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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 15, 2000
REGISTRATION NO. 333-50026
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1 TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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ALLIED RISER COMMUNICATIONS CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
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DELAWARE 75-2789492
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)
1700 PACIFIC AVENUE, SUITE 400 MICHAEL R. CARPER, ESQ.
DALLAS, TEXAS 75201 SENIOR VICE PRESIDENT AND GENERAL COUNSEL
(214) 210-3000 1700 PACIFIC AVENUE, SUITE 400
(Address, Including Zip Code, and Telephone DALLAS, TEXAS 75201
Number, Including Area Code, of Registrant's (214) 210-3000
Principal Executive Offices) (Name, Address Including Zip Code, and Telephone
Number, Including Area Code, of Agent for Service)
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COPIES TO:
KATHLEEN R. MCLAURIN, ESQ. TIMOTHY J. MELTON, ESQ.
JONES, DAY, REAVIS & POGUE JONES, DAY, REAVIS & POGUE
2727 N. HARWOOD STREET 77 WEST WACKER
DALLAS, TEXAS 75201 CHICAGO, ILLINOIS 60601-1692
(214) 220-3939 (312) 782-3939
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: From time to
time following the effective date of this Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE AGGREGATE PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) PRICE REGISTRATION FEE
--------------------------- ------------ ---------------- ------------------ ----------------
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7.50% Convertible Subordinated Notes
due 2007........................... $150,000,000 100% $150,000,000 $39,600
Common Stock, par value $.0001 per
share, underlying the notes........ 9,759,270 shares(2) (2) (2) (3)
Common Stock, par value $.0001 per
share, which may be issued as
payment-in-kind interest on the
notes.............................. 11,892,000 shares(4) $3.75 $44,595,000 $11,774
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933.
(2) Reflects number of shares of common stock to be issued upon conversion of
the notes based on an initial conversion price of $15.37 per share. In
addition to the shares set forth in the table, the amount to be registered
includes an indeterminate number of shares issuable upon conversion of the
notes, as such amount may be adjusted due to stock splits, stock dividends
and anti-dilution provisions.
(3) Pursuant to Rule 457(i), no additional registration fee is required in
connection with the registration of the registrant's common stock issuable
upon conversion of the notes.
(4) The number of shares of common stock that may be issued as payment-in-kind
interest on the notes was calculated based upon the registrant's estimate
regarding the aggregate amount of interest payments to be paid in the form
of common stock using the average of the reported high and low sales prices
of shares of common stock on the Nasdaq National Market on November 8, 2000.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
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PROSPECTUS
$150,000,000
[ARC Logo]
ALLIED RISER COMMUNICATIONS CORPORATION
7.50% Convertible Subordinated Notes due 2007
and Up to 21,651,270 Shares of Common Stock
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This prospectus relates to the offering of Allied Riser's 7.50% convertible
subordinated notes due 2007, the shares of our common stock issuable upon
conversion of the notes and the shares of common stock that may be issued as
payment-in-kind interest on the notes. The selling security holders may offer
the securities at fixed prices, at prevailing market prices at the time of sale,
at varying prices or negotiated prices. We will not receive any cash proceeds
from sales by the selling security holders of these securities.
o Interest is payable on the notes on each June 15 and December
15, and we may pay interest on the notes in shares of our
common stock if those shares are registered under the
Securities Act.
o Holders may convert the notes into our common stock at any
time before June 15, 2007, or the earlier redemption or
repurchase of the notes, at a conversion rate of 65.0618
shares per each $1,000 principal amount of the notes, subject
to adjustment in certain circumstances.
o On or after the third business day following June 15, 2004, we
may redeem any or all of the notes at the redemption prices
listed in this prospectus, plus accrued interest.
o There is currently no established market for trading in the
notes. Our common stock is listed on the Nasdaq National
Market under the symbol "ARCC."
o On December 14, 2000, the last reported sale price of our
common stock was $1.875.
See "Risk Factors" beginning on page 8 of this prospectus to read about
important factors you should consider before buying the securities.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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The date of this prospectus is December 15, 2000.
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TABLE OF CONTENTS
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Page
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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS...................................................................3
WHERE YOU CAN GET MORE INFORMATION................................................................................3
SUMMARY...........................................................................................................5
The Securities...........................................................................................6
Risk Factors.............................................................................................7
RISK FACTORS......................................................................................................8
USE OF PROCEEDS..................................................................................................16
SELLING SECURITY HOLDERS.........................................................................................16
DEFICIENCY OF EARNINGS TO FIXED CHARGES..........................................................................18
DESCRIPTION OF CAPITAL STOCK.....................................................................................19
Common stock............................................................................................19
Preferred stock.........................................................................................19
Warrants................................................................................................19
Options.................................................................................................19
Registration rights.....................................................................................20
Anti-takeover provisions................................................................................20
Transfer agent and registrar............................................................................21
Listing.................................................................................................21
DESCRIPTION OF CONVERTIBLE NOTES.................................................................................22
General.................................................................................................22
Form, denomination, transfer, exchange and book-entry procedures........................................22
Conversion rights.......................................................................................24
Subordination...........................................................................................26
Optional redemption.....................................................................................28
Payment and conversion..................................................................................29
Repurchase at option of holders upon a change in control................................................30
Mergers and sales of assets.............................................................................32
Events of default.......................................................................................32
Meetings, modification and waiver.......................................................................34
Notices.................................................................................................35
Replacement of notes....................................................................................35
Payment of stamp and other taxes........................................................................35
Governing law...........................................................................................35
The trustee.............................................................................................35
IMPORTANT UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS........................................................36
PLAN OF DISTRIBUTION.............................................................................................40
LEGAL MATTERS....................................................................................................41
EXPERTS..........................................................................................................41
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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act") and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), that involve risks and uncertainties, such as
statements concerning: growth and future operating results; discovery and
development of products; developments in our markets and strategic focus; new
products; potential acquisitions and the integration of acquired businesses,
products and technologies; strategic alliances; intellectual property; our
manufacturing, marketing, sales and distribution capabilities; and future
economic, business and regulatory conditions. Although we believe these
forward-looking statements are reasonable, we cannot assure you that these
expectations will prove to be correct. Important factors that could cause actual
results to differ materially from these expectations are disclosed in this
prospectus, including the "Risk Factors" beginning on page 8. These factors and
other cautionary statements made in this prospectus should be read as being
applicable to all related forward-looking statements whenever they appear in
this prospectus. We do not undertake any obligation to update any
forward-looking statements.
WHERE YOU CAN GET MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission, or SEC. You may
read and copy any document we file at the SEC's public reference rooms in
Washington, D.C., New York, New York and Chicago, Illinois. Please call the SEC
at 1-800-SEC-0330 for further information on the public reference rooms. Our SEC
filings are also available at the SEC's Web site at www.sec.gov. However,
information on that Web site does not constitute a part of this prospectus. Our
common stock is quoted on the Nasdaq National Market under the symbol "ARCC",
and you can obtain information about us through their offices at Nasdaq
Operations, 1735 K Street, N.W., Washington D.C. 20006.
The SEC allows us to incorporate by reference the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and information that we file later
with the SEC will automatically update and supersede the information in this
prospectus. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this prospectus.
Accordingly, we incorporate by reference the documents listed below and any
future filings we make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of
the Exchange Act until the registration statement of which this prospectus forms
a part is no longer effective:
o Our Annual Report on Form 10-K for the year ended December 31,
1999;
o Our Proxy Statement, dated May 3, 2000 filed with the
Commission in definitive form on May 11, 2000 with respect to
the information required by Items 401 (management), 402
(executive compensation), 403 (securities ownership) and 404
(certain relationships and related transactions) of Regulation
S-K promulgated under the Securities Act of 1933 and the
Securities Exchange Act of 1934;
o Our Quarterly Report on Form 10-Q for the quarter ended March
31, 2000, as amended by Form 10-Q/A dated November 9, 2000;
o Our Quarterly Report on Form 10-Q for the quarter ended June
30, 2000, as amended by Form 10-Q/A dated November 9, 2000;
o Our Quarterly Report on Form 10-Q for the quarter ended
September 30, 2000;
o Our Current Reports on Form 8-K, dated September 20, 2000 and
October 16, 2000; and
o The description of our common stock contained in our
registration statement on Form 8-A filed with the SEC on
October 25, 1999 (File No. 000-30298).
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You may obtain a copy of these filings (other than exhibits which are
not expressly incorporated into this prospectus), at no cost, by writing or
telephoning us at the following address: Corporate Secretary, Allied Riser
Communications Corporation, 1700 Pacific Avenue, Suite 400, Dallas, Texas 75201,
Telephone (214) 210-3000. You should rely only on the information incorporated
by reference or provided in this prospectus or any prospectus supplement. We
have not authorized anyone else to provide you with different information. These
securities are only being offered in states where the offer is permitted. You
should not assume the information in this prospectus or any applicable
prospectus supplement is accurate and complete as of any time after its date.
If at any time during the two-year period following the date of
original issue of the notes we are not subject to the information requirements
of Section 13 or 15(d) of the Exchange Act, we will furnish to holders of the
notes, holders of our common stock issued upon conversion of the notes and
prospective purchasers of those securities the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act in order to
permit compliance with Rule 144A in connection with resales of the notes and the
common stock issued on conversion of the notes.
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SUMMARY
This summary highlights basic information about us and the securities
offered by the selling security holders, but does not contain all information
important to you. You should read the more detailed information and the
consolidated financial statements and related notes appearing elsewhere in this
prospectus.
We are a facilities-based provider of broadband data, video and voice
communications services to small-and-medium-sized businesses within facilities
operating or constructed in 54 major metropolitan areas in North America
(including Canada). We typically deliver our services over our network that we
design, construct, own and operate inside large-and-medium-sized office
buildings. Today, over this infrastructure, we offer ultra high-speed Internet
access and other broadband data services. Broadband data services are services
that are enabled by high-speed dedicated data transmission capacity. We have the
capability to provide services using wireless, optical and copper-based
technologies. As of September 30, 2000, we had our broadband data network
operating or constructed inside more than 750 office buildings with more than
280 million rentable square feet. We have agreements with building owners to
install and operate our network in more than 1,475 office buildings with more
than 450 million rentable square feet in North America.
Internet access services, which we provide using our broadband data
network, enable a direct connection to the Internet at speeds up to 175 times
faster than standard dial-up services and are always-on. We believe that our
service offers a combination of price and performance to our target customers
that is superior to competing offerings. Our business-oriented television is the
first of many additional connectivity services and broadband-enabled
applications and content that we intend to offer using our network. We intend to
take advantage of our growing market presence and brand by also offering similar
broadband services to our customers' branch offices and other businesses located
in buildings in which we have not installed our network.
We use our in-building broadband data network to transmit data to and
from each of our customers at speeds up to ten million bits of data per second.
Using commercially available equipment in buildings where we have installed
fiber-optic equipment, we can increase this transmission speed to one billion
bits of data per second. We connect each building network to a central facility
in each metropolitan area, usually over lines we lease from other carriers. At
this metropolitan hub, we aggregate and disseminate network traffic for Internet
connectivity and our other broadband services.
Since our inception in December 1996, our principal activities have
included developing our business plan, raising capital and debt, hiring
management and other key personnel, designing and developing our network inside
buildings, acquiring equipment and facilities, entering into agreements with
building owners and real estate managers and beginning the deployment of our
network. In September 1997, we began installing our network, and we began
operating our first in-building network in January 1998.
To rapidly establish a strong position in the markets we target, we
have heavily invested in our network. We incur costs in the design and
installation of our in-building infrastructure, which is typically installed
within a secure conduit located in the building's riser, which is the building's
vertical utility shaft. We also invest in electronic equipment that is needed to
connect our network to the Internet. We have incurred significant costs and
expect to incur additional costs building and refining our operational support
systems, which to date have included the purchase and implementation of software
to facilitate customer acquisition, billing, collections, and network
management.
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THE SECURITIES
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Securities offered............................ $150,000,000 principal amount of 7.50% convertible subordinated notes
due 2007.
Interest...................................... Interest on the notes is payable semiannually on June 15 and December
15 of each year, commencing December 15, 2000. We may, at our option,
pay interest on the notes in shares of our common stock that have been
registered under the Securities Act. If we elect to pay interest in
shares of our common stock, the number of shares to be distributed
will be calculated by dividing the amount of the interest otherwise
payable in cash by 95% of the average of the closing prices of our
common stock for the five trading days preceding the interest payment
date. See "Description of Convertible Notes--Payment and conversion."
Conversion.................................... You may convert your notes into shares of our common stock at the rate
of 65.0618 shares of common stock per $1,000 principal amount of
notes. This conversion rate is equivalent to a conversion price of
approximately $15.37 per share. The conversion rate may be adjusted in
certain circumstances. See "Description of Convertible
Notes--Conversion rights."
You will be able to convert the notes at any time before the close of
business on June 15, 2007. If, prior to that date, we notify you that
we intend to redeem or repurchase your notes, you will still be able
to convert your notes up to and including the close of business on the
day immediately preceding the date fixed for redemption or repurchase.
See "Description of Convertible Notes--Conversion rights."
Subordination................................. The notes are subordinated to any present and future senior debt that
we may incur. The notes are also effectively subordinated to all
indebtedness and other liabilities of our subsidiaries. As of
September 15, 2000, other than capital lease obligations, we and our
subsidiaries had no indebtedness for borrowed money outstanding. The
indenture under which the notes will be issued will not prevent us
from incurring senior debt nor will it prevent our subsidiaries from
incurring any indebtedness or liabilities. See "Description of
Convertible Notes--Subordination."
Optional redemption by us..................... Starting on the third business day after June 15, 2004, we may redeem
some or all of your notes plus accrued and unpaid interest up to, but
excluding, the redemption date. See "Description of Convertible
Notes--Optional redemption."
Repurchase at your option if we have a change
in control.................................... If we experience a change in control, you will have the right, subject
to certain conditions and restrictions, to require us to repurchase
some or all of your notes at a price equal to 100% of the principal
amount, plus accrued and unpaid interest up to, but excluding, the
repurchase date. The repurchase price is payable in cash or, at our
option, but subject to certain conditions, in shares of our common
stock that have been registered under the Securities Act, valued at
95% of the average of the closing prices of our common stock for the
20 consecutive trading days
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preceding and including the third trading day prior to the repurchase
date. See "Description of Convertible Notes--Repurchase at option of
holders upon a change of control."
Events of Default............................. Events of default include:
o we fail to pay principal of or premium, if any, on any note
when due, whether or not prohibited by the subordination
provisions of the indenture;
o we fail to pay any interest on any note when due, which
failure continues for 30 days, whether or not prohibited by
the subordination provisions of the indenture;
o we fail to provide notice of a change in control, whether or
not such notice is prohibited by the subordination
provisions of the indenture;
o we fail to perform any other covenant in the indenture,
which failure continues for 60 days after written notice as
provided in the indenture;
o any indebtedness under any bonds, debentures, notes or other
evidences of indebtedness for money borrowed, or any
guarantee thereto, by us or any of our significant
subsidiaries in an aggregate principal amount in excess of
$25.0 million is not paid when due either at its stated
maturity or upon acceleration thereof, and such indebtedness
is not discharged, or such acceleration is not rescinded or
annulled, within a period of 30 days after notice as
provided in the indenture; or
o certain events of bankruptcy, insolvency or reorganization
involving us or any of our significant subsidiaries.
Nasdaq symbol for our common stock............ ARCC
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RISK FACTORS
You should read the "Risk Factors" section, beginning on page 8, as
well as the other cautionary statements, risks and uncertainties described or
incorporated in this prospectus, so that you understand the risks associated
with an investment in the securities.
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Our principal executive offices are located at 1700 Pacific Avenue,
Suite 400, Dallas, Texas 75201 and our phone number is (214) 210-3000.
Each trademark, trade name or service mark of any other company
appearing in this prospectus belongs to its holder.
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RISK FACTORS
You should carefully consider the risks described below and the other
information in this prospectus before deciding to invest in the notes and our
common stock.
WE HAVE EXPERIENCED INCREASING NEGATIVE EBITDA, OPERATING LOSSES AND NET LOSSES,
WHICH WILL CONTINUE.
We may not achieve or sustain positive EBITDA, operating income or net
income in the future. Since our formation, we have generated increasing negative
EBITDA, and larger operating losses and net losses each quarter. We have not
achieved profitability and expect to continue to incur increasing negative
EBITDA, operating losses and net losses in 2000 and for the foreseeable future.
For 1999, we had negative EBITDA of $41,095,000, an operating loss of
$60,777,000 and a net loss of $57,488,000 on revenues of $1,870,000. For the
nine months ended September 30, 2000, we had negative EBITDA of $102,178,000, an
operating loss of $137,475,000 and a net loss of $128,310,000 on revenues of
$7,733,000.
In addition, we expect to continue to incur significant development
costs and, as a result, we will need to generate significant revenue to achieve
profitability, which may not occur.
WE HAVE AN UNPROVEN BUSINESS MODEL WHICH COULD FAIL.
During the third quarter, we announced a phased business plan that
allows for a more managed and measured deployment and utilization of our
network, direct sales force, application products and services, and customer
support infrastructure. Implementation of this revised plan includes reducing
expenses and the number of employees. As a part of this phased business plan we
are approaching our initial network installation and technology choice in each
building, as well as network enhancements, on a more demand-driven model. Our
new business plan is in its preliminary stages and we cannot predict that
implementation of our business plan will be successful or that our business plan
will not be further modified. We are not aware of any company that has achieved
positive EBITDA, operating income or net income by executing a business plan
similar to our new business plan. We will make considerable capital expenditures
in deploying our networks before we know whether our new business plan can be
successfully executed. As a result, there is a risk that our business will fail.
WE ARE A START-UP COMPANY AND IF WE DO NOT GROW VERY RAPIDLY WE WILL NOT
SUCCEED.
We began operating our first fiber-optic network in January 1998 and we
must grow very rapidly to succeed. Because the communications industry is
capital intensive, rapidly evolving and prone to significant economies of scale,
as a relatively small organization we are at a competitive disadvantage. The
growth we must achieve to reduce that disadvantage will put a significant strain
on all of our resources. If we fail to grow rapidly, our ability to compete with
larger, more well established companies will be substantially reduced.
WE MAY NEED ADDITIONAL CAPITAL.
We estimate that our cash on hand and our capital lease facilities,
will be sufficient to fund our operations and the projected deployment of the
first phase of our network, although there can be no assurances in this regard,
particularly if we make acquisitions for cash. We expect that the first phase of
our revised network deployment should be completed by 2004. We do, however,
expect to continue our growth, expansion and the further development of our
network and services beyond that point. We have no commitments for any
additional financing, and we cannot be sure that we will be able to obtain any
such additional financing at the times required and on terms and conditions
acceptable to us. In the event we need additional financing and cannot obtain
additional financing, our growth could slow and operations could be adversely
affected.
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THE SECTOR IN WHICH WE OPERATE IS HIGHLY COMPETITIVE, AND WE MAY NOT BE ABLE TO
COMPETE EFFECTIVELY.
We face competition from many entities with significantly greater
financial resources, well-established brand names and larger customer bases. The
numerous companies that may seek to enter our niche may expose us to severe
price competition for our services or for building access rights. We expect
competition to intensify in the future. We expect significant competition from
traditional and new telecommunications companies, including local, long
distance, cable modem, Internet, digital subscriber line, microwave, mobile and
satellite data service providers. If these potential competitors successfully
focus on our niche, there may be intense price competition which could impede
our ability to become profitable.
IN-BUILDING COMPETITORS. Some competitors, such as Cypress
Communications, OnSite Access, Broadband Office, Intermedia Communications,
EZIAZ, RCN, XO Communications, Winstar, Teligent and Advanced Radio Telecom are
attempting to gain access to office buildings in our target markets. Some of
these competitors have sought to develop favorable relationships with building
owners. To the extent these competitors are successful, we may face difficulties
in building our networks and marketing our services within some of our target
buildings. Our agreements to use vertical utility shafts within buildings are
not exclusive. An owner of any of the buildings we have rights to install a
network in could also give similar rights to one or more of our competitors.
Certain competitors already have rights to install networks in some of the
buildings in which we have rights. It will take a substantial amount of time for
us to build networks in all the buildings where we obtain rights to do so. Each
building in which we have not built a network is particularly vulnerable to
competitors. It is not clear whether it will be profitable for two or more
different companies to operate broadband networks within the same building.
Therefore, it is critical that we build our networks in additional buildings
quickly. Once we have done so, if a competitor installs a network in the same
building, it is likely that there will be substantial price competition.
LOCAL TELEPHONE COMPANIES. Incumbent local telephone companies have
several competitive strengths which may place us at a competitive disadvantage.
These competitive strengths include:
o an established brand name and reputation;
o significant capital to deploy fiber-optic equipment rapidly;
o ability to offer higher-speed data services through digital
subscriber line technology;
o their own inter-building connections; and
o ability to bundle digital data services with their voice
services to achieve economies of scale in servicing customers.
Competitive local telephone companies often have broadband
inter-building connections, market their services to tenants of large- and
medium-sized buildings and selectively build in-building facilities.
LONG DISTANCE COMPANIES. We will face strong competition from long
distance companies. Many of the leading long distance carriers, including AT&T,
WorldCom and Sprint, are expanding their capabilities to support high-speed,
end-to-end data networking services, and could begin to build their own
in-building networks. The newer national long distance carriers, such as Qwest,
Level 3, Williams Communications and BroadWing are building and managing
high-speed fiber-based national data networks, partnering with Internet service
providers, and may extend their networks by installing in-building fiber-optic
cables.
FIXED WIRELESS SERVICE PROVIDERS. We may lose potential customers to
fixed wireless service providers. Fixed wireless service providers can provide
high speed inter-building communications services using microwave facilities,
satellite earth stations or other facilities on building rooftops. Some of these
providers have targeted small- and medium-sized-business customers and have a
business strategy that is similar to ours. These providers include Winstar,
Teligent, Advanced Radio Telecom, Sprint and WorldCom.
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INTERNET, DIGITAL SUBSCRIBER LINE AND CABLE MODEM SERVICE PROVIDERS.
The services provided by Internet service providers and cable modem service
providers can be used by our potential customers instead of our services.
Internet service providers, such as Genuity, formerly GTE Internetworking,
UUNET, a subsidiary of WorldCom, Sprint, Concentric Networks, Prodigy,
EarthLink, Verio and PSINet, provide Internet access to residential and business
customers, generally using the existing communications infrastructure. Digital
subscriber line companies and/or their Internet service provider customers, such
as Covad, Rhythms NetConnections, NorthPoint and Network Access Solutions,
typically provide broadband Internet access. Cable modem service providers, such
as Excite@Home and its @Work subsidiary, Road Runner, RCN and High Speed Access,
also provide broadband Internet access. On-line service providers, such as
America Online, Compuserve, Microsoft Network and WebTV, provide Internet
connectivity, ease-of-use and a stable environment for modem connections.
WE MUST OBTAIN ADDITIONAL AGREEMENTS WITH BUILDING OWNERS OR OUR GROWTH WILL BE
CONSTRAINED.
Our business depends upon our ability to install in-building networks.
The failure of building owners to grant or renew access rights on acceptable
terms could substantially reduce our potential customer base. Current federal
and most state laws and regulations do not require building owners to make space
available to us, or to do so on terms that are reasonable or nondiscriminatory.
While many building owners recently made commitments to the FCC regarding
nonexclusive, nondiscriminatory telecommunications access arrangements, building
owners may decide not to permit us to install our networks in their buildings.
In addition, building owners may elect not to renew our access agreements which
typically have terms of ten or more years. Non-renewal of these agreements would
cause losses resulting from the removal or sale of our infrastructure in these
buildings and would reduce our revenues.
WE MUST INSTALL NETWORKS IN ADDITIONAL BUILDINGS BEFORE OUR COMPETITORS DO OR WE
MAY FACE A COMPETITIVE DISADVANTAGE.
Our success depends upon our ability to quickly install our in-building
networks in additional buildings. This is crucial in order to establish a
first-mover advantage. We may not be able to accomplish this objective. Each
building in which we have not built a network is particularly vulnerable to
competitors. Future expansions and adaptations of our network infrastructure may
be necessary to respond to growth in the number of customers served, increased
capacity demands and changes to our services. The expansion and adaptation of
our in-building networks will require substantial financial, operational and
managerial resources. Our phased business plan may affect our ability to
accomplish these objectives. Our failure to rapidly deploy, expand and adapt
our networks to changing conditions could make it difficult to increase and
retain our customer base, which would reduce our revenues and impede our growth.
WE MUST PURCHASE CAPACITY FROM THIRD PARTIES WHO MAY BE UNABLE OR UNWILLING TO
MEET OUR REQUIREMENTS.
We construct in-building networks and generally rely on other
communications carriers to provide transmission capacity outside the buildings.
Our failure to obtain adequate connections from other carriers on a timely basis
could delay or impede our ability to provide services and generate revenue.
We have experienced, and expect to continue to experience, delays in
obtaining transmission capacity. In addition, in some of our target markets
there is only one established carrier available to provide the necessary
connection. This increases our cost and makes it extremely difficult, if not
impossible, to obtain redundant connections. Sufficient capacity or redundant
capacity may not be readily available from third parties at commercially
reasonable rates, if at all. Our failure to obtain sufficient redundant
connectivity could result in an inability to provide service in certain
buildings and service interruptions, which could in time lead to loss of
customers and damage to our reputation.
THERE MIGHT NOT BE SUFFICIENT DEMAND FOR OUR SERVICES.
Demand for broadband services has grown rapidly, and this market is
characterized by rapidly changing technology, evolving industry standards and
frequent new service introductions.
If the commercial market for Internet access and other broadband
services develops more slowly than expected or if the Internet services that we
offer are not broadly accepted, our revenues will not grow as quickly as
necessary to achieve or sustain profitability.
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<PAGE> 12
Demand and market acceptance for recently introduced services in this
industry are subject to a high level of uncertainty.
In addition, critical issues concerning the commercial use of services
requiring broadband capabilities remain unresolved and may impact the growth of
these services. Historically, some businesses have been reluctant to purchase
broadband services, such as high-speed Internet access, for a number of reasons,
including:
o resistance to the use of the Internet in business
applications;
o inconsistent quality of service;
o lack of available cost-effective, high-speed options;
o the need to deal with multiple and frequently incompatible
vendors;
o inadequate security for stored or transmitted data;
o lack of networking tools to simplify Internet access and use;
and
o lack of high-speed application requirements.
Capacity constraints caused by heavy use of the Internet may impede
further development to the extent that users experience delays, transmission
errors and other difficulties. Further, enterprises that have already invested
substantial resources in other methods may be particularly reluctant or slow to
adopt a new strategy.
ALTERNATIVE TECHNOLOGIES POSE COMPETITIVE THREATS.
There are other technologies that provide more capacity and speed than
dial-up connections and can be used instead of our fiber-optic services.
Furthermore, these technologies may be improved and other new technologies may
develop that provide more capacity and speed than the fiber-optic technology we
typically employ. Existing alternative technologies include:
o DIGITAL SUBSCRIBER LINE TECHNOLOGY. Digital subscriber line
technology was developed to produce higher data transfer
rates over the existing copper-based telephone network. The
data transfer rates for digital subscriber lines are reported
to range between 144 thousand bits of data per second and six
million bits of data per second. Digital subscriber line
technology has been substantially improved in recent years.
o CABLE MODEMS. Cable modems can allow users to send and receive
data using cable television distribution systems. According to
industry sources, cable modem users typically experience
download speeds of 1.5 million bits of data per second.
o WIRELESS TECHNOLOGIES. Wireless technologies, such as
satellite and microwave communications systems, can provide
high-speed data communications. Satellite systems, such as
DirecPC, can offer high download speeds that are advertised at
400 thousand bits of data per second. Wireless point-to-point
and point-to-multipoint systems are advertised to offer data
transfer rates at 56 thousand to 45 million bits of data per
second or more in some areas.
o INTEGRATED SERVICES DIGITAL NETWORKS. Integrated services
digital networks have been offered by the incumbent local
telephone companies over the existing copper-based telephone
network for some time. These services offer data transfer
speeds of 128 thousand bits of data per second.
The development of new technologies or the significant penetration of
alternative technologies into our target market may reduce the demand for our
services and consequently could have a material adverse effect on our results of
operations.
WE MUST MAKE SIGNIFICANT CAPITAL EXPENDITURES BEFORE GENERATING REVENUE, WHICH
MAY PROVE INSUFFICIENT TO JUSTIFY THOSE EXPENDITURES.
When we install an in-building network, we incur significant initial
expenditures. If we fail to attract enough customers within each office
building, our capital expenditures in that building will be underutilized. These
expenditures vary depending on the size of the building and whether we encounter
any construction-related
11
<PAGE> 13
difficulties. In addition, we typically install an in-building network before we
have any customers in that building. Since we generally do not solicit customers
within a building until our network is in place, and since our costs can vary,
we may not be able to recoup our expenditures within any building.
OUR BUSINESS MAY BE HARMED IF OUR BILLING, CUSTOMER SERVICE AND INFORMATION
SUPPORT SYSTEMS ARE NOT FURTHER DEVELOPED.
Sophisticated information processing systems are vital to our growth
and our ability to achieve operating efficiencies. A failure of these systems
could substantially impair our ability to provide services, send invoices, and
monitor our operations. We have incurred and expect to incur significant
additional costs building and refining our operational support systems, which to
date have included the purchase and implementation of software to facilitate
customer acquisition, billing, collections, and network management.
Our plans for the development and implementation of these systems rely,
for the most part, on acquiring products and services offered by third-party
vendors and integrating those products and services. We may be unable to
implement these systems on a timely basis or at all, and these systems may not
perform as expected. We may also be unable to maintain and upgrade our
operational support systems as necessary.
We are also dependent on the systems of our network capacity providers,
and, in some cases, on the interface between our systems and those of our
providers. Therefore, any systems failures experienced by our suppliers could
also have similar adverse effects on our systems.
OUR NETWORKS MAY BE VULNERABLE TO UNAUTHORIZED ACCESS WHICH COULD INTERFERE WITH
THE PROVISION OF OUR SERVICES.
Our network may be vulnerable to unauthorized access, computer viruses
and other disruptive problems. Remediating the effects of computer viruses and
alleviating other security problems may require interruptions, incurrence of
costs and delays or cessation of service to our customers. Other companies have
experienced interruptions in service as a result of the accidental or
intentional actions of Internet users, current and former employees or others.
Unauthorized access could jeopardize the security of confidential information
stored in our computer systems or those of our customers. Although we intend to
continue to implement industry-standard and other security measures, such
measures at other companies have been circumvented in the past and may be
circumvented on our systems in the future. These risks could have a material
adverse effect on our ability to provide services.
WE MUST ATTRACT AND RETAIN KEY PERSONNEL IN A TIGHT LABOR MARKET OR WE WILL BE
UNABLE TO MANAGE OUR GROWTH.
There currently is intense competition for personnel with the
qualifications we require. The loss of the services of key personnel or the
failure to attract additional personnel as required could have a material
adverse effect on our ability to grow and on the price of our common stock. We
are highly dependent upon the efforts of our existing senior management team.
Although we have entered into employment agreements with members of our senior
management team, these agreements do not obligate the employees to remain with
us for any length of time. We believe that our future success will depend in
large part on our ability to attract and retain qualified technical and sales
personnel.
LEGISLATION AND GOVERNMENT REGULATION COULD ADVERSELY AFFECT US.
Changes in the regulatory environment could affect our operating
results by increasing competition, decreasing revenue, increasing costs or
impairing our ability to offer services. The provision of basic
telecommunications services is subject to significant regulation at the federal
and state level. The Federal Communications Commission regulates
telecommunications carriers providing interstate and international common
carrier services. State public utilities commissions exercise jurisdiction over
intrastate basic telecommunications services but do not regulate most enhanced
services, which involve more than the pure
12
<PAGE> 14
transmission of customer provided information. Many of our competitors and
vendors, especially incumbent local telephone companies, are subject to federal
and state regulations. These regulations change from time to time in ways that
are difficult for us to predict. Although we believe the services we provide
today are not subject to substantial regulation by the FCC or the state public
utilities commissions, changes in regulation or new legislation may increase the
regulation of our current services. In addition, a regulatory body may seek to
apply telecommunications regulations to our enhanced services.
IF WE DECIDE TO PROVIDE VOICE AND OTHER BASIC TELECOMMUNICATIONS
SERVICES WE MAY BE UNABLE TO SUCCESSFULLY RESPOND TO REGULATORY CHANGES. We will
become subject to regulation by the FCC and state agencies in the event we
decide to offer non-enhanced voice and other basic telecommunications services.
Complying with these regulatory requirements may be costly. Through
subsidiaries, we are in the process of applying for, and in some states have
received, authority from state regulatory commissions and the FCC to provide
basic telecommunications services, such as voice telephony service. These
subsidiaries will be subject to direct federal and state regulation upon
approval of their respective applications. The regulations that apply to basic
telecommunications services change from time to time and such changes may have
adverse effects on our business.
REGULATION OF ACCESS TO OFFICE BUILDINGS COULD NEGATIVELY AFFECT OUR
BUSINESS. Several states require that commercial office buildings give access to
competitive providers of telecommunications services on nondiscriminatory terms,
and such legislative or regulatory proposals have been made at the federal level
and in other states. If these proposals are adopted and regulatory or legal
requirements change access rights to our target buildings or our network, these
requirements will facilitate our competitors' entry into buildings where we have
access rights, which in turn will diminish the value of our access rights and
adversely affect our competitive position. The FCC recently issued an order in a
regulatory proceeding relating to riser access in multiple tenant buildings
stating its general preference that building owners give access to providers on
a non-discriminatory and non-exclusive basis. However, the FCC declined at that
time to adopt rules mandating building access, but is considering additional
actions in an on-going phase of this proceeding. In addition, this order, among
other things, prohibited telecommunications carriers from entering into
exclusive building access agreements and required utilities to give
nondiscriminatory access to conduits and rights-of-way in customer buildings and
campuses. Bills have also been introduced in Congress regarding the same topic
but Congress has yet to act.
AS AN INTERNET ACCESS PROVIDER, WE MAY INCUR LIABILITY FOR INFORMATION
DISSEMINATED THROUGH OUR NETWORK. The law relating to the liability of Internet
access providers and on-line services companies for information carried on or
disseminated through their networks is unsettled. Although we have not been sued
for information carried on our network, it is possible that we could be in the
future. Federal and state statutes have been directed at imposing liability on
Internet service providers for aspects of content carried on their networks.
There may be new legislation and court decisions that may affect our services
and expose us to potential liability.
As the law in this area develops, the potential imposition of liability
upon us for information carried on and disseminated through our network could
require us to implement measures to reduce our exposure to such liability. The
implementation of these measures may require the expenditure of substantial
resources or the discontinuation of certain products or service offerings. Any
costs that are incurred as a result of these measures or the imposition of
liability could have a material adverse effect on our operating expenses and our
liquidity.
WE COULD BE SUBJECT TO FOREIGN REGULATION THAT NEGATIVELY AFFECTS OUR
BUSINESS. We have agreements with building owners giving us rights to construct
networks in buildings located in certain countries outside the United States. We
may construct networks, offer services or acquire additional network rights or
operations in foreign countries. Foreign governments have various laws and
regulations that would be applicable to building access agreements, our services
and rates, interconnection agreements, operations and services of our
competitors, and other aspects of our business. These laws and regulations vary
from country to country, and may have a material adverse affect on our business
in a country.
RETAINED CONTROL BY OUR PRINCIPAL STOCKHOLDERS MAY CREATE CONFLICTS OF INTEREST.
The concentration of ownership of our common stock may have the effect
of delaying, deferring or preventing a change in control, merger, consolidation
or a tender offer which could involve a premium over the price of our common
stock. As of October 31, 2000, our officers, directors and
greater-than-five-percent stockholders and their affiliates, in the aggregate,
beneficially owned approximately 45.9% of the outstanding common stock.
13
<PAGE> 15
MEMBERS OF OUR BOARD SERVE ON THE BOARDS OF OUR POTENTIAL COMPETITORS, WHICH MAY
CREATE CONFLICTS OF INTEREST.
Members of our board of directors also serve as officers or directors
of other telecommunications or Internet services companies. To the extent that
any of these companies presently offer, or at some future point begin to offer,
services having characteristics similar to those offered by us, there may be
conflicts of interest between the fiduciary duties owed by these individuals to
us and the duties owed to these other companies. We have not adopted specific
policy guidelines to address these potential conflicts of interest and if these
conflicts of interest arise, they may be resolved on terms that are not in the
best interests of all of our stockholders.
THE MARKET PRICE OF OUR STOCK HAS BEEN AND WILL LIKELY CONTINUE TO BE VOLATILE.
The stock market generally and the market for technology stocks in
particular have experienced significant price and volume fluctuations, which
often have been unrelated or disproportionate to the operating performance of
these companies. From October 29, 1999, the date on which our common stock began
trading on the Nasdaq National Market, through October 31, 2000, the price of
our common stock has ranged from $2.69 to $48.75. The market for our common
stock likely will continue to be subject to similar fluctuations. Many factors
could cause the trading price of our common stock to fluctuate substantially,
including the following:
o future announcements concerning our business, customers or
competitors;
o variations in our operating results;
o announcements of technological innovations;
o the introduction of new products or changes in product pricing
policies by us or our competitors;
o changes in earnings estimates by securities analysts or
announcements of operating results that are not aligned with
the expectations of analysts and investors;
o the economic and competitive conditions in the industries in
which our customers operate; and
o general stock market trends.
ANTI-TAKEOVER PROVISIONS COULD PREVENT OR DELAY A CHANGE OF CONTROL.
Provisions of our amended and restated certificate of incorporation and
amended and restated bylaws and Delaware law could make it more difficult for a
third party to acquire us, even if doing so would be beneficial to our
stockholders. These provisions include:
o the ability of our board of directors to issue preferred stock
without any further approval being required from our
stockholders;
o the "staggered" nature of our board of directors which results
in directors being elected for terms of three years; and
o the requirement that stockholders provide us with advance
notice of proposed actions.
These provisions may have the effect of delaying, deferring or
preventing a change in our control or impeding a merger, consolidation, takeover
or other business combination, which in turn could preclude our stockholders
from recognizing a premium over the prevailing market price of our common stock.
IMPAIRMENT OF OUR INTELLECTUAL PROPERTY RIGHTS COULD HARM OUR BUSINESS.
Other than our ARC logo, which has been granted federal protection, we
have not been awarded any trademark registrations, and are relying upon our
common law rights. It is possible that other entities may
14
<PAGE> 16
challenge our registration and use of these trademarks based on a claim of
superior rights, dilution or otherwise. These challenges, if successful, could
preclude us from registering and even using our trademarks, in which case the
expense of developing new trademarks and resulting loss of product
identification and goodwill could have a material adverse effect on our net
income (loss) and our brand awareness.
THERE MAY BE NO PUBLIC MARKET FOR THE NOTES.
There is no established trading market for the notes. We cannot assure
you that any market for the notes will develop or, if it does develop, that it
will be maintained. Various factors could have a material adverse effect on the
trading price of the notes, if any, including the failure of an active market to
develop, fluctuations in the prevailing interest rates, changes in the market
for convertible securities, our operating results and changes in the market
price of our common stock.
WE MAY BE UNABLE TO REPAY OR REPURCHASE THE NOTES.
There is no sinking fund with respect to the notes, and at maturity the
entire outstanding principal amount of the notes will become due and payable. If
we experience a change in control, you may require us to repurchase all or a
portion of your notes prior to maturity. See "Description of convertible notes
-- Repurchase at option of holders upon a change in control". We cannot assure
you that we will have sufficient funds or will be able to arrange for additional
financing to repay the notes at maturity or to repurchase notes tendered to us
following a change in control. Under the terms of the notes indenture, we may
elect, subject to certain conditions, to pay the repurchase price with shares
our of common stock.
Borrowing arrangements or agreements relating to senior debt to which
we become a party may contain restrictions on or prohibitions against our
repurchase of the notes. If we are prohibited from repurchasing the notes and
cannot obtain the necessary waivers or refinance the applicable borrowings, we
will be unable to repurchase the notes. Our failure to repurchase any tendered
notes or notes due upon maturity would constitute an event of default of the
notes and, upon acceleration of the notes in accordance with the indenture,
would cause a default under the terms of any senior debt. In this type of
situation, unless we were able to obtain a waiver, the subordination provisions
of the notes indenture would prohibit any repurchase of the notes until we pay
in full the senior debt.
THE NOTES WILL BE SUBORDINATED TO OTHER DEBT.
We may be required to repay senior debt and indebtedness of our
subsidiaries before we can repay the notes. As of October 31, 2000, other than
capital lease obligations and the notes, we and our subsidiaries had no
indebtedness for borrowed money outstanding. However, the notes indenture does
not prevent us or our subsidiaries from incurring additional debt. If we are
party to a bankruptcy, liquidation or reorganization, or if we default on any
senior debt, our assets will be used to satisfy the holders of our senior debt
before we will be able to make additional payments on the notes. Further, the
assets of each of our subsidiaries must be used to satisfy the holders of that
subsidiary's indebtedness before we can use that subsidiary's assets to make
payments on the notes.
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<PAGE> 17
USE OF PROCEEDS
All sales of the notes or the common stock issuable upon conversion of
the notes and the common stock that may be issued as payment-in-kind interest
under the terms of the notes will be by or for the account of the selling
security holders listed in the following section of this prospectus. We will not
receive cash proceeds from any of these sales.
SELLING SECURITY HOLDERS
All of the notes and any shares of common stock issued upon conversion
of the notes or as payment-in-kind interest are being offered by the selling
security holders listed in the table below. Only those shares of common stock
issued upon conversion of the notes or issued as payment-in-kind interest may be
offered by the selling security holders. We issued the notes in a private
placement transaction exempt from registration under the Securities Act.
No offer or sale under this prospectus may be made by a holder of the
notes or shares of common stock issued upon conversion of the notes or shares of
common stock issued as payment-in-kind interest unless that holder is listed in
the table below or until that holder has notified us and a supplement to this
prospectus has been filed or an amendment to the registration statement has
become effective. We will supplement or amend this prospectus to include
additional selling security holders reasonably promptly after we receive all
required information from the additional selling security holders.
The selling security holders may offer and sell, from time to time, any
or all of their notes or shares of common stock issued upon conversion of the
notes or shares of common stock issued as payment-in-kind interest. Because the
selling security holders may offer all or only some portion of the notes and
shares of common stock listed in the table below, no estimate can be given as to
the amount or percentage of these notes and shares of common stock that will be
held by the selling security holders upon termination of the offering.
The following table lists:
o the name of each selling security holder;
o the amount of each type of security beneficially owned by that
holder before the offering; and
o the amount of securities being offered for sale by that
selling security holder.
We obtained the information in the table from the identified selling
security holders. This information is as of December 14, 2000. Unless otherwise
disclosed in the footnotes to the table, no selling security holder has
indicated that it has held any position, office or other material relationship
with us or any of our affiliates during the past three years.
<TABLE>
<CAPTION>
CONVERTIBLE NOTES COMMON STOCK
----------------------------------- -----------------------------
PRINCIPAL AMOUNT PRINCIPAL AMOUNT
OF CONVERTIBLE OF CONVERTIBLE NUMBER OF NUMBER OF
NAME OF SELLING SECURITY HOLDER NOTES OWNED NOTES OFFERED SHARES OWNED SHARES OFFERED
------------------------------- ---------------- ---------------- ------------ --------------
<S> <C> <C> <C> <C>
AFRA Health Fund $ 850,000.00 $ 850,000.00 0 0
Argent Classic Convertible Arbitrage Fund
(Bermuda) L.P. $ 2,000,000.00 $ 2,000,000.00 0 0
Aristeia International, Ltd. $ 6,600,000.00 $ 6,600,000.00 0 0
Aristeia Trading, L.P. $ 4,650,000.00 $ 4,650,000.00 0 0
Bank Austria Cayman Islands, Ltd. $ 2,000,000.00 $ 2,000,000.00 0 0
Bear, Stearns & Co. Inc. $ 1,000,000.00 $ 1,000,000.00 0 0
Brown and Williamson Tobacco Master
Retirement Trust $ 250,000.00 $ 250,000.00 0 0
D. E. Shaw Investments, L.P. $ 700,000.00 $ 700,000.00 0 0
D. E. Shaw Valence, L.P. $ 1,800,000.00 $ 1,800,000.00 0 0
Delaware Group Dividend and Income Fund, Inc. $ 1,475,000.00 $ 1,475,000.00 0 0
Delaware Group Global Dividend and Income
Fund, Inc. $ 725,000.00 $ 725,000.00 0 0
Delaware Group Premium Fund-Convertible
Securities Series $ 240,000.00 $ 240,000.00 0 0
Delaware Retirement Income Fund $ 60,000.00 $ 60,000.00 0 0
Deutsche Bank Securities Inc. $29,600,000.00 $29,600,000.00 0 0
Highbridge International LLC $ 6,000,000.00 $ 6,000,000.00 0 0
JMG Capital Partners, LP $ 1,900,000.00 $ 1,900,000.00 0 0
JMG Convertible Investments, LP $ 500,000.00 $ 500,000.00 0 0
JMG Triton Offshore Fund, Ltd. $ 4,900,000.00 $ 4,900,000.00 0 0
Leonardo, L.P. $ 4,000,000.00 $ 4,000,000.00 0 0
Mainstay Convertible Fund $ 7,200,000.00 $ 7,200,000.00 0 0
Mainstay Strategic Value Fund $ 200,000.00 $ 200,000.00 0 0
Mainstay VP Convertible Portfolio $ 2,000,000.00 $ 2,000,000.00 0 0
Merced Partners Limited Partnership $ 2,000,000.00 $ 2,000,000.00 0 0
New York Life Separate Account $ 1,500,000.00 $ 1,500,000.00 0 0
R2 Investments, LDC $ 5,000,000.00 $ 5,000,000.00 0 0
Sagamore Hill Hub Fund Ltd. $ 6,000,000.00 $ 6,000,000.00 0 0
The Northwestern Mutual Life Insurance
Company $ 500,000.00 $ 500,000.00 0 0
Tribeca Investments LLC $ 8,000,000.00 $ 8,000,000.00 0 0
Triton Capital Investments, Ltd. $ 500,000.00 $ 500,000.00 0 0
Westgate International, L.P. $ 7,000,000.00 $ 7,000,000.00 0 0
White River Securities L.L.C. $ 1,000,000.00 $ 1,000,000.00 0 0
</TABLE>
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<PAGE> 18
On June 28, 2000, we and the initial purchaser of the notes entered
into a registration rights agreement. We are required under the terms of the
registration rights agreement to make this prospectus available to the selling
security holders, subject to the exceptions described below, for the period
commencing on the effective date of the registration statement to which this
prospectus forms a part of, until the earliest of:
o the time when all securities have been sold under
this prospectus;
o the expiration of the period referred to Rule 144(k)
of the Securities Act with respect to those
securities held by persons that are not our
affiliates; and
o two years after the date the registration statement
to which this prospectus forms a part of is declared
effective.
This time period is referred to as the effectiveness period.
We may require the selling security holders to suspend the sales of the
securities offered by this prospectus upon the happening of any event or
existence of any state of facts that makes any statement in this prospectus or
related registration statement untrue in any material respect or omits to state
a material fact required to be included in order to make statements in those
documents not misleading. We may suspend the use of this prospectus in
connection with pending corporate developments, public filings with the SEC,
acquisitions or divestitures of assets and similar events for a period not to
exceed 45 days in any 90-day period or a total of 90 days in any 365-day period.
In the event that:
o the registration statement ceases to be effective, or we
otherwise prevent or restrict holders of registrable
securities from making sales under the registration statement
for more than 45 days, whether or not consecutive, during any
90-day period; or
o the registration statement ceases to be effective, or we
otherwise prevent or restrict holders of registrable
securities from making sales under the registration statement
for more than 90 days, whether or not consecutive, during any
365-day period,
then the interest rate on the notes will increase by 0.50% per annum (i) in
respect of the notes, on the principal amount of the notes, and (ii) in respect
of the common stock issued upon conversion of the notes, applied to the
conversion price at that time. These liquidated damages will accrue from the
46th day of the 90-day period or the 91st day of the 365-day period. The
increased rate will continue until the earlier of the following:
o the time the registration statement again becomes effective or
the holders of registrable securities are again able to make
sales under the registration statement, depending on which
event triggered the increase in interest rate; and
o the time the effectiveness period expires.
Persons purchasing securities from a selling security holder will not be
entitled to liquidated damages.
17
<PAGE> 19
DEFICIENCY OF EARNINGS TO FIXED CHARGES
Our deficiency of earnings to fixed charges for each of the periods set
forth below has been calculated on a consolidated basis and should be read in
conjunction with the consolidated financial statements and the related notes,
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations", all of which may be found in our Annual Report on Form 10-K for the
year ended December 31, 1999 and our Quarterly Report on Form 10-Q for each of
the quarters ended March 31, June 30 and September 30, 2000, respectively, and
are incorporated by reference in this prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(DECEMBER 19, NINE MONTHS
1996) TO YEAR ENDED YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1997 1998 1999 2000
------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Deficiency of earnings to
fixed charges................ $(1,537) $(14,827) $(57,462) $(128,590)
</TABLE>
For purposes of computing the deficiency of earnings to fixed charges,
earnings consist of income from continuing operations before income taxes plus
fixed charges (excluding the effect of capitalized interest). Fixed charges
consist of interest incurred on indebtedness, accrued dividends, capitalized
interest and amortization of capitalized interest.
18
<PAGE> 20
DESCRIPTION OF CAPITAL STOCK
The following summary describes the material terms of our capital
stock. However, you should refer to the actual terms of the capital stock
contained in our amended and restated certificate of incorporation.
Our authorized capital stock consists of 1,000,000,000 shares of common
stock, and 100,000 shares of preferred stock. As of October 31, 2000, 58,649,307
shares of common stock were issued, held by 356 holders of record, and no shares
of preferred stock were issued and outstanding. As of October 31, 2000, the
number of treasury shares was 583,567. The common stock has a par value of
$.0001 and the preferred stock has a par value of $.0001 per share. In addition,
as of October 31, 2000, 9,341,000 shares of common stock were reserved for
issuance upon the exercise of outstanding stock options; 7,117,300 shares of
common stock were reserved for issuance upon the exercise of outstanding
warrants; 9,759,270 shares of common stock are reserved for issuance upon the
conversion of the notes; and 11,892,000 shares of common stock will be reserved
for issuance as payment-in-kind interest on the notes. No shares of our capital
stock are subject to sinking fund provisions.
COMMON STOCK
Subject to preferences that may apply to shares of preferred stock
outstanding at the time, the holders of outstanding shares of common stock are
entitled to receive dividends out of assets legally available for this purpose
at the times and in the amounts as the board of directors may from time to time
determine. Each stockholder is entitled to one vote for each share of common
stock held on all matters submitted to a vote of stockholders. Cumulative voting
for the election of directors is not provided for in our amended and restated
certificate of incorporation, which means that the holders of a majority of the
shares voted can elect all of the directors then standing for election. The
common stock is not entitled to preemptive rights. The common stock is not
subject to conversion or redemption. Upon the occurrence of a liquidation,
dissolution or winding-up of our business, the holders of shares of common stock
would be entitled to share ratably in the distribution of all of our assets
remaining available for distribution after satisfaction of all its liabilities
and the payment of the liquidation preference of any outstanding preferred
stock.
PREFERRED STOCK
The board of directors has the authority, within the limitations and
restrictions stated in our amended and restated certificate of incorporation, to
provide by resolution for the issuance of up to 100,000 shares of preferred
stock, in one or more classes or series, and to fix the rights, preferences,
privileges and restrictions of this preferred stock, including dividend rights,
conversion rights, voting rights, terms of redemption, liquidation preferences,
sinking fund provisions, if any, and the number of shares constituting any
series or the designation of such series. The issuance of preferred stock could
have the effect of decreasing the market price of the common stock and could
adversely affect the voting and other rights of the holders of common stock.
WARRANTS
As of October 31, 2000, we had entered into warrant agreements for the
issuance of 8,705,000 shares of common stock. Performance obligations underlying
7,829,000 shares of common stock had been completed as of October 31, 2000.
Subject to attainment of these performance obligations, the warrants are
exercisable for a period of ten years from the date of grant. As of October 31,
2000, warrants underlying 711,700 shares of common stock had been exercised. The
warrants were issued to property owners and managers and are exercisable upon
our real estate partners meeting certain performance obligations as outlined in
the warrant agreements.
OPTIONS
As of October 31, 2000, there were outstanding options to purchase a
total of 9,341,000 shares of common stock. In addition, options to purchase up
to 4,159,000 additional shares of common stock were available for grant under
our existing stock option plans. Outstanding options are exercisable for a
period of ten years from the date of grant.
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REGISTRATION RIGHTS
We entered into a registration rights agreement with a number of
stockholders that held our securities prior to our common stock initial public
offering. This agreement grants contractual rights to these stockholders which
require us to register their shares under the Securities Act. As a result, these
stockholders have the ability, upon the request of holders of at least 33% of
the shares of common stock covered by the terms of the registration rights
agreement, to require us to register their shares of common stock. These shares
are also entitled to "piggy-back" registration rights in connection with other
registration statements we file.
The warrants described above are exercisable upon our real estate
partners meeting certain performance obligations as outlined in the warrant
agreements. Shares issued upon exercise of warrants are also entitled to
"piggy-back" registration rights in connection with other registration
statements we file.
ANTI-TAKEOVER PROVISIONS
Some provisions of Delaware law and of our amended and restated
certificate of incorporation and amended and restated bylaws, which are
summarized in the following paragraphs, may be deemed to have an anti-takeover
effect and may delay, defer or prevent a tender offer or takeover attempt that a
stockholder might consider in its best interest, including those attempts that
might result in a premium over the market price for the shares held by
stockholders. See "Risk Factors -- Anti-takeover provisions could prevent or
delay a change in control."
SECTION 203 OF DELAWARE GENERAL CORPORATION LAW. We are subject to the
provisions of Section 203 of the Delaware General Corporation Law. In general,
the statute prohibits a publicly held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved by our Board of
Directors and/or stockholders in a prescribed manner. A "business combination"
includes a merger, asset sale or other transaction resulting in a financial
benefit to the interested stockholder. Subject to certain exceptions, an
"interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years did own, 15% or more of the
corporation's voting stock.
CLASSIFIED BOARD OF DIRECTORS. Because our board of directors is divided into
three classes of directors serving staggered three-year terms, approximately
one-third of the board of directors will be elected each year. Our classified
board, coupled with the provision of our amended and restated certificate of
incorporation authorizing the board of directors to fill vacant directorships or
increase the size of the board of directors, may deter a stockholder from
removing incumbent directors and simultaneously gaining control of the board of
directors by filling the vacancies created by such removal with its own
nominees.
CUMULATIVE VOTING. Our amended and restated certificate of incorporation
expressly denies stockholders the right to cumulate votes in the election of
directors.
STOCKHOLDER ACTION; SPECIAL MEETING OF STOCKHOLDERS. Our amended and restated
certificate of incorporation eliminates the ability of stockholders to act by
written consent. It further provides that special meetings of our stockholders
may be called only by the chairman of the board of directors, the president or a
majority of the board of directors.
ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTORS NOMINATIONS.
Our amended and restated bylaws provide that stockholders seeking to bring
business before an annual meeting of stockholders, or to nominate candidates for
election as directors at an annual meeting of stockholders, must provide timely
notice in writing. To be timely, a stockholder's notice must be delivered to or
mailed and received at our principal executive offices not less than 90 days
prior to the anniversary date of the immediately preceding annual meeting of
stockholders. If the annual meeting is called for a date that is not within 30
days before or after such anniversary date, notice by the stockholder in order
to be timely must be received not later than the close of business on the 15th
day following the date on which notice of the date of the annual meeting was
mailed to stockholders or made public, whichever first occurs. In the case of a
special meeting of stockholders called for the purpose of electing directors,
notice by the stockholder in order to be timely must be received not later than
the close of business on the day following the day on which notice of the date
of the special meeting was mailed or public disclosure of the date
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<PAGE> 22
of the special meeting was made, whichever first occurs. Our amended and
restated bylaws also specify certain requirements as to the form and content of
a stockholder's notice. These provisions may preclude stockholders from bringing
matters before an annual meeting of stockholders or from making nominations for
directors at an annual or special meeting of stockholders.
AUTHORIZED BUT UNISSUED SHARES. The authorized but unissued shares of common
stock and preferred stock are available for future issuance without stockholder
approval. These additional shares may be utilized for a variety of corporate
purposes, including future public offerings to raise additional capital,
corporate acquisitions and employee benefit plans. The existence of authorized
but unissued shares of common stock and preferred stock could render more
difficult or discourage an attempt to obtain control of us by means of a proxy
contest, tender offer, merger or otherwise.
AMENDMENTS; SUPERMAJORITY VOTE REQUIREMENTS. The Delaware General Corporation
Law provides generally that the affirmative vote of a majority of the shares
entitled to vote on any matter is required to amend a corporation's certificate
of incorporation or bylaws, unless a corporation's certificate of incorporation
or bylaws, as the case may be, requires a greater percentage. Our amended and
restated certificate of incorporation imposes supermajority vote requirements in
connection with the amendment of certain provisions of our amended and restated
certificate of incorporation and amended and restated bylaws, including those
provisions relating to the classified board of directors, action by written
consent and the ability of stockholders to call special meetings.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is ChaseMellon
Shareholder Services. Its address is 85 Challenger, Ridgefield, New Jersey
07660, and its telephone number at this location is 201-296-4000.
LISTING
Our common stock is quoted on the Nasdaq National Market under the
trading symbol "ARCC."
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DESCRIPTION OF CONVERTIBLE NOTES
The notes were issued under an indenture between us and Wilmington
Trust Company, as trustee. The indenture and the notes are governed by New York
law. Because this section is a summary, it does not describe every aspect of the
notes and the indenture. The following summaries of certain provisions of the
indenture do not purport to be complete and are subject to, and are qualified in
their entirety by reference to, the notes and the indenture, including the
definitions therein of certain terms.
GENERAL
The notes are general, unsecured obligations of ours. The notes are
subordinated, which means that they rank behind certain of our indebtedness as
described below. The notes are limited to $150,000,000 aggregate principal
amount. We are required to repay the principal amount of all outstanding notes
and any accrued and unpaid interest on the notes in full on June 15, 2007.
The notes bear interest at a rate of 7.50% per annum from June 28,
2000. We will pay interest on the notes on June 15 and December 15 of each year,
commencing on December 15, 2000. Interest payable per $1,000 principal amount of
the notes for the period from June 28, 2000 to December 15, 2000, is $34.7917.
You may convert the notes into shares of our common stock initially at
a conversion rate of 65.0618 shares per each $1,000 principal amount of the
notes at any time before the close of business on the maturity date. Holders of
notes called for redemption or submitted for repurchase are entitled to convert
the notes up to and including the business day immediately preceding the date
fixed for redemption or repurchase, as the case may be. The conversion rate may
be adjusted as described below.
We may redeem the notes at our option at any time on or after the third
business day after June 15, 2004, in whole or in part, at the redemption prices
set forth below under "-- Optional redemption," plus accrued and unpaid interest
to the redemption date. If there is a change in control of us, you will have the
right to require us to repurchase your notes as described below under
"-- Repurchase at option of holders upon a change in control."
FORM, DENOMINATION, TRANSFER, EXCHANGE AND BOOK-ENTRY PROCEDURES
The notes are issued:
o only in fully registered form;
o without interest coupons; and
o in denominations of $1,000 and greater multiples of $1,000.
The notes are evidenced by one global note which was deposited with the
trustee as custodian for The Depository Trust Company, or DTC, and registered in
the name of Cede & Co., as nominee of DTC. Except as set forth below, record
ownership of the global note may be transferred, in whole but not in part, only
to another nominee of DTC or to a successor of DTC or its nominee.
The global note will not be registered in the name of any person, or
exchanged for notes that are registered in the name of any person, other than
DTC or its nominee unless either of the following occurs:
o DTC notifies us that it is unwilling or unable to continue
acting as the depositary for the global note and a successor
depository is not appointed by us within 90 days of such
notice; or
o an event of default with respect to the notes represented by
the global note has occurred and is continuing.
In those circumstances, DTC will determine in whose names any
securities issued in exchange for the global note will be registered.
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<PAGE> 24
DTC or its nominee will be considered the sole owner and holder of the
global note for all purposes, and as a result:
o you cannot get notes registered in your name if they are
represented by the global note;
o you cannot receive physical certificated notes in exchange for
your beneficial interest in the global notes;
o you will not be considered to be the owner or holder of the
global note or any note it represents for any purpose; and
o all payments on the global note will be made to DTC or its
nominee.
The laws of some jurisdictions require that certain kinds of purchasers
can only own securities in definitive, certificated form. These laws may limit
your ability to transfer your beneficial interests in the global note to these
types of purchasers.
Only institutions, such as a securities broker or dealer, that have
accounts with DTC or its nominee (called participants) and persons that may hold
beneficial interests through participants can own a beneficial interest in the
global note. The only place where the ownership of beneficial interests in the
global note will appear and the only way the transfer of those interests can be
made will be on the records kept by DTC (for their participants' interests) and
the records kept by those participants (for interests of persons held by
participants on their behalf).
Secondary trading in bonds and notes of corporate issuers is generally
settled in clearinghouse (that is, next-day) funds. In contrast, beneficial
interests in a global note usually trade in DTC's same-day funds settlement
system, and settle in immediately available funds. We make no representations as
to the effect that settlement in immediately available funds will have on
trading activity in those beneficial interests.
We will make payments of interest on, and principal of, and the
redemption or repurchase price of, the global note to Cede, the nominee for DTC,
as the registered owner of the global note. We will make any cash payments by
wire transfer of immediately available funds on each payment date.
We have been informed that DTC's practice is to credit participants'
accounts on the payment date with payments in amounts proportionate to their
respective beneficial interests in the notes represented by the global note as
shown on DTC's records, unless DTC has reason to believe that it will not
receive payment on that payment date. Payments by participants to owners of
beneficial interests in notes represented by the global note held through
participants will be the responsibility of those participants, as is now the
case with securities held for the accounts of customers registered in street
name.
We will send any redemption notices to Cede. We understand that if less
than all the notes are being redeemed, DTC's practice is to determine by lot the
amount of the holdings of each participant to be redeemed.
We also understand that neither DTC nor Cede will consent or vote with
respect to the notes. We have been advised that under its usual procedures, DTC
will mail an omnibus proxy to us as soon as possible after the record date. The
omnibus proxy assigns Cede's consenting or voting rights to those participants
to whose accounts the notes are credited on the record date identified in a
listing attached to the omnibus proxy.
Because DTC can only act on behalf of participants, who in turn act on
behalf of indirect participants, the ability of a person having a beneficial
interest in the principal amount represented by the global note to pledge the
interest to persons or entities that do not participate in the DTC book-entry
system, or otherwise take actions in respect of that interest, may be affected
by the lack of a physical certificate evidencing its interest.
DTC has advised us that it will take any action permitted to be taken
by a holder of notes, including the presentation of notes for exchange, only at
the direction of one or more participants to whose account with DTC interests in
the global note are credited and only in respect of such portion of the
principal amount of the notes represented by the global note as to which such
participant or participants has or have given such direction.
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DTC has also advised us as follows:
o DTC is a:
o limited purpose trust company organized under the
laws of the State of New York;
o member of the Federal Reserve System;
o clearing corporation within the meaning of the
Uniform Commercial Code, as amended; and
o clearing agency registered pursuant to the provisions
of Section 17A of the Exchange Act.
o DTC was created to hold securities for its participants and
facilitate the clearance and settlement of securities
transactions between participants through electronic
book-entry changes in accounts of its participants.
o Participants include securities brokers and dealers, banks,
trust companies and clearing corporations and may include
certain other organizations.
o Certain participants, or their representatives, together with
other entities, own DTC.
o Indirect access to the DTC System is available to other
entities such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a
participant, either directly or indirectly.
The policies and procedures of DTC, which may change periodically, will
apply to payments, transfers, exchanges and other matters relating to beneficial
interests in the global note. We and the trustee have no responsibility or
liability for any aspect of DTC's or any participants' records relating to
beneficial interests in the global note, including for payments made on the
global note. Further, we and the trustee are not responsible for maintaining,
supervising or reviewing any of those records.
CONVERSION RIGHTS
You have the option to convert any portion of the principal amount of
any note that is an integral multiple of $1,000 into shares of our common stock
at any time on or prior to the close of business on the maturity date. The
conversion rate is equal to 65.0618 shares per $1,000 principal amount of notes,
subject to adjustment as described below. This conversion rate is equivalent to
a conversion price of approximately $15.37 per share. Your right to convert a
note called for redemption or delivered for repurchase will terminate at the
close of business on the business day immediately preceding the redemption date
or repurchase date for that note, unless we default in making the payment due to
you upon redemption or repurchase.
You may convert all or part of any note by delivering the note to the
Corporate Trust Office of the trustee in the Borough of Manhattan, the City of
New York, accompanied by a duly signed and completed conversion notice, a copy
of which may be obtained by the trustee. The conversion date will be the date on
which the note is so delivered.
As promptly as practicable on or after the conversion date, we will
issue and deliver to the trustee a certificate or certificates for the number of
full shares of our common stock issuable upon conversion, together with payment
in lieu of any fraction of a share for delivery to the holder. The shares of our
common stock issuable upon conversion of the notes will be fully paid and
nonassessable and will rank equally with the other shares of our common stock.
If you surrender a note for conversion on a date that is not an
interest payment date, you will not be entitled to receive any interest for the
period from the next preceding interest payment date to the conversion date,
except as described below in this paragraph. Any note surrendered for conversion
during the period from the close of business on any regular record date to the
opening of business on the next succeeding interest payment date
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(except notes, or portions thereof, called for redemption on a redemption date
or to be repurchased on a repurchase date for which the right to convert would
terminate during such period) must be accompanied by payment of an amount equal
to the interest payable on such interest payment date on the principal amount of
notes being surrendered for conversion. In the case of any note which has been
converted after the close of business on any regular record date but before the
opening of business on the next succeeding interest payment date, interest
payable on such interest payment date will be payable on such interest payment
date, notwithstanding such conversion, to the holder of such note on such
regular record date.
No other payment or adjustment for interest, or for any dividends in
respect of our common stock, will be made upon conversion. Holders of our common
stock issued upon conversion will not be entitled to receive any dividends
payable to holders of our common stock as of any record time or date before the
close of business on the conversion date. We will not issue fractional shares
upon conversion. Instead, we will pay cash based on the market price of our
common stock at the close of business on the conversion date.
You will not be required to pay any taxes or duties relating to the
issue or delivery of our common stock on conversion but you will be required to
pay any tax or duty relating to any transfer involved in the issue or delivery
of our common stock in a name other than yours. Certificates representing shares
of our common stock will not be issued or delivered unless all taxes and duties,
if any, payable by you have been paid.
The conversion rate will be subject to adjustment for, among other
things:
o dividends and other distributions payable in our common stock
on shares of our capital stock;
o the issuance to all holders of our common stock of rights,
options or warrants entitling them to subscribe for or
purchase our common stock at less than the then current market
price of such common stock as of the record date for
stockholders entitled to receive such rights, options or
warrants;
o subdivisions, combinations and reclassifications of our common
stock;
o distributions to all holders of our common stock of evidences
of our indebtedness, shares of capital stock, cash or assets,
including securities, but excluding:
o those dividends, rights, options, warrants and
distributions referred to above,
o dividends and distributions paid exclusively in cash,
and
o distributions upon mergers or consolidations
discussed below;
o distributions consisting exclusively of cash, excluding any
cash portion of distributions referred to above, or cash
distributed upon a merger or consolidation as described below,
to all holders of our common stock in an aggregate amount
that, combined together with:
o other all-cash distributions made within the
preceding 365-day period in respect of which no
adjustment has been made, and
o any cash and the fair market value of other
consideration payable in connection with any tender
offer by us or any of our subsidiaries for our common
stock concluded within the preceding 365-day period
in respect of which no adjustment has been made,
exceeds 10% of our market capitalization, being the product of
the current market price per share of the common stock on the
record date for such distribution and the number of shares of
common stock then outstanding; and
o the successful completion of a tender offer made by us or any
of our subsidiaries for our common stock which involves an
aggregate consideration that, together with:
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o any cash and other consideration payable in a tender
offer by us or any of our subsidiaries for our common
stock expiring within the 365-day period preceding
the expiration of that tender offer in respect of
which no adjustment has been made, and
o the aggregate amount of any cash distributions above
to all holders of our common stock within the 365-day
period preceding the expiration of that tender offer
in respect of which no adjustments have been made;
exceeds 10% of our market capitalization on the expiration of
such tender offer.
We reserve the right to effect such increases in the conversion rate in
addition to those required by the foregoing provisions as we consider to be
advisable in order that any event treated for United States federal income tax
purposes as a dividend of stock or stock rights will not be taxable to the
recipients. We will not be required to make any adjustment to the conversion
rate until the cumulative adjustments amount to 1.0% or more of the conversion
rate. We will compute all adjustments to the conversion rate and will give
notice by mail to holders of the registered notes of any adjustments.
In any case in which we consolidate or merge with or into another
entity or in which another entity is merged into us, or in case of any sale or
transfer of all or substantially all of our assets, each note then outstanding
will become convertible only into the kind and amount of securities, cash and
other property receivable upon such consolidation, merger, sale or transfer by a
holder of the number of shares of common stock into which the notes were
convertible immediately prior to the consolidation, merger, sale or transfer.
The preceding sentence will not apply to a merger which does not result in any
reclassification, conversion, exchange or cancellation of our common stock.
We may increase the conversion rate by any amount for any period of at
least 20 days, upon at least 15 days notice, if our board of directors
determines that the increase would be in our best interest. The board of
directors' determination in this regard will be conclusive. We will give holders
of notes at least 15 days notice of such an increase in the conversion rate. Any
increase, however, will not be taken into account for purposes of determining
whether the closing price of our common stock equals or exceeds the conversion
price by 105% in connection with an event which otherwise would be a change in
control as defined below.
If at any time we make a distribution of property to our stockholders
that would be taxable to such stockholders as a dividend for United States
federal income tax purposes, such as any dividend or distribution of stock or
issuance of rights or warrants to purchase or subscribe for common stock, and,
pursuant to the anti-dilution provisions of the indenture, the number of shares
into which notes are convertible is increased, that increase may be deemed for
United States federal income tax purposes to be the payment of a taxable
dividend to holders of notes. See "Important United States Federal Tax
Considerations."
SUBORDINATION
The notes are subordinated and, as a result, the payment of the
principal, any premium and interest on the notes, including amounts payable on
any redemption or repurchase, will be subordinated to the prior payment in full,
of all of our senior debt. The notes are also effectively subordinated to any
debt or other liabilities of our subsidiaries.
Senior debt is defined in the indenture to mean the principal of, and
premium, if any, and interest, including all interest accruing subsequent to the
commencement of any bankruptcy or similar proceeding, whether or not a claim for
post-petition interest is allowable as a claim in any such proceeding, on, and
all fees and other amounts payable in connection with, the following, whether
absolute or contingent, secured or unsecured, due or to become due, outstanding
on the date of the indenture or thereafter created, incurred or assumed:
o our indebtedness evidenced by a credit or loan agreement,
note, bond, debenture or other written obligation;
o all of our obligations for money borrowed;
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o all of our obligations evidenced by a note or similar
instrument given in connection with the acquisition of any
businesses, properties or assets of any kind;
o our obligations:
o as lessee under leases required to be capitalized on
the balance sheet of the lessee under generally
accepted accounting principles, or
o as lessee under other leases for facilities, capital
equipment or related assets, whether or not
capitalized, entered into or leased for financing
purposes;
o all of our obligations under interest rate and currency swaps,
caps, floors, collars, hedge agreements, forward contracts or
similar agreements or arrangements;
o all of our obligations with respect to letters of credit,
bankers' acceptances and similar facilities, including
reimbursement obligations with respect to the foregoing;
o all of our obligations issued or assumed as the deferred
purchase price of property or services, but excluding trade
accounts payable and accrued liabilities arising in the
ordinary course of business;
o all obligations of the type referred to in the above clauses
of another person and all dividends of another person, the
payment of which, in either case, we have assumed or
guaranteed, or for which we are responsible or liable,
directly or indirectly, jointly or severally, as obligor,
guarantor or otherwise, or which are secured by a lien on our
property; and
o renewals, extensions, modifications, replacements,
restatements and refundings of, or any indebtedness or
obligation issued in exchange for, any such indebtedness or
obligation described in the above clauses of this definition.
Senior debt will not include the notes or any other indebtedness or
obligation if its terms or the terms of the instrument under which or pursuant
to which it is issued expressly provide that it is not superior in right of
payment to the notes.
We may not make any payment on account of principal, premium or
interest on the notes, or redemption or repurchase of the notes, if:
o we default in our obligations to pay principal, premium,
interest or other amounts on our senior debt, including a
default under any redemption or repurchase obligation, and the
default continues beyond any applicable grace period; or
o any other default occurs and is continuing on any designated
senior debt and:
o the default permits the holders of the designated
senior debt to accelerate its maturity, and
o the trustee has received a notice (a payment blockage
notice) of the default from us, the holder of such
designated senior debt or such other person permitted
to give such notice under the indenture.
If payments of the notes have been blocked by a payment default on
senior debt, payments on the notes may resume when the payment default has been
cured or waived or ceases to exist.
If payments on the notes have been blocked by a nonpayment default,
payments on the notes may resume on the earlier of:
o the date the nonpayment default is cured or waived or ceases
to exist; or
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o 179 days after the payment blockage notice is received.
No nonpayment default that existed on the day a payment blockage notice
was delivered to the trustee can be used as the basis for any subsequent payment
blockage notice. In addition, once a holder of designated senior debt has
blocked payment on the notes by giving a payment blockage notice, no new period
of payment blockage can be commenced unless and until:
o 365 days have elapsed since the effectiveness of the
immediately prior payment blockage notice; and
o all scheduled payments of principal, any premium and interest
with respect to the notes that have come due have been paid in
full in cash.
Designated senior debt means our obligations under any particular
senior debt in which the instrument creating or evidencing the same or the
assumption or guarantee thereof, or related agreements or documents to which we
are a party, expressly provides that such indebtedness shall be designated
senior debt for purposes of the indenture. The instrument, agreement or other
document evidencing any designated senior debt may place limitations and
conditions on the right of such senior debt to exercise the rights of designated
senior debt.
In addition, all principal, premium, if any, interest and other amounts
due on all senior debt must be paid in full in cash or other payment
satisfactory to holders of senior debt before you are entitled to receive any
payment otherwise due upon any acceleration of the principal on the notes as a
result of:
o an event of default of the notes; or
o payment or distribution of our assets to creditors upon any
dissolution, winding up, liquidation or reorganization,
whether voluntary or involuntary, marshaling of assets,
assignment for the benefit of creditors, or in bankruptcy,
insolvency, receivership or other similar proceedings.
In the event of insolvency, creditors who are holders of senior debt
may recover more, ratably, than you because of this subordination. The
subordination may result in a reduction or elimination of payments on the notes
to you.
In addition, the notes are structurally subordinated to all
indebtedness and other liabilities of our subsidiaries, including trade payables
and lease obligations. This occurs because our right to receive any assets of
our subsidiaries upon their liquidation or reorganization, and your right to
participate in those assets, will be effectively subordinated to the claims of
that subsidiary's creditors, including trade creditors, except to the extent
that we are recognized as a creditor of that subsidiary. If we are recognized as
a creditor of that subsidiary, our claims would still be subordinate to any
security interest in the assets of the subsidiary and any indebtedness of the
subsidiary senior to us.
As of October 31, 2000, other than capital lease obligations, we and
our subsidiaries had no indebtedness for borrowed money. The indenture does not
limit our ability to incur senior debt or our ability or the ability of our
subsidiaries to incur any other indebtedness.
OPTIONAL REDEMPTION
On or after the third business day after June 15, 2004, we may redeem
the notes in whole or in part, at the prices set forth below. If we elect to
redeem all or part of the notes, we will give you at least 30, but no more than
60, days notice.
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The redemption price, expressed as a percentage of principal amount, is
as follows for the following periods:
<TABLE>
<CAPTION>
REDEMPTION
PERIOD PRICE
------ ----------
<S> <C>
Beginning on the third business day after June 15, 2004 and ending on June 14, 2005.......... 103.214%
Beginning on June 15, 2005 and ending on June 14, 2006....................................... 102.143%
Beginning on June 15, 2006 and ending on June 14, 2007....................................... 101.071%
</TABLE>
and thereafter is equal to 100%. In each case, we will pay accrued and unpaid
interest to, but excluding, the redemption date.
No sinking fund is provided for the notes, which means that the
indenture does not require us to redeem or retire the notes periodically.
PAYMENT AND CONVERSION
When we make cash payments of principal and interest on the notes,
these payments will be by dollar check drawn on an account maintained at a bank
in the City of New York. If you hold registered notes with a face value greater
than $2,000,000, at your request, we will make payments of principal and
interest to you by wire transfer to an account maintained by you at a bank in
the City of New York. Payment of any interest on the notes will be made to the
person in whose name the note, or any predecessor note, is registered at the
close of business on June 1 or December 1, whether or not a business day,
immediately preceding the relevant interest payment date (a regular record
date). If you hold registered notes with a face value in excess of $2,000,000
and you would like to receive payments by wire transfer, you will be required to
provide the trustee with wire transfer instructions at least 15 days prior to
the relevant payment date.
We may, at our option, pay interest on the notes in shares of our
common stock that have been registered under the Securities Act. If we elect to
pay interest in our common stock, the number of shares of common stock to be
distributed will be calculated by dividing the amount of the interest otherwise
payable in cash by 95% of the arithmetic average of the Closing Price (as
defined below) for the five consecutive Trading Days (as defined below)
immediately preceding the interest payment date. If we elect to pay any interest
in common stock, we will give the DTC 15 business days notice prior to the
related interest payment date and the DTC will forward that notice to holders.
The notes will not be redeemable unless all interest accrued through such
redemption date shall have been paid in full. Notwithstanding anything to the
contrary herein contained, we will not be required to pay or accrue interest if
another person (including, without limitation, any of our subsidiaries) pays an
amount to the holders equal to the amount of such interest on our behalf and, in
such event, the interest will be deemed paid for all purposes. For a discussion
of certain federal income tax considerations relevant to the payment of interest
on the notes, see "Important United States Federal Income Tax Considerations."
The term "Closing Price" means, on any day, the last reported sale
price on such day or, in case no sale takes place on that day, the average of
the reported closing bid and asked prices on the principal national securities
exchange on which our common stock is listed or admitted to trading or, if not
listed or admitted to trading on any national securities exchange, the average
of the closing bid and asked prices as furnished by any independent registered
broker-dealer firm, selected by us for that purpose, in each case adjusted for
any stock split during the relevant period.
The term "Trading Day" means, in respect of any securities exchange or
securities market, each Monday, Tuesday, Wednesday, Thursday and Friday, other
than any day on which securities are not traded on the applicable securities
exchange or in the applicable securities market.
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Payments on any global note registered in the name of DTC or its
nominee will be payable by the trustee to DTC or its nominee in its capacity as
the registered holder under the indenture. Under the terms of the indenture, we
and the trustee will treat the persons in whose names the notes, including any
global note, are registered as the owners for the purpose of receiving payments
and for all other purposes. Consequently, neither we, the trustee nor any of our
agents or the trustee's agents has or will have any responsibility or liability
for:
o any aspect of DTC's records or any participant's or indirect
participant's records relating to or payments made on account
of beneficial ownership interests in the global note, or for
maintaining, supervising or reviewing any of DTC's records or
any participant's or indirect participant's records relating
to the beneficial ownership interests in the global note; or
o any other matter relating to the actions and practices of DTC
or any of its participants or indirect participants.
We will not be required to make any payment on the notes due on any day
which is not a business day until the next succeeding business day. The payment
made on the next succeeding business day will be treated as though it were paid
on the original due date and no interest will accrue on the payment for the
additional period of time.
Notes may be surrendered for conversion at the Corporate Trust Office
of the trustee in the Borough of Manhattan, New York. Notes surrendered for
conversion must be accompanied by appropriate notices and any payments in
respect of interest or taxes, as applicable.
We have initially appointed the trustee as paying agent and conversion
agent. We may terminate the appointment of any paying agent or conversion agent
and appoint additional or other paying agents and conversion agents. However,
until the notes have been delivered to the trustee for cancellation, or moneys
sufficient to pay the principal of, premium, if any, and interest on the notes
have been made available for payment and either paid or returned to us as
provided in the indenture, the trustee will maintain an office or agency in the
Borough of Manhattan, New York for surrender of notes for conversion. Notice of
any termination or appointment and of any change in the office through which any
paying agent or conversion agent will act will be given in accordance with
"-- Notices" below.
All moneys deposited with the trustee or any paying agent, or then held
by us, in trust for the payment of principal of, premium, if any, or interest on
any notes which remain unclaimed at the end of two years after the payment has
become due and payable will be repaid to us, and you will then look only to us
for payment.
REPURCHASE AT OPTION OF HOLDERS UPON A CHANGE IN CONTROL
If a change in control as defined below occurs, you will have the
right, at your option, to require us to repurchase all of your notes not
previously called for redemption, or any portion of the principal amount
thereof, that is equal to $1,000 or an integral multiple of $1,000. The price we
are required to pay is 100% of the principal amount of the notes to be
repurchased, together with interest accrued to, but excluding, the repurchase
date.
At our option, instead of paying the repurchase price in cash, we may
pay the repurchase price in shares of our common stock that have been registered
under the Securities Act valued at 95% of the average of the Closing Prices of
our common stock for the 20 consecutive Trading Days immediately preceding and
including the third Trading Day prior to the repurchase date. We may only pay
the repurchase price in our common stock if we satisfy conditions provided in
the indenture.
Within 45 days after the occurrence of a change in control, we are
obligated to give you notice of the change in control and of your repurchase
right arising as a result of the change of control. We will also advise you in
that notice whether we will pay the repurchase price in the form of cash or
shares of our common stock. We must also deliver a copy of this notice to the
trustee. To exercise the repurchase right, you must deliver on or before the
30th day after the date of our notice irrevocable written notice to the trustee
of your exercise of your repurchase right, together with the notes with respect
to which the right is being exercised. We are required to repurchase the notes
on the date that is 45 days after the date of our notice.
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<PAGE> 32
A change in control will be deemed to have occurred at the time, after
the notes are originally issued, that any of the following occurs:
o any person, including any syndicate or group deemed to be a
"person" under Section 13(d)(3) of the Exchange Act, acquires
a beneficial ownership, directly or indirectly, through a
purchase, merger or other acquisition transaction or series of
transactions, of shares of our capital stock entitling the
person to exercise 50% or more of the total voting power of
all shares of our capital stock that is entitled to vote
generally in the election of directors, other than an
acquisition by us, any of our subsidiaries or any of our
employee benefit plans; or
o we merge or consolidate with or into any other person, any
merger of another person into us or we convey, sell, transfer
or lease all or substantially all of our assets to another
person, other than
o any such transaction:
o that does not result in any
reclassification, conversion, exchange or
cancellation of outstanding shares of our
capital stock, and
o pursuant to which the holders of 50% or more
of the total voting power of all shares of
our capital stock entitled to vote generally
in the election of directors immediately
prior to such transaction have the
entitlement to exercise, directly or
indirectly, 50% or more of the total voting
power of all shares of capital stock
entitled to vote generally in the election
of directors of the continuing or surviving
corporation immediately after such
transaction, and
o any merger which is effected solely to change our
jurisdiction of incorporation and results in a
reclassification, conversion or exchange of
outstanding shares of our common stock into solely
shares of common stock.
However, a change in control will not be deemed to have occurred if
either:
o the Closing Price per share of our common stock for any five
Trading Days within the period of 10 consecutive Trading Days
ending immediately after the later of the change in control or
the public announcement of the change in control, in the case
of a change in control relating to an acquisition of capital
stock, or the period of 10 consecutive Trading Days ending
immediately before the change in control, in the case of a
change in control relating to a merger, consolidation or asset
sale, equals or exceeds 105% of the conversion price of the
notes in effect on each of those trading days, or
o all of the consideration, excluding cash payments for
fractional shares and cash payments made pursuant to
dissenters' appraisal rights, in a merger or consolidation
otherwise constituting a change of control under the first and
second bullet points in the preceding paragraph above consists
of shares of common stock traded on a national securities
exchange or quoted on the Nasdaq National Market, or will be
so traded or quoted immediately following such merger or
consolidation, and as a result of such merger or consolidation
the notes become convertible solely into such common stock.
For purposes of these provisions:
o the conversion price is equal to $1,000 divided by the
conversion rate;
o whether a person is a beneficial owner will be determined in
accordance with Rule 13d-3 under the Exchange Act; and
o person includes any syndicate or group that would be deemed to
be a person under Section 13(d)(3) of the Exchange Act.
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<PAGE> 33
The rules and regulations promulgated under the Exchange Act requires
the dissemination of prescribed information to security holders in the event of
an issuer tender offer and may apply in the event that the repurchase option
becomes available to you. We will comply with this rule to the extent it applies
at that time.
We may, to the extent permitted by applicable law, at any time purchase
notes in the open market, by tender at any price or by private agreement. Any
note that we purchase may, to the extent permitted by applicable law and subject
to restrictions contained in the purchase agreement with the initial purchaser,
be re-issued or resold or may, at our option, be surrendered to the trustee for
cancellation. Any notes surrendered for cancellation may not be re-issued or
resold and will be canceled promptly.
The definition of change in control includes a phrase relating to the
conveyance, transfer, sale, lease or disposition of all or substantially all of
our assets. There is no precise, established definition of the phrase
substantially all under applicable law. Accordingly, your ability to require us
to repurchase your notes as a result of conveyance, transfer, sale, lease or
other disposition of less than all of our assets may be uncertain.
The foregoing provisions would not necessarily provide you with
protection if we are involved in a highly leveraged or other transaction that
may adversely affect you.
Our ability to repurchase notes upon the occurrence of a change in
control is subject to important limitations. Some of the events constituting a
change in control could result in an event of default under our senior debt.
Moreover, a change in control could cause an event of default under, or be
prohibited or limited by, the terms of our senior debt. As a result, unless we
were to obtain a waiver, a repurchase of the notes in cash could be prohibited
under the subordination provisions of the indenture until the senior debt is
paid in full. Although we have the right to repurchase the notes with our common
stock, subject to certain conditions, we cannot assure you that we would have
the financial resources, or would be able to arrange financing, to pay the
repurchase price in cash for all the notes that might be delivered by holders of
notes seeking to exercise the repurchase right. If we were to fail to repurchase
the notes when required following a change in control, an event of default under
the indenture would occur, whether or not such repurchase is permitted by the
subordination provisions of the indenture. Any such default may, in turn, cause
a default under our senior debt. See "-- Subordination".
MERGERS AND SALES OF ASSETS
We may not consolidate with or merge into any other person or convey,
transfer, sell or lease our properties and assets substantially as an entirety
to any person, and we may not permit any person to consolidate with or merge
into us or convey, transfer, sell or lease such person's properties and assets
substantially as an entirety to us unless:
o the person formed by such consolidation or into or with which
we are merged or the person to which our properties and assets
are so conveyed, transferred, sold or leased, shall be a
corporation, limited liability company, partnership or trust
organized and existing under the laws of the United States,
any State within the United States or the District of Columbia
and, if we are not the surviving person, the surviving person
assumes the payment of the principal of, premium, if any, and
interest on the notes and the performance of our other
covenants under the indenture; and
o immediately after giving effect to the transaction, no event
of default, and no event that, after notice or lapse of time
or both, would become an event of default, will have occurred
and be continuing.
EVENTS OF DEFAULT
The following will be events of default under the indenture:
o we fail to pay principal of or premium, if any, on any note
when due, whether or not prohibited by the subordination
provisions of the indenture;
o we fail to pay any interest on any note when due, which
failure continues for 30 days, whether or not prohibited by
the subordination provisions of the indenture;
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<PAGE> 34
o we fail to provide notice of a change in control, whether or
not such notice is prohibited by the subordination provisions
of the indenture;
o we fail to perform any other covenant in the indenture, which
failure continues for 60 days after written notice as provided
in the indenture;
o any indebtedness under any bonds, debentures, notes or other
evidences of indebtedness for money borrowed, or any guarantee
thereto, by us or any of our significant subsidiaries in an
aggregate principal amount in excess of $25.0 million is not
paid when due either at its stated maturity or upon
acceleration thereof, and such indebtedness is not discharged,
or such acceleration is not rescinded or annulled, within a
period of 30 days after notice as provided in the indenture;
and
o certain events of bankruptcy, insolvency or reorganization
involving us or any of our significant subsidiaries.
Subject to the provisions of the indenture relating to the duties of
the trustee, if an event of default shall occur and be continuing, the trustee
will be under no obligation to exercise any of its rights or powers under the
indenture at the request or direction of any holder, unless the holder shall
have furnished reasonable indemnity to the trustee. Subject to providing
indemnification to the trustee, the holders of a majority in aggregate principal
amount of the outstanding notes will have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the trustee
or exercising any trust or power conferred on the trustee.
If an event of default (other than an event of default arising from
events of insolvency, bankruptcy or reorganization) occurs and is continuing,
either the trustee or the holders of at least 25% in aggregate principal amount
of the outstanding notes may, subject to the subordination provisions of the
indenture, accelerate the maturity of all notes. However, after such
acceleration, but before a judgment or decree based on acceleration, the holders
of a majority in aggregate principal amount of outstanding notes may, under
certain circumstances, rescind and annul the acceleration if all events of
default, other than the non-payment of principal of the notes which have become
due solely by such declaration of acceleration, have been cured or waived as
provided in the indenture. If an event of default arising from events of
insolvency, bankruptcy or reorganization occurs, then the principal of, and
accrued interest on, all the notes will automatically become immediately due and
payable without any declaration or other act on the part of the holders of the
notes or the trustee. For information as to waiver of defaults, see
"-- Meetings, Modification and Waiver" below.
You will not have any right to institute any proceeding with respect to
the indenture, or for any remedy under the indenture, unless:
o you give the trustee written notice of a continuing event of
default;
o the holders of at least 25% in aggregate principal amount of
the outstanding notes have made written request and furnished
reasonable indemnity to the trustee to institute proceedings;
o the trustee has not received from the holders of a majority in
aggregate principal amount of the outstanding notes a
direction inconsistent with the written request; and
o the trustee shall have failed to institute such proceeding
within 60 days of the written request.
However, these limitations do not apply to a suit instituted by you for
the enforcement of payment of the principal of, premium, if any, or interest on
your note on or after the respective due dates expressed in your note or your
right to convert your note in accordance with the indenture.
We will be required to furnish to the trustee annually a statement as
to our performance of certain of our obligations under the indenture and as to
any default in such performance.
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<PAGE> 35
MEETINGS, MODIFICATION AND WAIVER
The indenture contains provisions for convening meetings of the holders
of notes to consider matters affecting their interests.
Certain limited modifications of the indenture may be made without the
necessity of obtaining the consent of the holders of the notes. Other
modifications and amendments of the indenture may be made, and certain past
defaults by us may be waived, either:
o with the written consent of the holders of not less than a
majority in aggregate principal amount of the notes at the
time outstanding; or
o by the adoption of a resolution, at a meeting of holders of
the notes at which a quorum is present, by the holders of at
least 66 2/3% in aggregate principal amount of the notes
represented at such meeting.
The quorum at any meeting called to adopt a resolution will be persons
holding or representing a majority in aggregate principal amount of the notes at
the time outstanding and, at any reconvened meeting adjourned for lack of a
quorum, 25% of such aggregate principal amount.
However, a modification or amendment requires the consent of the holder
of each outstanding note affected if it would:
o change the stated maturity of the principal or interest of a
note;
o reduce the principal amount of, or any premium or interest on,
any note;
o reduce the amount payable upon a redemption or mandatory
repurchase;
o modify the provisions with respect to the repurchase rights of
holders of notes in a manner adverse to the holders;
o change the place or currency of payment on a note;
o impair the right to institute suit for the enforcement of any
payment on any note;
o modify our obligation to maintain an office or agency in New
York City;
o modify the subordination provisions in a manner that is
adverse to the holders of the notes;
o adversely affect the right to convert the notes;
o reduce the above-stated percentage of the principal amount of
the holders whose consent is needed to modify or amend the
indenture;
o reduce the percentage of the principal amount of the holders
whose consent is needed to waive compliance with certain
provisions of the indenture or to waive certain defaults; or
o reduce the percentage required for the adoption of a
resolution or the quorum required at any meeting of holders of
notes at which a resolution is adopted.
The holders of a majority in aggregate principal amount of the
outstanding notes may waive compliance by us with certain restrictive provisions
of the indenture by written consent. Holders of at least 66 2/3% in aggregate of
the principal amount of notes represented at a meeting may also waive compliance
by us with certain restrictive provisions of the indenture by the adoption of a
resolution at the meeting if a quorum of holders are present and certain other
conditions are met. The holders of a majority in aggregate principal amount of
the outstanding notes also may waive by written consent any past default under
the indenture, except a default in the payment of principal, premium, if any, or
interest.
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<PAGE> 36
NOTICES
Notice to holders of the registered notes will be given by mail to the
addresses as they appear in the security register. Notices will be deemed to
have been given on the date of such mailing.
Notice of a redemption of notes will be given not less than 30 nor more
than 60 days prior to the redemption date and will specify the redemption date.
A notice of redemption of the notes will be irrevocable.
REPLACEMENT OF NOTES
We will replace any note that becomes mutilated, destroyed, stolen or
lost at the expense of the holder upon delivery to the trustee of the mutilated
notes or evidence of the loss, theft or destruction satisfactory to us and the
trustee. In the case of a lost, stolen or destroyed note, indemnity satisfactory
to the trustee and us may be required at the expense of the holder of the note
before a replacement note will be issued.
PAYMENT OF STAMP AND OTHER TAXES
We will pay all stamp and other duties, if any, which may be imposed by
the United States or any political subdivision thereof or taxing authority
thereof or therein with respect to the issuance of the notes and the shares of
our common stock issued upon conversion of the notes or as payment-in-kind
interest on the notes. We will not be required to make any payment with respect
to any other tax, assessment or governmental charge imposed by any government or
any political subdivision thereof or taxing authority thereof or therein.
GOVERNING LAW
The indenture and the notes will be governed by and construed in
accordance with the laws of the State of New York, United States of America.
THE TRUSTEE
If an event a default occurs and is continuing, the trustee will be
required to use the degree of care of a prudent person in the conduct of his own
affairs in the exercise of its powers. Subject to such provisions, the trustee
will be under no obligation to exercise any of its rights or powers under the
indenture at the request of any of the holders of notes, unless they shall have
furnished to the trustee reasonable security or indemnity.
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IMPORTANT UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Jones, Day, Reavis & Pogue, the following are the
material United States federal income tax consequences relating to the purchase,
ownership and disposition of the notes and of the common stock into which the
notes may be converted. For purposes of this discussion, the Internal Revenue
Service is referred to as the "IRS."
This discussion:
o does not address all of the tax consequences that may be
material to a potential investor based on his or her
particular tax situation;
o is based on the provisions of the Internal Revenue Code of
1986, as amended (which is referred to in this discussion as
the "Code"), the applicable Treasury Regulations promulgated
or proposed under the Code (which are referred to in this
discussion as the "Treasury Regulations"), and judicial
authority and current administrative rulings and practice, all
of which are subject to change, possibly on a retroactive
basis;
o deals only with the beneficial owner, or "holder," of a note
that will hold notes and common stock into which the notes may
be converted as "capital assets" (within the meaning of
Section 1221(a) of the Code);
o does not address tax consequences applicable to holders that
are subject to special tax rules, such as banks, tax-exempt
organizations, pension funds, insurance companies, dealers in
securities or foreign currencies, traders who elect to mark to
market their securities, persons that will hold notes or
common stock into which the notes may be converted as a
position in a hedging or constructive sale transaction,
"straddle" or "conversion" or other integrated transaction for
tax purposes, or persons that have a "functional currency"
other than the U.S. dollar; and
o does not address the tax consequences to persons other than
U.S. holders, as defined below.
No ruling has been sought from the IRS with respect to the statements
made and the conclusions reached in the following discussion, and no assurance
can be given to you that the IRS will agree with those statements and
conclusions. In addition, the IRS may not be precluded from successfully
adopting a contrary position. This discussion does not consider the effect of
any applicable foreign, state, or local tax laws.
As used in this memorandum, the term "U.S. holder" means a beneficial
owner of a note or of common stock into which a note is converted that is, for
United States federal income tax purposes:
o a citizen or individual resident of the United States;
o a corporation, or other entity treated as a corporation,
created in or under the laws of the United States or of any
state;
o an estate, the income of which is subject to United States
federal income taxation, regardless of its source;
o a trust if a court within the United States is able to
exercise primary supervision over the administration of the
trust and one or more United States persons have the authority
to control all substantial decisions of the trust, or a trust
in existence on August 20, 1996, and treated as a United
States person prior to this date that timely elected to
continue to be treated as a United States person; or
o a partnership, or other entity treated as a partnership,
created or organized in or under the laws of the United States
or of any state, except as Treasury Regulations may provide.
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INVESTORS CONSIDERING THE PURCHASE OF NOTES SHOULD CONSULT THEIR OWN
TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE UNITED STATES FEDERAL INCOME
AND ESTATE TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX
CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING
JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.
FEDERAL TAX CONSIDERATIONS
INTEREST ACCRUAL ON NOTES. In light of the possibility that interest on
the notes may be paid in common stock based on 95% of the arithmetic average of
the Closing Price for the five consecutive Trading Days immediately preceding
the interest payment date, the notes for United States federal income tax
purposes should be subject to the Treasury Regulations relating to contingent
payment debt instruments (which are referred to herein as the contingent payment
debt regulations). The remainder of this discussion assumes this result. Under
the contingent payment debt regulations, a U.S. holder will be required to
accrue interest income on the notes (in the manner described in the next
paragraph) regardless of whether such U.S. holder uses the cash or accrual
method of tax accounting. As a result, a U.S. holder may be required to include
interest in taxable income each year in excess of the semiannual interest
payments received in that year.
Under the contingent payment debt regulations, for each accrual period
prior to and including the maturity date of the notes (or, if applicable, the
conversion date), the amount of interest that accrues, as original issue
discount, on a note equals the product of (a) the adjusted issue price of the
note (as defined below) as of the beginning of the accrual period and (b) the
comparable yield (as defined below) (adjusted for the length of the accrual
period). This amount is ratably allocated to each day in the accrual period and
is includable as ordinary interest income by a U.S. holder for each day in the
accrual period on which the U.S. holder holds the note. None of the semiannual
interest payments on the notes will be "qualified stated interest" and,
accordingly, all such payments will be treated as payments of original issue
discount or as return of principal.
Because a holder of a note will accrue original issue discount in
income for each day the note is held by such holder, upon a conversion of a note
during the interest period a holder will be required to include in income, for
United States federal income tax purposes, the sum of the daily portions of
original issue discount for the portion of that interest period ending on the
conversion date, even if no interest payment is actually made on account of that
final interest period. A holder of a note should not, however, be required to
include in income any payment of interest on the note made after the conversion
of the note.
For purposes of this discussion, "adjusted issue price" means the issue
price of the note, increased by any interest previously accrued (determined
without regard to any adjustments to interest accruals described below) and
decreased by the amount of any projected payments (as defined below) with
respect to the note prior to the date of such calculation, and "comparable
yield" means the annual yield the issuer would pay, as of the issue date, on a
non-contingent fixed-rate debt security with terms and conditions otherwise
comparable to those of the notes.
Allied Riser has determined that the comparable yield is 7.50%,
compounded semiannually. For this purpose, pursuant to the contingent payment
debt regulations, the right to convert the notes into common stock has been
treated as a term which may be taken into account in determining the comparable
yield; the law on this point, however, is not clear and there can be no
assurance that the IRS will not challenge this position and assert that the
comparable yield should be higher. Under the contingent payment debt
regulations, Allied Riser is required, solely for United States federal income
tax purposes, to provide a schedule of the projected amounts of payments (which
we refer to as projected payments) on a note. Based on the determination of the
comparable yield, the schedule of projected payments consists of (a) a payment
of $34.7917 on December 15, 2000, (b) payments of stated interest equal to
$37.50 on all other semiannual interest payment dates and (c) a payment of a
projected amount at the maturity date of the note (excluding the stated
semiannual interest on the note payable on such date) equal to $1,000. For
United States federal income tax purposes, a U.S. holder is required to use the
comparable yield and the schedule of projected payments in determining its
interest accruals and adjustments thereof in respect of the notes, unless such
U.S. holder timely discloses and justifies the use of other estimates to the
IRS.
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THE COMPARABLE YIELD AND THE SCHEDULE OF PROJECTED PAYMENTS ARE NOT
PROVIDED FOR ANY PURPOSE OTHER THAN THE DETERMINATION OF HOLDERS' INTEREST
ACCRUALS AND ADJUSTMENTS THEREOF IN RESPECT OF THE NOTES FOR UNITED STATES
FEDERAL INCOME TAX PURPOSES AND DO NOT CONSTITUTE A PROJECTION OR REPRESENTATION
REGARDING THE ACTUAL AMOUNTS PAYABLE ON THE NOTES.
ADJUSTMENTS TO INTEREST ACCRUALS. If, during any taxable year, the sum
of any actual interest payments with respect to a note for that taxable year
(including, in the case of the taxable year which includes the maturity date of
the note, the amount received at maturity) exceeds the total amount of projected
interest payments for that taxable year, the difference will produce a "net
positive adjustment" under the contingent payment debt regulations, which will
be treated as additional interest for the taxable year. For this purpose, the
payments in a taxable year generally include the fair market value of any common
stock received in that year. If the actual amount received in a taxable year in
respect of interest on a note is less than the amount of projected interest
payments for that taxable year, the difference will produce a "net negative
adjustment" under the contingent payment debt regulations, which will (a) reduce
the U.S. holder's interest income on the note for that taxable year and (b) to
the extent of any excess after the application of (a), give rise to an ordinary
loss to the extent of the U.S. holder's interest income on the note, during
prior taxable years (reduced to the extent such interest was offset by prior net
negative adjustments).
MARKET DISCOUNT. The tax treatment of U.S. holders with respect to the
notes may be altered if the notes are purchased at a "market discount." Market
discount on a note will generally equal the amount, if any, by which the revised
issued price of the note exceeds the holder's initial tax basis in the note
(generally the note's acquisition price). The revised issue price of a note for
a particular U.S. holder equals the original issue price of the note plus the
aggregate amount of original issue discount includable in the gross income of
all other holders for periods before the acquisition of the note by such U.S.
holder. Subject to a de minimis exception, a U.S. holder of a note acquired at a
market discount is generally required to treat as ordinary income any gain
recognized on the disposition of such note to the extent of the "accrued market
discount" at the time of disposition. Market discount on a note will be treated
as accruing on a straight-line basis over the term of such note or, at the
election of the holder, under a constant-yield method. A U.S. holder of a note
acquired at a market discount may be required to defer the deduction of a
portion of the interest on any indebtedness incurred or maintained to purchase
or carry the note until the note is disposed of in a taxable transaction, unless
the holder elects to include market discount in income as it accrues. If a note
with accrued market discount is converted into common stock, the amount of such
accrued market discount at the time of conversion generally will be taxable to
the U.S. holder as ordinary income upon disposition of the common stock.
PREMIUM. A U.S. holder that purchases a note at a premium over its
stated principal amount generally may elect to amortize such premium
(amortizable bond premium) from the purchase date to the note's maturity date
under a constant-yield method. Amortizable bond premium, however, will not
include any premium attributable to a note's conversion feature. The premium
attributable to the conversion feature is the excess, if any, of the note's
purchase price over what the note's fair market value would be if there were no
conversion feature. Amortized bond premium is treated as an offset to interest
income on a note and not as a separate deduction. However, since a note may be
optionally redeemed after acquisition at a price in excess of its stated
redemption price at maturity, special rules may apply that could result in a
deferral of the amortization of some bond premium until later in the term of the
note. In general, a U.S. holder's tax basis in the notes will be reduced by the
amount of any bond premium as it is amortized or used to offset interest income.
Such amortization will cease upon conversion of the notes into common stock.
A U.S. holder that purchases a note for an amount that is greater than
its revised issue price as of the purchase date and less than or equal to the
stated redemption price at maturity will be considered to have purchased the
note at an "acquisition premium." Under the acquisition premium rules, the
amount of original issue discount which such U.S. holder must include in its
gross with respect to such note for any taxable year (or portion of a taxable
year during which the U.S. holder holds the note) will be reduced (but not below
zero) by the portion of the acquisition premium properly allocable to the
period.
CONSTRUCTIVE DIVIDEND. Section 305 of the Code and the applicable
Treasury Regulations thereunder provide that, under certain circumstances,
adjustments in the conversion price of convertible securities (including the
failure to adjust the conversion price) may be treated as constructive
distributions of stock taxable as a dividend
38
<PAGE> 40
if, as a result of such adjustment (or failure to adjust), the proportionate
interest of the holder of such convertible security in the assets or earnings
and profits of the issuer is increased, unless such adjustment (or failure to
adjust) is made pursuant to an adjustment formula that has the effect of
preventing dilution of the interest of the holder of the convertible security.
Accordingly, adjustments in the conversion price of the notes (or the failure to
make such adjustments) may result in constructive distributions to U.S. holders
of notes that could, under certain circumstances, be taxable to such holders as
a dividend. If such constructive distributions were deemed to occur, a U.S.
holder of notes could be required to recognize ordinary income for U.S. federal
income tax purposes without receiving a corresponding distribution of cash.
CONVERSION OF NOTES. A U.S. holder generally will not recognize any
income, gain or loss upon conversion of a note into common stock, except with
respect to cash received instead of a fractional share of common stock. The
holder's tax basis in common stock received upon conversion of a note generally
will be the same as the holder's adjusted tax basis in the note at the time of
conversion, reduced by any basis allocable to a fractional share interest, and
the holding period of the common stock received upon conversion generally should
include the holding period of the note converted. Where, however, subsequent to
a conversion of a note a U.S. holder receives an interest payment on the note in
the form of common stock, the holder's tax basis in such common stock generally
should equal the amount of the stated interest to which the payment of such
common stock is attributable, and the holding period for such common stock
should begin as of the date of conversion of the note.
Cash received instead of a fractional share of common stock upon
conversion will be treated as a payment in exchange for the fractional share of
common stock. Accordingly, the receipt of cash instead of a fractional share of
common stock generally will result in ordinary income, measured by the
difference between the cash received for the fractional share and the holder's
adjusted tax basis in the fractional share under the rules described below. See
"Sale or exchange of notes or shares of common stock."
DIVIDENDS ON SHARES OF COMMON STOCK. Distributions on shares of common
stock will constitute dividends for U.S. federal income tax purposes to the
extent of Allied Riser's current and accumulated earnings and profits as
determined under U.S. federal income tax principles. While Allied Riser believes
it currently does not have any current or accumulated earnings and profits, the
actual amount of its earnings and profits at any time will depend upon its
financial performance. Dividends paid to holders that are U.S. corporations may
qualify for the dividends-received deduction.
To the extent that a U.S. holder receives a distribution on shares of
common stock that would otherwise constitute a dividend for U.S. federal income
tax purposes but that exceeds the holder's pro rata share of Allied Riser's
current and accumulated earnings and profits, the distribution will be treated
first as a non-taxable return of capital reducing the holder's basis in the
shares of common stock (but not below zero). Any distribution in excess of the
holder's basis in the shares of common stock will be treated as capital gain.
SALE OR EXCHANGE OF NOTES OR SHARES OF COMMON STOCK. In general, a U.S.
holder of notes (or of common stock into which the notes have been converted)
will recognize gain or loss upon the sale, redemption, retirement or other
disposition of the notes (or the common stock) measured by the difference
between:
o the amount of cash and the fair market value of any property
received; and
o the U.S. holder's tax basis in the notes (or the common
stock).
A U.S. holder's tax basis in notes generally will equal the cost of the
notes to the holder, increased by interest previously accrued by the holder
(determined without regard to any net positive or negative adjustments described
above) and decreased by the amount of any projected payments prior to the date
of such calculation and any amortized bond premium. Any gain realized on a sale
or exchange of a note generally will be taxable as ordinary income; while any
loss generally will be treated as ordinary loss to the extent the holder's total
interest inclusions exceed the net negative adjustments the holder took into
account as ordinary loss and, thereafter, as capital loss. In general, any gain
or loss realized by a U.S. holder on the disposition of common stock into which
the notes have been converted will be capital gain or loss and will be long-term
capital gain or loss if the holding period of the notes or the common stock that
was disposed of exceeded one year. Net long-term capital gain
39
<PAGE> 41
realized by individual taxpayers is taxable at a maximum rate of 20%. Special
rules may apply to redemptions of the common stock which may result in the
amount paid being treated as a dividend.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Information reporting and backup withholding may apply to payments of
interest or dividends on or the proceeds of the sale or other disposition of the
notes or shares of common stock made by Allied Riser with respect to
non-corporate U.S. holders. These holders generally will be subject to backup
withholding at a rate of 31% unless the recipient of the payment supplies a
taxpayer identification number and other information, certified under penalties
of perjury, or otherwise establishes, in the manner prescribed by law, an
exemption from backup withholding. Any amount withheld under backup withholding
is allowable as a credit against the U.S. holder's federal income tax, upon
timely furnishing the required information to the IRS.
PLAN OF DISTRIBUTION
The securities being offered by this prospectus may be sold from time
to time to purchasers directly by the selling security holders listed in the
table set forth in "Selling Security Holders" or, alternatively, through
underwriters, broker-dealers or agents. The selling security holders may offer
the securities at fixed prices, at prevailing market prices at the time of sale,
at varying prices or at negotiated prices. These sales may be effected in
transactions, which may involve crosses or block transactions:
o on any national securities exchange or quotation
service on which the notes or common stock may be
listed or quoted at the time of sale;
o in the over-the-counter market;
o in transactions otherwise than on an exchange or
over-the-counter market; and
o through the writing of options.
In connection with sales of the securities, the selling security
holders may enter into hedging transactions with broker-dealers, who may in turn
engage in short sales of the securities in the course of hedging the positions
they assume. The selling security holders may also sell the securities short and
deliver them to close out the short positions, or loan or pledge the securities
to broker-dealers that in turn may sell them.
The selling security holders and any of their brokers, dealers or
agents who participate in the distribution of the securities may be deemed to be
"underwriters", and any profits on the sale of the securities by them and any
discounts, commissions, or concessions received by any brokers, dealers or
agents might be deemed to be underwriting discounts and commissions under the
Securities Act.
To our best knowledge, there are currently no plans, arrangements or
understandings between any selling security holders and any broker, dealer,
agent or underwriter regarding the sale of the securities by the selling
security holders.
At any time a particular offer of the securities is made, a revised
prospectus or supplement, if required, will be distributed that will set forth
the aggregate amount and type of securities being offered and the terms of the
offering, including the name or names of any underwriters, dealers or agents,
any discounts, commissions and other items constituting compensation from the
selling security holders and any discounts, commissions or concessions allowed
or reallowed or paid to dealers. Any supplement and, if necessary, a
post-effective amendment to the registration statement, of which this prospectus
is a part, will be filed with the SEC to reflect the disclosure of additional
information with respect to the distribution of the securities. In addition, the
securities covered by this prospectus may be sold in private transactions or
under Rule 144 rather than under this prospectus.
We have agreed to indemnify the selling security holders against
specified liabilities under the Securities Act and to pay substantially all of
the expenses incidental to the registration, offering and sale of the securities
to the public other than commissions, fees and discounts of underwriters,
brokers, dealers and agents.
40
<PAGE> 42
LEGAL MATTERS
The validity of the securities offered by this prospectus will be
passed upon for us by Jones, Day, Reavis & Pogue.
EXPERTS
The consolidated financial statements of Allied Riser Communications
Corporation as of December 31, 1998 and 1999, and for the period from inception
(December 19, 1996) through December 31, 1997, and for the years ended December
31, 1998 and 1999, incorporated by reference in this prospectus and elsewhere in
the registration statement, have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said report.
41
<PAGE> 43
PART II
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table indicates the expenses to be incurred in connection
with the offering described in this Registration Statement, all of which will be
paid by us. All amounts are estimates, other than the Securities and Exchange
Commission filing fee and the Nasdaq listing fee.
<TABLE>
<S> <C>
Securities Exchange Commission filing fee.......... $ 51,374
Nasdaq listing fee................................. 17,500
Accounting fees and expenses....................... 25,000
Legal fees and expenses............................ 100,000
Printing and engraving............................. 40,000
Transfer agent fees and expenses................... 15,000
Trustee fees....................................... 61,000
Miscellaneous expenses............................. 15,126
---------
Total.................................... $ 325,000
=========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 102 of the Delaware General Corporation Law, as amended, or
DGCL, allows a corporation to eliminate the personal liability of directors of a
corporation to the corporation or its stockholders for monetary damages for a
breach of fiduciary duty as a director, except where the director breached his
duty of loyalty, failed to act in good faith, engaged in intentional misconduct
or knowingly violated a law, authorized the payment of a dividend or approved a
stock repurchase in violation of Delaware corporate law or obtained an improper
personal benefit.
Section 145 of the DGCL provides, among other things, that we may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding (other than
an action by or in the right of Allied Riser) by reason of the fact that the
person is or was our director, officer, agent or employee or is or was serving
at our request as a director, officer, agent or employee of another corporation,
partnership, joint venture, trust or other enterprise, against expenses,
including attorneys' fees, judgments, fines and amounts paid in settlement
actually and reasonably incurred by the person in connection with such action,
suit or proceeding. The power to indemnify applies (a) if such person is
successful on the merits or otherwise in defense of any action, suit or
proceeding, or (b) if such person acted in good faith and in a manner he or she
reasonably believed to be in the best interest, or not opposed to the best
interest, of Allied Riser, and with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
The power to indemnify applies to actions brought by or in the right of Allied
Riser as well, but only to the extent of defense expenses (including attorneys'
fees but excluding amounts paid in settlement) actually and reasonably incurred
and not to any satisfaction of judgment or settlement of the claim itself, and
with the further limitation that in such actions no indemnification shall be
made in the event of any adjudication of negligence or misconduct in the
performance of his or her duties to Allied Riser, unless the court believes that
in the light of all the circumstances indemnification should apply.
Section 174 of the DGCL provides, among other things, that a director,
who willfully or negligently approves of an unlawful payment of dividends or an
unlawful stock purchase or redemption, may be held liable for such actions. A
director who was either absent when the unlawful actions were approved or
dissented at the time may avoid liability by causing his or her dissent to such
actions to be entered in the books containing the minutes of the meetings of the
board of directors at the time such action occurred or immediately after such
absent director receives notice of the unlawful acts.
Our amended and restated certificate of incorporation includes a
provision that eliminates the personal liability of our directors for monetary
damages for breach of fiduciary duty as a director, except for liability:
II-1
<PAGE> 44
o for any breach of the directors's duty of loyalty to us or our
stockholders;
o for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
o under section 174 of the DGCL regarding unlawful dividends and stock
purchases; or
o for any transaction from which the director derived an improper
personal benefit.
These provisions are permitted under Delaware law.
Our amended and restated bylaws provide that:
o we must indemnify our directors and officers to the fullest extent
permitted by Delaware law;
o we may indemnify our other employees and agents to the same extent
that we indemnified our officers and directors, unless otherwise determined by
our board of directors; and
o we must advance expenses, as incurred, to our directors and
executive officers in connection with a legal proceeding to the fullest extent
permitted by Delaware law.
The indemnification provisions contained in our amended and restated
certificate of incorporation and amended and restated bylaws are not exclusive
of any other rights to which a person may be entitled by law, agreement, vote of
stockholders or disinterested directors or otherwise. In addition, we maintain
insurance on behalf of our directors and executive officers insuring them
against any liability asserted against them in their capacities as directors or
officers or arising out of such status.
ITEM 16. EXHIBITS
(a) Exhibits:
EXHIBIT DESCRIPTION OF EXHIBIT
------- ----------------------
2.1 -- Plan of Complete Liquidation and Reorganization, dated
November 18, 1998 (previously filed as Exhibit 2.1 to
our Registration Statement on Form S-1, as amended by
a Form S-1/A (Amendment No. 3), Commission File No.
333-85597, filed October 20, 1999, and incorporated
herein by reference)
3.1 -- Amended and Restated Certificate of Incorporation
(previously filed as Exhibit 3.1 to our Quarterly
Report on Form 10-Q for the quarter ended September
30, 1999, filed on December 13, 1999, and incorporated
herein by reference)
3.2 -- Bylaws, as amended and restated (previously filed as
Exhibit 3.2 to our Registration Statement on Form S-1,
as amended by a Form S-1/A (Amendment No. 3),
Commission File No. 333-85597, filed October 20, 1999,
and incorporated herein by reference)
4.1 -- Specimen Certificate for our common stock (previously
filed as Exhibit 4.1 to our Registration Statement on
Form S-1, as amended by a Form S-1/A (Amendment
No. 3), Commission File No. 333-85597, filed October
20, 1999, and incorporated herein by reference)
4.2 -- Specimen Certificate for our warrants (previously
filed as Exhibit 4.1 to our Registration Statement on
Form S-1, as amended by a Form S-1/A (Amendment to
No. 3), Commission File No. 3), Commission File No.
333-85597, filed October 20, 1999, and incorporated
herein by reference)
4.3 -- Registration Rights Agreement, dated as of November
23, 1998, among Allied Riser and the stockholders
named therein (previously filed as Exhibit 4.3 to our
Registration Statement on Form S-1, as amended by a
Form S-1/A (Amendment No. 1), Commission File No.
333-85597, filed September 23, 1999, and incorporated
herein by reference)
II-2
<PAGE> 45
EXHIBIT DESCRIPTION OF EXHIBIT
------- ----------------------
4.3.1 -- First Amendment to Registration Rights Agreement,
dated as of December 30, 1998 (previously filed as
Exhibit 4.3.1 to our Registration Statement on Form
S-1, as amended by a Form S-1/A (Amendment No. 1),
Commission File No. 333-85597, filed September 23,
1999, and incorporated herein by reference)
4.3.2 -- Second Amendment to Registration Rights Agreement,
dated as of August 18, 1999 (previously filed as
Exhibit 4.3.2 to our Registration Statement on form
S-1, as amended by a Form S-1/A (Amendment No. 1),
Commission File No. 333-85597, filed September 23,
1999, and incorporated herein by reference)
4.3.3 -- Third Amendment to Registration Rights Agreement,
dated as of August 18, 1999 (previously filed as
Exhibit 4.3.3 to our Registration Statement on Form
S-1, as amended by a Form S-1/A (Amendment No. 1),
Commission File No. 333-85597, filed September 23,
1999, and incorporated herein by reference)
4.4 -- Indenture, dated as of July 28, 2000 by and between
Allied Riser and Wilmington Trust Company, as trustee,
relating to Allied Riser's 7.50% Convertible
Subordinated Notes due 2007 (previously filed as
Exhibit 4.1 to our Quarterly Report on Form 10-Q for
the quarter ended June 30, 2000, filed on August 11,
2000, and incorporated herein by reference)
4.5 -- Registration Rights Agreement, dated as of July 22,
2000, by and between Allied Riser and Goldman, Sachs
& Co., relating to Allied Riser's 7.50% Convertible
Subordinated Notes due 2007 (previously filed as
Exhibit 4.2 to our Quarterly Report on Form 10-Q for
the quarter ended June 30, 2000, filed on August 11,
2000, and incorporated herein by reference)
*5.1 -- Opinion of Jones, Day, Reavis & Pogue regarding
validity
*8.1 -- Opinion of Jones, Day, Reavis & Pogue regarding
certain tax matters
**12.1 -- Statement regarding computation of earnings to fixed
charges
*23.1 -- Consent of Jones, Day, Reavis & Pogue (included in
Exhibit 5.1)
*23.2 -- Consent of Arthur Andersen LLP
**25.1 -- Statement of Eligibility of Trustee on Form T-1
-------------------------
* Filed herewith
** Previously filed
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form
of a prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price
represent no more than 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration
statement; and
(iii) to include any material information with
respect to the plan of distribution not previously disclosed
in this registration statement or any material change to such
information in this registration statement;
II-3
<PAGE> 46
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the Registration Statement is on Form S-3, Form S-8 or Form
F-3, and the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed
with or furnished to the Commission by the registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that
are incorporated by reference in this Registration Statement;
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in this
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
II-4
<PAGE> 47
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment No. 1 to the Registration Statement on
Form S-3 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Dallas, State of Texas, on December 15, 2000.
ALLIED RISER COMMUNICATIONS CORPORATION
By: /s/ GERALD K. DINSMORE
-------------------------------------
Gerald K. Dinsmore
President and Chief Executive Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to the Registration Statement on Form S-3 has been signed by the
following persons in the capacities and on the date indicated below.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ GERALD K. DINSMORE President, Chief Executive Officer and
--------------------------------- Director (Chief Executive Officer) December 15, 2000
Gerald K. Dinsmore
Senior Vice President and Chief
/s/ TODD C. DOSHIER Financial Officer (Principal Financial
--------------------------------- and Accounting Officer) December 15, 2000
*Todd C. Doshier
Attorney-in-fact
*
--------------------------------- Director and Chairman of the Board
Stephen W. Schovee
*
--------------------------------- Director
R. David Spreng
*
--------------------------------- Director
Blair P. Whitaker
*
--------------------------------- Director
William T. White
</TABLE>
<PAGE> 48
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
2.1 -- Plan of Complete Liquidation and Reorganization, dated
November 18, 1998 (previously filed as Exhibit 2.1 to
our Registration Statement on Form S-1, as amended by
a Form S-1/A (Amendment No. 3), Commission File No.
333-85597, filed October 20, 1999, and incorporated
herein by reference)
3.1 -- Amended and Restated Certificate of Incorporation
(previously filed as Exhibit 3.1 to our Quarterly
Report on Form 10-Q for the quarter ended September
30, 1999, filed on December 13, 1999, and incorporated
herein by reference)
3.2 -- Bylaws, as amended and restated (previously filed as
Exhibit 3.2 to our Registration Statement on Form S-1,
as amended by a Form S-1/A (Amendment No. 3),
Commission File No. 333-85597, filed October 20, 1999,
and incorporated herein by reference)
4.1 -- Specimen Certificate for our common stock (previously
filed as Exhibit 4.1 to our Registration Statement on
Form S-1, as amended by a Form S-1/A (Amendment
No. 3), Commission File No. 333-85597, filed October
20, 1999, and incorporated herein by reference)
4.2 -- Specimen Certificate for our warrants (previously
filed as Exhibit 4.1 to our Registration Statement on
Form S-1, as amended by a Form S-1/A (Amendment to
No. 3), Commission File No. 3), Commission File No.
333-85597, filed October 20, 1999, and incorporated
herein by reference)
4.3 -- Registration Rights Agreement, dated as of November
23, 1998, among Allied Riser and the stockholders
named therein (previously filed as Exhibit 4.3 to our
Registration Statement on Form S-1, as amended by a
Form S-1/A (Amendment No. 1), Commission File No.
333-85597, filed September 23, 1999, and incorporated
herein by reference)
4.3.1 -- First Amendment to Registration Rights Agreement,
dated as of December 30, 1998 (previously filed as
Exhibit 4.3.1 to our Registration Statement on Form
S-1, as amended by a Form S-1/A (Amendment No. 1),
Commission File No. 333-85597, filed September 23,
1999, and incorporated herein by reference)
4.3.2 -- Second Amendment to Registration Rights Agreement,
dated as of August 18, 1999 (previously filed as
Exhibit 4.3.2 to our Registration Statement on form
S-1, as amended by a Form S-1/A (Amendment No. 1),
Commission File No. 333-85597, filed September 23,
1999, and incorporated herein by reference)
4.3.3 -- Third Amendment to Registration Rights Agreement,
dated as of August 18, 1999 (previously filed as
Exhibit 4.3.3 to our Registration Statement on Form
S-1, as amended by a Form S-1/A (Amendment No. 1),
Commission File No. 333-85597, filed September 23,
1999, and incorporated herein by reference)
4.4 -- Indenture, dated as of July 28, 2000 by and between
Allied Riser and Wilmington Trust Company, as trustee,
relating to Allied Riser's 7.50% Convertible
Subordinated Notes due 2007 (previously filed as
Exhibit 4.1 to our Quarterly Report on Form 10-Q for
the quarter ended June 30, 2000, filed on August 11,
2000, and incorporated herein by reference)
4.5 -- Registration Rights Agreement, dated as of July 22,
2000, by and between Allied Riser and Goldman,
Sachs & Co., relating to Allied Riser's 7.50%
Convertible Subordinated Notes due 2007 (previously
filed as Exhibit 4.2 to our Quarterly Report on Form
10-Q for the quarter ended June 30, 2000, filed on
August 11, 2000, and incorporated herein by reference)
*5.1 -- Opinion of Jones, Day, Reavis & Pogue regarding
validity
*8.1 -- Opinion of Jones, Day, Reavis & Pogue regarding
certain tax matters
**12.1 -- Statement regarding computation of earnings to fixed
charges
*23.1 -- Consent of Jones, Day, Reavis & Pogue (included in
Exhibit 5.1)
*23.2 -- Consent of Arthur Andersen LLP
**25.1 -- Statement of Eligibility of Trustee on Form T-1
</TABLE>
----------
* Filed herewith
** Previously filed
