winding Up.
a. Liquidation Preference. In the event of any liquidation, dissolution
or winding up of the Corporation, either voluntary or involuntary, distributions
to the holders of the Preferred Stock shall be made in the following manner:
i. Each holder of Preferred Stock shall first be entitled to
receive, after distribution of any of the assets of the Corporation to the
holders of any other series of preferred stock ranking senior to the Preferred
Stock with respect to the liquidation, and prior and in preference to any
distribution of any of the assets of the Corporation to the holders of any
Junior Stock and to the holders of the Common Stock by reason of their ownership
of such stock, an amount in cash per share of Preferred Stock held by such
holder equal to the Preference Amount (which amount shall be subject in each
case to equitable adjustment whenever there shall occur a stock split,
combination, reclassification or other similar event involving the Preferred
Stock) plus all declared but unpaid dividends on the date of such liquidation,
dissolution or winding up (the "Liquidation Amount"). If after distribution of
any of the assets of the Corporation to the holders of any other series of
preferred stock ranking senior to the Preferred Stock, the assets and funds of
the Corporation shall be insufficient to permit the payment in full to any
holders of any class of stock ranking on parity with the Preferred Stock with
respect to the liquidation ("Parity Stock") of its liquidation preference and to
such holders of Preferred Stock of the full Liquidation Amount, then the entire
remaining assets of the Corporation legally available for distribution shall be
distributed ratably among the holders of Preferred Stock and Parity Stock, to
the exclusion of any junior stock, in accordance with the respective amounts
which would be payable in respect of the shares held by each of them upon such
distribution if all amounts payable on or in respect of such shares were paid in
full.
ii. After payment has been made to the holders of Preferred Stock of
the full amount to which they are entitled pursuant to Section 3.1.1, and after
payment in full of amounts to which holders of preferred stock ranking junior to
the Preferred Stock with respect to liquidation by reason of their ownership of
such stock (but not including for this purpose the Series C Junior Preferred
Stock), the holders of the Preferred Stock shall be entitled to share ratably
with the holders of the Common Stock and the Series C Junior Preferred Stock in
the remaining assets, based on the number of shares of Common Stock held by them
(assuming conversion of all of the shares of Preferred Stock and Series C Junior
Preferred Stock into Common Stock pursuant to Section 5), until the holders of
Preferred Stock have received a cumulative amount under Section 3.1.1 and
Section 3.1.2 equal to two times the Preference Amount.
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iii. After payment has been made to the holders of Preferred Stock of
the full amount to which they are entitled pursuant to Sections 3.1.1 and 3.1.2,
the holders of Preferred Stock shall not be entitled to any further distribution
of the assets of the Corporation upon any such liquidation, dissolution or
winding up.
b. Merger, Sale, etc. A consolidation, merger, or sale of all or
substantially all the assets of the Corporation in which the stockholders of the
Corporation immediately prior to such consolidation, merger, or sale do not own,
directly, or indirectly, a majority of the outstanding voting power of the
surviving corporation or acquiring entity, as the case may be, immediately after
such merger, or sale shall be deemed a liquidation, dissolution or winding-up of
the Corporation for purposes of this Section 3 unless the holders of a majority
of the then- outstanding shares of Series A Preferred Stock elect not to treat
any of the foregoing events as a liquidation, dissolution or winding up by
giving written notice thereof to the Corporation,. If such holders do not
exercise their right to treat a consolidation, merger or sale as a non-
liquidating event, the holders of Preferred Stock shall be entitled to receive
out of the consideration paid in such conveyance the amount payable to such
holders pursuant to Sections 3.1.1 and 3.1.2 above, which amount shall satisfy
the Corporation's obligations pursuant to such sections.
c. Distribution Other Than Cash. Whenever the distribution provided for
in this Section 3 shall be payable in property other than cash, the value of
such distribution shall be the fair market value of such property as determined
in good faith by the Board of Directors of the Corporation.
4. Voting Rights.
a. Series A Preferred Stock. Except as otherwise provided herein or
required by law, the holders of Series A Preferred Stock shall vote together
with the holders of Common Stock (and any other shares of the Corporation's
stock which, by their terms, are entitled to vote together with the Common Stock
as a single class) as a single class on any matter submitted to the holders of
Common Stock. Each holder of Series A Preferred Stock shall have, on any matter
submitted to the holders of Common Stock, the number of votes in respect of its
shares of Series A Preferred Stock equal to the number of shares of Common Stock
into which shares of Series A Preferred Stock held by such holder may be
converted pursuant to Section 5 hereof on the record date for such vote or, if
no such record date is established, at the date such vote is taken or the date
of any written consent of stockholders. Record holders of Series A Preferred
Stock shall be entitled to notice of any stockholders' meeting or solicitation
of stockholders' consents to the same extent as the holders of Common Stock.
b. Series B Preferred Stock. Except as set forth herein or as otherwise
required by law, each outstanding share of Series B Preferred Stock shall not be
entitled to vote on any matter and shares of Series B Preferred Stock shall not
be included in determining the number of shares voting or entitled to vote on
any matter. On any matter on which the holders of shares of Series B Preferred
Stock are entitled to vote, all classes of Preferred Stock entitled to vote
shall vote together
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as a single class and each holder of shares of Series B Preferred Stock entitled
to vote shall be entitled to a number of votes in respect of its shares of
Series B Preferred Stock equal to the number of shares of Common Stock into
which the shares of Series A Preferred Stock into which shares Series B
Preferred Stock held by such holder would ultimately be converted pursuant to
Sections 5 and 6 hereof on the record date for such vote if actually converted
(assuming for this purpose that such Series B Preferred Stock was fully
convertible at such time) or, if no such record date is established, at the date
such vote is taken or the date of any written consent of stockholders; provided
that, notwithstanding the foregoing, holders of shares of Series B Preferred
Stock shall be entitled to vote as a separate class on any amendment to this
subparagraph 4.2.
c. Series C Junior Preferred Stock. Except as set forth herein or as
otherwise required by law, each outstanding share of Series C Junior Preferred
Stock shall not be entitled to vote on any matter and shares of Series C Junior
Preferred Stock shall not be included in determining the number of shares voting
or entitled to vote on any matter. On any matter on which the holders of shares
of Series C Junior Preferred Stock are entitled to vote, all Shares of Common
Stock entitled to vote shall vote together as a single class and each holder of
shares of Series C Junior Preferred Stock entitled to vote shall be entitled to
a number of votes in respect of its shares of Series C Junior Preferred Stock
equal to the number of shares of Common Stock into which the shares of Series C
Junior Preferred Stock held by such holder would be converted pursuant to
Section 6 hereof on the record date for such vote if actually converted
(assuming for this purpose that such Series C Junior Preferred Stock was fully
convertible at such time) or, if no such record date is established, at the date
such vote is taken or the date of any written consent of stockholders; provided
that, notwithstanding the foregoing, holders of shares of Series C Junior
Preferred Stock shall be entitled to vote as a separate class on any amendment
to this subparagraph 4.3.
d. Election of Directors. Except as otherwise provided by law, the
holders of Preferred Stock are entitled as a group, voting together as a
separate class with each share entitled to one vote (i) so long as such holders
hold not less than two-sevenths of the outstanding voting securities of the
Corporation on an as-converted basis, to elect one member of the class of
directors whose term initially terminated in July 1997 ("Class I") and one
member of the class of directors whose term initially terminated in July 1998
("Class II") at each annual election of directors of such classes and (ii) so
long as such holders hold not less than one-seventh of the outstanding voting
securities of the Corporation on an as-converted basis, to elect one Class I
member of the Board of Directors of the Corporation at each annual election of
directors of such Class; provided, that, if not sooner terminated in accordance
with the foregoing provisions, the class voting right contained in this
subparagraph 4.4 shall terminate (x) as to one director in the event that the
Company is no longer obligated to use its best efforts to nominate and present
to stockholders the proposed election of both the Telesource Nominee and Oak
Nominee (as such terms are defined in the Stock Purchase Agreement) and (y) as
to both directors in the event the Company is no longer obligated to use its
best efforts to nominate and present to stockholders the proposed election of
either of the Telesource Nominee or the Oak Nominee
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5. Conversion Rights. The holders of Series A Preferred Stock shall have the
following rights with respect to the conversion of the Series A Preferred Stock
into shares of Common Stock:
a. General. Subject to and in compliance with the provisions of this
Section 5, shares of Series A Preferred Stock may, at the option of the holder,
be converted at any time into the number of shares of fully-paid and non-
assessable shares of Common Stock equal to the product obtained by multiplying
the Applicable Conversion Rate (determined as provided in Section 5.2) by the
number of shares of Series A Preferred Stock held by such holder being
converted.
b. Applicable Conversion Rate. The conversion rate in effect at any time
for the Series A Preferred Stock (the "Applicable Conversion Rate") shall be the
quotient obtained by dividing the Preference Amount by the Applicable Conversion
Value, calculated as provided in Section 5.3.
c. Applicable Conversion Value. The Applicable Conversion Value shall
initially be $8.00 per share and shall be adjusted from time to time in
accordance with Section 5.4 hereof (as so adjusted, the "Applicable Conversion
Value").
d. Adjustments to Applicable Conversion Value. In the event of (A) a
subdivision of outstanding shares of Common Stock into a greater number of
shares of Common Stock, (B) a combination of outstanding shares of Common Stock
into a smaller number of shares of Common Stock, or (C) the issuance of shares
of Common Stock for no consideration by way of a stock dividend or other
distribution (any of the foregoing being referred to as an "Extraordinary Common
Stock Event"), the Applicable Conversion Value shall, simultaneously with the
happening of such Extraordinary Common Stock Event, be adjusted by multiplying
the then effective Applicable Common Conversion Value by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such Extraordinary Common Stock Event and the denominator
of which shall be the number of shares of Common Stock outstanding immediately
after such Extraordinary Common Stock Event, and the product so obtained shall
thereafter be the Applicable Conversion Value. The Applicable Conversion Value,
as so adjusted, shall be readjusted in the same manner upon the happening of any
successive Extraordinary Common Stock Event or Events.
e. Reclassification. If the Common Stock issuable upon the conversion of
the Series A Preferred Stock shall be changed into the same or different number
of shares of any class or classes of stock, whether by reclassification,
consolidation, merger or otherwise (other than any event as to which either
Section 3.2 applies or that is otherwise provided for elsewhere in this Section
5), then and in each such event, the holder of each share of Series A Preferred
Stock shall have the right thereafter to convert the shares of Series A
Preferred Stock into the kind and amount of shares of stock and other securities
and property receivable upon such reclassification or other change by holders of
the number of shares of Common Stock into which such shares of Series A
Preferred Stock might have been converted immediately prior to such
reclassification or change, all subject to further adjustment as provided
herein.
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f. Good Faith. If any event occurs as to which in the reasonable opinion
of the Board of Directors of the Corporation, in good faith, the other
provisions of this Section 5 are not strictly applicable but the lack of any
adjustment in the Applicable Conversion Rate would not in the opinion of the
Board of Directors of the Corporation fairly protect the conversion rights of
the holders of the Series A Preferred Stock in accordance with the basic intent
and principles of such provisions, or if strictly applicable would not fairly
protect the conversions rights of the holders of the Series A Preferred Stock in
accordance with the basic intent and principles of such provisions, then the
Board of Directors of the Corporation shall effect an appropriate adjustment to
the Applicable Conversion Rate, on a basis consistent with the basic intent and
principles of this Section 5, necessary in their good faith judgment to
preserve, without dilution, the exercise rights of all the registered holders of
the Series A Preferred Stock.
g. Exercise of Conversion Privilege. To exercise its conversion
privilege, a holder of Series A Preferred Stock shall surrender the certificate
or certificates representing the shares being converted to the Corporation at
its principal office or, if the Corporation has appointed an agent and provided
the holders of Series A Preferred Stock notice thereof, at any agent designated
by the Corporation for such purpose, and shall give written notice to the
Corporation at that office that such holder elects to convert such shares, or if
fewer than all the shares represented by a single share certificate are to be
converted, the number of shares represented thereby to be converted. The
certificate or certificates for shares of Series A Preferred Stock surrendered
for conversion shall be accompanied by proper assignment thereof to the
Corporation or in blank. Each conversion of Series A Preferred Stock shall be
deemed to have been effected as of the close of business on the effective date
of such conversion specified in the written notice (the "Conversion Date");
provided, however, that the Conversion Date shall not be a date earlier than the
date such notice is received by the Corporation (or its designated agent), and
if such notice does not specify a conversion date, the Conversion Date shall be
deemed to be the date such notice is received by the Corporation (or its
designated agent). On the Conversion Date, the rights of the holder of such
Series A Preferred Stock as such holder (including the right to receive
dividends in cash) shall cease and the person or persons in whose name or names
any certificate or certificates for shares of Common Stock are to be issued upon
such conversion shall be deemed to have become the holder or holders of record
of the shares of Common Stock represented thereby.
As promptly as practicable after the later of (x) the Conversion Date and
(y) the date the holder has delivered its notice and the certificates evidencing
the shares of Series A Preferred Stock converted into shares of Common Stock in
accordance herewith, the Corporation shall deliver to the converting holder at
the address set forth in the conversion notice:
(1) a certificate or certificates representing, in the aggregate, the
number of shares of Common Stock issued upon such conversion, in the same name
or names as the certificates representing the converted shares and in such
denomination or denominations as the converting holder shall specify and a check
for cash with respect to any fractional interest in a share of Common Stock as
provided in Section 5.8; and
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(2) a certificate representing any shares of Series A Preferred Stock that
were represented by the certificate or certificates delivered to the Corporation
in connection with such conversion but that were not converted.
The issuance of certificates for shares of Common Stock upon the conversion
of Series A Preferred Stock shall be made without charge to the holders of such
Series A Preferred Stock for any issuance tax in respect thereof or other cost
incurred by the Corporation in connection with such conversion and the related
issuance of shares of Common Stock.
h. Cash in Lieu of Fractional Shares. No fractional shares of Common
Stock or scrip representing fractional shares shall be issued upon the
conversion of shares of Series A Preferred Stock. Instead of any fractional
share of Common Stock which would otherwise be issuable upon conversion of
Series A Preferred Stock, the Corporation shall pay to the holder of the
converted shares of Series A Preferred Stock cash in respect to such fractional
shares in an amount equal to the same fraction of the market price per share of
Common Stock (as determined in a reasonable manner prescribed by the Board of
Directors).
i. Automatic Conversion. Each share of Series A Preferred Stock shall be
automatically converted into fully-paid and non-assessable shares of Common
Stock in accordance with the terms of this Section 5: (i) upon the closing of a
firm commitment underwritten public equity offering of the Corporation yielding
aggregate net proceeds to the Corporation of at least $75,000,000 at a price per
share of Common Stock of at least $18.00 (as appropriately adjusted for stock
dividends, stock combinations, stock splits and recapitalization and the like),
(ii) at the close of business on the first day after June 1, 2001, on which the
Closing Price (as defined in Section 10) of the Common Stock has exceeded $18.00
per share (as appropriately adjusted for stock dividends, stock combinations,
stock splits, recapitalizations and the like) for at least 30 of 40 consecutive
Trading Days (as defined in Section 10), (iii) upon the approval of the holders
of two-thirds of the then-outstanding Series A Preferred Stock, voting together
as a single class or (iv) upon the conversion into either Common Stock or Series
C Junior Preferred Stock of seventy-five percent of the Preferred Stock issued
pursuant to the Stock Purchase Agreement.
Upon the occurrence of the conversion specified in this Section 5.9, the
holders of the Series A Preferred Stock shall, upon notice from the Corporation,
surrender the certificates representing such shares at the office of the
Corporation or of its transfer agent for the Common Stock. The number of shares
of Common Stock to which each holder of Series A Preferred Stock shall be
entitled upon conversion shall be the product obtained by multiplying the
Applicable Conversion Rate (determined as provided in Section 5.2) by the number
of shares of Series A Preferred Stock held by such holder being converted. As
promptly as practicable after such conversion, upon surrender by such holder of
certificates representing its shares of Series A Preferred Stock, the
Corporation shall issue and deliver to such holder a certificate or certificates
for the number of whole shares of Common Stock to which such holder is entitled,
together with any cash payment in lieu of fractional shares to which such holder
may be entitled pursuant to this Section 5. The Corporation shall not be
obligated to issue such certificates unless certificates evidencing such shares
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of the Series A Preferred Stock being converted are either delivered to the
Corporation or any such transfer agent, or the holder notifies the Corporation
or any such transfer agent that such certificates have been lost, stolen or
destroyed and executes an agreement satisfactory to the Corporation to indemnify
the Corporation from any loss incurred by it in connection therewith.
j. Record Dates and Dividends. Holders of shares of Series A Preferred
Stock at the close of business on a record date for any Non-Common Distribution
will be entitled to receive the dividend or distribution, respectively, payable
on such shares of Series A Preferred Stock pursuant to Section 2 on the
corresponding payment date for such Non-Common Distribution notwithstanding the
conversion of such shares of Series A Preferred Stock following such record date
and prior to such payment date.
6. Special Conversion of Non-Voting Stock.
a. Automatic Conversion of Series B Preferred Stock and Series C Junior
Preferred Stock Upon Transfer to Stockholder other than a Restricted
Stockholder. Notwithstanding any other provision of this Section 6, if any
shares of Series B Preferred Stock or Series C Junior Preferred Stock shall at
any time be properly transferred to a record holder which is not, and would not
immediately after such transfer be, a Restricted Stockholder, each such share
shall be immediately and automatically converted into either (i) the number of
shares of Series A Preferred Stock determined by multiplying the Applicable
Series B Conversion Rate (defined below) by the number of shares of Series B
Preferred Stock being converted or (ii) a number of shares of Common Stock
determined by multiplying the Applicable Series C Conversion Rate (defined
below) by the number of shares of Series C Junior Preferred Stock being
converted, as applicable.
b. Automatic Conversion of Series B Preferred Stock or Series C Junior
Preferred Stock Upon Additional Equity Issuance. In the event that at any time,
from time to time after the effective date of this Certificate of Designation,
the Corporation issues additional shares of Common Stock or other voting equity
securities to any person other than a Restricted Stockholder or any Restricted
Stockholder transfers in accordance with the transfer provisions contained
herein or in the Standstill Agreement, shares of Series A Preferred Stock to an
entity that would not, after giving effect to such transfer constitute a
Restricted Stockholder, such that the quotient, expressed as a percentage,
obtained by dividing (x) the aggregate number of votes which the Restricted
Stockholders are entitled to vote generally with the holders of Common Stock as
a result of all shares of Series A Preferred Stock and all shares of Common
Stock issuable upon conversion of Series A Preferred Stock or other voting
securities held by the Restricted Stockholders, minus the number of votes which
the Restricted Stockholders are entitled to vote as a result of all Unrestricted
Shares held by Restricted Stockholders by (y) the number of votes which all
holders of the Corporation's equity securities (including the Restricted
Stockholders) are entitled to vote generally with the holders of Common Stock
with regard to the election of directors is less than forty-five percent (45%),
an aggregate number of shares of Series B Preferred Stock required to cause the
solution to the foregoing equation to equal forty-five percent (45%) shall be
automatically converted to a number of shares of Series A Preferred Stock
determined by multiplying the Applicable Series B Conversion Rate (defined
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below) by the number of shares of Series B Preferred Stock being converted. To
the extent that no shares of Series B Preferred Stock remain outstanding, then a
number of shares of Series C Junior Preferred Stock held by the Restricted
Holders equal to the number of shares required to cause the equation in the
foregoing sentence to yield a result equal to forty-five percent (45%) shall be
converted, pro rata among the Holders thereof, into a number of shares of Common
Stock determined by multiplying the Applicable Series C Conversion Rate (defined
below) by the number of shares of Series C Junior Preferred Stock being
converted.
c. Applicable Series B Conversion Rate. The conversion rate in effect at
any time for the Series B Preferred Stock (the "Applicable Series B Conversion
Rate") shall be the quotient obtained by dividing the Preference Amount by the
Applicable Series B Conversion Value, calculated as provided in Section 6.4.
d. Applicable Series B Conversion Value. The Applicable Series B
Conversion Value shall initially be $80.00 per share and shall be adjusted from
time to time in accordance with Section 6.5 hereof (as so adjusted, the
"Applicable Series B Conversion Value").
e. Adjustments to Applicable Series B Conversion Value. In the event of
(A) a subdivision of outstanding shares of Series A Preferred Stock into a
greater number of shares of Series A Preferred Stock, (B) a combination of
outstanding shares of Series A Preferred Stock into a smaller number of shares
of Series A Preferred Stock, or (C) the issuance of shares of Series A Preferred
Stock for no consideration by way of a stock dividend or other distribution (any
of the foregoing being referred to as an "Extraordinary Series A Preferred Stock
Event"), the Applicable Series B Conversion Value shall, simultaneously with the
happening of such Extraordinary Series A Preferred Stock Event, be adjusted by
multiplying the then effective Applicable Series B Conversion Value by a
fraction, the numerator of which shall be the number of shares of Series A
Preferred Stock outstanding immediately prior to such Extraordinary Series A
Preferred Stock Event and the denominator of which shall be the number of shares
of Series A Preferred Stock outstanding immediately after such Extraordinary
Series A Preferred Stock Event, and the product so obtained shall thereafter be
the Applicable Series B Conversion Value. The Applicable Series B Conversion
Value, as so adjusted, shall be readjusted in the same manner upon the happening
of any successive Extraordinary Series A Preferred Stock Event or Events.
f. Mechanics of Automatic Conversion of Series B Preferred Stock. Upon
the occurrence of an event specified in Sections 6.1 or 6.2, the Series B
Preferred Stock shall be converted automatically without any further action by
the holder of such shares and whether or not the certificates representing such
shares are surrendered to the Corporation or its transfer agent; provided,
however, that the Corporation shall not be obligated to issue certificates
evidencing the shares of Series A Preferred Stock issuable upon such conversion
unless certificates evidencing such shares of the Series B Preferred Stock being
converted are either delivered to the Corporation or its transfer agent. Upon
the automatic conversion of the Series B Preferred Stock, the holder of such
Series B Preferred Stock shall surrender the certificates representing such
shares at the office of the Corporation or of its transfer agent. Thereupon,
there shall be issued and delivered to such holder,
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promptly at such office and in such holder's name as shown on such surrendered
certificate or certificates, a certificate or certificates for the number of
shares of Series A Preferred Stock into which the shares of Series B Preferred
Stock surrendered were convertible on the date on which such automatic
conversion occurred. From and after the date of the event that causes the
automatic conversion pursuant to Sections 6.1 and 6.2, all rights of the holder
with respect to the Series B Preferred Stock so converted shall terminate,
except only the right of such holder, upon the surrender of such holder's
certificate or certificates therefor, to receive certificates for the number of
shares of Series A Preferred Stock issuable upon conversion thereof.
g. Automatic Conversion into Series C Junior Preferred Stock. Each share
of Series B Preferred Stock shall be automatically converted into fully-paid and
non-assessable shares of Series C Junior Preferred Stock in accordance with the
terms of this Section 6.7: (i) upon the closing of a firm commitment
underwritten public equity offering of the Corporation yielding aggregate net
proceeds to the Corporation of at least $75,000,000 at a price per share of
Common Stock of at least $18.00 (as appropriately adjusted for stock dividends,
stock combinations, stock splits and recapitalization and the like), (ii) at
the close of business on the first day after June __, 2001, on which the Closing
Price (as defined in Section 10) of the Common Stock has exceeded $18.00 per
share (as appropriately adjusted for stock dividends, stock combinations, stock
splits, recapitalizations and the like) for at least 30 of 40 consecutive
Trading Days (as defined in Section 10), (iii) upon the approval of the holders
of two-thirds of the then-outstanding Series B Preferred Stock, voting together
as a single class or (iv) upon the conversion into either Common Stock or Series
C Junior Preferred Stock of seventy-five percent of the Preferred Stock issued
pursuant to the Stock Purchase Agreement.
Upon the occurrence of the conversion specified in this Section 6.7, the
holders of the Series B Preferred Stock shall, upon notice from the Corporation,
surrender the certificates representing such shares at the office of the
Corporation or of its transfer agent for the Series C Junior Preferred Stock.
The number of shares of Series C Junior Preferred Stock to which each holder of
Series B Preferred Stock shall be entitled upon conversion shall be the product
obtained by multiplying the Applicable Series B Conversion Rate (determined as
provided in Section 6.3) by the number of shares of Series B Preferred Stock
held by such holder being converted. As promptly as practicable after such
conversion, upon surrender by such holder of certificates representing its
shares of Series B Preferred Stock, the Corporation shall issue and deliver to
such holder a certificate or certificates for the number of whole shares of
Series C Junior Preferred Stock to which such holder is entitled, together with
any cash payment in lieu of fractional shares to which such holder may be
entitled pursuant to this Section 6. The Corporation shall not be obligated to
issue such certificates unless certificates evidencing such shares of the Series
B Preferred Stock being converted are either delivered to the Corporation or any
such transfer agent, or the holder notifies the Corporation or any such transfer
agent that such certificates have been lost, stolen or destroyed and executes an
agreement satisfactory to the Corporation to indemnify the Corporation from any
loss incurred by it in connection therewith.
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h. Applicable Series C Conversion Rate. The Applicable Series C
Conversion Rate shall at all times equal the Applicable Conversion Rate,
calculated in accordance with Section 5 hereof.
7. Capital Stock.
a. No Reissuance of Preferred Stock. No share or shares of Preferred
Stock acquired by the Corporation by reason of purchase, conversion or otherwise
shall be reissued, and all such shares shall be canceled, retired and eliminated
from the shares which the Corporation shall be authorized to issue. The
Corporation may from time to time take such appropriate corporate action as may
be necessary to reduce the authorized number of shares of the Preferred Stock
accordingly.
b. Reservation of Stock.
(a) The Corporation shall at all times reserve and keep available out
of its authorized but unissued shares of Common Stock (or out of its authorized
shares of Common Stock held in the treasury of the Corporation), for the purpose
of effecting the conversion of the Series A Preferred Stock and the Series C
Junior Preferred Stock, the full number of shares of Common Stock then issuable
upon the conversion pursuant to Section 5 of all outstanding shares of Series A
Preferred Stock (including for this purpose shares of Series B Preferred Stock
convertible into Series A Preferred Stock) and the conversion pursuant to
Section 6 of all outstanding shares of Series C Junior Preferred Stock.
(b) The Corporation shall at all times reserve and keep available out
of its authorized but unissued shares of Series A Preferred Stock (or out of its
authorized shares of Series A Preferred Stock held in the treasury of the
Corporation), for the purpose of effecting the conversion of the Series B
Preferred Stock, the full number of shares of Series A Preferred Stock then
issuable upon the conversion pursuant to Section 6 of all outstanding shares of
Series B Preferred Stock.
(c) The Corporation shall at all times reserve and keep available out
of its authorized but unissued shares of Series C Junior Preferred Stock (or out
of its authorized shares of Series C Junior Preferred Stock held in the treasury
of the Corporation), for the purpose of effecting the conversion of the Series B
Preferred Stock, the full number of shares of Series C Junior Preferred Stock
then issuable upon the conversion pursuant to Section 6 of all outstanding
shares of Series B Preferred Stock.
8. Notices of Record Date. In the event of the proposed sale of all or
substantially all of the assets of the Corporation or merger or any voluntary or
involuntary dissolution, liquidation or winding up of the Corporation, the
Corporation shall use reasonable efforts to mail or cause to be mailed to each
holder of record of Preferred Stock a notice (at least twenty (20) days in
advance of the following) specifying (i) the date on which any such sole,
merger, dissolution, liquidation or winding up is expected to become effective
and (ii) the time, if any, that is to be fixed, as to when the holders of record
of Common Stock (or other securities) shall be entitled to exchange their share
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of Common Stock (or other securities) for securities or other property
deliverable upon such dissolution, liquidation or winding up. Except as set
forth above in this Section 8, in the event the Corporation provides any notice
or mailing to the holders of Common Stock, such notice shall be provided, at
substantially the same time and in substantially the same manner, to the holders
of Preferred Stock.
9. Amendments. The provisions of the terms of the Preferred Stock may not be
amended, modified or waived without the written consent or affirmative vote of
the holders of a majority of the then outstanding shares of Preferred Stock.
10. Definitions.
a. "Closing Price" for any date shall mean, so long as the Common Stock
is quoted on The Nasdaq Stock Market (or its successor), the last bid price of
the Common Stock on that date, or if the Common Stock is no longer quoted on The
Nasdaq Stock Market and is then listed on any national securities exchange, the
last sale price of the Corporation's Common Stock on such exchange on that date.
b. "Preference Amount" shall mean $80.00.
c. "Restricted Stockholder" shall mean (i) any party (other than the
Corporation) to the Stock Purchase Agreement and their respective "affiliates"
or "associates" (as each such term is defined in Rule 12b-2 under the Securities
Exchange Act of 1934); and (ii) any person or entity that acquires shares of
Preferred Stock or any securities, including Common Stock, that were issued upon
conversion of the Preferred Stock, from a party to or an affiliate or associate
of any party (other than the Corporation) to the Stock Purchase Agreement unless
such shares were acquired either (x) in a sale to the public pursuant to Rule
144 under the Securities Act of 1933, or an offering registered under such Act
or (y) in a transfer not prohibited by that certain Standstill Agreement dated
June 1, 1999 among the Corporation and certain of the Corporation's
stockholders, (the "Standstill Agreement"), if following such transfer the
transferee is not (i) bound by the terms of such agreement, nor (ii) an
affiliate or associate of any entity so bound (other than solely an affiliate or
associate of the Corporation) nor (iii) an affiliate or associate of a
Restricted Stockholder.
d. "Stock Purchase Agreement" shall mean that certain Preferred Stock
Purchase Agreement among the Corporation and the initial purchasers of the
Preferred Stock, dated June 1, 1999, as amended and in effect from time to time.
e. "Trading Days" shall mean any date on which The Nasdaq Stock Market is
open for the quotation of securities or, if the Common Stock is no longer quoted
on The Nasdaq Stock Market and is then listed on any national securities
exchange, any date such exchange is open for the trading of securities.
-14-
<PAGE>
f. "Unrestricted Shares" means (i) any shares of voting capital stock of
the Corporation owned by Columbia Capital, L.L.C. and Advent International
Corporation and their respective affiliates (the "Existing Holders") other than
shares of Preferred Stock acquired by Existing Holders pursuant to the Purchase
Agreement (or the conversion or further conversion of such shares pursuant to
the terms hereof), or (ii) any shares of voting capital stock of the Corporation
acquired by Existing Holders upon exercise of the Existing Holders' rights in
Section 4.16 of the Purchase Agreement (or the exercise, conversion or exchange
of securities acquired on exercise of such rights), in each case, so long as
such shares are not held by any Restricted Stockholder other than an Existing
Holder.
ADVANCED RADIO TELECOM CORP. has caused this Corrected Certificate of
Designation to be signed by Robert S. McCambridge, its Chief Executive Officer,
and attested by Thomas M. Walker, its Secretary, this day of November,
1999.
______________________________________________
Chief Executive Officer, Robert S. McCambridge
ATTEST,
________________________________
Secretary, Thomas M. Walker
-15-
<PAGE>
EXHIBIT 4.2A
ADVANCED RADIO TELECOM CORP.
The powers, designations, preferences, and relative participating, optional
or other special rights, and the qualifications, limitations, or restrictions of
such preferences and/or rights of each class of stock or series of any class are
set forth in the Certificate of Incorporation. The issuer will furnish a copy of
the Certificate of Incorporation to the holder of this certificate without
charge upon request.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT
BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OF AN APPLICABLE
EXEMPTION TO THE REGISTRATION REQUIREMENTS OF SUCH ACT OR SUCH LAWS.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ISSUED PURSUANT TO AND
THE HOLDER HEREOF IS ENTITLED TO CERTAIN RIGHTS AND SUBJECT TO CERTAIN
OBLIGATIONS CONTAINED IN A STOCK PURCHASE AGREEMENT DATED AS OF JUNE 1, 1999. A
COPY OF WHICH IS AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICE OF THE ISSUER
HEREOF, AND WILL BE FURNISHED WITHOUT CHARGE TO THE HOLDER OF SUCH SECURITIES
UPON REQUEST.
THE SECURITIES REPRESENTED BY THE CERTIFICATE ARE SUBJECT TO A REGISTRATION
RIGHTS AGREEMENT DATED AS OF JUNE 1, 1999, AS AMENDED FROM TIME TO TIME. A COPY
THEREOF IS AVAILABLE FOR INSPECTION FROM THE COMPANY.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A STANDSTILL
AGREEMENT DATED JUNE 1, 1999 AND MAY NOT BE TRANSFERRED EXCEPT IN COMPLIANCE
WITH THE TERMS THEREOF.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT .............Custodian.............
TEN ENT - as tenants by the entireties (Cust) Minor
JT TEN - as joint owners with right under Uniform Gifts to Minors
of ownership and not as Act ...............................
tenants in common (State)
UNIF TRF MIN ACT ........Custodian (until age.......)
(Cust)
.........under Uniform Transfers
(Minor)
to Minors Act.......................
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, __________________________________________ hereby sell,
assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
| |
| |
- --------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
- --------------------------------------------------------------------------
of the preferred stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
- ------------------------------------------------------------------------
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
------------------------------------
X___________________________________________
X___________________________________________
NOTICE: THE SIGNATURE(S) TO THE ASSIGNMENT MUST
CORRESPOND WITH THE NAME(S) AS WRITTEN UPON
THE FACT OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATIONS OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
<PAGE>
[LOGO OF ADVANCED RADIO TELECOM]
Advanced Radio Telecom/TM/
ADVANCED RADIO TELECOM CORP.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFICATE IS TRANSFERABLE IN BOSTON, MA OR NEW YORK, NY
SERIES A CONVERTIBLE SEE REVERSE FOR CERTAIN DEFINITIONS
PREFERRED STOCK
This Certifies that
is the owner of
FULLY PAID AND NONASSESSABLE SHARES OF SERIES A CONVERTIBLE PREFERRED STOCK,
$.001 PAR VALUE PER SHARE OF
ADVANCED RADIO TELECOM CORP.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this certificate properly
endorsed. This certificate is not valid until countersigned by the Transfer
Agent and registered by the Registrar.
WITNESS this facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
/s/ Henry C. Hirsch /s/ Thomas M. Walker
- -------------------------- ----------------------------
CHAIRMAN, PRESIDENT AND SECRETARY
CHIEF EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED:
BankBoston, M.A.
TRANSFER AGENT AND REGISTRAR
BY /s/ illegible
--------------------------
AUTHORIZED SIGNATURE
<PAGE>
EXHIBIT 4.2B
ADVANCED RADIO TELECOM CORP.
The powers, designations, preferences, and relative participating, optional
or other special rights, and the qualifications, limitations, or restrictions of
such preferences and/or rights of each class of stock or series of any class are
set forth in the Certificate of Incorporation. The issuer will furnish a copy of
the Certificate of Incorporation to the holder of this certificate without
charge upon request.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT
BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OF AN APPLICABLE
EXEMPTION TO THE REGISTRATION REQUIREMENTS OF SUCH ACT OR SUCH LAWS.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ISSUED PURSUANT TO AND
THE HOLDER HEREOF IS ENTITLED TO CERTAIN RIGHTS AND SUBJECT TO CERTAIN
OBLIGATIONS CONTAINED IN A STOCK PURCHASE AGREEMENT DATED AS OF JUNE 1, 1999. A
COPY OF WHICH IS AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICE OF THE ISSUER
HEREOF, AND WILL BE FURNISHED WITHOUT CHARGE TO THE HOLDER OF SUCH SECURITIES
UPON REQUEST.
THE SECURITIES REPRESENTED BY THE CERTIFICATE ARE SUBJECT TO A REGISTRATION
RIGHTS AGREEMENT DATED AS OF JUNE 1, 1999, AS AMENDED FROM TIME TO TIME. A COPY
THEREOF IS AVAILABLE FOR INSPECTION FROM THE COMPANY.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A STANDSTILL
AGREEMENT DATED JUNE 1, 1999 AND MAY NOT BE TRANSFERRED EXCEPT IN COMPLIANCE
WITH THE TERMS THEREOF.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT .............Custodian.............
TEN ENT - as tenants by the entireties (Cust) Minor
JT TEN - as joint owners with right under Uniform Gifts to Minors
of ownership and not as Act ...............................
tenants in common (State)
UNIF TRF MIN ACT ........Custodian (until age.......)
(Cust)
.........under Uniform Transfers
(Minor)
to Minors Act.......................
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, __________________________________________ hereby sell,
assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
| |
| |
- --------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
- --------------------------------------------------------------------------
of the preferred stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
- ------------------------------------------------------------------------
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
------------------------------------
X___________________________________________
X___________________________________________
NOTICE: THE SIGNATURE(S) TO THE ASSIGNMENT MUST
CORRESPOND WITH THE NAME(S) AS WRITTEN UPON
THE FACT OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATIONS OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
<PAGE>
[LOGO OF ADVANCED RADIO TELECOM]
Advanced Radio Telecom/TM/
ADVANCED RADIO TELECOM CORP.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFICATE IS TRANSFERABLE IN BOSTON, MA OR NEW YORK, NY
SERIES B NON-VOTING SEE REVERSE FOR CERTAIN DEFINITIONS
CONVERTIBLE PREFERRED STOCK
This Certifies that
is the owner of
FULLY PAID AND NONASSESSABLE SHARES OF SERIES B NON-VOTING CONVERTIBLE
PREFERRED STOCK, $.001 PAR VALUE PER SHARE OF
ADVANCED RADIO TELECOM CORP.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this certificate properly
endorsed. This certificate is not valid until countersigned by the Transfer
Agent and registered by the Registrar.
WITNESS this facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
/s/ Henry C. Hirsch /s/ Thomas M. Walker
- -------------------------- ----------------------------
CHAIRMAN, PRESIDENT AND SECRETARY
CHIEF EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED:
BankBoston, M.A.
TRANSFER AGENT AND REGISTRAR
BY /s/ illegible
--------------------------
AUTHORIZED SIGNATURE
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the incorporation by reference in Registration Statements
on Form S-8 (File No. 333-32404 and 333-21875). Form S-4 (File No. 333-33689),
Form S-4 (File No. 333-50083), and Form S-3 (File No. 333-31453) of our report
dated February 15, 2000 relating to the financial statements which appear in
Advanced Radio Telecom Corp. and subsidiaries' Annual Report on Form 10-K for
the year ended December 31, 1999.
PricewaterhouseCoopers LLP
Seattle, Washington
March 28, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 108,161
<SECURITIES> 85,294
<RECEIVABLES> 267
<ALLOWANCES> (33)
<INVENTORY> 0
<CURRENT-ASSETS> 193,916
<PP&E> 26,796
<DEPRECIATION> (12,049)
<TOTAL-ASSETS> 398,136
<CURRENT-LIABILITIES> 24,162
<BONDS> 0
243,536
0
<COMMON> 28
<OTHER-SE> (7,963)
<TOTAL-LIABILITY-AND-EQUITY> 398,136
<SALES> 1,341
<TOTAL-REVENUES> 1,341
<CGS> 0
<TOTAL-COSTS> 76,161
<OTHER-EXPENSES> (696)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,873<F1>
<INCOME-PRETAX> (98,873)
<INCOME-TAX> 2,175
<INCOME-CONTINUING> (96,698)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (96,698)
<EPS-BASIC> (7.65)
<EPS-DILUTED> (7.65)
<FN>
<F1>Net of interest income of $4,057
</FN>
</TABLE>
<PAGE>
EXHIBIT 99
RISK FACTORS
From time to time we have made, and may in the future make, forward-looking
statements, based on our then-current expectations, including statements made in
Securities and Exchange Commission filings, in press releases and oral
statements. These forward-looking statements are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. All
forward-looking statements involve risks and uncertainties, and actual results
could differ materially from those expressed or implied in the forward-looking
statements for a variety of reasons. These reasons include, but are not limited
to, factors outlined below. We do not undertake to update or revise our forward-
looking statements publicly even if experience or future changes make it clear
that any projected results expressed or implied therein will not be realized.
We may not become profitable.
We have generated only nominal revenues from operations to date. We have
incurred operating and net losses since our inception and we expect to incur
significant operating and net losses for at least the next several years. In
particular, we had net losses of $96.7 million and $47.0 million in 1999 and the
1998, and an accumulated deficit of $239.5 million at December 31, 1999. We may
not develop a successful business or achieve or sustain profitability in the
future. Our ability to achieve profitability will depend, in part, on our
ability to:
. raise adequate additional capital when required;
. attract and retain an adequate customer base;
. acquire adequate access rights for our network;
. deploy and commercialize our network;
. attract and retain experienced and talented personnel; and
. establish strategic business relationships.
We may not be able to do any of these successfully.
In view of our brief operating history and change of strategy, you may have
difficulty evaluating us.
We have a limited operating history. We commenced commercial operations in
November 1996 as a provider of wireless broadband capacity to communications
providers on a wholesale carriers' carrier basis. The Company altered its
strategy in 1998 to sell a variety of broadband internet services to end-user
customers and began offering such services in the Seattle, Washington, Portland,
Oregon and Phoenix, Arizona markets. During 1999, the Company's strategy evolved
to that of providing high speed broadband IP services to businesses, and in
September 1999, the Company introduced 100 mbps internet access service to
businesses in the San Jose, California area. This may cause you to have
difficulty evaluating our performance.
If we are unable to obtain additional capital, we may not be able to expand our
network or fund our operations.
We estimate that we will require in excess of $750 million over the next
several years to fund capital expenditures, working capital and operations. We
will need to raise substantial additional capital to fully fund our business
plan. We may be unable to obtain additional financing when needed or on
acceptable terms. Our failure to access capital on acceptable terms or delays in
obtaining financing could result in the modification, delay or abandonment of
some or all of our business plan.
<PAGE>
Our high leverage creates financial and operating risks that could adversely
affect us.
We have a significant amount of debt. We expect to incur substantial
additional debt to finance our business strategy. Our high leverage could have
adverse consequences to us, including:
. requiring us to use a substantial portion of our cash flow from
operations to make payments on debt;
. limiting our flexibility to respond to changes in the industry and
economic conditions generally;
. in the event of default, forcing us to renegotiate or refinance our
debt at less favorable terms, preventing us from obtaining future
financing, forcing us to sell our assets and restricting our
operations;
. making us more vulnerable to adverse economic conditions in the event
of an economic downturn; and
. placing us at a competitive disadvantage to competitors with less
leverage.
We may be unable to generate sufficient revenue or growth to repay or refinance
our debt when due.
Our ability to make principal and interest payments on our indebtedness
will depend in part upon our future operating performance and cash flow and our
ability to obtain additional debt or equity financing on acceptable terms.
These will depend on a number of factors, many of which are out of our control.
If we are unable to generate sufficient cash flow to meet our debt obligations,
we may be required to renegotiate the payment terms or to refinance all or a
portion of our indebtedness on less favorable terms or to sell assets. We may
not be able to do any of these things successfully and doing these things may
limit our operating flexibility and growth.
If our services do not achieve market acceptance we may be unable to generate
sufficient revenue.
We and other providers have only recently begun to market fixed wireless
services. Because the provision of broadband Internet services represents an
emerging sector of the telecommunications industry, the demand for our services
is uncertain. We cannot assure you that any substantial market will develop for
our services. The demand for our products may be adversely affected by:
. historical perceptions of the unreliability of previous wireless
technologies;
. concerns about the security of transmissions over wireless networks;
. the lack of market history of operational fixed wireless services;
. possible desire of customers to acquire telecommunications services
from a single provider;
. availability and pricing of alternative broadband and narrowband
Internet services;
. general and local economic conditions;
. changes in products and technology; and
. potential impact of government regulation on our services.
Insufficient acceptance of our services due to one or more of these or
other factors would adversely affect future revenues.
<PAGE>
Our equipment, equipment suppliers and service providers may not perform as we
expect, which could delay or affect the quality of our services.
Some of the equipment we are deploying in our network has not been widely
used. This equipment may not provide us with the functionality or quality we
expect. Also, our equipment suppliers may not be able to timely provide us with
equipment we need to build our network and deliver our services. The service
providers we use to deploy our networks also may not perform as we plan. Any of
these could delay the deployment of our network, adversely affect the quality of
our service, reduce our revenues or increase our costs.
Because of our limited experience, we may be unsuccessful in executing our
strategy.
We may be unsuccessful in executing our strategy. We have limited
experience providing broadband Internet services. We also have limited
experience in deploying, maintaining and operating broadband networks. We may
not effectively be able to do these things. We also may not effectively manage
the third party relationships upon which our success depends. In addition, we
may not be able to manage our planned rapid implementation of our business plan
in multiple markets. The failure to do any of these could increase our costs and
adversely affect our market penetration.
Our market is highly competitive and we may be unable to compete effectively,
especially against competitors with greater financial and other resources.
We operate in a highly competitive environment and may not be able to
successfully compete. We compete with other providers of telecommunications
services that use a variety of telecommunications technologies including copper,
fiber, cable, mobile and fixed wireless and satellite networks. We also expect
to compete with new providers and technologies not yet introduced. To date, we
do not have a significant market share in any of the markets in which we are
operating. Given the intense competition we may be unable to compete effectively
with these and other technologies and service providers and consequently we may
be unable to attract customers and grow and maintain our sales.
Our current and potential competitors include:
. local exchange carriers;
. fiber and wireless service providers and cable television operators;
. providers of services which are in competition with our product
offerings (for example, Internet service providers);
. competitors taking advantage of the recent and pending auctions of
spectrum capable of supporting services comparable to those provided
by us; and
. companies which have filed applications with the FCC to develop global
broadband satellite systems which may be used to provide broadband
voice and data services.
Many of these competitors are larger and have greater financial and other
resources than we have. As a result, these competitors may be able, among other
things, to develop and exploit new technologies, adapt to changes in customer
requirements more quickly, devote greater resources to the marketing and sale of
their services or more rapidly deploy and build-out a network than us.
<PAGE>
We may lose sales to our competitors if we are unable to adapt to changes in
technology and industry requirements.
The telecommunications industry and market for data services have been
characterized by:
. rapid technological advances;
. changes in end-user requirements;
. frequent new service introductions;
. evolving industry standards; and
. decreases in the cost of equipment.
If we are unable to offer broadband Internet services that exploit advanced
technologies or unable to anticipate or adapt to evolving industry standards, we
may lose sales to our competitors. In particular:
. our services may become economically or technically outmoded by
current or future technologies with which we may compete;
. we may not be able to arrange to offer the new services required by
our customers;
. we may not have sufficient resources to develop or acquire new
technologies or introduce new services capable of competing with
future technologies or service offerings; and
. the cost of our equipment and network may decline slower than that of
competitive alternatives.
We may be delayed or prevented from deploying our network by our inability to
secure suitable locations for our transceivers.
We install our transceivers and antennas primarily on rooftops of buildings
and on other tall structures. Therefore, we must generally secure building
access rights and access to conduits and wiring from building owners. In
addition, we may require construction, zoning, franchises or other governmental
permits. If we are unable to secure suitable access or any permits in any market
we may be unable to deploy our network timely or at all in that market.
Because our wireless transmission equipment must have a direct line of sight,
the costs of deploying our networks may increase.
If there are only a limited number of available buildings in any market
which provide a clear line of sight for transmissions, engineering our network
may be impracticable or uneconomical. In some markets we may need to engineer
our transmission links to go around tall buildings and other obstacles. Our
services are also adversely affected by heavy rainfall. In markets that
experience heavy rainfall, our transmission links may need to be engineered for
shorter distances and greater power to maintain transmission quality. These
engineering changes may increase our costs.
<PAGE>
FCC and other government regulation could result in forfeiture or loss of value
of our licenses or otherwise limit our operations or increase our costs.
The telecommunications services offered by us are subject to regulation by
federal, state and local government agencies. In particular, the FCC imposes,
among others, the following requirements on our operations:
. in order to renew our licenses, many of which will expire in February
2001, we will need to demonstrate that we are providing a substantial
service within the area covered by each license;
. we must not remove equipment or otherwise render the station incapable
of providing service; and
. if we acquire or dispose of licenses we must obtain prior FCC
approval.
We cannot be sure how the FCC will interpret and apply these requirements to us.
If we are unable to comply with FCC renewal requirements or with other FCC
regulations our licenses may be canceled or subject to forfeiture and other FCC
sanctions may be imposed on us. Any such sanctions may result in loss of value
of our licenses.
The growth and development of our business may also be prevented or slowed
by other governmental regulation, including:
. laws and regulations applicable generally to the provision of wireless
data services;
. laws and regulations governing competition;
. failure or significant delay in obtaining or maintaining any
regulatory approvals; and
. restrictions on transfer of the licenses.
If our licenses lose value, our stock price could suffer.
Our wireless licenses are integral assets of our business. The value of any
or all of our licenses could decrease as a result of:
. increases in supply of spectrum that provides similar functionality;
. a decrease in the demand for services offered with these licenses;
. values placed on similar licenses in future FCC auctions; and
. regulatory limitations on transfers of these licenses.
Should the value of our licenses decrease, our stock price could decline.
<PAGE>
Inability to acquire additional licenses may slow the expansion of our network.
We may seek to acquire or manage additional licenses in order to expand our
geographic coverage or to enhance our ability to provide service to our current
target market or to customers we may target in the future. Should we be unable
to acquire additional radio spectrum on favorable terms the development of our
network may be slowed down.
We may be unable to retain or exploit broadband licenses in foreign countries,
and foreign governmental regulation may slow our expansion into those countries.
Entities owned by us have obtained licenses to provide broadband services
in some Western European countries. Moreover, entities owned by us or in which
we have a substantial interest have applied or may apply for such licenses in
various other countries. We may not be able to retain or obtain these licenses.
Additionally, changes in foreign laws and regulations may result in our foreign
licenses being subject to forfeiture or other sanctions. Our inability to retain
or obtain licenses and any acts of foreign authorities which reduce the value of
our existing licenses may result in our inability to successfully expand into
foreign markets.
We may have difficulty managing the expansion of our operations which could
result in increased costs, high employee turnover or damage to customer
relationships.
The implementation of our business plan may result in a period of rapid
growth in the number of our employees and the scope of our operations. Rapid
expansion could place a significant strain on our management, financial and
other resources. We may have difficulty obtaining additional facilities as well
as managing budgeting, forecasting, hiring and other business control issues
presented by such a rapid expansion. This could, among other things, result in
delays in billing and collections of revenue from our customers as well as in
increased costs. Moreover our difficulty in managing the expansion of our
operations may increase employee turnover and adversely affect our relationships
with customers.
Lack of effective "back office" systems may adversely affect the provision of
services, result in customer dissatisfaction or delayed billing or collection of
revenue.
Our billing, provisioning, customer service, network management and other
"back office" systems remain largely undeveloped. Significant development work
by us or a third-party provider will be required to develop such systems.
Delays in developing and implementing such systems may have a negative impact on
our ability to offer our services. Such delays may also result in customer
dissatisfaction, delay billing or collection of revenue.
If we are unable to attract or retain qualified personnel we may experience
difficulty developing our business.
The implementation of our business strategy will require the addition of a
significant number of qualified personnel. Our success will be dependent, in
large part, on our ability to attract and retain qualified technical, marketing,
sales and management personnel. Competition for such personnel is intense,
particularly for those experienced in information technology. We may be unable
to attract and retain additional key employees or retain our current key
employees at a reasonable cost, if at all. The failure to attract and retain
such personnel at reasonable costs could prevent us from implementing all or
some of our business plan.
Equipment failure or interruption of service could adversely affect consumer
confidence and our reputation.
Our operations will require that our network, including leased fiber-optic
connections, operates on a continuous basis. The network and facilities utilized
by us may from time to time experience service interruptions or equipment
failures. Should this occur consumer confidence and our reputation could be
adversely affected.
<PAGE>
We may pursue acquisitions which could disrupt our business and may not yield
the benefits we expect.
We may pursue strategic acquisitions as we expand. Acquisitions may disrupt
our business because we may:
. experience difficulties integrating acquired operations and personnel
into our operations;
. divert resources and management time;
. be unable to maintain uniform standards, controls, procedures and
policies;
. enter markets or businesses in which we have little or no experience;
and
. find that the acquired business does not perform as we expected.
Our existing principal stockholders, executive officers and directors control a
substantial amount of our voting shares and will be able to significantly
influence any matter requiring shareholder approval.
Our officers and directors and parties related to them will control
approximately a significant percent of the voting power of our outstanding
capital stock. Further, holders of our preferred stock representing
approximately 45% of our voting power have agreed to vote as jointly directed by
our stockholders U.S. Telesource, Inc., a wholly owned subsidiary of Qwest, and
Oak Investment Partners. In addition, each of U.S. Telesource and Oak currently
has the right to designate a director. Therefore, the officers and directors and
related parties, particularly U.S. Telesource and Oak, are able to significantly
influence any matter requiring shareholder approval.
