<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 10, 1996
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
NEXTWAVE TELECOM INC.
(Exact name of registrant as specified in its charter)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE 4812 33-0663509
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
9455 TOWNE CENTRE DRIVE
SAN DIEGO, CALIFORNIA 92121-1964
(619) 597-4040
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------
ALLEN B. SALMASI
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
NEXTWAVE TELECOM INC.
9455 TOWNE CENTRE DRIVE
SAN DIEGO, CALIFORNIA 92121-1964
(619) 597-4040
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------
Copies to:
<TABLE>
<S> <C> <C>
SCOTT N. WOLFE, ESQ. FRANK A. CASSOU, ESQ. MATTHEW J. MALLOW, ESQ.
LATHAM & WATKINS SENIOR VICE PRESIDENT AND GENERAL MARK C. SMITH, ESQ.
COUNSEL
701 "B" STREET, SUITE 2100 NEXTWAVE TELECOM INC. SKADDEN, ARPS, SLATE,
SAN DIEGO, CALIFORNIA 92101 9455 TOWNE CENTRE DRIVE MEAGHER & FLOM
(619) 236-1234 SAN DIEGO, CALIFORNIA 92121-1964 919 THIRD AVENUE
(619) 597-4040 NEW YORK, NEW YORK 10022
(212) 735-3000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
- ------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
- ------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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<S> <C> <C>
<CAPTION>
PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED PRICE(1) FEE
<S> <C> <C>
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Series B Common Stock, $.0001 par value............................ $300,000,000 $103,449.00
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</TABLE>
(1) Estimated solely for the purpose of computing the registration fee pursuant
to Rule 457(o) under the Securities Act of 1933.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
CROSS-REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS
OF INFORMATION REQUIRED BY ITEMS OF FORM S-1
<TABLE>
<CAPTION>
REGISTRATION STATEMENT
ITEM AND HEADING PROSPECTUS CAPTIONS
------------------------------------------ ------------------------------------------
<S> <C> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus.... Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus............................. Inside Front and Outside Back Cover Pages
of Prospectus
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges........ Prospectus Summary; Risk Factors; Selected
Financial Data
4. Use of Proceeds........................... Prospectus Summary; Use of Proceeds
5. Determination of Stock Offering Price..... Outside Front Cover Page of Prospectus;
Risk Factors; Underwriting
6. Dilution.................................. Dilution
7. Selling Security Holders.................. *
8. Plan of Distribution...................... Outside Front Cover Page of Prospectus;
Underwriting
9. Description of Securities to be
Registered................................ Description of Capital Stock
10. Interests of Named Experts and Counsel.... *
11. Information with Respect to the
Registrant................................ Prospectus Summary; Risk Factors; Selected
Financial Data; Management's Discussion
and Analysis of Financial Condition and
Results of Operations; The Wireless
Telecommunications Industry; Business;
Regulation of Wireless Telecommunications
Industry; Management; Principal
Stockholders; Certain Relationships and
Related Transactions; Description of
Capital Stock; Shares Eligible for Future
Sale; Certain Indebtedness; Underwriting;
Experts; Consolidated Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................... *
</TABLE>
- ---------------
* Not Applicable.
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JUNE 10, 1996
PROSPECTUS
SHARES
LOGO
NEXTWAVE TELECOM INC.
SERIES B COMMON STOCK
------------------------
All of the shares of Series B Common Stock, par value $.0001 per share (the
"Series B Common Stock"), offered hereby (the "Stock Offering") are being sold
by NextWaveTelecom Inc. (the "Company").
The common stock, par value $.0001 per share, of the Company has been
designated into two series, consisting of Series A Common Stock and Series B
Common Stock (collectively, the "Common Stock"). Following completion of the
Stock Offering, the holders of the Series A Common Stock will control in excess
of 25.0% of the outstanding equity of the Company on a fully-diluted basis. As a
result of their equity ownership and the corporate governance provisions
regarding voting, the holders of the Series A Common Stock will have the right
to elect a majority of the Board of Directors of the Company and will have
voting control of the Company, with the exception of certain extraordinary
corporate actions which require approval of the holders of the Series B Common
Stock voting separately as a class. See "Risk Factors -- Control by Certain
Stockholders; Antidilution Provision for Series A Common Stock" and "Description
of Capital Stock."
Prior to the Stock Offering, there has been no public market for the Series
B Common Stock. It is currently estimated that the initial public offering price
will be between $ and $ per share. See "Underwriting" for a
discussion of certain factors to be considered in determining the initial public
offering price. The Company has applied to have the Series B Common Stock
approved for listing on The Nasdaq National Market under the symbol "SURF."
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CAREFULLY CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
SERIES B COMMON STOCK OFFERED HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
<S> <C> <C> <C>
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Per Share................................ $ $ $
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Total(3)................................. $ $ $
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</TABLE>
(1) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting."
(2) Before deducting expenses of the Stock Offering payable by the Company
estimated at $ .
(3) The Company has granted the Underwriters an option exercisable within 30
days after the date hereof to purchase up to an aggregate of
additional shares of Series B Common Stock at the initial public offering
price per share, less the underwriting discount, solely to cover
over-allotments, if any. If such over-allotment option is exercised in full,
the total Price to Public, Underwriting Discount and Proceeds to Company
will be $ , $ and $ , respectively. See
"Underwriting."
------------------------
The shares of Series B Common Stock are being offered by the several
Underwriters, subject to prior sale, when, as and if issued to and accepted by
them, subject to approval of certain legal matters by counsel for the
Underwriters and certain other conditions. The Underwriters reserve the right to
withdraw, cancel or modify such offer and to reject orders in whole or in part.
It is expected that delivery of the shares of Series B Common Stock will be made
in New York, New York, on or about July , 1996.
------------------------
MERRILL LYNCH & CO. LEHMAN BROTHERS
BEAR, STEARNS & CO. INC.
PRUDENTIAL SECURITIES
INCORPORATED
ING BARINGS
------------------------
The date of this Prospectus is , 1996.
<PAGE> 4
[SHADED MAP OF U.S. SHOWING COMPANY'S MARKETS APPEARS HERE]
<TABLE>
<CAPTION>
REGIONS ANCHOR CITIES POPS
- --------------------------------- ------------------------------------------------- -----------
<S> <C> <C>
New York Metro................... New York City 22,176,800
Southern California.............. Los Angeles; San Diego 18,086,900
Midwest.......................... Cleveland; Pittsburgh; Cincinnati; Columbus;
Louisville; Indianapolis; Dayton 15,100,700
Mid-Atlantic..................... Washington, D.C.; Baltimore; Charlotte; Norfolk;
Greensboro; Richmond 14,608,200
Southwest........................ Houston; Kansas City; San Antonio; Oklahoma City 13,224,300
New England...................... Boston; Providence 7,769,800
Florida.......................... Tampa; Orlando; Jacksonville 6,936,200
-----------
97,902,900
=========
</TABLE>
------------------------
NextWave Telecom(TM) and TELE*Code(TM) are trademarks of the Company.
------------------------
IN CONNECTION WITH THE STOCK OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SERIES B
COMMON STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL
IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL
MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY
TIME.
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the consolidated financial statements (including the notes
thereto) appearing elsewhere in this Prospectus. Unless otherwise indicated, all
information in this Prospectus assumes no exercise of the Underwriters'
over-allotment option. Pursuant to the Company's Restated Certificate of
Incorporation, all rights to acquire shares of Series C Common Stock will be
converted into rights to acquire shares of Series B Common Stock upon
consummation of the Stock Offering, and for purposes of this Prospectus, all
rights to acquire shares of Series C Common Stock are assumed to be converted
into rights to acquire shares of Series B Common Stock. As used in this
Prospectus, "NextWave" or the "Company" refers to NextWave Telecom Inc. and its
subsidiaries. When used herein with respect to a given area, the term "POPs"
refers to the aggregate number of persons located in such area, based on the
1994 estimated U.S. population data contained in Rand McNally's 1995 Commercial
Atlas and Marketing Guide. See "Glossary of Terms" for definitions of certain
terms used in this Prospectus.
THE COMPANY
GENERAL
NextWave was formed to build and operate Personal Communications Services
("PCS") networks. In May 1996, NextWave was named the winning bidder for PCS
licenses representing approximately 98 million POPs in the C-Block Auction held
by the Federal Communications Commission ("FCC"). Upon final granting of its PCS
licenses, NextWave believes it will have the third largest number of licensed
POPs among cellular and PCS licensees in the United States, after AT&T Wireless
Services, Incorporated and Sprint Spectrum L.P. To date, the Company has raised
an aggregate of approximately $450 million in private capital to finance the
acquisition of PCS licenses and commence the development of its PCS networks.
NextWave has filed its applications with the FCC for PCS licenses in 56 Basic
Trading Areas ("BTAs," collectively the "Markets") and has paid the FCC the
required 5% initial deposit of approximately $210 million.
NextWave believes that its Markets are some of the most attractive in the
United States, with demographics that would suggest higher than average use of
wireless telephony. The Company's Markets include some of the most densely
populated cities in the United States, including New York, Los Angeles, Boston,
Houston and Washington, D.C. The Markets are also characterized by high
population growth rates, high disposable income levels, long average commute
times and significant percentages of dual household wage earners.
NextWave intends to operate primarily as a "carriers' carrier," wholesaling
low-cost minutes of use ("MOUs") to a broad range of resellers. The Company
plans to target several categories of customers, including long distance
companies, the Regional Bell Operating Companies ("RBOCs") and other local
exchange carriers ("LECs"), competitive access providers ("CAPs"), other major
PCS retailers, cellular service providers, utilities, cable television system
operators and independent resellers, as well as retailers and manufacturers of
mass-market consumer products and services. By purchasing MOUs from the Company,
these companies will be able to offer competitively priced wireless services
under their own brand names without substantial capital investment and without
purchasing MOUs from direct competitors. The Company believes that its strategy
will generate high volumes of MOUs over its networks.
The Company believes the demand for wireless telecommunications will
continue to grow dramatically and that PCS will capture a significant share of
the wireless market. Currently, wireless penetration in the U.S. is estimated to
be 13% and, according to Paul Kagan Associates, Inc., is expected to exceed 47%
by 2006. As reported by the Cellular Telecommunications Industry Association
("CTIA"), the compound annual growth rate of cellular subscribers exceeded 45%
from 1993 through 1995. Despite this rapid growth in the number of cellular
subscribers, wireless MOUs represent only a small portion of total
telecommunications traffic due to capacity constraints which discourage cellular
providers from aggressively pricing their services. The Company believes that
the demand for wireless service is highly elastic and that the anticipated lower
cost and higher quality of PCS service will fuel further growth in the wireless
market.
3
<PAGE> 6
BUSINESS STRATEGY
NextWave intends to build and operate digital networks through which the
Company will provide low-cost, advanced wireless communications services. The
principal components of the Company's business strategy are to (i) operate
primarily as a "carriers' carrier," wholesaling MOUs to a broad range of
customers, including wireless service providers, (ii) provide low-cost minutes
of use, (iii) capitalize on the widespread geographic coverage ("footprint") of
its networks, (iv) leverage the Company's technical expertise and (v) offer
value-added products and services to PCS resellers and their subscribers.
- OPERATE AS A CARRIERS' CARRIER. By operating primarily as a wholesaler
of MOUs, NextWave will not market directly to consumers, but instead
expects to sell a high volume of MOUs on its networks to branded wireless
resellers who in turn will sell to consumers. The Company believes that
the movement among major branded providers to bundle their services, such
as the recent announcements by AT&T and MCI, will create an opportunity
for NextWave to offer MOUs to those carriers that have not yet acquired
the means to provide digital wireless services and to PCS providers
seeking to fill in geographic gaps or create incremental capacity.
- PROVIDE LOW-COST MINUTES OF USE. NextWave will seek to be a low-cost
operator of PCS networks by pursuing a high-volume wholesale strategy and
by building efficient PCS networks. In order to execute this strategy,
the Company intends to (i) implement Code Division Multiple Access
("CDMA") technology, which requires 30%-50% fewer cell sites than
alternative digital technologies, (ii) organize the Markets into
geographic regions, resulting in operational efficiencies and economies
of scale, (iii) perform its own network engineering and design rather
than rely on equipment suppliers to design its networks and (iv) sell
MOUs to resellers rather than directly to end-users, significantly
reducing the Company's marketing expenses. NextWave's high volume
strategy will provide for increased capacity utilization which should
reduce the Company's average cost per MOU.
- CAPITALIZE ON WIDESPREAD GEOGRAPHIC COVERAGE. Upon final granting of its
PCS licenses, NextWave believes it will have the third largest number of
licensed POPs among cellular and PCS licensees in the United States,
representing approximately 38% of the U.S. population. NextWave's Markets
represent five of the ten largest BTAs and 25 of the 50 largest BTAs. The
Company believes that the breadth of its footprint and the demographics
of the Markets will enhance its attractiveness to potential reseller
customers and will minimize expensive out-of-region "roaming" charges. In
the future, NextWave will selectively expand its footprint through
strategic alliances, acquisitions and participation in planned FCC
auctions.
- LEVERAGE TECHNICAL EXPERTISE. The Company is building a management team
with significant experience in designing, deploying and operating
sophisticated wireless networks. Mr. Allen Salmasi, Chairman, President
and Chief Executive Officer of the Company, led the successful
development and standardization of CDMA technology as President of the
Wireless Telecommunications Division and Chief Strategic Officer of
QUALCOMM Incorporated ("QUALCOMM"), a leading wireless equipment company.
Other members of NextWave management have substantial expertise in
network engineering, planning and operations, as well as business
development, regulatory matters and marketing. The Company believes that
management's expertise will allow NextWave to (i) efficiently design
high-quality, low-cost wireless networks, (ii) incorporate advances in
wireless technology and upgrade the Company's networks as appropriate and
(iii) capitalize on emerging trends and opportunities in the wireless
industry.
- OFFER VALUE-ADDED PRODUCTS AND SERVICES. In addition to offering
low-cost MOUs to resellers, the Company also intends to offer other
products such as wireless local loop services and wireless PBX
applications. The Company's networks will also support advanced wireless
features including caller ID, over-the-air activation, integrated paging,
call answering and handset-based Internet access. The Company also plans
to market other wireless services such as wireless meter reading for
utility companies.
4
<PAGE> 7
NETWORK BUILD-OUT
General. The Company intends to offer wide area mobility service in
certain of the Markets, including New York City, Los Angeles/San Diego,
Washington, D.C./Baltimore, Boston and Houston, by the end of 1997 and in the
remaining Markets by the end of 1998. Prior to offering full coverage, NextWave
intends to make available limited coverage service within approximately one year
of the date of the FCC's license grants. This will allow the Company to offer
its resellers commercial-grade service in selected areas while the wide area
mobility system is implemented. Unlike other PCS operators, NextWave will
perform a substantial portion of its own network design and systems engineering,
rather than rely on equipment vendors to provide such services.
Deployment Status. NextWave has organized its Markets into seven
geographic regions to provide for operational efficiencies, to lower
infrastructure costs and to facilitate the network build-out. In each of its
regions, the Company is assembling deployment teams which are in the process of
selecting and acquiring cell sites and designing the networks. The Company is
completing its initial radio engineering plans for deployment of CDMA systems in
its New York City, Los Angeles/San Diego, Washington, D.C./Baltimore, Boston and
Houston markets. The Company expects to complete its detailed design for all of
its Markets by the fourth quarter of 1996.
CDMA Technology. The Company has selected CDMA technology as the frequency
management protocol for use in its digital wireless networks. Based on public
announcements, CDMA is expected to be the most widely adopted PCS technology in
the United States, covering more than 90% of the population. The Company
believes that CDMA provides important performance benefits such as high voice
quality, soft hand-off, extended handset battery life, expanded coverage and
capacity and greater security. The Company also believes that CDMA will enable
the Company to engineer its network coverage using fewer cell sites than would
be required by alternative technologies. CDMA's widespread coverage should
enable NextWave to enter into agreements which will provide for roaming
virtually nationwide.
Equipment Availability. In April 1996, the Company released its
procurement requirements for CDMA infrastructure equipment and is currently
engaged in product selection and vendor contract negotiations. There are over 20
companies worldwide that are licensed to manufacture and supply CDMA equipment,
including Lucent Technologies, Hughes Network Systems, Fujitsu, LG InfoComm,
Inc., Motorola, Northern Telecom, QUALCOMM, and SONY Electronics Inc. The
Company expects to purchase equipment from multiple vendors.
5
<PAGE> 8
FINANCING PLAN
NextWave will require substantial funds to finance the build-out of its PCS
networks, to service its license purchase obligations, and to provide working
capital for the Company's operations. The Company estimates that from May 1996
through December 1997 (assuming the grant of the PCS licenses on September 1996)
its capital requirements will be approximately $1.3 billion, including capital
expenditures, working capital, interest expense and the final down payment of
approximately $210 million to the FCC. In addition, the Company expects to incur
approximately $3.8 billion in 10-year government debt financing at a fixed
interest rate equal to the 10-year Treasury Rate at the time the Company's
licenses are granted (6.85% per annum at May 31, 1996), with no principal
amortization until 2003.
The Company expects to raise approximately $ million from the
Stock Offering hereby. In addition, the Company intends to raise approximately
$ million in gross proceeds from a senior discount notes offering (the
"Notes Offering", and together with the Stock Offering, the "Offerings"), a
portion of which will be used to repay the approximately $130 million of
Convertible Senior Subordinated Notes Due 2002 (the "Bridge Notes"). The Notes
Offering will be contingent upon the successful completion of the Stock
Offering. The Company also intends to enter into secured financing agreements
with equipment vendors. To date, the Company has raised approximately $450
million in private capital, of which approximately $210 million has been paid to
the FCC as the Company's initial 5% down payment. The Company believes that the
aggregate net proceeds from the Offerings, government loans, vendor financing
and cash on hand will be sufficient to fund its operations and obligations at
least until December 31, 1997. The Company believes such amounts will be
sufficient to fund the initial network build-out of the New York City, Los
Angeles/San Diego, Washington D.C./Baltimore, Boston and Houston markets.
NextWave was incorporated in Delaware in May 1995, its principal executive
offices are located at 9455 Towne Centre Drive, San Diego, California,
92121-1964 and its telephone number is (619) 597-4040.
6
<PAGE> 9
THE STOCK OFFERING
Common Stock Offered
Hereby................... Series B Shares
Common Stock to be
Outstanding After the Stock
Offering:
Series B Common
Stock...................... shares(1)(2)
Series A Common
Stock...................... 55,760,000 shares(2)
Use of Proceeds............ The net proceeds to the Company from the Stock
Offering are estimated to be approximately $
million. The Company will use a portion of the net
proceeds of the Stock Offering to make debt service
payments to the U.S. Government in connection with
the financing of its PCS licenses, and will use a
portion of the net proceeds to fund pre-
construction activities, such as site planning and
acquisition, system design, and planning for and
implementing relocation of incumbent fixed
microwave licensees. The remainder of the net
proceeds from the Stock Offering will be used to
fund the initial costs associated with construction
and operation of the Company's networks, for
possible expansion of the Company's footprint and
for general corporate purposes. See "Use of
Proceeds."
- ------------
(1) Excludes (i) 13,987,500 shares of Series B Common Stock issuable upon
exercise of outstanding stock options granted to employees and directors of
the Company, (ii) 14,259,116 shares of Series B Common Stock issuable upon
exercise of presently outstanding warrants, (iii) 7,234,756 shares of Series
B Common Stock issuable upon conversion of Convertible Promissory Notes
issued to certain foreign investors (the "Convertible Promissory Notes"),
(iv) 1,019,444 shares of Series B Common Stock issuable upon conversion of a
promissory note held by QUALCOMM and (v) 32,587,000 shares of Series B
Common Stock issuable upon conversion of the Bridge Notes (or up to
32,587,000 shares issuable upon exercise of warrants to be issued upon
repayment of such Bridge Notes). The number of shares of Series B Common
Stock excludes the shares of Series A Common Stock which are convertible at
any time (other than 1,000 shares) into shares of Series B Common Stock and
warrants to purchase Series B Common Stock, representing an aggregate of
111,518,000 shares of Series B Common Stock on a fully diluted basis. See
"Description of Capital Stock -- Automatic Conversion; Control Group
Warrants."
(2) Under the terms of the Bridge Notes, the Company is obligated to issue
warrants to purchase up to 32,587,000 shares of Series B Common Stock upon
repayment of such notes. However, if the Bridge Notes are repaid prior to
October 6, 1996, the number of warrants which the Company will issue will be
reduced to not less than 6,517,400 shares of Series B Common Stock,
depending upon a formula based on the initial public offering price. In the
event that warrants to purchase less than 32,587,000 shares of Series B
Common Stock are issued upon repayment of the Bridge Notes, the number of
outstanding shares of Series A Common Stock will be reduced by 25% of the
difference between 32,587,000 and the number of warrants actually issued.
See "Description of Capital Stock" and "Certain Indebtedness -- Bridge
Notes."
7
<PAGE> 10
Voting Rights.............. The Series B Common Stock offered hereby has
limited voting rights. Pursuant to the Company's
Restated Certificate of Incorporation, in
compliance with the FCC "Control Group"
requirements, until ten years after the date upon
which the Company's PCS licenses are granted (the
"Termination Date"), holders of the Series A Common
Stock will have the right to vote, as a class, for
a majority of the Board of Directors, and shall
have the right to vote on all matters that come
before the stockholders. The holders of Series B
Common Stock have the right, voting as a class, to
elect a minority of the Board of Directors. In
addition, the affirmative vote of holders of a
majority of the Series A Common Stock, voting as a
class, and the holders of a majority of the Series
B Common Stock, voting as a class, is required for
certain actions by the Company, including certain
amendments to the Company's charter or bylaws,
certain dividend payments, a merger or other
business combination involving the Company, a sale,
transfer, lease or other disposition of all or
substantially all of the Company's assets, a
recapitalization or reorganization of the Company's
capital stock, or the liquidation, dissolution or
winding up of the Company. These are the only
matters upon which holders of Series B Common Stock
are entitled to vote; holders of Series A Common
Stock have voting control of the Company with
respect to all other matters. See "Description of
Capital Stock."
In addition, Navation Inc., a corporation owned by
Mr. Allen Salmasi, the Company's Chairman,
President and Chief Executive Officer, and members
of his immediate family, controls over 50% of the
outstanding Series A Common Stock. See "Risk
Factors -- Control by Certain Stockholders;
Antidilution Provision for Series A Common Stock."
Proposed NASDAQ NMS
Symbol................... SURF
RISK FACTORS
Prospective purchasers of the Series B Common Stock should carefully
consider all of the information contained in this Prospectus before making an
investment in the Series B Common Stock. In particular, prospective purchasers
should evaluate the factors set forth herein under "Risk Factors."
8
<PAGE> 11
SUMMARY CONSOLIDATED FINANCIAL DATA
The following data, for the period from May 16, 1995 (inception) to
December 31, 1995, have been derived from the Company's audited financial
statements, including the consolidated balance sheet at December 31, 1995 and
the related consolidated statements of operations and of cash flows for the
period from May 16, 1995 (inception) to December 31, 1995 appearing elsewhere in
this Prospectus. The data for the three months ended March 31, 1996 have been
derived from unaudited financial statements which, in the opinion of management,
include all adjustments, consisting of only normal recurring adjustments,
necessary for a fair statement of the results for the unaudited period. The
summary unaudited consolidated financial data as of and for the three-month
period ended March 31, 1996 are not necessarily indicative of the results to be
expected for any other interim period or any future year. The information below
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PERIOD FROM MAY 16,
1995 (INCEPTION) TO THREE MONTHS
DECEMBER 31, 1995 ENDED MARCH 31, 1996
------------------- --------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Consulting revenues.................................. $ 173 $ 1,881
Total operating expenses............................. 1,753 1,349
-------- --------
Operating income (loss).............................. (1,580) 532
Other expenses....................................... -- (150)
Interest expense, net................................ (314) (726)
-------- --------
Net loss............................................. $ (1,894) $ (344)
======== ========
PRO FORMA(1):
Net (loss) income per share (unaudited).............. $ (0.01) $ (0.00)
Shares used in computing net loss per share
(unaudited)....................................... 272,730 272,753
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1996
AS OF ------------------------------------------
DECEMBER 31, PRO FORMA
1995 HISTORICAL PRO FORMA(2) AS ADJUSTED(3)
------------ ---------- ------------ --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................ $(75,236) $ (172,827) $ 26,993 $
Total assets............................... 84,834 189,778 4,229,345
Total FCC license debt..................... 0 0 3,781,069
Other long-term debt....................... 24 11 158,176
Total stockholders' equity................. 5,006 8,418 289,252
</TABLE>
- ---------------
(1) See Note 2 of Notes to Consolidated Financial Statements for a description
of the computation of pro forma net loss per share and shares used in
computing net loss per share.
(2) The Pro Forma column reflects the effect on the Company's financial position
of certain events which occurred subsequent to March 31, 1996, including (i)
the issuance of Series B Common Stock for $170,500 of contingent stock
purchase subscriptions outstanding at March 31, 1996 and $106,410 subscribed
in April and May 1996, (ii) the issuance of $27,419 of Convertible
Promissory Notes, (iii) the Company's FCC license down payment made in the
amount of $130,834, net of the deposit of $79,225 paid in December 1995, and
(iv) the issuance of Bridge Notes payable in the aggregate gross principal
amount of $130,348 (v) the issuance of Series A Common Stock to founders for
additional capital contributions of $3,950, comprised of $1,440 in cash and
$2,510 in the form of promissory notes. The Pro Forma column also reflects
the effect of the grant of the FCC licenses including: (i) reflect the
payment of remaining FCC license down payment in the amount of $210,059 and
$3,781,069 as long-term debt; and (ii) capitalization as an intangible asset
of the FCC licenses to be awarded for an aggregate purchase price of
$4,201,187. See Note 12 of Notes to Consolidated Financial Statements.
(3) The Pro Forma As Adjusted column reflects the effect on the Company's
financial position of all of the events and transactions referred to in note
(2) above and the Stock Offering, at an assumed public offering price of
$ , and the initial application of the estimated net proceeds
therefrom. See "Use of Proceeds" and "Capitalization."
9
<PAGE> 12
RISK FACTORS
Prior to making an investment in the Series B Common Stock, prospective
purchasers should carefully consider all of the information contained in this
Prospectus and, in particular, should evaluate the following risk factors.
Certain statements in this Prospectus that are not historical fact constitute
"forward-looking statements." Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results of the Company to be materially different from results expressed or
implied by such forward-looking statements. Such risks, uncertainties and other
factors include, but are not limited to, the following risks:
DEVELOPMENT STAGE COMPANY; FUTURE OPERATING LOSSES AND NEGATIVE CASH FLOW FROM
OPERATIONS
The Company is at an early stage of development and, as of the date of this
Prospectus, has had no commercial PCS operations and, consequently, has limited
historical financial information upon which a prospective investor could perform
an evaluation. The Company will incur significant expenses in advance of
generating revenues and is expected to realize significant operating losses in
its initial stages of operations. The Company is subject to all risks typically
associated with a start-up entity. These risks will include the Company's
ability to implement its strategic plan in the manner set forth herein,
including continuing to attract and retain qualified individuals and the ability
to raise appropriate financing as necessary. As such, no assurance can be given
as to the timing and extent of revenue receipts and expense disbursements or the
Company's ability to successfully complete all the tasks associated with
developing and maintaining a successful enterprise. In addition, there can be no
assurance that the Company will be able to successfully manage operations.
Management's failure to guide and control growth effectively (including
implementing adequate systems, procedures and controls in a timely manner) could
have a material adverse effect on the Company's financial condition and results
of operations.
The Company believes that its future operating results over both the short
and long term will be subject to annual and quarterly fluctuations due to
several factors, some of which are outside the control of the Company. These
factors include the significant cost of building the PCS networks (including any
unanticipated costs associated therewith), fluctuating market demand for the
Company's services, establishment of a market for PCS, pricing strategies for
competitive services, delays in the introduction of the Company's services, new
offerings of competitive services, changes in the regulatory environment, the
cost and availability of PCS infrastructure and subscriber equipment and general
economic conditions. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
The Company has incurred cumulative net losses through March 31, 1996 of
approximately $2.2 million. These losses resulted primarily from expenditures
associated with organizational and start-up activities, research and development
of the Company's products and equipment and the Company's pursuit of PCS
licenses in the FCC's C-Block Auction. The Company expects to incur significant
operating losses and to generate negative cash flow from operating activities
during the next several years, while it develops and constructs its PCS networks
and builds its customer base. There can be no assurance that the Company will
achieve or sustain profitability or positive cash flow from operating activities
in the future. If the Company cannot achieve operating profitability or positive
cash flow from operating activities in a timely manner, it may not be able to
meet its debt service or working capital requirements and the Series B Common
Stock may, as a result, have little or no value. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE DEBT
Following completion of the Offerings, the Company will be highly
leveraged. The indebtedness to the U.S. Government for the award of PCS licenses
will be approximately $3.8 billion, with initial annual interest payments of
approximately $260 million (assuming an interest rate of 6.85% per annum),
payable in quarterly installments following the FCC's granting of the licenses.
See "Certain Indebtedness -- PCS License Debt." The Company may incur
substantial financial penalties, license revocation or other enforcement
measures at the FCC's discretion in the event that the Company becomes unable to
make timely payments on its
10
<PAGE> 13
government indebtedness. In the event that the Company anticipates defaulting on
any required payment, it may request a three to six month grace period before
the FCC cancels its license. In the event of default by the Company, the FCC
could reclaim the licenses, reauction them, and subject the Company to a penalty
comprised of the difference between the price at which it acquired its license
and the amount of the winning bid at the reauction, plus an additional penalty
of three percent of the subsequent winning bid. There can be no assurance that
the Company will submit all of the required payments pursuant to the FCC's
installment payment plan in a timely manner. See "Regulation of The Wireless
Telecommunications Industry -- The Entrepreneurs' Block -- Penalties for Payment
Default."
As of March 31, 1996, after giving pro forma effect to the Offerings and
the award of the PCS licenses for which the Company has been named the winning
bidder, the Company's total indebtedness would have been $ , or
approximately % of its total capitalization, and its stockholders' equity
would have been $ million. For the quarter ended March 31, 1996, after
giving pro forma effect to the Offerings, the Company would have a negative
ratio of earnings to fixed charges and an earnings coverage deficiency of $
million. In addition, the Company intends to enter into secured financing
agreements with equipment manufacturers and other vendors during the next 12 to
18 months in connection with the build-out of its PCS networks. Although the
Offerings facilitate the Company's entry into the PCS business and are expected
to improve the Company's financial flexibility, the Company's total indebtedness
and debt service requirements will be substantially increased as a result of the
Notes Offering, and the Company will continue to be subject to significant
financial restrictions and limitations.
The Company's leverage could have important consequences on the following:
(i) the Company's vulnerability to general economic and industry conditions,
(ii) the Company's ability to obtain additional financing to fund future unknown
capital requirements, capital expenditures or other general corporate purposes,
(iii) the application of a substantial portion of the Company's cash flow from
operations to the payment for principal of and interest on indebtedness and (iv)
the possibility that the Company will not have sufficient funds to pay interest
on the indebtedness or to repay the indebtedness at maturity.
NEED FOR ADDITIONAL FINANCING; STATUS AS A GOING CONCERN
The development, construction and initial start-up phase associated with
the construction of the Company's PCS networks will require substantial capital
investment. The Company is offering shares of Series B Common Stock in the Stock
Offering and $ million gross proceeds of Notes in the Notes Offering for
estimated aggregate net proceeds to the Company of $ . The Company
believes that the net proceeds from the Offerings, together with vendor
financing and cash on hand will be sufficient to fund the initial network
build-out of the New York City, Los Angeles/San Diego, Washington
D.C./Baltimore, Boston and Houston markets and service its debt through the end
of 1997. The Company anticipates that it will require significant additional
capital to complete its network build-out beyond 1997. The report of independent
accountants with respect to the Company's consolidated financial statements as
of December 31, 1995 contains an explanatory paragraph stating that the
Company's capital requirements raise a substantial doubt about the Company's
ability to continue as a going concern. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and "Consolidated Financial Statements."
Sources of additional capital may include additional vendor financing and
public and private equity and debt financings by the Company or its
subsidiaries. The Company currently has limited sources of income. There can be
no assurance that additional financing will be available to the Company or, if
available, that it can be obtained on terms acceptable to the Company and within
any limitations that may be contained in the Notes or the Indenture governing
the Notes, the vendor financing or any additional financing arrangements.
Failure to obtain such financing could result in the delay or abandonment of
some or all of the Company's development and expansion plans and could have a
material adverse effect on the Company's financial condition and results of
operations.
11
<PAGE> 14
UNCERTAINTY OF FINAL AWARDS OF LICENSES FROM C-BLOCK AUCTION; LITIGATION
While the Company has filed its PCS license applications, the FCC has not
yet granted any PCS licenses to the Company. In light of numerous allegations
reported in the press and in correspondence to the FCC by competing bidders, the
Company believes that its applications for these licenses may be subject to
challenges by various competing bidders and other interested parties in the
C-Block Auction. In addition, the FCC has been informally requested to commence
an investigation of bidders (specifically including the Company) with numerous
foreign investors to determine whether any C-Block applicants have violated the
foreign ownership restrictions of the Communications Act of 1934, as amended
(the "Communications Act"). There can be no assurance that the Company will be
successful in defending such challenges and will be finally awarded all of these
licenses. Additionally, the Company participated in the C-Block Auction as a
Small Business (as defined by FCC rules) and believes it has satisfied all
requirements necessary to meet the Small Business standard and the FCC's foreign
ownership restrictions and will continue to take any actions needed to maintain
such status. Nonetheless, there can be no assurance that there will not be
challenges of the Company's status as a Small Business. If the Company were
found to be ineligible or otherwise disqualified from holding C-Block PCS
licenses, the FCC could impose substantial financial and regulatory penalties on
it, up to and including the refusal to grant PCS licenses. In the event that the
Company were denied these PCS licenses, the Company would not be authorized to
offer PCS services in the Markets. See "-- Government Regulation" and
"Regulation of The Wireless Telecommunications Industry."
PCS SYSTEM IMPLEMENTATION AND OPERATION RISKS
Unlike certain other PCS carriers, the Company plans to perform
substantially all of its own network design and systems engineering. There can
be no assurance that the Company's design and systems engineering teams will be
successful in implementing its PCS networks, or that such networks will perform
as well or better than PCS networks designed by infrastructure equipment
vendors. In addition, the Company will need to hire additional engineering
personnel and make extensive use of outside contractors to deploy its PCS
networks. There can be no assurance that the Company will be able to locate and
hire such additional engineering resources. The failure to do so could have a
material adverse effect on the Company's timely deployment of its PCS networks
and its financial condition and results of operations.
The successful construction of the Company's PCS networks will depend, to a
significant degree, on the Company's ability to lease or acquire sites for the
location of its base station transmitter equipment. The site selection process
will require the negotiation of lease or acquisition agreements for
approximately 5,000 sites for the Company's PCS networks, and will likely
require the Company to obtain zoning variances or other governmental approvals
or permits. The Company has retained consultants to provide site identification
and acquisition services in each of the Markets. The Company expects that the
site acquisition process will continue throughout the construction of the
Company's PCS networks. Each stage of the process involves various risks and
contingencies, many of which are not within the control of the Company and any
of which could adversely affect the construction of the Company's PCS networks.
There can be no assurance that the Company will be able to construct its
PCS networks in any particular market in accordance with its current
construction plan and schedule. If the Company is not able to implement its
construction plan, the Company may not be able to provide services comparable to
those provided by the cellular and other PCS operators in its PCS markets, and,
as a result, the Company's growth may be limited. In addition, each of the
Company's licenses is subject to an FCC requirement that the Company construct
network facilities that offer coverage to at least one-third of the population
in each such PCS market within five years of the grant of the applicable license
and to at least two-thirds of the population within ten years of the grant.
Failure to comply with these requirements could result in the revocation or
forfeiture of the Company's licenses or the imposition of fines on the Company
by the FCC. The construction of the Company's PCS networks is subject to
successful completion of the design of the networks, site and facility
acquisitions, the purchase and installation of the networks' equipment, testing
of the networks and satisfactory relocation or other accommodation of microwave
users currently using the spectrum. Winners of the A-Block and B-Block PCS
licenses, which were granted their licenses in June 1995, have a significant
head-start in constructing their networks. Most cellular licensees have at least
a five to ten-year time
12
<PAGE> 15
advantage over PCS licensees and are currently upgrading their networks to
digital technology. Therefore, delays in any of these implementation areas could
have a material adverse effect on the Company.
In addition, the implementation of the construction plan is subject to the
availability of the CDMA infrastructure equipment that the Company plans to use.
There is considerable demand for PCS infrastructure equipment, manufacturers of
such equipment have substantial backlogs of orders and lead times for delivery
of such equipment are long. The Company intends to enter into additional
agreements for the supply of infrastructure and/or subscriber equipment.
However, there can be no assurance that the Company will be able to purchase
equipment on terms favorable to the Company, or at delivery dates required by
the Company to construct its PCS networks in a timely manner. In addition, there
are certain risks in the Company's strategy of building-out its networks in
phases. There can be no assurance that the Company will be able to successfully
deploy its initial networks to achieve maximum population coverage in its
targeted urban markets within the expected time frame and an acceptable
construction budget.
The Company's success in the implementation and operation of its system is
subject to other factors beyond the Company's control. These factors include,
without limitation, changes in general and local economic conditions,
availability of equipment necessary to operate the PCS system, changes in
communications service rates charged by others, changes in the supply and demand
for PCS and the commercial viability of PCS systems as a result of competition
with wireline and wireless operators in the same geographic area, demographic
changes that might affect negatively the potential market for PCS, changes in
the federal and state regulatory scene affecting the operation of PCS systems
(including the enactment of new statutes and the promulgation of changes in the
interpretation or enforcement of existing or new rules and regulations) and
changes in technology that have the potential of rendering obsolete the
Company's technology and equipment. In addition, the extent of the potential
demand for PCS cannot be estimated with any degree of certainty. There can be no
assurance that one or more of these factors will not have an adverse effect on
the Company's financial condition and results of operations.
RELIANCE ON "CARRIERS' CARRIER" STRATEGY; DEPENDENCE ON MAJOR CUSTOMERS
The Company's business strategy is to act primarily as a "carriers'
carrier," wholesaling MOUs on its PCS networks. The Company expects that a
significant portion of its MOUs will be sold to a limited number of large
customers. As a result, these customers may have significant leverage in
negotiating favorable pricing terms with the Company. There can be no assurance
that there will be sufficient wholesale demand for MOUs to fully utilize the
capacity of the Company's networks, and if such demand exists, whether such
demand will be at prices that will permit the Company to generate operating
profits. While the Company has had discussions with several large potential
customers, there can be no assurances as to whether agreements on terms
acceptable to the Company can be entered into with such potential major
customers. To the extent that the Company sells a significant portion of its
MOUs to a limited number of customers, the Company will be reliant upon the
continued viability of such customers, and their continuing purchases of the
Company's MOUs. The loss of one or more of these large customers could have a
material adverse effect on the Company's financial condition and results of
operations. To a certain extent, the viability of this strategy is dependent
upon the scarcity of radio spectrum. Accordingly, the Company's strategy could
be adversely affected by a decision by Congress, the National Telecommunications
and Information Administration ("NTIA") and/or the FCC to allocate additional
spectrum for mobile services. Currently, a bill is pending before Congress which
may result in the allocation of additional spectrum for such services.
If the Company is unable to sell a substantial amount of MOUs on a
wholesale basis to PCS service providers, the Company may be required to develop
new distribution channels, including retailing PCS services directly to end
users. The Company would have to incur substantial marketing and sales costs to
develop a significant retail presence. There can be no assurance that the
Company would have the financial and personnel resources to become a significant
retailer of PCS services.
13
<PAGE> 16
UNCERTAINTY OF CDMA COMMERCIAL OPERATIONS; ABILITY TO OFFER ROAMING SERVICES;
HANDSETS
CDMA technology has not been implemented on a wide commercial scale in the
United States and has been used internationally on a limited basis. The first
commercial use of CDMA began in October 1995 in Hong Kong. As of the end of
April 1996, the Hong Kong network had 20,000 subscribers. There can be no
assurance that CDMA technology will be successful in a broader market. In
addition, certain networks implementing CDMA have experienced problems in their
early trials including poor hand-offs (the transfer of a subscriber from one
cell to another as the subscriber travels through geographic areas) and problems
with analog interference with dual-mode CDMA handsets for 800 MHz cellular
operations. See "The Wireless Telecommunications Industry -- PCS Technology."
While the Company believes that some of the problems are unique to 800 MHz
cellular operations and solutions for other problems have been identified and
are in the process of being resolved, there can be no assurance that the Company
will not encounter the same or other technological problems.
A risk associated with the Company's selection of CDMA technology is the
ability of the Company to offer PCS roaming service to its customers'
subscribers when they are in other markets. In order for the Company's
subscribers to roam in other wireless markets (and vice versa), at least one PCS
licensee in the other market must utilize CDMA technology and roaming
arrangements must be agreed upon between the Company and such other PCS
licensee, or the subscribers must use a dual-band phone that would permit the
subscriber to use the cellular system existing in the other market. The Company
has been advised that such dual-band phones are not expected to be available
until 1997 at the earliest. Based on public announcements by A-Block and B-Block
licensees and winning bidders in the C-Block Auction, the Company believes that
CDMA will be widely deployed in the U.S. Nevertheless, such PCS licensees are
under no regulatory obligation to use any particular access technology. There
can be no assurance that PCS licensees planning to use CDMA technology will not
elect to use Time Division Multiple Access ("TDMA"), Global System for Mobile
Communications ("GSM") or some other technology in the future.
Currently there are very few suppliers of CDMA handsets. Additional
suppliers are scheduled to deliver CDMA handsets commencing in the second
quarter of 1997. There can be no assurance, however, that those suppliers will
commence production or, if they do commence production, that they will be able
to deliver quality handsets in sufficient quantities and at desirable prices.
Handsets used for PCS systems cannot currently be used with analog cellular
systems and vice versa. While the Company believes that dual-band handsets that
allow a user to access both PCS systems and analog cellular networks will be
commercially available in 1997, there can be no assurance that such handsets can
be successfully manufactured or that consumers can obtain such handsets at
competitive prices. In addition, dual-band full digital handsets are expected to
be larger and more expensive than single-mode handsets. The lack of
interoperability or the comparatively higher cost of such handsets may impede
the Company's ability to attract potential new wireless communications
resellers.
CONTROL BY CERTAIN STOCKHOLDERS; ANTIDILUTION PROVISION FOR SERIES A COMMON
STOCK
The FCC requires C-Block applicants utilizing the equity structure selected
by the Company to have certain investors meeting financial qualifications
("Control Group") hold no less than 25% of the Company's total equity, on a
fully diluted basis, and a majority of the total voting stock, and have both de
facto and de jure control of the Company. After the Stock Offering, the Control
Group, as the holders of the Series A Common Stock, will hold no less than 25%
of the outstanding equity of the Company on a fully-diluted basis. As a result
of its equity ownership and the corporate governance provisions regarding
voting, the holders of the Series A Common Stock will have the right to elect a
majority of the Board of Directors and will have majority voting control of the
Company, with the exception of certain extraordinary corporate actions which
require approval of the holders of the Series B Common Stock voting together as
a class. Although the Company believes its structure and governance fully comply
with FCC rules, these rules are new and have not been tested in any specific
case before the FCC or in any court.
In addition, Navation Inc., a corporation owned by Mr. Allen Salmasi, the
Company's Chairman of the Board, President and Chief Executive Officer, and
members of his immediate family, controls more than 50%
14
<PAGE> 17
of the outstanding Series A Common Stock. Should Mr. Salmasi die or become
incapacitated or ineligible to beneficially own the Series A Common Stock, Mr.
Salmasi's wife and children, as the remaining stockholders of Navation Inc.,
would then control the Company. Navation Inc. must maintain de facto and de jure
control of the Company for at least three years (unless the FCC eliminates its
three-year transfer restriction in a pending rule-making proceeding) and, in
years four and five, Navation may transfer its control of the Company only to
another entity that would have been eligible to participate in the C-Block
Auction. If Mr. Salmasi were to relinquish control before this three-year period
expires, or after the three-year period to an entity not deemed a "Small
Business," the Company could incur substantial unjust enrichment penalties. See
"-- Government Regulation."
FCC requirements prohibit the Control Group (which consists in part of the
Company's senior management team) from being forced to surrender its shares of
Series A Common Stock or to give up its conversion rights until three years from
the date the Company is awarded its C-Block PCS Licenses. In addition, the
Company's Restated Certificate of Incorporation requires the holders of Series A
Common Stock to maintain voting control by electing a majority of the Board of
Directors during the initial ten-year term of the PCS licenses and prohibits
members of the Company's senior management team from being removed or replaced
by action of the holders of the Series B Common Stock.
The holders of the Series A Common Stock of the Company will hold a 25%
interest in the Company's equity on a fully diluted basis, pursuant to the
Company's Restated Certificate of Incorporation, in compliance with FCC
regulations. In the event the Company issues additional equity which would
otherwise dilute the holders of Series A Common Stock below the required
percentage ownership interest during the initial ten-year term, the Company's
Restated Certificate of Incorporation requires conversion of each share of
Series A Common Stock (other than 1,000 shares) into two shares of Series B
Common Stock (for the first 35% of the outstanding Series A Common Stock) and
conversion on a one-for-one ratio together with the issuance of certain warrants
to purchase shares of Series B Common Stock at its fair market value at the time
of issuance of such warrants (for the remaining 65% of the Series A Common
Stock). In the event that all shares of the Series A Common Stock (other than
1,000 shares) have been converted, the Control Group's 25% interest is to be
maintained by issuing warrants to purchase shares of Series B Common Stock at an
exercise price equal to the fair market value of such shares at the time of
issuance to the current holders of the Series A Common Stock at the time of
further issuances of Series B Common Stock. The FCC's rules require the exercise
price of convertible instruments to be less than or equal to the fair market
value of such shares at the time of the C-Block short-form filing date. However,
in a published informal FCC staff interpretation of the applicable FCC rule, the
FCC stated that such exercise price can be equal to the current market value at
the time of issuance. Informal FCC staff opinions are not binding on the agency
and there can be no assurance that the FCC will not overturn its staff
interpretation. This will subject the holders of Series B Common Stock to a
disproportionate amount of dilution in the event of additional equity
financings. The FCC's prohibition against diluting the holders of Series A
Common Stock below a certain level of equity ownership could negatively impact
the Company's ability to attract additional equity financing. In addition, at
any time after the Stock Offering, the Series A Common Stock may be converted
voluntarily by the holders thereof at the conversion ratios described above in
this paragraph. See "Description of Capital Stock."
COMPETITION
Competition in the wireless telecommunications industry is intense. There
can be no assurance that the Company will be able to compete successfully or
that new technologies and products that are more commercially effective than the
Company's technologies and products will not be developed. In addition, many of
the Company's competitors have substantially greater financial, technical,
marketing, sales and distribution resources than those of the Company. Some
competitors are expected to market other services, such as cable television
access, landline telephone service and Internet access with their wireless
telecommunications service offerings. Several of the Company's competitors are
operating, or planning to operate, through joint ventures and affiliation
arrangements, wireless telecommunications networks that cover most of the United
States.
15
<PAGE> 18
Since the Company will primarily provide reseller opportunities to its
wholesale customers on its wireless networks, the Company's resellers will
compete directly with other PCS providers in each of its markets, including
principal competitors PrimeCo Personal Communications L.P., Sprint Spectrum L.P.
and AT&T Wireless Services, Inc. The FCC issued PCS licenses to the A-Block and
B-Block license winners in June 1995. Accordingly, the holders of the A-Block
and B-Block PCS licenses in the Company's BTAs have a significant time to market
advantage over the Company. Since November 15, 1995, Sprint Spectrum has
operated a commercial PCS operation in the Baltimore/Washington, D.C. market,
with more than 80,000 subscribers as of May 1996. There can be no assurance that
such time-to-market advantage will not have a material adverse effect on the
Company's successfully implementing its wholesale strategy. In addition, the
increase in the number of PCS competitors in each of the Company's markets is
expected to lead to substantial increases in the capacity of wireless MOUs
available in such markets. Many cellular providers currently sell MOUs on a
wholesale basis to other carriers as well as on a retail basis to consumers. The
Company anticipates that such cellular providers, as well as new PCS providers,
will compete with the Company in the future and offer to wholesale MOUs for
digital wireless services.
The Company also expects that the two existing cellular providers in each
market, virtually all of which have infrastructure in place, a customer base and
brand-name, and have been operational for five to ten years or more, will
upgrade their networks to provide comparable services in competition with the
Company. Principal cellular providers in the Company's PCS markets are AirTouch
Communications, Inc., Ameritech Cellular, AT&T Wireless Services, Inc., Bell
Atlantic NYNEX Mobile, BellSouth Mobility, Inc., GTE Mobilnet Communications
Corporation, and Southwestern Bell, Inc. Most of these companies also hold
interests in PCS licenses outside of their respective cellular markets.
The Company expects to compete with other communications technologies that
now exist, such as paging (including two-way digital paging), enhanced
specialized mobile radio ("ESMR") and domestic and global mobile satellite
service ("MSS"). In the future, cellular service and PCS will also compete more
directly with traditional landline telephone service providers, energy
utilities, local multipoint-distribution service and cable operators who expand
into the offering of traditional communications services over their cable
systems and utilities seeking to offer communications services by leveraging
their existing infrastructure. In addition, the Company may face competition
from technologies that may be introduced in the future. See "--Government
Regulation" and "Business -- Competition."
LIMITED PCS OPERATING HISTORY IN THE UNITED STATES; SIGNIFICANT CHANGE IN THE
WIRELESS INDUSTRY
PCS systems have limited operating history in the United States and there
can be no assurance that operation of these systems will become profitable. In
addition, the extent of potential demand for PCS in the Company's markets cannot
be estimated with any degree of certainty. The wireless telecommunications
industry is experiencing significant technological changes, as evidenced by the
increasing pace of digital upgrades in existing analog wireless systems,
evolving industry standards, ongoing improvements in the capacity and quality of
digital technology, shorter development cycles for new products and
enhancements, and changes in end-user requirements and preferences. There is
also uncertainty as to the extent of customer demand as well as the extent to
which airtime and monthly access rates may continue to decline. As a result, the
future prospects of the industry and the Company and the success of PCS and
other competitive services remain uncertain.
GOVERNMENT REGULATION
The licensing, construction, operation, sale and interconnection
arrangements of wireless telecommunications systems are regulated to varying
degrees by state regulatory agencies, the FCC, Congress and the courts. There
can be no assurance that the FCC, Congress, the courts or state agencies having
jurisdiction over the Company's business will not adopt or change regulations or
take other actions that would adversely affect the Company's financial condition
or results of operations. Many of the FCC's rules for the C-Block Auction and
the PCS licenses acquired thereunder have not been tested by the courts and are
subject to being changed by Congressional action. In addition, FCC licenses to
provide PCS services are subject to renewal and revocation.
16
<PAGE> 19
The Company's PCS licenses will have ten year renewable terms. There can be no
assurance that the Company's licenses will be renewed. See "Regulation of The
Wireless Telecommunications Industry."
The Telecommunications Act of 1996 (the "1996 Act") mandates significant
changes in existing regulation of the telecommunications industry to promote
competitive development of new service offerings, to expand public availability
of telecommunications services and to streamline regulation of the industry.
Included in these mandates are requirements that the LECs must (i) permit other
competitive carriers, which may include PCS licensees, to interconnect to their
networks, (ii) establish reciprocal compensation agreements with competitive
carriers to terminate traffic on each other's networks and (iii) offer resale of
its local loop facilities. The implementation of these mandates by the FCC and
state authorities potentially involves numerous changes in established rules and
policies which could adversely affect the Company's financial condition and
results of operations. See "Regulation of The Wireless Telecommunications
Industry."
The FCC has proceedings in process which could open up other frequency
bands for wireless telecommunications and PCS-like services. The FCC also is
considering in a pending rulemaking proceeding the eligibility of C-Block
licensees to participate in future PCS auctions and the ability of PCS licensees
to offer a variety of fixed services. There can be no assurance that these
proceedings could not adversely affect the Company and the Company's ability to
offer a full range of PCS services.
The Company's broadband PCS operations are expected to use microwave
communications facilities to "backhaul" its telecommunications traffic between
fixed points in its service areas. Under new rules that become effective in
August 1996, new microwave licenses carry a 10-year license term. The FCC has
recently proposed to auction certain fixed microwave licenses, some of which the
Company may seek to use. If adopted, this proposal would increase the Company's
microwave license acquisition costs.
Under existing law, the FCC can refuse or revoke certain licenses,
including PCS licenses, if it finds that it would not be in the public interest
for more than 25% of the capital stock of the parent of an FCC licensee to be
owned, directly or indirectly, or voted by non-U.S. citizens or their
representatives, by a foreign government or its representatives or by a foreign
corporation. Although the Company's "long-form" license application filed with
the FCC after the completion of the C-Block Auction indicates that the Company
is in compliance with the FCC rules, if the foreign ownership of the Company, as
the parent of FCC-licensed subsidiaries, were to exceed 25%, the FCC could
refuse to grant or subsequently revoke the FCC licenses of its subsidiaries if
the FCC found the public interest would be served thereby, although the Company
could seek a declaratory ruling from the FCC that more than 25% foreign
ownership was in the public interest, or take action to reduce the Company's
foreign ownership percentage in order to avoid the loss of its licenses. The
restrictions on foreign ownership could also adversely affect the ability of the
Company to attract additional equity financing from entities that are, or are
owned by, non-U.S. entities.
Financial Affiliation Rules. To be financially eligible as an Entrepreneur
and/or Small Business applicant for C-Block PCS licenses, the gross revenues and
assets of the applicant's "financial affiliates," are counted towards (or
"attributed to") the applicant's total gross revenues and total assets.
Financial affiliation can arise from common investments, familial or spousal
relationships, contractual relationships, voting trusts, joint venture
agreements, stock ownership, stock options, convertible debentures and
agreements to merge. Affiliates of noncontrolling investors with ownership
interests that do not exceed the applicable FCC "passive" investor ownership
thresholds are not attributed to C-Block applicants for purposes of determining
whether such applicants financially qualify for the applicable C-Block Auction
preferences. In the case of the equity structure chosen by the Company, no
passive investor can own more than 25% of the Company's total equity or voting
stock on a fully diluted basis.
As discussed above, the FCC may consider parties to certain "joint
ventures" (as that term is defined by the FCC from time to time) to be
financially affiliated with each other under certain circumstances. The Company
has entered into certain agreements with several of its noncontrolling
investors, including SONY Electronics Inc., QUALCOMM and certain foreign
investors. The FCC's application of its financial affiliation rules is largely
untested and there can be no assurance that the FCC or the courts will not treat
the Company's investors that are parties to such relationships as financial
affiliates of the Company.
17
<PAGE> 20
In addition, if an entity makes bona fide loans to a C-Block applicant, the
assets and revenues of the creditor would not be attributed to the applicant
unless the creditor is otherwise deemed an affiliate of the applicant, or the
loan is treated by the FCC as an equity investment and such treatment would
cause the creditor/investor to exceed the applicable ownership interest
thresholds (for purposes of both the financial affiliation and foreign ownership
rules). Although the FCC permits a creditor/investor to use standard terms to
protect its investment in C-Block applicants, such as covenants, rights of first
refusal, and supermajority voting rights on specified issues (such as those for
which the holders of the Company's Series B Common Stock have voting rights) the
FCC has stated that it will be guided but not bound by criteria used by the
Internal Revenue Service to determine whether a debt investment is bona fide
debt. The Company has been extended loans by several creditor/investors, some of
which are alien (non-U.S.) entities. There can be no assurance that the FCC will
not treat such debt financings as equity, and that such treatment would not
cause the Company to exceed the applicable foreign ownership thresholds.
MANAGEMENT OF GROWTH
As the Company's business expands, the Company will need to implement
enhanced operational and financial systems and will require additional employees
and management, operational and financial resources. There can be no assurance
that the Company will successfully implement and maintain such operational and
financial systems or successfully obtain, integrate and utilize the required
employees and management, operational and financial resources to manage a
developing and expanding business. Failure to implement such systems
successfully and use such resources effectively could have a material adverse
effect on the Company's results of operations and financial condition.
RAPID TECHNOLOGICAL CHANGE
The wireless PCS products industry is embryonic and, as such, is
experiencing very rapid technological change. To remain competitive, the
Company's technology business must develop or gain access to new technologies in
order to increase product performance and functionality and increase
cost-effectiveness. Given the emerging nature of the wireless PCS industry,
there can be no assurance that the Company's products or technology, such as its
selection of CDMA, will not be rendered obsolete by alternative technologies.
The development of new wireless PCS products is highly complex and the Company
could experience delays in developing and introducing its equipment. Alternative
technological and service advancements could materialize in the future which
could prove both viable and competitive to those employed by the Company in
offering wireless services.
NO PRIOR MARKET AND DETERMINATION OF PUBLIC OFFERING PRICE; POSSIBLE VOLATILITY
OF STOCK PRICE
Prior to the Stock Offering, there has been no public market for the Series
B Common Stock and there can be no assurance that an active public market for
the Series B Common Stock will develop or continue after the Stock Offering. The
initial public offering price will be determined by negotiations among the
Company and the Underwriters. The negotiated initial public offering price may
not be indicative of the market price for the Series B Common Stock after the
Stock Offering. The market price of the Series B Common Stock after the Stock
Offering will be determined by the marketplace and may be influenced by many
factors, including, among others, the Company's results of operations,
differences between actual results and results expected by investors and
analysts, technological innovations affecting the wireless communications
industry, the depth and liquidity of the market for Series B Common Stock, and
investor perceptions of the Company and the PCS industry. See "Underwriting."
DILUTION
Purchasers of the Series B Common Stock offered hereby will incur immediate
and substantial dilution in net tangible book value per share (the difference
between the initial public offering price per share of the Series B Common Stock
and the per share net tangible book value thereof after the Stock Offering). In
addition, if the Company raises additional equity capital in the future, such
capital may significantly dilute the interests of the existing holders of the
Series B Common Stock. In addition, to the extent outstanding options
18
<PAGE> 21
and warrants to purchase shares of Series B Common Stock are exercised, or
outstanding convertible debt or notes are converted into shares of Series B
Common Stock, there will be further dilution to purchasers of the Series B
Common Stock offered hereby. Furthermore, as described above, the conversion
provisions of the Series A Common Stock will have a dilutive effect on the
holders of the Series B Common Stock. See "Dilution."
DEPENDENCE ON KEY MANAGEMENT
Due to the experience of the senior management team, the Company will be
highly dependent on the services of these individuals. Consequently, the loss of
the services of one or more of these individuals could have a material adverse
effect on the Company. Certain key managers of the Company have yet to be
identified and any delay in identifying and any difficulty in hiring such key
managers could negatively affect the Company.
HEALTH CONCERNS
Allegations have been raised, but not proven, that the use of hand-held
cellular/PCS phones may pose health risks to humans due to RF emissions from the
handsets. Studies performed by wireless telephone equipment manufacturers have
rebutted these allegations, and a major industry trade association and certain
governmental agencies have stated publicly that the use of such phones poses no
undue health risk. Regardless of the truth of these allegations, they could have
an adverse effect on the Company.
Concerns over RF emissions also may have the effect of discouraging the use
of wireless communications devices, such as the PCS phones to be used with the
Company's systems. The FCC currently is conducting a rulemaking proceeding to
update the guidelines and methods used for evaluating RF emissions from radio
equipment, including wireless telephones. The FCC's proposal, if adopted, would
impose more restrictive standards on RF emissions from devices such as hand-held
cellular telephones. Although CDMA handsets operate at lower power than other
wireless handsets and therefore would comply with the proposed standards, if
adopted, the same concerns about RF emissions could remain present with CDMA
handsets. These concerns could have an adverse effect on the Company's financial
condition and the results of its operations.
In addition, digital wireless telephones have been shown to cause
interference to some electronic devices, such as hearing aids and pacemakers.
Industry trade associations, together with the University of Oklahoma Center for
the Study of Wireless Electromagnetic Compatibility and other interested
parties, currently are studying the extent of, and possible solutions to, this
interference.
RELOCATION OF INCUMBENT FIXED MICROWAVE LICENSEES
For a period of up to five years after the grant of a PCS license, PCS
licensees will be required to share spectrum with existing fixed microwave
licensees operating on the C-Block Spectrum. To secure a sufficient amount of
unencumbered spectrum to operate its PCS networks efficiently, the Company may
need to pay to relocate as many as 500 of these existing licensees to alternate
spectrum locations or transmission technologies. In an effort to balance the
competing interests of existing microwave users and newly authorized PCS
licensees, the FCC has adopted (i) a transition plan to relocate such microwave
incumbents and (ii) a cost sharing plan so that if the relocation of an
incumbent benefits more than one PCS licensee, the benefiting PCS licensees will
share the costs of the relocation. The transition and cost sharing plans expire
on April 4, 2005, at which time remaining incumbents in the PCS spectrum will be
responsible for their costs to relocate to alternate spectrum locations. There
can be no assurance that the Company will be able to reach timely agreements to
relocate these incumbents on terms acceptable to the Company. Any delay in the
relocation of such licensees may adversely affect the Company's ability to
commence timely commercial operation of its PCS networks. Furthermore, depending
on the terms of such agreements, if any, the Company's ability to operate its
PCS networks profitably may be adversely affected. See "Regulation of The
Wireless Telecommunications Industry."
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<PAGE> 22
UNCERTAINTY OF PROTECTION OF PROPRIETARY RIGHTS
Although the Company relies on its equipment vendors to provide properly
licensed equipment to provide PCS services, the Company's business relies on a
combination of licensed patents, trademarks and non-disclosure and development
agreements in order to establish and protect its proprietary rights. In
addition, the Company expects to file patent applications relating to certain
products under development by TELE*Code. There can be no assurance that such
patents will issue, such patents allowed will be sufficiently broad to protect
the Company's technology or that the confidentiality agreements and other
methods on which the Company relies to protect its trade secrets and proprietary
information will be adequate. See "Business -- Intellectual Property Rights." In
addition, there can be no assurance that any patents issued or licensed to the
Company will not be challenged, invalidated or circumvented, or that the rights
granted thereunder will provide proprietary protection to the Company.
Litigation to defend and enforce the Company's intellectual property rights
could result in substantial costs and diversion of resources and could have a
materially adverse effect on the Company's financial condition and results of
operations regardless of the final outcome of such litigation. Despite the
Company's efforts to safeguard and maintain its proprietary rights, there can be
no assurance that the Company will be successful in doing so or that the
Company's competitors will not independently develop or patent technologies that
are substantially equivalent or superior to the Company's technologies.
If existing or future patents containing broad claims are upheld by the
courts, the holders of such patents might be in a position to require the
Company to obtain licenses. There can be no assurances that licenses which might
be required for the Company's products would be available on reasonable terms,
if at all. To the extent that licenses are unavailable, or not available on
acceptable terms, no assurance can be made that the failure to obtain a license
would not adversely affect the Company. See "Business -- Intellectual Property
Rights."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Series B Common Stock in the
public market following the Stock Offering could adversely affect the market
price for the Series B Common Stock and the Company's ability to raise capital.
Upon completion of the Stock Offering, the Company will have outstanding
shares of Series B Common Stock, assuming no exercise of outstanding options and
warrants. The holders of 90,518,793 outstanding shares of Series B Common Stock,
the holders of Warrants to purchase 13,980,556 shares of Series B Common Stock,
the holders of the Convertible Promissory Notes of the Company convertible into
5,806,185 shares of Series B Common Stock and the holders of the Bridge Notes
convertible into 32,587,000 shares of Series B Common Stock (or the Warrants to
purchase up to 32,587,000 shares of Series B Common Stock to be issued upon
repayment of such Bridge Notes) have the right to require the Company under
certain circumstances to file a registration statement under the Securities Act
for the sale of such shares of Series B Common Stock. Such holders also have the
right to require the Company to include their shares in a registered offering of
securities by the Company for its own account. The Company, its directors,
executive officers and all other holders of the Company's Common Stock have
agreed not to offer, sell, contract to sell or otherwise dispose of, directly or
indirectly, any shares of Common Stock, securities convertible into,
exchangeable for or repayable with such shares or rights or warrants to acquire
such shares, for a period of 180 days after the date of this Prospectus without
the prior written consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated
on behalf of the Underwriters, subject to certain limited exceptions included in
the Purchase Agreement (as defined). In addition, beginning in July 1997,
certain shares of Series B Common Stock will become eligible for sale in the
public market subject to the provisions of Rule 144 or Rule 701 under the
Securities Act. Such holders also have the right to require the Company to
include their shares in a registered offering of securities by the Company for
their own account. See "Shares Eligible for Future Sale." The Company is unable
to estimate the number of shares which may be sold under Rule 144 or Rule 701 or
pursuant to registration rights since this will depend upon the market price of
the Series B Common Stock, the individual circumstances of the sellers and other
factors. See "Shares Eligible For Future Sale."
20
<PAGE> 23
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of
Series B Common Stock offered hereby are estimated to be $ million, assuming
an initial public offering price of $ and after deducting underwriting
discounts and estimated offering expenses ($ million if the Underwriters'
over-allotment option is exercised in full). The net proceeds from the Notes
Offering are expected to be $
million. The Company will use a portion of the net proceeds of the Offerings to
make payments required in connection with the U.S. Government financing of its
PCS licenses and will use a portion of the net proceeds to fund pre-construction
activities related to its PCS networks, such as site planning and acquisition,
system design, and planning for and implementing relocation of incumbent fixed
microwave licensees. A portion of the proceeds from the Notes Offering will be
used to redeem all of the Company's outstanding Bridge Notes. An aggregate
principal amount of approximately $130 million of Bridge Notes was issued by the
Company in April and May 1996. The Bridge Notes accrue interest at 2% per annum
for a two-year period (commencing at the time the Company's PCS licenses are
awarded) and thereafter at 12% per annum. Unless repaid earlier, the Bridge
Notes mature on April 9, 2002. In the event the Company is unable to consummate
the Stock Offering or the Notes Offering, the net proceeds from the issuance of
the Bridge Notes will remain in escrow until the FCC's award of the Company's
PCS licenses. The remainder of the net proceeds of the Offerings will be used to
fund the initial costs associated with the construction and operation of the
Company's networks, for possible expansion of the Company's footprint and for
general corporate purposes. Pending such uses, the net proceeds of the Offerings
will be invested in investment grade, interest-bearing securities.
DIVIDEND POLICY
The Company has not paid or declared any cash dividends on its Common Stock
and does not expect to pay cash dividends in the foreseeable future. The ability
of the Company to pay dividends on the Series B Common Stock is also subject to
restrictions contained in certain agreements relating to the Bridge Notes and
the Notes. See "Certain Indebtedness." The Company currently intends to retain
any future earnings to develop, construct and operate its PCS networks
(including the payment of debt service to the U.S. Government in connection with
the acquisition of the Company's PCS licenses), for working capital and for
other corporate purposes.
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<PAGE> 24
DILUTION
Purchasers of the Series B Common Stock offered hereby will incur immediate
and substantial dilution in net tangible book value per share. The net tangible
book value of the Company as of March 31, 1996, was $6.8 million, or $
per share of Common Stock. Net tangible book value per share of Common Stock is
equal to the Company's total tangible assets less total liabilities, divided by
the total number of shares of Common Stock outstanding. After giving effect to
the sale of the shares of Series B Common Stock offered hereby at an
assumed initial public offering price of $ per share, and after
deducting the underwriting discount and estimated offering expenses, the pro
forma net tangible book value of the Company as of March 31, 1996 would have
been $ million, or $ per share of Common Stock. This represents an
immediate increase in pro forma net tangible book value of $ per share
to existing stockholders and an immediate dilution of $ per share to
new investors purchasing shares of Series B Common Stock in the Stock Offering.
The following table illustrates this per share dilution as of March 31, 1996.
<TABLE>
<S> <C>
Assumed initial public offering price per share of Series B Common Stock... $
Net tangible book value per share of Common Stock.................. $
Increase per share of Common Stock attributable to the Stock
Offering......................................................... $
Pro forma net tangible book value per share of Common Stock after
the Stock Offering....................................................... $
Dilution of net tangible book value per share of Series B Common Stock to
new investors............................................................ $
</TABLE>
If the Underwriters' over-allotment option were exercised in full, the pro
forma net tangible book value per share of Common Stock after giving effect to
the Stock Offering would be $ per share, and the dilution to persons
who purchase Series B Common Stock in the Stock Offering would be $ per
share.
22
<PAGE> 25
CAPITALIZATION
The following table sets forth the actual, pro forma and as adjusted
long-term debt and capitalization of the Company as of March 31, 1996. This
table should be read in conjunction with the Consolidated Financial Statements
and notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1996
--------------------------------------------
PRO FORMA
HISTORICAL PRO FORMA(1) AS ADJUSTED(2)
---------- ------------ --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Debt:
Notes payable to related party........................ $ 10,000 $ -- $
Capital leases, including current portion............. 35 35
FCC license debt(3)................................... -- 3,781,069
Convertible senior subordinated notes payable......... -- 130,348
Convertible notes payable............................. -- 27,817
----- ------- -----
Total debt......................................... 10,035 4,159,033 --
----- ------- -----
Stockholders' equity:
Common Stock, $0.0001 par value, 500,000,000 shares
authorized:
Series A, 60,000,000 shares designated: 39,960,000
shares issued and outstanding actual, 55,760,000
shares issued and outstanding pro forma and as
adjusted......................................... 4 6
Series B, 278,980,556 shares designated: no shares
issued and outstanding actual, 90,036,126 shares
issued and outstanding pro forma, shares
issued and outstanding as adjusted(4)............ -- 9
Series C, 1,019,444 shares designated: no shares
issued and outstanding actual, pro forma or as
adjusted(5)...................................... -- --
Paid-in capital......................................... 13,136 293,985
Subscriptions receivable from founders.................. (2,484) --
Deficit accumulated during development stage............ (2,238) (2,238)
Common Stock notes receivable from founders............. -- (2,510)
----- ------- -----
Total stockholders' equity.................... 8,418 289,252
----- ------- -----
Total debt and capitalization...................... $ 18,453 $4,229,346 $
===== ======= =====
</TABLE>
- ---------------
(1) The Pro Forma column reflects the effect on the Company's financial
position of certain events which occurred subsequent to March 31, 1996,
including (i) the issuance of Series B Common Stock for $170,500 of
contingent stock purchase subscriptions outstanding at March 31, 1996 and
$106,410 subscribed in April and May 1996, (ii) the issuance of $27,419 of
Convertible Promissory Notes, (iii) the Company's FCC license down payment
made in the amount of $130,834, net of the deposit of $79,225 paid in
December 1995, and (iv) the issuance of Bridge Notes payable in the
aggregate gross principal amount of $130,348. The Pro Forma column also
reflects the effect of the expected grant of the FCC licenses, including:
(i) application of the initial FCC deposit in the amount of $210,059
against the FCC long-term debt and payment of the remaining FCC license
down payment in the amount of $210,059 and (ii) capitalization as an
intangible asset of the FCC licenses expected to be awarded for an
aggregate purchase price of $4,201,187. See Note 12 of Notes to
Consolidated Financial Statements.
(2) The Pro Forma As Adjusted column reflects the effect on the Company's
financial position of the events referred to in note (1) above and the sale
by the Company of shares of Series B Common Stock offered hereby at
an assumed public offering price of $ per share, and the initial
application of the estimated net proceeds therefrom. In addition, the
Company intends to raise approximately $ million in gross proceeds from
a senior discount notes offering. Such proceeds are not reflected above.
See "Use of Proceeds."
(3) Assumes the C-Block PCS licenses for which the Company was named the
winning bidder are awarded to the Company. If such licenses are not
ultimately awarded, the total capitalization would be reduced by the amount
of the indebtedness to the FCC. See "Risk Factors -- Uncertainty of Final
Awards of Licenses from C-Block Auction; Litigation."
(4) Excludes (i) 7,935,000 shares of Series B Common Stock issuable upon
exercise of options outstanding under the 1995 Stock Option Plan as of
March 31, 1996 (of which options for no shares are exercisable as of March
31, 1996), (ii) 940,556 shares of Series B Common Stock issuable upon
exercise of the warrants outstanding as of March 31, 1996, (iii) 32,587
shares of Series B Common Stock issuable upon conversion of the Bridge
Notes (or up to 32,587 shares issuable upon exercise of warrants to be
issued upon repayment of such Bridge Notes), and
23
<PAGE> 26
(iv) 7,416,306 shares of Series B Common Stock issuable upon conversion of
$22,249 of Convertible Promissory Notes as of March 31, 1996.
(5) Excludes 1,019,444 shares of Series C Common Stock issuable upon conversion
of $398 aggregate principal amount of convertible debt held by QUALCOMM.
Pursuant to the Company's Restated Certificate of Incorporation, upon
consummation of the Stock Offering, all rights to acquire shares of Series
C Common Stock will be automatically converted into rights to acquire an
equal number of shares of Series B Common Stock.
24
<PAGE> 27
SELECTED CONSOLIDATED FINANCIAL DATA
The following data for the period from May 16, 1995 (inception) to December
31, 1995, have been derived from the Company's audited financial statements,
including the consolidated balance sheet at December 31, 1995 and the related
consolidated statements of operations and of cash flows for the period from May
16, 1995 (inception) to December 31, 1995 appearing elsewhere in this
Prospectus. The data for the three months ended March 31, 1996 have been derived
from unaudited financial statements which, in the opinion of management, include
all adjustments, consisting of only normal recurring adjustments, necessary for
a fair statement of the results for the unaudited period. The selected unaudited
consolidated financial data as of and for the three-month period ended March 31,
1996 are not necessarily indicative of the results to be expected for any other
interim period or any future year. The information below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PERIOD FROM MAY 16, THREE MONTHS
1995 (INCEPTION) TO ENDED
DECEMBER 31, 1995 MARCH 31, 1996
------------------- ---------------
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Consulting revenues...................................... $ 173 $ 1,881
Total operating expenses................................. 1,753 1,349
------------------- ---------------
Operating income (loss).................................. (1,580) 532
Other expenses........................................... -- (150)
Interest expense, net.................................... (314) (726)
------------------- ---------------
Net loss................................................. $ (1,894) $ (344)
=============== ============
PRO FORMA (1):
Net (loss) income per share (unaudited).................. $ (0.01) $ (0.00)
Shares used in computing net loss per share
(unaudited)........................................... 272,730 272,753
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1996
AS OF ------------------------------------------
DECEMBER 31, PRO FORMA
1995 HISTORICAL PRO FORMA(2) AS ADJUSTED(3)
------------ ---------- ------------ --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................ $(75,236) $ (172,827) $ 26,993 $
Total assets............................... 84,834 189,778 4,229,345
Total FCC license debt..................... 0 0 3,781,069
Other long-term debt....................... 24 11 158,176
Total stockholders' equity................. 5,006 8,418 289,252
</TABLE>
- ---------------
(1) See Note 2 of Notes to Consolidated Financial Statements for a description
of the computation of pro forma net loss per share and shares used in
computing net loss per share.
(2) The Pro Forma column reflects the effect on the Company's financial position
of certain events which occurred subsequent to March 31, 1996, including (i)
the issuance of Series B Common Stock for $170,500 of contingent stock
purchase subscriptions outstanding at March 31, 1996 and $106,410 subscribed
in April and May, (ii) the issuance of $27,419 of Convertible Promissory
Notes, (iii) the Company's FCC license down payment made in the amount of
$130,834, net of the deposit of $79,225 paid in December 1995, and (iv) the
issuances of Bridge Notes payable in the aggregate gross principal amount of
$130,348, (v) the issuance of Series A Common Stock to founders for
additional capital contributions of $3,950 comprised of $1,440 in cash and
$2,510 in the form of promissory notes. The Pro Forma column also reflects
the effect of the grant of the FCC licenses, anticipated to occur later this
year, including: (i) reflect the payment of the remaining FCC license down
payment in the amount of $210,059 and $3,781,069 as long-term debt; and (ii)
capitalization as an intangible asset of the FCC licenses to be awarded for
an aggregate purchase price of $4,201,187. See Note 12 of Notes to
Consolidated Financial Statements.
(3) The Pro Forma As Adjusted column reflects the effect on the Company's
financial position of all of the events and transactions referred to in note
(2) above and the Stock Offering at an assumed public offering price of
$ , and the initial application of the estimated net proceeds
therefrom. See "Use of Proceeds" and "Capitalization."
25
<PAGE> 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
The following discussion contains forward-looking statements regarding the
Company, its business, prospects and results of operations that are subject to
certain risks and uncertainties posed by many factors and events that could
cause the Company's actual business, prospects and results of operations to
differ materially from those that may be expressed or implied by such
forward-looking statements. Such risks, uncertainties and other factors include,
but are not limited to, the risks detailed in the RISK FACTORS section of this
Prospectus.
OVERVIEW
NextWave was formed on May 16, 1995. NextWave is a holding company with
three wholly-owned subsidiaries, NextWave Personal Communications Inc.
("NextWave PCI"), TELE*Code and NextWave Wireless Inc. ("NextWave Wireless").
NextWave PCI was formed to acquire PCS licenses in the FCC's PCS auctions.
TELE*Code was formed to develop CDMA-based products and provide engineering
services to the Company and others. NextWave Wireless was formed to act as an
operating company and intends to form subsidiaries for each of the Company's
seven regions and any clusters of additional markets that may comprise operating
regions.
NextWave is a development stage enterprise and has incurred net losses
since inception. To date, the Company's revenues have been limited to minimal
TELE*Code consulting services and consequently, the Company has incurred
expenses in advance of generating PCS revenues from planned operations.
NextWave intends to operate primarily as a "carriers' carrier," wholesaling
low-cost MOUs to a broad range of resellers. The Company plans to target several
categories of customers, including long distance companies, the RBOCs and other
LECs, CAPs, other major PCS retailers, cellular service providers, utilities,
cable television system operators and independent resellers, as well as
retailers and manufacturers of mass-market consumer products and services. By
purchasing MOUs from the Company, these companies will be able to offer
competitively priced wireless services under their own brand names without
substantial capital investment and without purchasing MOUs from direct
competitors. The Company believes that its strategy will generate a high volume
of MOUs over its networks.
Wireless operators typically experience losses and negative cash flow in
their initial years of operation due to the large capital investments required
for construction of their networks and the significant advertising and other
expenses needed to start the business. Although the Company does not plan to
incur significant marketing expenses due to its wholesale strategy, it will have
substantial capital costs associated with its license acquisitions and network
facilities. As the majority of NextWave's operating expenses will be fixed
expenses relating to its capital investment in its networks, increased traffic
on the Company's networks will result in lower average costs per MOU.
RESULTS OF OPERATIONS
The results of operations from inception through December 31, 1995 consist
solely of $173,000 of consulting contract revenues and $1,753,000 of operating
expenses incurred primarily in connection with formation costs, legal expenses,
marketing expenses, financial consultant expenses, employee salaries and rent
expense. The Company also incurred net interest expense of $314,000, resulting
in a net loss of $1,894,000 for the period ended December 31, 1995.
The results of operations for the first quarter ended March 31, 1996
consist of $1,881,000 of consulting contract revenues and $1,349,000 of
operating expenses, similar in nature to those incurred in 1995. The consulting
revenues included $1,841,000 from a related party for a contract related to
non-recurring consulting arrangement and there is no assurance that such revenue
will continue at similar levels in the future. The
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Company incurred $725,000 in net interest expense and $150,000 in expense
associated with converting a debt security to Series B Common Stock, resulting
in a net loss of $344,000 for the three-month period.
LIQUIDITY AND CAPITAL RESOURCES
From inception through December 31, 1995, the founders of the Company
contributed $5 million for the purchase of 20 million shares of Series A Common
Stock and raised $81 million in financing from various investors through the
issuance of debt, convertible debt and the receipt of advances for contingent
subscriptions to purchase Series B Common Stock. Through June 7, 1996, the
founders contributed a total of $14 million for the purchase of 56 million
shares of Series A Common Stock and the investment by outside investors had
grown to $438 million, consisting of $298 million raised in two private
offerings each consisting of Series B Common Stock and Convertible Promissory
Notes, approximately $130 million of Bridge Notes and a $10 million loan from LG
InfoComm, Inc. See "Description of Capital Stock" and "Certain Indebtedness."
A $258 million equity offering closed on May 6, 1996 and consisted of 86
million shares of Series B common stock with detachable warrants to purchase 14
million shares of Series B Common Stock at $3.00 per share. In addition,
pursuant to Subscription Agreements dated as of May 31, 1996, the Company sold
4.6 million shares of Series B Common Stock at $5.00 per share for a total of
$23 million.
These equity placements, totaling $281 million, included the conversion by
Philadelphia Electric Co. ("PECO") of its $20 million 1995 loan and QUALCOMM's
conversion of $15 million of its original $25 million 1995 loan, each at $3.00
per share of Series B Common Stock. All but $398,000 of the remaining $10
million balance of the original $25 million 1995 loan was paid on June 6, 1996.
In connection with its equity private placements of Series B Common Stock, the
Company issued an additional $17 million aggregate principal amount of
Convertible Promissory Notes to certain foreign investors. The Convertible
Promissory Notes convert automatically into shares of Series B Common Stock at a
price of $3.00 per share at such time as conversion is permitted under the FCC's
rules and regulations regarding foreign ownership. In the event the Convertible
Promissory Notes are not fully converted by the first anniversary date of the
completion of the C-Block Auction, each foreign stockholder shall have the right
to demand repayment of the principal balance due under the Convertible
Promissory Notes together with interest due thereon, at a rate of six percent
per annum. The Convertible Promissory Notes otherwise become due upon the fifth
anniversary of their issue.
The $130 million proceeds of the Bridge Notes were closed into escrow in a
series of closings in April and May 1996 and will remain restricted until the
PCS licenses are granted. The Bridge Notes are unsecured obligations of the
Company which mature in 2002. The Bridge Notes are callable by the Company,
which is obligated to prepay the Bridge Notes in connection with any issuance of
high-yield debt securities, including the Notes offered in the Notes Offering.
In February 1996, LG InfoComm, Inc. committed to loan the Company $10
million, within 45 days of the completion of the C-Block Auction. The loan was
funded June 4, 1996, bears interest at prime rate and is convertible into shares
of Series B Common Stock at $7.00 per share. The loan is unsecured and principal
and interest is payable June 3, 1997 if the loan has not been converted by that
date.
On May 8, 1996, NextWave PCI was named the winning bidder for PCS licenses
by the FCC following its C-Block Auction. The total net bid by the Company for
these markets (after giving effect to a 25% bidding credit available to all
"Small Business" C-Block participants) was $4.2 billion. On December 1, 1995,
the Company deposited $79 million with the FCC, and on May 10, 1996, the Company
delivered another $131 million, meeting its five percent obligation ($210
million) of the bid price as a down payment on the licenses. Another five
percent payment will be required when the licenses are formally granted to the
Company. The remaining $3.8 billion debt to the FCC is payable over a ten-year
period from the date of the license grant, with interest only (approximately
$260 million per year, payable quarterly) for the first six years after the
grant of the license, and principal (approximately $950 million per year,
payable quarterly) and interest in the seventh through tenth years. The interest
rate will be fixed at the 10-year Treasury Note Rate at the date of license
grant (6.85% at May 31, 1996).
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Upon the FCC's granting of licenses to the Company, the Company will begin
building its PCS networks. The Company currently estimates the funds required
for capital expenditures relating to the initial build-out of the PCS networks
in all of its Markets will be approximately $1.5 billion. The Company intends to
enter into secured financing agreements during the next 12 to 18 months with
infrastructure manufacturers and other vendors in connection with the build-out
of its PCS networks. In April 1996 the Company released its procurement
requirements for CDMA infrastructure equipment. The Company is currently engaged
in product selection and vendor contract negotiations for its seven regions,
which are expected to be completed in the near future.
Although the Company has raised sufficient capital to meet the FCC down
payment requirements and begin the design phase of its network build-out, the
viability of its business plan is dependent upon the Company's ability to
finalize equipment vendor financing and to successfully complete either public
or private capital financings. If the Company is unable to obtain such
financings, then its ability to complete the network build-out, begin generating
revenues and meet its payment obligations to the FCC will be in jeopardy.
Further, the exact amount of the Company's future capital requirements will
depend upon many factors, including the cost of development of its PCS networks
in each of its licensed markets, the extent of competition and pricing of
wireless service in these markets, the acceptance of the Company's services, and
the development of new consumer products.
To meet its initial stage capital requirements, the Company is offering
shares of Series B Common Stock in the Stock Offering and will offer
$ million in gross proceeds of Notes in the Notes Offering for
estimated aggregate net proceeds to the Company of , net of the
repayment of Bridge Notes. The Company's independent accountants have included
an explanatory paragraph in their report about the Company's ability to continue
as a going concern pursuant to its business plan based on the significant
capital required to meet its obligations to the FCC, build its PCS
infrastructure necessary to provide service and cover its operational expenses.
However, the Company believes that the net proceeds from the Offerings, together
with government loans, vendor financing and cash on hand will be sufficient to
fund its operations and obligations at least until December 1997. The Company
believes such amounts will be sufficient to fund the initial network build-out
of the New York City, Los Angeles/San Diego, Washington, D.C./Baltimore, Boston
and Houston markets. The Company will need significant additional capital to
complete its network build-out after 1997. The Company anticipates that it will
pursue vendor financings and offerings of debt and/ or equity securities to meet
such needs.
NEW FINANCIAL ACCOUNTING STANDARDS BOARD PRONOUNCEMENTS
Long-Lived Assets -- In March 1995, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards ("FAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed of," which the Company adopted prospectively as required on January
1, 1996. Pursuant to this Statement, companies are required to investigate
potential impairments of long-lived assets, certain identifiable intangibles,
and associated goodwill, on an exception basis, when there is evidence that
events or changes in circumstances indicate that an asset's carrying value may
not be recoverable. An impairment loss would be recognized when the sum of the
expected future net cash flows is less than the carrying amount of the asset.
The adoption of FAS 121 did not have a significant impact on the Company's
financial position or results of operations.
Stock-Based Compensation -- In October 1995, the Financial Accounting
Standards Board issued ("FAS") No. 123, "Accounting for Stock-Based
Compensation." FAS 123 was adopted by the Company as required for its 1996
financial statements and did not have a material effect of the Company's
financial position or results of operations. Upon adoption of FAS 123, the
Company continued to measure compensation expense for its stock-based employee
compensation plans using the intrinsic value method prescribed by APB Opinion
No. 25, "Accounting for Stock Issued to Employees," and will provide pro forma
disclosures of net loss and net loss per share in its 1996 financial statements
as if the fair value-based method prescribed by FAS 123 had been applied in
measuring compensation expense.
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THE WIRELESS TELECOMMUNICATIONS INDUSTRY
OVERVIEW
Demand for wireless telecommunications services has grown dramatically
since its commercial introduction in 1983. This demand is largely attributable
to the widespread availability and increasing affordability of mobile telephony,
paging and other emerging wireless telecommunications services. Technological
advances and a regulatory environment more favorable to competition have also
served to stimulate market growth.
The Company believes the demand for wireless telecommunications will
continue to grow dramatically and that PCS will capture a significant share of
the wireless market. Currently, wireless penetration in the U.S. is estimated to
be 13% and, according to Paul Kagan Associates, Inc., is expected to exceed 47%
by 2006. As reported by the CTIA the compound annual growth rate of cellular
subscribers exceeded 45% from 1993 through 1995. Despite this rapid growth in
the number of cellular subscribers, wireless MOUs represent only a small portion
of total telecommunications traffic due to capacity constraints which discourage
cellular providers from aggressively pricing their services. The Company
believes that the demand for wireless service is highly elastic and that the
anticipated lower cost and higher quality of PCS service will fuel further
growth in the wireless market. In addition to lower prices, the Company believes
that increased functionality, increased awareness of the productivity,
convenience and emergency communications capability associated with wireless
services will contribute to the growth in demand for wireless airtime.
PERSONAL COMMUNICATIONS SERVICES
PCS is expected to include a number of attractive features, such as (i) the
provision of all services to one untethered, mobile number, (ii) low priced
service options, (iii) in the near future, medium-speed data transmissions to
and from portable computers, advanced paging services and facsimile services and
(iv) increased security and fraud protection. Although a number of cellular
companies currently offer digital wireless service, the Company believes that
PCS providers will be the first commercial wireless voice telecommunications
providers to offer digital mobile networks on a nationwide basis. In addition,
PCS providers may be the first to offer mass market wireless local loop
applications in the United States, as an extension of and an alternative to,
switched and direct access local telecommunications services.
The Company believes that the experience of international markets where PCS
has already been introduced provides support for the Company's expectation of
rapid growth of PCS in the United States. For example, the successful launch of
PCS networks in the U.K. in a market with two established cellular operators is
generally believed to have stimulated demand and increased penetration rates in
the entire country. In less than two years, the U.K.'s two PCS operators have
gained over 600,000 subscribers, representing approximately a 15.5% share of the
total wireless market and 40% of new wireless subscribers over the same period.
In the Baltimore/Washington, D.C. market, Sprint Spectrum L.P. has operated a
commercial PCS operation since November 15, 1995, with more than 80,000
subscribers as of May 1996.
PCS VERSUS CELLULAR
Wireless telecommunications service is currently available using either
analog or digital technology. The majority of cellular services transmit voice
and data signals over analog-based networks by varying the amplitude or
frequency of one continuous electronic signal transmitted over a single radio
channel. Although it is more widely deployed than digital, analog technology
today has several limitations, including limited capacity, inconsistent service
quality (e.g., poor voice quality and dropped calls), lack of effectiveness in
preventing "eavesdropping" and "cloning," susceptibility to fraud and
unreliability in data transfer. Digital wireless telecommunications systems,
such as PCS, overcome the capacity constraints of analog systems by converting
voice or data signals into a stream of digits that is compressed before
transmission, enabling a single radio channel to carry multiple simultaneous
signal transmissions. This increased capacity, along with enhancements in
digital protocols, allows digital-based transfer systems to offer new and
advanced services including greater call privacy, fraud protection, single
number service, integrated voice and paging and enhanced wireless data
transmission services such as e-mail, facsimile and wireless connections to
computer
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networks.
PCS spectrum differs from traditional cellular in three basic ways:
frequency, spectrum bandwidth and geographic service areas. PCS networks will
operate in a higher-frequency band (1850-1990 MHz) than cellular (800-900 MHz).
PCS licenses will also be comprised of 30 MHz or 10 MHz spectrum versus 25 MHz
spectrum for cellular networks. As a result of improved digital technology and
the large allocation of spectrum, PCS will have more capacity for new wireless
services such as data and video transmission. Finally, PCS is geographically
segmented among 51 regional service areas based upon Rand McNally's Major
Trading Areas ("MTAs") (comprising the A-Block and B-Block) and 493 local
service areas based upon Rand McNally's BTAs (comprising the C, D, E and
F-Blocks) as contrasted with the U.S. Census Bureau's 306 metropolitan
statistical areas ("MSAs") and 428 rural statistical areas ("RSAs") used for
cellular licenses.
FORMATION OF PCS INDUSTRY THROUGH FCC AUCTIONS
In order to increase competition in wireless communications and promote the
rapid deployment of advanced technologies, Congress enacted legislation
directing the FCC to allocate radio frequency spectrum for PCS by competitive
bidding. In March 1995, the FCC completed its first auction, the A-Block and
B-Block Auctions, resulting in the award of two licenses for 30 MHz each of
spectrum in each of 51 MTAs. Each licensee must construct networks that serve at
least one-third of the population in its markets within five years of the grant
of the applicable license and at least two-thirds of the population within ten
years. The C-Block Auction, comprised of 30 MHz BTA licenses, was recently
completed and will be followed by one or more auctions of the 10 MHz D-Block,
E-Block and F-Block BTA licenses.
When Congress granted authority to the FCC to use auctions to award
licenses for broadband PCS, it directed the FCC to create special provisions for
certain groups which might otherwise lack access to capital. Such groups were
statutorily designated as women and minority-owned businesses, small businesses,
and rural telephone companies. To meet this directive, the FCC reserved a
portion of the broadband PCS spectrum available via auction (C-Block and
F-Block) for such designated entities meeting certain financial criteria. In the
wake of certain litigation, however, the FCC eliminated the race and
gender-based preferences for the C-Block and is considering whether to eliminate
them for the F-Block. C-Block represents 30 MHz BTA licenses and F-Block
represents the 10 MHz BTA licenses, with both sets of licenses being auctioned
on a nationwide basis. Together, these two blocks make up the "Entrepreneurs'
Block." NextWave participated in the C-Block Auction as a "Small Business" under
the FCC regulations. The FCC has established additional preferences to assist
qualified participants in their efforts to attract capital necessary to obtain a
broadband PCS license at auction and build out their networks. These preferences
include bidding credits and installment payments. "Small Businesses," meaning
entities with not more than an average of $40 million in gross annual revenues
over the three calendar years preceding the entity's short form (Form 175)
filing date, receive a 25% bidding credit and can finance their licenses over
ten years with 10% down, paying interest only for the first six years at a fixed
rate equal to the 10-Year U.S. Treasury Note Rate applicable at the date of
grant of the entity's licenses (6.85% at May 31, 1996). See "Risk
Factors -- Uncertainty of Final Awards of Licenses from C-Block Auction" and
"Business -- Markets."
The FCC established the D, E and F-Blocks as 10 MHz spectrum blocks that
will be licensed on a BTA basis. The FCC is considering (i) when (and in what
order) to auction these additional PCS licenses, (ii) whether to extend C-Block
bidding credits and installment payment plans to qualifying applicants
participating in the D-Block and E-Block Auctions and (iii) the extent to which
applicants that qualified as small businesses in the C-Block Auction, and now
hold C-Block licenses, are eligible to retain small business status in the D, E
and F-Block Auctions.
PCS TECHNOLOGY
Wireless service areas are divided into multiple regions called "cells,"
each of which contains a base station consisting of a low-power transmitter, a
receiver and signaling equipment. The cells are typically configured on a grid
in a honeycomb-like pattern, although terrain factors (including natural and
man-made obstructions) and signal coverage patterns may result in irregularly
shaped cells and overlaps or gaps in
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coverage. The base station in each cell is connected to a base station
controller and each base station controller is connected to a switching office
by microwave, fiber optic cable, telephone wires or a hard-wired interface to a
switching office. The switching office controls the operation of the wireless
telephone networks for its entire service area, performing inter-base station
hand-offs, managing call delivery to handsets, allocating calls among the cells
within the networks and connecting calls to and from the local landline
telephone system or to a long-distance telephone carrier. Wireless service
providers have interconnection agreements with various local exchange carriers
and long-distance carriers, thereby integrating wireless telephone networks with
landline telecommunications systems. Because two-way wireless networks are fully
interconnected with landline telephone networks and long-distance networks,
subscribers can receive and originate both local and long distance calls from
their wireless telephones.
The signal strength of a transmission between a handset and a base station
declines as the handset moves away from the base station, so the switching
office and the base stations monitor the signal strength of calls in progress.
In an analog system, when the signal strength of a call declines to a
predetermined level, the switching office may "hand off" the call to another
base station that can establish a stronger signal with the handset. If a handset
leaves the service area of the wireless service provider, the call is
disconnected unless an appropriate technical interface is established to hand
off the call to an adjacent system.
[SCHEMATIC WHICH DEPICTS TECHNICAL OPERATION OF PCS NETWORKS APPEARS HERE]
While PCS and cellular networks utilize similar technologies and hardware,
they operate on different frequencies and may utilize various frequency
management technologies, or protocols. There are different radio air-interface
standards established in the United States for the provision of PCS to multiple
users over the allocated spectrum. The primary methods of digital wireless
communications widely accepted by the wireless industry are based on TDMA or
CDMA. These multiple access techniques provide for multiple communications over
the radio channel either by dividing it into distinct time slots and
transmitting user-specific data in each time slot (a method known as TDMA) or by
assigning specific codes to each packet of user data that in conjunction with
many other users' data comprise a signal (a method known as CDMA). While the FCC
has mandated that licensed cellular networks in the U.S. must utilize compatible
analog signaling protocols, the FCC has intentionally avoided mandating a
universal digital signaling protocol for PCS. Three principal competing,
incompatible digital wireless standards have been proposed by various vendors
for use in PCS networks: CDMA, GSM and TDMA. A version of TDMA developed in
Europe, GSM has the advantage of being the most proven PCS technology in
international markets. TDMA, while currently being offered by cellular providers
in certain U.S. cities, has, in the Company's opinion, often been associated
with poor sound quality and numerous dropped calls. CDMA is currently being used
by cellular providers on a limited basis in the U.S., and has been implemented
on a commercial basis in Hong Kong and South Korea. Although CDMA is not
currently widely deployed in the U.S., the Company believes that CDMA technology
will be less costly to deploy and will provide better quality, greater capacity
and more flexibility than either GSM or TDMA. CDMA is expected to become the
most widely adopted PCS technology.
Because these protocols are incompatible with each other and analog
cellular, a subscriber of networks utilizing GSM technology, for example, will
be unable to use his handset when traveling in an area covered only by a CDMA or
TDMA based network unless he carries a dual-mode/dual-band handset that permits
the subscriber to use the cellular networks in that area. For this reason, the
success of each protocol will depend both on its ability to offer quality
wireless service and on the extent to which its users will be able to use their
handsets when roaming outside their service area. Based on public announcements
by licensees in the A-Block and B-Block Auctions and winning bidders in the
C-Block Auction, the Company believes that CDMA technology will provide coverage
to over 90% of the U.S. population, including virtually all of the top 100
markets in the U.S. The Company believes CDMA networks will offer end-users
significant advantages over other technologies, including increased security
when compared to analog cellular networks, land-line voice quality and fewer
dropped calls when compared to analog and other digital technologies. See "Risk
Factors -- Uncertainty of CDMA Commercial Operations; Ability to Offer Roaming
Services; Headsets."
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BUSINESS
GENERAL
NextWave was formed to build and operate PCS networks. In May 1996,
NextWave was named the winning bidder for PCS licenses representing
approximately 98 million POPs in the C-Block Auction held by the FCC. Upon final
granting of its PCS licenses, NextWave believes it will have the third largest
number of licensed POPs among cellular and PCS licensees in the United States,
after AT&T Wireless Services, Incorporated and Sprint Spectrum L.P. To date, the
Company has raised an aggregate of approximately $450 million in private capital
to finance the acquisition of PCS licenses and commence the development of its
PCS networks. NextWave has filed its application with the FCC for PCS licenses
in its 56 BTAs and has paid the FCC the required 5% initial deposit of
approximately $210 million. There can be no assurance that the Company will be
awarded such licenses. See "Risk Factors -- Uncertainty of Final Awards of
Licenses from C-Block Auction."
NextWave believes that its Markets are some of the most attractive in the
United States, with demographics that would suggest higher than average use of
wireless telephony. The Company's Markets include some of the most densely
populated cities in the United States, including New York, Los Angeles, Boston,
Houston and Washington, D.C. The Markets are also characterized by high
population growth rates, high disposable income levels, long average commute
times and significant percentages of dual household wage earners.
NextWave intends to operate primarily as a "carriers' carrier," wholesaling
low-cost MOUs to a broad range of resellers. The Company plans to target several
categories of customers, including long distance companies, the RBOCs and other
LECs, CAPs, other major PCS retailers, cellular service providers, utilities,
cable television system operators and independent resellers, as well as
retailers and manufacturers of mass-market consumer products and services. By
purchasing MOUs from the Company, these companies will be able to offer
competitively priced wireless services under their own brand names without
substantial capital investment and without purchasing MOUs from direct
competitors. The Company believes that its strategy will generate a high volume
of MOUs over its networks.
The Company believes the demand for wireless telecommunications will
continue to grow dramatically and that PCS will capture a significant share of
the wireless market. Currently, wireless penetration in the U.S. is estimated to
be 13% and, according to Paul Kagan Associates, Inc., is expected to exceed 47%
by 2006. As reported by the CTIA the compound annual growth rate of cellular
subscribers exceeded 45% from 1993 through 1995. Despite this rapid growth in
the number of cellular subscribers, wireless MOUs represent only a small portion
of total telecommunications traffic due to capacity constraints which discourage
cellular providers from aggressively pricing their services. The Company
believes that the demand for wireless service is highly elastic and that the
anticipated lower cost and higher quality of PCS service will fuel growth in the
wireless market.
BUSINESS STRATEGY
NextWave intends to build and operate digital networks through which the
Company will provide low-cost, advanced wireless communications services. The
principal components of the Company's business strategy are to (i) operate
primarily as a "carriers' carrier," wholesaling MOUs to a broad range of
customers, including wireless service providers, (ii) provide low-cost minutes
of use, (iii) capitalize on the widespread footprint of its networks, (iv)
leverage the Company's technical expertise and (v) offer value-added products
and services to PCS resellers and their subscribers.
- Operate as a Carriers' Carrier. By operating primarily as a wholesaler
of MOUs, NextWave will not market directly to consumers, but instead
expects to sell a high volume of MOUs on its networks to branded wireless
resellers who in turn will sell to consumers. The Company believes that
the movement among major branded providers to bundle their services, such
as the recent announcements by AT&T and MCI, will create an opportunity
for NextWave to offer MOUs to those carriers that have not yet
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acquired the means to provide digital wireless services and to PCS
providers seeking to fill in geographic gaps or create incremental
capacity.
- Provide Low-Cost Minutes of Use. NextWave will seek to be a low-cost
operator of PCS networks by pursuing a high-volume wholesale strategy and
by building efficient PCS networks. In order to execute this strategy,
the Company intends to (i) implement CDMA technology, which requires
30%-50% fewer cell sites than alternative digital technologies, (ii)
organize the Markets into geographic regions, resulting in operational
efficiencies and economies of scale, (iii) perform its own network
engineering and design rather than rely on equipment suppliers to design
its networks and (iv) sell MOUs to resellers rather than directly to
end-users, significantly reducing the Company's marketing expenses.
NextWave's high volume strategy will provide for increased capacity
utilization which should reduce the Company's average cost per MOU.
- Capitalize on Widespread Geographic Coverage. Upon final granting of its
PCS licenses, NextWave believes it will have the third largest number of
licensed POPs among cellular and PCS licensees in the United States,
representing approximately 38% of the U.S. population. The Company
believes that the breadth of its footprint and the demographics of the
Markets will enhance its attractiveness to potential reseller customers
and will minimize expensive out-of-region "roaming" charges. In the
future, NextWave will selectively expand its footprint through strategic
alliances, acquisitions and participation in planned FCC auctions.
- Leverage Technical Expertise. The Company is building a management team
with significant experience in designing, deploying and operating
sophisticated wireless networks. Mr. Allen Salmasi, Chairman, President
and Chief Executive Officer of the Company, led the successful
development and standardization of CDMA technology as President of the
Wireless Telecommunications Division and Chief Strategic Officer of
QUALCOMM, a leading wireless equipment company. Other members of NextWave
management have substantial expertise in network engineering, planning
and operations, as well as business development, regulatory matters and
marketing. The Company believes that management's expertise will allow
NextWave to (i) efficiently design high-quality, low-cost wireless
networks, (ii) incorporate advances in wireless technology and upgrade
the Company's networks as appropriate and (iii) capitalize on emerging
trends and opportunities in the wireless industry.
- Offer Value-Added Products and Services. In addition to offering
low-cost MOUs to resellers, the Company also intends to offer other
products such as wireless local loop services and wireless PBX
applications. The Company's networks will also support advanced wireless
features including caller ID, over-the-air activation, integrated paging,
call answering and handset-based Internet access. The Company also plans
to market other wireless services such as wireless meter reading for
utility companies.
BIDDING STRATEGY AND MARKETS
NextWave focused on acquiring licenses in the C-Block Auction for BTAs
clustered in seven geographic regions throughout the United States. The Company
believes that this clustering approach will provide for operational
efficiencies, lower infrastructure costs, more efficient network build-out, and
ultimately, lower wholesale prices for the Company's wireless MOUs. The
Company's seven regions are New York Metro, Southern California, Midwest,
Southwest, Mid-Atlantic, Florida and New England. Within each region NextWave
sought densely populated markets, including New York City, Los Angeles/San
Diego, Washington D.C./Baltimore, Boston, Cincinnati, Cleveland, Houston,
Pittsburgh, Providence, Tampa and Kansas City. NextWave also targeted markets
with favorable demographics, such as average cellular airtime usage, pricing of
wireless services, population growth and average household income, including
Austin, Charlotte, Jacksonville, Orlando and San Antonio and smaller markets
that filled-out its geographic regions. In addition, the Company was the winning
bidder for licenses in areas characterized by major economic activity with
Mexico, including Los Angeles, San Diego, Las Cruces, El Paso, San Antonio,
Houston, McAllen and Brownsville. At the conclusion of the C-Block Auction,
NextWave's Markets include five of the ten largest BTAs and 25 of the 50 largest
BTAs.
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<PAGE> 36
SUMMARY OF NEXTWAVE'S MARKETS
<TABLE>
<CAPTION>
REGIONS POPS
- --------------------------------------------------------------------------------- ----------
<S> <C>
NEW YORK METRO
New York City.................................................................... 18,315,300
Albany-Schenectady, New York..................................................... 1,051,700
Allentown, Pennsylvania.......................................................... 713,400
Scranton, Pennsylvania........................................................... 682,900
New Haven, Connecticut........................................................... 978,000
Poughkeepsie, New York........................................................... 435,500
----------
TOTAL.................................................................. 22,176,800
==========
SOUTHERN CALIFORNIA
Los Angeles, California.......................................................... 15,430,200
San Diego, California............................................................ 2,656,700
----------
TOTAL.................................................................. 18,086,900
==========
MIDWEST
Cleveland-Akron, Ohio............................................................ 2,942,000
Pittsburgh, Pennsylvania......................................................... 2,500,800
Cincinnati, Ohio................................................................. 2,069,600
Columbus, Ohio................................................................... 1,559,800
Louisville, Kentucky............................................................. 1,397,500
Indianapolis, Indiana............................................................ 1,395,000
Dayton, Ohio..................................................................... 1,240,700
Lexington, Kentucky.............................................................. 854,200
Evansville, Indiana.............................................................. 512,100
Lafayette, Indiana............................................................... 256,300
Bloomington, Indiana............................................................. 227,500
Columbus, Indiana................................................................ 145,200
----------
TOTAL.................................................................. 15,100,700
==========
MID-ATLANTIC
Washington, D.C.................................................................. 4,350,800
Baltimore, Maryland.............................................................. 2,508,800
Charlotte, North Carolina........................................................ 1,780,400
Norfolk, Virginia................................................................ 1,737,200
Greensboro, North Carolina....................................................... 1,292,500
Richmond, Virginia............................................................... 1,141,900
Roanoke, Virginia................................................................ 619,000
Hagerstown, Maryland............................................................. 343,200
Asheville, North Carolina........................................................ 530,800
Hickory, North Carolina.......................................................... 303,600
----------
TOTAL.................................................................. 14,608,200
==========
</TABLE>
34
<PAGE> 37
<TABLE>
<CAPTION>
REGIONS POPS
- --------------------------------------------------------------------------------- ----------
<S> <C>
SOUTHWEST
Houston, Texas................................................................... 4,373,800
Kansas City, Missouri............................................................ 1,914,500
San Antonio, Texas............................................................... 1,654,200
Oklahoma City, Oklahoma.......................................................... 1,337,800
Austin, Texas.................................................................... 993,800
El Paso, Texas................................................................... 711,800
Springfield, Missouri............................................................ 564,600
McAllen, Texas................................................................... 483,800
Temple-Kileen, Texas............................................................. 295,800
Brownsville, Texas............................................................... 299,600
Joplin, Missouri................................................................. 220,000
Las Cruces, New Mexico........................................................... 217,100
Bryan-College Station, Texas..................................................... 157,500
----------
TOTAL.................................................................. 13,224,300
==========
NEW ENGLAND
Boston, Massachusetts............................................................ 4,134,500
Providence, Rhode Island......................................................... 1,522,400
Worcester, Massachusetts......................................................... 722,800
Manchester, New Hampshire........................................................ 553,400
Portland, Maine.................................................................. 479,800
New London, Connecticut.......................................................... 356,900
----------
TOTAL.................................................................. 7,769,800
==========
FLORIDA
Tampa, Florida................................................................... 2,656,700
Orlando, Florida................................................................. 1,388,300
Jacksonville, Florida............................................................ 1,199,300
Sarasota, Florida................................................................ 544,900
Lakeland, Florida................................................................ 433,500
Melbourne, Florida............................................................... 436,200
Gainesville, Florida............................................................. 277,300
----------
TOTAL.................................................................. 6,936,200
==========
TOTAL............................................................................ 97,902,900
==========
</TABLE>
NextWave will seek to expand the footprint of its wireless networks
throughout the United States through a combination of potential affiliations,
alliances, acquisitions and participation in planned FCC auctions. To cover
those areas not served by the Markets, the Company expects to enter into roaming
agreements with other major PCS carriers.
MARKETING AND DISTRIBUTION
NextWave intends to operate primarily as a wholesaler of MOUs to resellers.
To the Company's knowledge, there are no existing cellular or PCS carriers in
the U.S. pursuing a similar wholesale strategy. To the extent that reseller
arrangements for wireless airtime do currently exist, the Company believes that
such arrangements are unattractive to potential resellers given the low margins
offered to resellers and the significant costs borne by resellers associated
with subscriber acquisition and administrative obligations.
35
<PAGE> 38
As a wholesaler, the Company will not have to incur the significant
marketing, sales and customer service costs associated with establishing and
maintaining a consumer brand-name. By selling MOUs to numerous wireless
providers, NextWave believes that it will generate a high volume of MOUs over
its networks and achieve lower average costs per MOU than brand-name wireless
providers whose networks primarily will be used to carry their own traffic.
The Company intends to establish national sales and marketing teams to
focus on major national resellers, in addition to regional sales and marketing
teams which will target the regional reseller market and industry niches. The
Company believes this approach will allow its sales force to familiarize itself
with the industry participants in a given customer category and geographic
region, as well to gain expertise in the technical and business issues facing
particular categories of customers. The Company plans to target several
categories of customers, including long distance companies, the RBOCs and other
LECs, CAPs, other major PCS retailers, cellular service providers, utilities,
cable television system operators and independent resellers, as well as
retailers and manufacturers of mass-market consumer products and services.
PRODUCTS AND SERVICES
NextWave intends to offer a variety of specialized mobile wireless services
through its wireless CDMA networks. In addition to offering low-cost MOUs to
mobile wireless resellers, the Company may offer fixed wireless local loop
services as well as support wireless PBX installations for its resellers'
customers. NextWave intends to work with its resellers to provide a host of
value-added products and services allowing resellers to be more competitive. The
Company expects its networks will support features designed to increase usage
and provide consumers greater capabilities in call management, including the
following:
Advanced Handsets. CDMA handsets will offer 48-hour standby time and
four-hour talk time. These handsets will be equipped with preprogrammed
features such as speed dial and last number redial. These handsets will be
sold under the reseller's name.
Caller ID. The Company's networks will be capable of displaying the
telephone number of the incoming caller on the customer's handset, allowing
the customer to decide whether or not to accept the call or route to
voice-mail.
Over-the-Air Activation. This feature will allow consumers to
purchase a shrink-wrapped handset "off the shelf" at a retail location and
at their convenience, place the first call automatically to an activation
center and have service initiated in a short period of time by programming
the handset over the air. The Company believes over-the-air activation will
reduce the resellers' cost of customer acquisition.
Integrated Advanced Paging. The Company anticipates introducing
integrated advanced paging which will allow the handset to signal the
receipt of an incoming message and provide text messaging via the handset,
thereby eliminating the need for a separate paging unit. The handset will
have the capability to respond to incoming messages through pre-programmed
responses or new user defined messages.
Voice-Mail. This feature operates like an answering machine. A
message waiting indicator on the handset notifies the subscriber of a new
message. The Company plans to introduce the ability to "listen in" as a
message is being left, with the option to take the call or automatically
call back.
Custom Calling Features. Additional features which the Company
anticipates offering include call waiting, call forwarding, distinctive
ringing and call blocking.
The Company believes that new features and services will be developed to
take advantage of CDMA technology and intends to offer a portfolio of products
to accommodate the growth in, and the unique requirements of, high speed data
traffic. The Company also plans to address a number of applications for wireless
data services which are currently envisioned (e.g., facsimile, wireless local
area networks, point-of-sale terminal connections). NextWave will implement an
Advanced Intelligent Network ("AIN") platform and integrate it into its service
offering to provide resellers with the capability to customize services and
features for specific customer groups.
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<PAGE> 39
The Company, through its subsidiary, TELE*Code, is developing certain niche
applications and products which the Company will offer both to its resellers
and, in certain circumstances, directly to end-users such as hospitals,
universities, banks and utilities. NextWave, in conjunction with a number of
major utilities, intends to implement highly integrated wireless networks in
support of wireless meter reading applications, home automation applications,
demand side management and other consumer and/or business applications.
TELE*Code has entered into a relationship with SONY Electronics Inc. to develop
niche consumer products, including certain wireless local loop products and
services.
NETWORK BUILD-OUT
General. The Company intends to offer wide area mobility service in
certain of the Markets, including New York City, Los Angeles/San Diego,
Washington, D.C./Baltimore, Boston and Houston, by the end of 1997 and in the
remaining Markets by the end of 1998. Prior to offering full coverage, NextWave
intends to make available limited coverage service within approximately one year
of the date of the FCC's license grants. This will allow the Company to offer
its resellers commercial-grade service in selected areas while the wide area
mobility system is implemented. Unlike other PCS operators, NextWave will
perform a substantial portion of its own network design and systems engineering,
rather than rely on equipment vendors to provide such services.
Network Planning and Design. The Company's basic network planning and
systems design are being performed by TELE*Code. Through TELE*Code, the Company
is establishing a highly skilled and experienced wireless network engineering
services and software product development organization. TELE*Code is developing
software engineering tools and system designs that are intended to accelerate
the deployment of the Company's PCS networks while at the same time improving
the quality and performance of the networks and reducing costs associated with
the deployment, operation and maintenance of the networks.
Radio Frequency Engineering. NextWave is completing its initial radio
frequency ("RF") engineering plans for deployment of CDMA systems in its New
York City, Los Angeles/San Diego, Washington, D.C./Baltimore, Boston and Houston
markets. The Company expects to complete its detailed RF design for the balance
of the markets in the fall of 1996. It also plans to be one of the first PCS
carriers to actively deploy polarization diversity antenna systems. By lowering
the antenna profile and reducing structural loading, the Company plans to take
advantage of existing tall communications sites to engineer wide area CDMA
coverage as quickly as possible. The initial RF design process includes cell
site coverage and channel capacity planning and considers both PCS and microwave
interference issues.
Site Acquisition and Development. NextWave has deployed regional teams and
has engaged the services of selected consultants to assist it in the location
and development of cell sites. The Company is currently actively cataloging and
qualifying sites. The Company believes that approximately 20% of these sites can
be acquired through bulk leasing. NextWave has made substantial progress in
identifying these opportunities and is actively pursuing master lease
agreements. Examples of parties with which the Company may negotiate bulk site
leases include Utility Companies, Port and Transit Authorities, Transportation
and Highway Departments, Large Housing Projects, and Government Agencies.
Zoning and Permitting. The Company is proactively identifying areas where
zoning delays may impact site development. When such areas are identified,
engineering personnel will seek alternative sites before the core design is
attempted. The Company will review zoning requirements early in the site
development process and identify ways to reduce or eliminate approvals by
modifying designs or adjusting locations to co-locate with existing operators
and thereby minimize the necessity of tower construction.
Program/Construction Management. The Company has developed deployment and
staffing plans for each region to identify resource requirements and establish
schedules for site construction, testing and integration. Network build-out
costs will be tracked and captured in the Company's client/server-based
financial accounting systems. In May 1996, a comprehensive project, location and
functional coding structure was put in place to accurately capture all network
deployment costs when field mobilization began. The Company plans to implement
bar code-based asset tracking to control the placement and location of its
assets in each of the regions. NextWave has entered into an agreement with LCC,
L.L.C. to provide the Company
37
<PAGE> 40
with not less than $50,000,000 of engineering services, program management
services, software and equipment during a five and one-half year period.
Incumbent Microwave Relocation. NextWave has performed engineering studies
which indicate that there are approximately 500 microwave links, utilized by
utility companies, public safety agencies and other carriers, within the
Company's C-Block spectrum allocation. The Company's studies indicate that 60%
of these links will require relocation at a cost of approximately $300,000 per
link to permit the launch of initial service. NextWave expects to relocate the
required links within two to three years to support additional capacity. The
Company has engaged several leading industry consulting firms to initiate the
relocation projects. The Company believes that many incumbent operators have or
are in the process of relocation due to initiatives by A-Block and B-Block PCS
operators.
Systems and Operations Management. The Company is implementing advanced
information systems to manage the build-out of the networks and to facilitate
communication between personnel. The Company will customize third party systems
for network management and provide for integrated dispatch with field operations
to rapidly respond to network faults. NextWave plans to build regional 24-hour
operations centers to effectively monitor network quality.
During May 1996, NextWave completed the implementation of the Oracle(TM)
Financial Suite software system to manage its purchasing, accounts payable and
general ledger functions. The Oracle fixed assets and project accounting modules
are currently being designed to manage the operational requirements of the
build-out. This software will allow engineering and operations managers access
to costing information to assist in managing a cost-effective PCS network
deployment and in pricing the Company's MOUs.
CDMA TECHNOLOGY
NextWave believes that CDMA technology is fundamental to accomplishing its
business objective of providing high volume, high quality airtime at a low cost.
CDMA has been widely adopted by both cellular and PCS providers both
domestically and internationally. In the U.S., AirTouch Communications has
commenced commercial CDMA service in the Los Angeles market, and Bell Atlantic
NYNEX Mobile has launched commercial CDMA service in selected cities in the
state of New Jersey. Most of the other leading cellular service providers,
including ALLTEL Mobile, Ameritech, Comcast Cellular Communications, GTE
Mobilnet, 360o Communications and U S WEST, have announced plans for commercial
deployment of CDMA networks in their markets. In addition, Sprint Spectrum L.P.,
PrimeCo Personal Communications, L.P., GTE and Ameritech have announced plans
for build-out and operation of CDMA system in their PCS markets. The Company
believes that CDMA provides important system performance benefits.
Voice Quality. CDMA systems offer more powerful error correction, less
susceptibility to fading and reduced interference. Using the 13 kbps vocoder,
CDMA systems achieve voice quality that is comparable to the typical wireline
telephone. This CDMA vocoder technology also employs adaptive equalization which
filters out annoying background noise more effectively than existing wireline or
analog cellular phones.
Greater Capacity. CDMA technology allows a greater number of calls within
one allocated frequency and reuses the entire frequency spectrum in each cell,
rather than using only one-seventh of the available spectrum in each cell which
is typically the case with analog, TDMA and GSM systems. CDMA systems are
expected to provide capacity gains of up to 10 times over the current analog
system, while TDMA and GSM systems are expected to increase capacity by only two
to three times.
CDMA technology is designed to provide flexible or "soft" capacity which
will permit a system operator to temporarily increase the number of telephone
calls that can be handled within a cell. When capacity limitations in analog,
TDMA and GSM systems are reached, additional callers in a given cell must be
given a busy signal. Using CDMA technology, the system operator will be able to
allow a small degradation in voice quality to provide a temporary increase in
capacity. This is expected to reduce blocked calls and increase the probability
of a successful cell-to-cell hand-off.
Soft Hand-off. CDMA systems transfer calls throughout the network using a
technique referred to as a soft handoff, which connects a mobile customer's call
with a new cell site while maintaining a connection with
38
<PAGE> 41
the cell site currently in use. CDMA networks monitor the quality of the
transmission received by both cell sites simultaneously to select a better
transmission path and to ensure that the network does not disconnect the call in
one cell until it is clearly established in a new one. As a result, fewer calls
are dropped compared to analog, TDMA and GSM networks which use a "hard
hand-off" and disconnect the call from the current cell site before connecting
it with a new one.
Fewer Cell Sites. Because of efficient digital modulation, soft hand-off
capabilities and other technological advantages, networks using CDMA are able to
achieve a greater radius of coverage and therefore require fewer cells than
analog, TDMA or GSM systems when the system is lightly loaded. Recent network
build-outs by cellular CDMA operators indicate that 50% fewer cells are required
for CDMA systems as compared to analog systems. Similarly, CDMA systems are
expected to require 30-50% fewer cells than TDMA or GSM networks under similar
lightly loaded conditions. The need for fewer cells results in significant
reductions in overall capital requirements, lower ongoing maintenance and
operating costs, fewer cell sites to be acquired and greater flexibility in
network design.
Advanced Services and Features. CDMA will permit NextWave to offer its
resellers advanced features such as simultaneous voice and data transmission
and, ultimately, high-speed wireless applications such as video, multimedia and
ISDN-rate data services.
Privacy and Security. One of the benefits of CDMA technology is that it
combines a constantly changing coding scheme with a low power signal to enhance
security and privacy. Vendors are currently developing additional encryption
capabilities which will further enhance overall network security.
Simplified Frequency Planning. Frequency planning is the process by which
wireless service providers analyze and test alternative patterns of frequency
use within their systems to minimize interference and maximize capacity.
Currently, cellular service providers spend considerable cost and time on
frequency planning. Because TDMA and GSM based systems have frequency reuse
constraints similar to present analog systems, frequency reuse planning for TDMA
and GSM based systems is expected to be comparable to planning for the current
analog systems. With CDMA technology, however, the same subset of allocated
frequencies can be reused in every cell, substantially reducing the need for
costly frequency reuse patterning and constant frequency plan management.
EQUIPMENT VENDORS
Since October 1995, the Company has been actively conducting due diligence
on the technical specifications, operating performance and pricing of CDMA
systems for PCS. In April 1996 the Company released its procurement requirements
for CDMA infrastructure equipment. The Company is currently engaged in product
selection and vendor contract negotiations for its seven regions. There are over
20 companies worldwide that are licensed to manufacture and supply CDMA
equipment, including Lucent Technologies, Hughes Network Systems, Hyundai
Electronics, LG InfoComm, Inc. ("LGIC"), Motorola, NEC, Northern Telecom and
Samsung Electronics to manufacture and sell CDMA network equipment. In addition,
Alps Electric, AT&T, Fujitsu, Hyundai Electronics, LGIC, Maxon Electronics,
Mitsubishi, Motorola, NEC, NOKIA Mobile Phones, OKI Electric, Matsushita
(Panasonic), Nippon Denzo, QUALCOMM, Samsung Electronics, SONY Electronics and
SANYO Electric are licensed to manufacture and sell CDMA subscriber equipment.
The Company expects to deploy equipment from multiple vendors in its networks.
Pursuant to the terms of an Equipment Requirements Agreement with QUALCOMM
(the "Equipment Agreement"), the Company agreed, under certain conditions, to
purchase up to approximately 50% (calculated on a per POP basis) of its
infrastructure equipment needs. The Equipment Agreement further states that
QUALCOMM will offer 100% equipment financing for equipment purchased from
QUALCOMM under such agreement. Equipment to be provided by QUALCOMM under the
Equipment Agreement will be bid in a competitive process involving other
equipment vendors. The terms of any equipment purchases will be established in a
further agreement to be negotiated in good faith by the parties.
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<PAGE> 42
Under the terms of a Letter Agreement with LGIC, the Company has agreed (i)
to negotiate the terms of a possible joint development agreement with LGIC for
the development of PCS related products, on terms to be mutually agreed upon by
the parties, (ii) subject to the terms of any existing agreements, to negotiate
the terms of a possible supply agreement for the purchase by the Company of
certain LGIC PCS equipment products, on terms to be agreed upon by the parties
which shall provide that the Company would purchase 30% of its PCS handset
requirements from LGIC, if the Company decides to purchase handsets for retail
sales, (iii) to negotiate the terms of an infrastructure market trial in at
least one of the Company's Markets and (iv) to negotiate the terms of an
agreement pursuant to which the Company would purchase approximately fifty
percent (50%) of its international infrastructure equipment requirements from
LGIC up to a maximum amount of $50 million. The LGIC Letter Agreement further
contemplates that LGIC would provide one hundred percent (100%) financing of the
purchase price of any infrastructure equipment purchased by the Company from
LGIC.
The Company plans to enter into co-location agreements to lease switch
facilities wherever possible from CAPs, LECs, long distance companies or other
strategic resale partners. The Company expects to take advantage of excess
switch capacity to reduce the amount of new capital required for fixed network
deployment.
COMPETITION
The wireless industry is characterized by intense competition between PCS,
cellular and other wireless service providers. Although NextWave does not expect
to compete directly with other PCS licensees, the Company's resellers will
compete directly with as many as five other PCS licensees in each of the
Markets. The A-Block and B-Block licensees in the Markets, which include AT&T
Wireless Services, Inc., Sprint Spectrum L.P. and PrimeCo Personal
Communications L.P., have substantial financial resources and significant time
to market advantage over the Company. In addition, the FCC has announced that it
will auction the three remaining PCS license blocks (D-Block, E-Block and
F-Block, each of which is 10 MHz in bandwidth) within the next year. The Company
is eligible to participate in the reauctioning of defaulted C-Block licenses and
in the D-Block and E-Block Auctions. Depending on the FCC's resolution of a
pending rulemaking proceeding, the Company may also be able to participate in
the F-Block Auction. Pursuant to FCC rules, however, the Company may not acquire
an attributable interest in more than an aggregate of 40 MHz of PCS spectrum in
any PCS market. See "Regulation of Wireless Telecommunications Industry."
NextWave, through its resellers, will also face competition from the
incumbent cellular providers in each of the Markets. The majority of these
incumbents have infrastructure, a customer base and brand-name in place. Many
have been operational for at least five years and are expected to upgrade their
networks to provide comparable services in competition with the Company.
Principal cellular providers in the Markets are AirTouch Communications, Inc.,
Ameritech Cellular, AT&T Wireless Services, Inc., Bell Atlantic NYNEX Mobile,
BellSouth Mobility, Inc., GTE Mobile Communications Corporation and Southwestern
Bell, Inc. Many cellular providers currently sell MOUs on a wholesale basis to
other carriers as well as on a retail basis to consumers. The Company
anticipates that such cellular providers, as well as new PCS providers, will
compete with the Company in the future and offer to wholesale MOUs for digital
wireless services.
The Company also expects to compete with the specialized mobile radio
("SMR") operator in each of the Markets. The leading national SMR provider is
NEXTEL Communications Inc. SMR systems are capable of delivering dispatch paging
and traditional voice and data mobile telecommunications services. The FCC
recently completed an auction of 1,020 MTA 900 Mhz SMR licenses. In addition,
the FCC is expected to license a new category of 175 licensed service areas in
the 800 MHz SMR spectrum. SMR operators will be capable of delivering dispatch
paging and traditional voice and data mobile telecommunications services.
NextWave will face limited competition from other wireless service
providers, such as paging companies and mobile satellite systems. Although a
less direct substitute for mobile telephone services, one-way and two-way paging
services may be adequate for those with more limited two-way communications
needs. The FCC has initiated the adoption of rules to auction paging licenses.
The FCC has also commenced licensing "narrowband PCS" in the 900 MHz band, which
includes, among other services, data messaging, advanced
40
<PAGE> 43
one-way and two-way paging and facsimile. The messaging and paging services are
expected to include electronic mail, digitized voice messages, and graphic
images. In addition, the FCC has licensed three mobile satellite systems which
plan to offer global cellular-type service from mobile satellites orbiting the
earth. The first mobile satellite launch is expected to occur in 1997. These
services, however, are targeted to more narrow customer markets in light of both
the expected high price to the customer and the restricted range of services to
be offered, as compared to the services to be offered by the Company. See "Risk
Factors -- Competition."
INTELLECTUAL PROPERTY RIGHTS
The Company's business relies on a combination of licensed patents,
trademarks and non-disclosure and development agreements in order to establish
and protect its proprietary rights. In addition, the Company will file patent
applications relating to certain products developed by TELE*Code. It is the
Company's policy to obtain appropriate proprietary rights protection for any
potentially significant new technology acquired or developed by the Company.
Applications for registrations of the trademarks NextWave Telecom and TELE*Code
have been filed in the United States and certain foreign jurisdictions. In
addition, the Company relies on copyright and trade secret laws to protect its
proprietary rights. The Company attempts to protect its trade secrets and other
proprietary information through agreements with customers and suppliers,
proprietary information agreements with the Company's employees and consultants
and other similar measures. See "Risk Factors -- Uncertainty of Proprietary
Rights."
EMPLOYEES
As of May 31, 1996, the Company employed approximately 70 persons on a
full-time basis. None of the Company's employees is represented by a union or is
subject to a collective bargaining agreement.
PROPERTIES
NextWave's principal executive offices are leased space of approximately
10,000 square feet located in San Diego, expiring January 31, 1997. The Company
maintains additional leased space for its offices in New York, Boston, Dallas,
Los Angeles, Tampa, Philadelphia and Akron. Management believes that these
facilities are adequate for the Company's needs at the present time, but will
need to be expanded regularly as the Company proceeds with the planned build-out
of its PCS networks.
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<PAGE> 44
REGULATION OF THE WIRELESS TELECOMMUNICATIONS INDUSTRY
NextWave is seeking to obtain licenses from the FCC to operate as a
provider of PCS. As a result, the Company's ownership structure and
telecommunications operations are and will be subject to FCC regulation.
OVERVIEW
FCC Authority. The Communications Act of 1934, as amended (the
"Communications Act") grants the FCC the authority to regulate the licensing and
operation of all non-federal government radio-based services in the U.S. The
scope of the FCC's authority includes (i) allocating radio frequencies, or
spectrum, for specific services, (ii) establishing qualifications for applicants
seeking authority to operate such services, including PCS applicants, (iii)
approving initial licenses, modifications thereto, license renewals, and the
transfer or assignment of such licenses, (iv) promulgating and enforcing rules
and policies that govern the operation of spectrum licensees, (v) the technical
operation of wireless services, interconnection responsibilities between and
among PCS, other wireless services such as cellular, and landline carriers, and
(vi) imposition of fines and forfeitures for any violations of those rules and
regulations. Under its broad oversight authority with respect to market entry
and the promotion of a competitive marketplace for wireless providers, the FCC
regularly conducts rulemaking and adjudicatory of proceedings to determine and
enforce rules and policies potentially affecting broadband PCS operations.
Regulatory Parity. The FCC adopted rules designed to create symmetry in
the manner in which it and the states regulate similar types of mobile service
providers. According to these rules, all "commercial mobile radio service"
("CMRS") providers that provide substantially similar services will be subject
to similar regulation. A CMRS service is one in which the service is provided
for a profit, interconnected to the public switched telephone networks, and made
available to the public. Under these rules, providers of PCS, SMR, and ESMR
services are subject to regulations similar to those governing cellular carriers
if they offer an interconnected commercial mobile service. The FCC announced
that it would forbear from applying several regulations to these services,
including its rules concerning the filing of tariffs for the provision of
interstate services. Congress specifically authorized the FCC to forbear from
applying such regulation in the Omnibus Budget Reconciliation Act of 1993. With
respect to cellular, the FCC has stated its intent to continue monitoring
competition in the cellular service marketplace. The FCC also concluded that
Congress intended to preempt State and local rate and entry regulation of all
CMRS providers, including cellular, but established procedures for State and
local governments to petition the FCC for authority to continue or initiate such
regulation.
Commercial Mobile Radio Source Spectrum Ownership Limit. The FCC has
limited the amount of CMRS spectrum in which an entity may hold an attributable
interest in a given geographic area to 45 MHz and the amount of attributable PCS
spectrum in a PCS market to 40 MHz. CMRS and PCS licenses are attributed to an
entity where its investments exceed certain thresholds or the entity is an
officer or director of a CMRS or PCS licensee. In addition, entities with
attributable interests in cellular licenses in certain markets cannot hold more
than 10 MHz of PCS spectrum in the same markets, although that rule is currently
subject to a pending rulemaking proceeding. The Company's ability to raise
capital from entities with attributable CMRS interests in certain geographic
areas is likely to be limited by this restriction.
Interconnection Requirements. The FCC has pending proceedings to address
various forms of interconnection obligations which could affect broadband PCS
and other wireless service providers. In its mutual compensation proceedings,
the FCC is examining its policies regarding the compensation arrangements which
apply when CMRS providers, including broadband PCS providers, interconnect with
LECs. In addition, the FCC is considering whether to rely upon private
negotiations between wireless providers to determine whether direct
interconnections between wireless networks should occur. The FCC also is
considering whether private negotiations should be the preferred basis for
wireless providers to permit the customers of one such provider to obtain
service while roaming in the service area of the other.
In related parts of the foregoing proceedings, the FCC is considering
whether to require all wireless providers to provide capacity to non-facilities
based resellers, whether wireless licensees should be permitted to resell
capacity acquired from other wireless providers in the markets where they hold
licenses at least during
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<PAGE> 45
the initial startup period and whether wireless providers should be required to
offer unbundled communications capacity to resellers who intend to operate their
own switching facilities.
Other FCC Requirements. The FCC also has pending proceedings regarding the
scope of permissible uses of broadband PCS networks to provide fixed local loop
and other fixed services in competition with the wireline offerings of the LECs.
It also is considering the possible adoption of requirements on broadband PCS
and other providers of real-time voice services to implement enhanced 911
capabilities.
Other Federal Regulations. Wireless networks are subject to certain
Federal Aviation Administration and guidelines regarding the location, lighting
and construction of transmitter towers and antennas. In addition, the FCC has
authority to enforce certain provisions of the National Environmental Policy Act
as they would apply to the Company's facilities. The Company intends to use
common carrier point-to-point microwave and traditional landline facilities to
connect base station sites and to link them to their respective main switching
offices. These microwave facilities are separately licensed by the FCC on a
first-come, first-served basis (although the FCC has proposed to auction certain
such licenses) and are subject to specific service rules.
Wireless providers also must satisfy a variety of FCC requirements relating
to technical and reporting matters. One such requirement is the coordination of
proposed frequency usage with adjacent wireless users, permittees and licensees
in order to avoid electrical interference between adjacent networks. In
addition, the height and power of base station transmitting facilities and the
type of signals they emit must fall within specified parameters.
State and Local Regulation. The scope of state regulatory authority covers
such matters as the terms and conditions of interconnection between LECs and
wireless carriers under FCC oversight, customer billing information and
practices, billing disputes, other consumer protection matters, certain
facilities construction issues, transfers of control, the bundling of services
and equipment, and requirements relating to making capacity available to third
party carriers on a wholesale basis. In these areas, particularly the terms and
conditions of interconnection between LECs and wireless providers, the FCC and
state regulatory authorities share regulatory responsibilities with respect to
interstate and intrastate issues, respectively.
The FCC and a number of state regulatory authorities have initiated
proceedings or indicated their intention to examine access charge obligations,
mutual compensation arrangements for interconnections between local exchange
carriers and wireless providers, the pricing of transport and switching
facilities provided by LECs to wireless providers, the implementation of "number
portability" rules to permit telephone customers to retain their telephone
numbers when they change telephone service providers, and alterations in the
structure of universal service funding, among other matters.
The Company and its subsidiaries have been and intend to remain active
participants in proceedings before the FCC and before state regulatory
authorities. Proceedings with respect to the foregoing policy issues before the
FCC and state regulatory authorities could have a significant impact on the
competitive market structure among wireless providers and the relationships
between wireless providers and other carriers.
GENERAL PCS REGULATIONS
The FCC allocated spectrum for broadband PCS services in June 1994 in the
1850 to 1990 MHz bands. Of the 120 MHz available for PCS services, the FCC
created six separate blocks of spectrum identified as A, B, C, D, E and F-Block.
The A-Block, B-Block and C-Block are each allocated 30 MHz of spectrum and the
D-Block, E-Block and F Block are allocated 10 MHz each. The FCC adopted a
ten-year PCS license term with an opportunity to renew.
The FCC adopted a "rebuttable presumption" that all PCS licensees are
common carriers, subject to Title II of the Communications Act. Accordingly,
each PCS licensee deemed to be a common carrier must provide services upon
reasonable request and the rates, terms and conditions of service must not be
unjustly or unreasonably discriminatory.
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Structure of PCS Block Allocations. The FCC defines the geographic
contours of the licenses within each PCS block based on the MTAs and BTAs
developed by Rand McNally. The FCC awarded A-Block and B-Block licenses in 51
MTAs. The C-Block, D-Block, E-Block and F-Block spectrum were allocated on the
basis of 493 smaller BTAs. In addition, there are spectrum aggregation caps on
PCS licensees limiting them to 40 MHz in any given market.
All but three of the 102 total A-Block licenses and all B-Block licenses
were auctioned in 1995. The three A-Block licenses were awarded separately
pursuant to the FCC's "pioneer's preference" program. The auctioned A-Block and
B-Block licenses were awarded in June 1995. The C-Block and F-Block spectrums
are reserved for Entrepreneurs. (See "-- Entrepreneurs Block"). The FCC has
proposed extending certain auction preferences to the D-Block and E-Block
licenses in a pending rulemaking proceeding.
1996 ACT
On February 8, 1996, Congress enacted the 1996 Act, which effected a
sweeping overhaul of the Communications Act. In particular, the 1996 Act
substantially amended Title II of the Communications Act, which governs
telecommunications common carriers. The policy underlying this legislative
reform was the opening of the telephone exchange service markets to full
competition. The 1996 Act requires incumbent wireline LECs to open their
networks to competition through interconnection and access to unbundled network
elements and prohibits state and local barriers to the provision of interstate
and intrastate telecommunications services.
Implementation of the provisions of the 1996 Act will be the task of the
FCC, the state public utility commissions and a federal-state joint board. Much
of the implementation of the 1996 Act must be completed in numerous rulemaking
proceedings with short statutory deadlines. These proceeding are expected to
address issues and proposals already before the FCC in pending rulemaking
proceedings affecting the wireless industry as well as additional areas of
telecommunications regulation not previously addressed by the FCC and the
states.
The 1996 Act makes all state and local barriers to competition unlawful,
whether they are direct or indirect. It directs the FCC to initiate rulemaking
proceedings on local competition matters and to preempt all inconsistent state
and local laws and regulations.
The 1996 Act prohibits state and local governments from enforcing any law,
rule or legal requirement that prohibits or has the effect of prohibiting any
person from providing interstate or intrastate telecommunications services.
States retain jurisdiction under the 1996 Act to adopt laws necessary to
preserve universal service, protect public safety and welfare, ensure the
continued quality of telecommunications services and safeguard the rights of
consumers.
Some specific provisions of the 1996 Act which are expected to affect
wireless providers are summarized below:
Expanded Interconnection Obligations: The 1996 Act establishes a general
duty of all telecommunications carriers, including C-Block PCS licensees, to
interconnect with other carriers. The 1996 Act also contains a detailed list of
requirements with respect to the interconnection obligations of LECs. These
"interconnect" obligations include resale, number portability, dialing parity,
access to rights-of-way and reciprocal compensation.
LECs designated "incumbents" have additional obligations including: to
negotiate in good faith; to interconnect on terms that are reasonable and
non-discriminatory; to provide non-discriminatory access to facilities,
equipment, features, functions and capabilities; to offer for resale at
wholesale rates any service that LECs provide on a retail basis; and to provide
actual collocation of equipment necessary for interconnection or access.
The 1996 Act establishes a framework for state commissions to mediate and
arbitrate negotiations between incumbent LECs and carriers requesting
interconnection, services or network elements. The 1996
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Act establishes deadlines, policy guidelines for state commission decisionmaking
and federal preemption in the event a state commission fails to act.
Review of Universal Service Requirements. The 1996 Act contemplates that
interstate telecommunications providers, including CMRS providers, will "make an
equitable and non-discriminatory contribution" to support the cost of providing
universal service, although the FCC can grant exemptions in certain
circumstances.
Prohibition Against Subsidized Telemessaging Services. The 1996 Act
prohibits LECs from subsidizing telemessaging services (i.e., voice mail, voice
storage/retrieval, live operator services and related ancillary services) from
its telephone exchange service or exchange access.
Conditions on RBOC Provision of In-Region InterLATA Services. The 1996 Act
generally requires that before engaging in in-region interLATA services, the
RBOCs must provide access and interconnection to one or more unaffiliated
competing providers of telephone exchange service, or after ten months after
enactment of the 1996 Act, no such provider requested such access and
interconnection more than three months before the RBOCs has applied for
authority.
The specific interconnection requirements, which the RBOCs must offer on a
non-discriminatory basis, include interconnection and unbundled access; access
to poles, ducts, conduits and rights-of-way owned or controlled by the RBOCs;
unbundled local loops, unbundled transport and unbundled switching; access to
emergency 911, directory assistance, operator call completion and white pages;
access to telephone numbers, databases and signalling for call routing and
completion; number portability; local dialing parity; reciprocal compensation;
and resale.
RBOC Commercial Mobile Joint Marketing. The RBOCs are permitted to market
jointly and sell wireless services in conjunction with telephone exchange
service, exchange access, intraLATA and interLATA telecommunications and
information services.
CMRS Facilities Siting. The 1996 Act limits the rights of states and
localities to regulate placement of CMRS facilities so as to "prohibit" the
provisions of wireless services or to "discriminate" among providers of such
services. It also eliminates environmental effects from RF emissions (provided
the wireless system complies with FCC rules) as a basis for states and
localities to regulate the placement, construction or operation of wireless
facilities. The FCC's implementation of these provisions and the scope thereof
have neither been adopted by the agency nor reviewed by the courts.
Equal Access. The 1996 Act provides that wireless providers are not
required to provide equal access to common carriers for toll services. The FCC
is authorized to require unblocked access subject to certain conditions.
Deregulation. The FCC is required to forebear from applying any statutory
or regulatory provision that is not necessary to keep telecommunications rates
and terms reasonable or to protect consumers. A state may not apply a statutory
or regulatory provision that the FCC decides to forebear from applying. In
addition, the FCC must review its telecommunications regulations every two years
and change any that are no longer necessary.
RELOCATION OF INCUMBENT FIXED MICROWAVE LICENSEES
In an effort to balance the competing interests of existing microwave users
and newly authorized PCS licensees in the spectrum allocated for PCS use, the
FCC has adopted (i) a transition plan to relocate fixed microwave operators that
currently are operating in the PCS spectrum, and (ii) a cost sharing plan so
that if the relocation of an incumbent benefits more than one PCS licensee, the
benefiting PCS licensees will help defray the costs of the relocation. PCS
licensees will only be required to relocate fixed microwave incumbents if they
cannot share the same spectrum. The transition and cost sharing plans expire on
April 4, 2005, at which time remaining incumbents in the PCS spectrum will be
responsible for their costs to relocate to alternate spectrum locations.
Relocation generally involves a PCS operator compensating an incumbent for
costs associated with system modifications and new equipment required to move to
alternate, readily available spectrum. This
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transition plan allows most microwave users to operate in the PCS spectrum for a
two-year voluntary negotiation period and an additional one-year mandatory
negotiation period. For public safety entities dedicating a majority of their
system communications for police, fire, or emergency medical service operations,
the voluntary negotiation period is three years. The FCC currently is
considering whether to shorten the voluntary negotiation period by one year.
Parties unable to reach agreement within these time periods may refer the matter
to the FCC for resolution, but the existing microwave user is permitted to
continue its operations until final FCC resolution of the matter.
The FCC's cost-sharing plan allows PCS licensees that relocate fixed
microwave links outside of their license areas to receive reimbursements from
later-entrant PCS licensees that benefit from the clearing of their spectrum. A
non-profit clearinghouse will be established to administer the FCC's
cost-sharing plan.
THE ENTREPRENEURS' BLOCK
Eligibility Requirements. As noted above, the FCC designated frequency
blocks C and F as "Entrepreneurs' Blocks." The Company has been named as a
winning bidder for certain licenses in the C-Block. The FCC requires that all
C-Block licensees meet certain maximum size requirements as measured by gross
revenues and total assets. In order to acquire C-Block licenses, the applicant,
together with its affiliates and persons or entities that hold interests in the
applicant and their affiliates, must have gross revenues of less than $125
million in each of the last two years and total assets of less than $500 million
at the time the applicant's Short-Form (FCC Form 175) is filed.
Under the FCC's rules, the Company also qualifies as a "Small Business",
that is, an entity that, together with its affiliates and persons or entities
that hold interests in the applicant and their affiliates, has average annual
gross revenues of not more than $40 million for the preceding three calendar
years prior to the date that the Short Form is filed. As a result of its
classification as a Small Business, the Company is eligible for both a 25
percent bidding credit and for installment payments of interest only for the
first six years of the license, and payments of interest and principal amortized
over the remaining four years of the license term.
The FCC allows exceptions to the general rule regarding limitations on
gross revenues and assets by not counting the revenues and assets of certain
non-controlling investors. To this end, the FCC adopted structural options in
its rules for C-Block applicants that are controlled by investors meeting
certain financial criteria "Control Group." The control group must have de facto
and de jure control of the applicant licensee. For purposes of determining
eligibility of an applicant (or licensee) using a Control Group structure, the
FCC counts the gross revenues and total assets of the applicant (or licensee),
its affiliates, the members of the control group, and their affiliates. The FCC
does not count the gross revenues and total assets of "nonattributable equity
investors" -- that is, investors outside the control group that satisfy the
FCC's rules and do not control more than 25% of the Company's total equity
(whether through voting or non-voting stock, or both) of the corporation -- or
of their outside affiliates.
The Company is structured pursuant to the FCC's "25 Percent Equity
Structural Option." Pursuant to 25 Percent Equity Structural Option, the
applicant must have a control group that owns at least 25 percent of the
applicant's (or licensee's) total equity and at least 50.1 percent of the
applicant's (or licensees) total voting stock, on a fully diluted basis.
PCS Auctions. The FCC initiated auctions for the C-Block in December 1995.
The Company participated in the auctions and filed applications for the 56 BTA
licenses currently pending before the FCC. The Company's strategy in the auction
process was designed to further its business plan described elsewhere in this
Prospectus. Before granting licenses, the FCC requires that winning bidders
submit a Form 600, or "Long Form application" for each market in which it has
submitted the winning bid. This submission begins an administrative process in
which parties have an opportunity to challenge the winning bidders'
qualifications to be FCC licensees. Because of the Company's visibility as the
leading bidder, its investments by non-U.S. entities, and its relationship with
QUALCOMM, the Company expects challenges to its license applications (known as
"petitions to deny"). The Company has an opportunity to respond to these
petitions to demonstrate its compliance with the FCC's Rules. Based on the
petitions and the replies thereto, the FCC will determine
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whether to grant such licenses. In addition, if the FCC determines that the
Company violated FCC Rules, then the Company could be subject to substantial
financial and regulatory penalties.
License Transfer Restrictions. The FCC has also promulgated regulations
restricting transfer of the C-Block licenses. Most notably, transfer of C-Block
licenses is not permitted within the first three years of grant of the license.
From three to five years after the license grant, transfer is permitted only to
another eligible entity, such as another Small Business. If transfer occurs in
years four and five to a company that does not qualify for bidding credits, such
a sale would be subject to full payment of the bidding credit and immediate
payment of the outstanding balance of the government installment payment debt as
a condition of transfer. After five years, licenses are freely transferable,
subject to the unjust enrichment penalties discussed below. In a pending
rulemaking proceeding, the FCC has proposed to eliminate the transfer
restrictions applicable to C-Block and F-Block licensees (without eliminating
the unjust enrichment penalties).
Unjust Enrichment. Any transfer during the full license term (10 years)
may require certain costs and reimbursements to the government of bidding
credits and/or outstanding principal and interest payments. In addition, if the
Company wishes to make any change in ownership structure during the initial
license term involving the de facto and de jure control of the Company, it must
seek FCC approval and may be subject to the same costs and reimbursement
conditions indicated above.
Build-Out Requirements. The FCC has mandated that recipients of PCS
licenses adhere to five year and ten year build-out requirements. Violations of
these regulations could result in license revocations, forfeitures or fines.
Under both five and ten year build-out requirements, all 30 MHz PCS licensees
(such as C-Block licensees) must construct facilities that offer coverage to at
least one-third of the population in their service area within five years from
the date of initial license grants. Service must be provided to two-thirds of
the population within ten years. Licensees which fail to meet the coverage
requirements may be subject to forfeiting the license.
Additional Requirements. As a C-Block licensee, the Company will be
subject to certain restrictions that limit, among other things, the number of
licenses it may hold as well as certain cross-ownership restrictions pertaining
to cellular and other wireless investments. A pending rulemaking proceeding may
relax the restrictions applicable to entities with attributable cellular
ownership interests that seek to acquire PCS licenses, and eliminate certain
ownership restrictions.
Foreign Ownership Restrictions. The Communications Act requires that
non-U.S. citizens, their representatives, foreign governments, or corporations
otherwise subject to domination and control by non-U.S. citizens may not own of
record or vote (i) more than 20% of the capital stock of a common carrier
directly, or (ii) without approval of the FCC, more than 25% of the capital
stock of the parent corporation of a common carrier licensee. Because the FCC
classifies PCS as a common carrier offering, PCS licensees are subject to the
foreign ownership limits. Congress recently eliminated restrictions on non-U.S.
citizens serving as members on the board of directors of a common carrier radio
licensee or its parent. The FCC also recently adopted rules that, subject to a
public interest finding by the FCC, could allow additional indirect foreign
ownership of CMRS companies to the extent that the relevant foreign states
extend reciprocal treatment to U.S. investors.
Failure to comply with these regulations may result in the FCC ordering (i)
divestiture of the non-U.S. parties to bring the entity within compliance of the
Communications Act, (ii) issuance of fines, or (iii) denial of renewal or
revocation of the license(s).
Penalties for Payment Default. A C-Block licensee that fails to make
timely quarterly installment payments may incur substantial financial penalties,
license revocation or other enforcement measures at the FCC's discretion. Where
a C-Block applicant anticipates defaulting on any required payment, it may
request a three to six month grace period before the FCC cancels its license. In
the event of default by a C-Block licensee, the FCC could reclaim the licenses,
reauction them, and subject the defaulting party to a penalty comprised of the
difference between the price at which it acquired its license and the amount of
the winning bid at reauction, plus an additional penalty of three percent of the
subsequent winning bid.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
Company's directors and executive officers.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------- ---- ------------------------------------------------------------
<S> <C> <C>
Allen B. Salmasi....... 42 Chairman of the Board, Chief Executive Officer and President
Janice I. Obuchowski... 44 Vice Chairman, Executive Vice President and Director
C.J. Waylan............ 54 Executive Vice President
Kevin M. Finn.......... 54 Senior Vice President and Director
Nicole N. Salmasi...... 38 Director
Frank A. Cassou........ 39 Senior Vice President, Corporate Development and General
Counsel
Raymond P. Dolan....... 38 Senior Vice President, Operations
Edward M. Knapp........ 35 Senior Vice President, Engineering and Chief Technical
Officer
Robert M. Kramer....... 32 Senior Vice President, Corporate Finance
James S. Madsen........ 36 Senior Vice President, Business Development
Raju Patel............. 48 Senior Vice President, Network Systems
Gene M. Welsh.......... 44 Senior Vice President, Finance and Chief Financial Officer
</TABLE>
ALLEN B. SALMASI has been the Chairman of the Board, Chief Executive
Officer and President of NextWave since its founding. Immediately prior to
founding NextWave in July 1995, Mr. Salmasi served as a member of the Board of
Directors, President of the Wireless Telecommunications Division and Chief
Strategic Officer of QUALCOMM. He joined QUALCOMM as a member of the Board of
Directors and Vice President of Planning & Development in 1988, as a result of
the merger of QUALCOMM and Omninet Corporation. Previously, Mr. Salmasi founded
Omninet Corporation in 1984. At various times, through August, 1988, he served
as Chairman of the Board, President and Chief Executive Officer of Omninet. From
1979 to 1984, Mr. Salmasi held various technical and management positions at the
National Aeronautics and Space Administration Jet Propulsion Laboratory.
JANICE I. OBUCHOWSKI has been the Vice Chairman, Executive Vice President
and a Director of NextWave since its founding. Ms. Obuchowski is also the
founder and President of Freedom Technologies, Incorporated, a
telecommunications research and consulting firm based in Washington, D.C. She is
also Of Counsel to the law firm of Halprin, Temple, Goodman & Sugrue. From 1989
to 1992, Ms. Obuchowski served as the Assistant Secretary for Communications and
Information for the Department of Commerce and Administrator for the National
Telecommunications and Information Administration ("NTIA"). In this capacity she
was the principal communications policy advisor to President George Bush.
Previously, Ms. Obuchowski also served as the Senior Advisor to FCC Chairman
Mark Fowler, advising him on all telecommunications policy and international
communications issues before the FCC. Ms. Obuchowski also is a member of the
Board of Directors of QUALCOMM.
C.J. WAYLAN has been the Executive Vice President of NextWave since May
1996. For more than the past five years until May 1, 1996, Mr. Waylan was an
executive officer of a subsidiary of GTE. Most recently from February 1993, Mr.
Waylan was Executive Vice President, Product Management and Business Development
for GTE Mobilnet. In this position, he was responsible for managing GTE's PCS
and wireless products and new business initiatives. Prior to this, Mr. Waylan
was president of GTE Spacenet. Mr. Waylan also is a member of the Board of
Directors of Stanford Telecom Inc.
KEVIN M. FINN has been a Senior Vice President and Director of NextWave
since its founding. From early 1992 until July 1995, Mr. Finn was President of
Marin-Finn Industries, Inc. From August 1988 to early 1992, Mr. Finn was Vice
President and General Manager of Densitron. From September 1986 to August 1988,
Mr. Finn served as Executive Vice President of Omninet Corporation. From 1983 to
1987, Mr. Finn served as Vice President of the Sony Corporation of America and
General Manager of its Component Products Division.
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NICOLE N. SALMASI has been Director of NextWavesince May 1995. Mrs. Salmasi
served as a mechanical engineering designer at QUALCOMM from 1990 to 1994. Prior
to QUALCOMM, from 1983 to 1987 at various times, Mrs. Salmasi was the Vice
President of Business Administration and Director of Engineering Services at
Omninet Corporation.
FRANK A. CASSOU has been Senior Vice President, Corporate Development and
General Counsel since February 1996. Prior to joining NextWave, Mr. Cassou was a
partner at the law firm of Cooley Godward Castro Huddleson and Tatum, where he
practiced corporate law representing telecommunications and technology companies
for the past thirteen years. He was outside corporate counsel to QUALCOMM from
June 1991 through February 1996.
RAYMOND P. DOLAN has been the Senior Vice President, Operations of NextWave
since May 1996. From July 1995 to May 1996, Mr. Dolan was Executive Vice
President of Marketing of Bell Atlantic NYNEX Mobile. From May 1988 to June
1995, Mr. Dolan served in numerous technical and marketing positions for NYNEX
Mobile Communications.
EDWARD M. KNAPP has been the Senior Vice President, Engineering and Chief
Technical Officer of NextWave since July 1995. From March 1994 to June 1995, Mr.
Knapp was the Executive Director of Technical Services for NYNEX Mobile
Communications. At NYNEX Mobile he was responsible for the planning, engineering
design, site development and operation of the New York cellular system. From
October 1990 to August 1994, Mr. Knapp held various technical, engineering and
operations positions at NYNEX Mobile. Prior to NYNEX Mobile, he held various
positions with Siemens Transmissions Systems and Sperry Defense Products Group.
ROBERT M. KRAMER has been the Senior Vice President, Corporate Finance of
NextWave since May 1996. From January 1995 to May 1996, Mr. Kramer was a
Director in the Investment Banking Division of Merrill Lynch, specializing in
wireless telecommunications. From January 1992 to December 1994, Mr. Kramer was
a Vice President in the High Yield Finance Group of Merrill Lynch. Mr. Kramer
joined Merrill Lynch in January 1989.
JAMES S. MADSEN has been Senior Vice President, Business Development for
NextWave since October, 1995. From 1993 until 1995, Mr. Madsen was Director of
PCS Marketing and Business Development in the Wireless Telecommunications
Division of QUALCOMM. Mr. Madsen managed all PCS business development, marketing
and sales planning for QUALCOMM. From 1992 until 1993, Mr. Madsen was Director
of Marketing for the OmniTRACS business at QUALCOMM focusing on the cable TV
market. After joining QUALCOMM in 1989, Mr. Madsen assumed responsibility for
QUALCOMM's worldwide VLSI components business development and marketing. Since
1993, Mr. Madsen has been a Director of Kilovac Corporation, a communications
and electronics components manufacturer.
RAJU PATEL has been the Senior Vice President, Network Systems of NextWave
since May 1996. From May 1993 to May 1996, Mr. Patel was Senior Vice President
and General Manager of the Wireless Division at Hughes Network Systems.
Previously, Mr. Patel was President and Chief Executive Officer of NAC Inc.
GENE M. WELSH has been the Senior Vice President, Finance and Chief
Financial Officer of NextWave since May 1996. From July 1991 until May 1996, he
was the Vice President of Finance and Chief Financial Officer of Los Angeles
Cellular Telephone Co. (LA Cellular). From October 1990 until July 1991, Mr.
Welsh was the Vice President of Finance and Chief Financial Officer/Treasurer of
First Cellular Acquisition Corporation, a venture of First Boston Merchant Bank.
BOARD OF DIRECTORS
Election of Directors. Under the Company's Restated Certificate of
Incorporation, until the tenth anniversary of the date of award of the Company's
PCS licenses, the holders of Series A Common Stock have the right, voting
separately as a class, to elect the minimum number of directors necessary to
constitute a majority of the Board of Directors and the holders of the Series B
Common Stock have the right, voting separately as a class, to elect a number of
directors equal to the total number of directors less the number of directors
elected by the holders of Series A Common Stock. Immediately following the
Offerings, the Board
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of Directors will consist of directors, of which will have been
elected by the holders of Series A Common Stock and of which will have been
elected by the holders of Series B Common Stock.
Pursuant to the Amended and Restated Stockholders' Voting Agreement dated
as of November 30, 1995, as amended (the "Stockholders' Voting Agreement"), all
holders of Series B Common Stock issued prior to the Stock Offering and all
holders of warrants, Bridge Notes and Series A Common Stock exercisable or
convertible into Series B Common Stock issued prior to the Stock Offering have
agreed to vote any shares of Series B Common Stock held by them in the manner
set forth below: (a) to elect as a director of the Company one representative
designated by each holder of Series B Common Stock who holds on a fully diluted
basis at least 6% of the outstanding equity of the Company (a "6% Stockholder")
and (b) for a period of three years from the award of the Company's PCS
licenses, to elect as a director of the Company one representative designated by
each of the following stockholders (collectively, "Early Investors"): ILJIN
Group, Korea Electric Power Corporation, LG InfoComm, Inc., PECO Energy Company,
Pohang Steel America Corp., QUALCOMM, SONY Electronics Inc. and Triumph Capital
Group, Inc. As of May 31, 1996, there were no 6% Stockholders. In the event an
Early Investor also qualifies as a 6% Stockholder, such Early Investor has only
the right to designate one representative to serve on the Board of Directors.
After the three year period referred to in clause (b) alone, an Early Investor
will have the right to a Board designee only if such Early Investor is a 6%
Stockholder at such time. The obligation to vote for election of the
representative of a 6% Stockholder terminates when the stockholder ceases to be
a 6% Stockholder. In addition, the parties to the Stockholders' Voting Agreement
have agreed that, pursuant to FCC rules and regulations, no more 25% of the
members of the Board of Directors of the Company at any time may be foreigners.
The Stockholders' Voting Agreement terminates upon the earlier to occur of (i)
the Company's becoming a party to a merger in which the Company is not the
surviving corporation and the Company's stockholders hold, immediately after the
merger, less than 50% of the equity securities of the surviving corporation or
(ii) ten years from the date of the Stockholders' Voting Agreement.
Indemnification. The Company's Restated Certification of Incorporation
eliminates, to the fullest extent permitted by law, the liability of its
directors to the Company and its stockholders for monetary damages for breach of
the directors' fiduciary duty. This provision is intended to afford the
Company's directors the benefit of the Delaware General Corporation Law, which
provides that directors of Delaware corporations may be relieved of monetary
liability for breach of their fiduciary duty of care, except under certain
circumstances involving breach of a director's duty of loyalty, acts or
omissions not in good faith or involving intentional misconduct or a knowing
violation of law or any transaction from which the director derived an improper
personal benefit. The Company intends to enter into separate indemnification
agreements with each of its directors and officers to effectuate these
provisions and to purchase director's and officer's liability insurance.
Committees of the Board of Directors; Compensation Committee Interlocks and
Insider Participation. The Company intends to form an audit committee (the
"Audit Committee") and a compensation committee (the "Compensation Committee")
prior to consummation of the Stock Offering.
The Audit Committee will review the scope and approach of the annual audit,
the annual financial statements of NextWave and the auditors' report thereon and
the auditors' comments relative to the adequacy of NextWave's system of internal
controls and accounting systems. The Audit Committee will also recommend to the
Board of Directors the appointment of independent public accountants for the
following year. At least two independent directors will serve on NextWave's
Audit Committee.
The Compensation Committee will review management compensation levels and
provide recommendations to the Board of Directors regarding salaries and other
compensation for NextWave's officers, including bonuses and incentive programs.
None of the members of the Compensation Committee will be an officer or employee
of the Company. It is not expected that any member of the Compensation Committee
will have any interlocking or other relationships with NextWave that would call
into question his or her independence as a member of the Compensation Committee.
Compensation of Directors. Directors of the Company currently receive no
compensation for serving on the Board of Directors and are not reimbursed for
their out-of-pocket expenses incurred in connection with
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attendance at meetings of, and other activities relating to serving on, the
Board of Directors and any committees thereof. The Company may consider
alternative compensation arrangements for its directors from time to time.
EXECUTIVE COMPENSATION
The following table sets forth certain compensation awarded or paid by the
Company during the period from May 16, 1995 (inception) to December 31, 1995 to
its President and Chief Executive Officer and the Company's four other most
highly compensated officers and key employees (collectively, the "Named
Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION ---------------------
---------------------- SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) OPTIONS(#)
- ------------------------------------------------------ --------- -------- ---------------------
<S> <C> <C> <C>
Allen B. Salmasi...................................... 110,577 -- 700,000
Chairman, President, Chief Executive Officer and
Director
Janice I. Obuchowski(1)............................... 34,711 -- 700,000
Vice-Chairman, Executive Vice President and Director
Kevin M. Finn......................................... 5,000 -- 400,000
Senior Vice President and Director
Edward M. Knapp....................................... 65,000 -- 600,000
Senior Vice President, Engineering
James S. Madsen....................................... 30,000 -- 600,000
Senior Vice President, Business Development
</TABLE>
- ---------------
(1) See "Certain Relationships and Related Transactions" for information
regarding certain payments made to a consulting firm owned by Ms.
Obuchowski.
EQUITY INCENTIVE PLANS
Amended and Restated Stock Option Plan
In April 1996, the Company adopted The NextWave Telecom Inc. Amended and
Restated Stock Option Plan (the "Option Plan") under which 20 million shares of
Series B Common Stock were reserved for issuance upon exercise or grant of stock
options, stock bonuses, restricted stock and stock appreciation rights granted
to employees, directors and consultants of the Company and its affiliates. The
Option Plan provides for grants of incentive stock options to employees
(including officers and employee directors) of the Company and its affiliates,
and non-statutory stock options to employees (including officers and employee
directors), non-employee directors and consultants of the Company and its
affiliates. The Option Plan also provides for the grant of stock bonuses, the
sale of restricted stock and the grant of stock appreciation rights (in tandem
with stock option grants or independently) to employees, directors and
consultants of the Company and its affiliates. The Option Plan has been
administrated by the Board of Directors and after the Stock Offering will be
administrated by the Compensation Committee, which will determine the recipients
and types of awards to be granted, the terms of awards, including the exercise
or sale price, the number of shares subject to the award and the exerciseability
thereof.
Stock Options. The terms of stock options granted under the Option Plan
may not exceed ten years. The exercise price of options granted under the Option
Plan will be determined by the Compensation Committee; provided, however, that
the exercise price of a non-statutory stock option generally cannot be less than
85% of the fair market value of the Series B Common Stock on the date of the
option grant and the exercise price of an incentive stock option generally
cannot be less than 100% of the fair market value of the Series B Common Stock
on the date of grant. The exercise price of an option may be paid in cash or, at
the discretion of the Compensation Committee, in the form of shares of Series B
Common Stock and certain other consideration.
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<PAGE> 54
The Compensation Committee will determine when a stock option (or portions
thereof) becomes vested and exercisable; provided, however, that the vesting
provisions of an option will provide for at least 20% vesting for each year of
service.
No option may be transferred by the optionee other than by will or the laws
of descent or distribution. An optionee whose relationship with the Company or
an affiliate ceases for any reason (other than death or permanent disability)
may exercise options within the three-month period following such cessation
(unless such options terminate or expire sooner by their terms) or within such
longer period as determined by the Compensation Committee.
Stock Bonuses and Restricted Stock. The terms of stock bonuses and
restricted stock granted under the Option Plan will be determined by the
Compensation Committee. The purchase price for restricted stock will be
determined by the Compensation Committee; provided, however, that the purchase
price generally will not be less than 85% of the fair market value of the Series
B Common Stock on the date of sale. Rights under a stock bonus or restricted
stock purchase agreement may not be transferred by the recipient other than by
will or the laws of descent or distribution. The purchase price of Series B
Common Stock acquired pursuant to a restricted stock purchase agreement may be
paid in cash or in any other form of consideration approved by the Compensation
Committee. Shares of Series B Common Stock awarded or sold pursuant to stock
bonuses or restricted stock sales may be subject to a repurchase option in favor
of the Company in accordance with the vesting schedule determined by
Compensation Committee.
Stock Appreciation Rights. The terms of stock appreciation rights granted
under the Option Plan will be determined by the Compensation Committee. Stock
appreciation rights may be granted in tandem with the grant of a stock option or
independently. A tandem stock appreciation right will expire upon the exercise
of the corresponding stock option. If a tandem stock appreciation right is
exercised, the corresponding stock option will expire. Independent stock option
appreciation rights may be granted without regard to the grant of a stock option
to the recipient. The appreciation distribution on an exercised stock
appreciation right will be payable in cash or an equivalent number of shares of
Series B Common Stock based on the fair market value on the date of exercise.
Other Provisions. Shares subject to options, stock bonuses, restricted
stock and stock appreciation rights which have lapsed or terminated may again be
subject to grants or sales under the Option Plan. Furthermore, the Compensation
Committee may offer to exchange new options or other awards for existing options
or awards again becoming available for grant or sale under the Option Plan. In
the event of a decline in the value of the Company's Series B Common Stock, the
Compensation Committee will have the authority to offer recipients the
opportunity to replace outstanding higher-priced options with new lower-priced
options. Upon any merger or consolidation in which the Company is acquired, all
outstanding vested options will either be assumed or substituted by the
surviving entity. If the surviving entity determines not to assume or substitute
unvested options, the unvested options will terminate as of the closing of the
merger or consolidation.
As of June 6, 1996, options to purchase 13,987,500 shares of Series B
Common Stock at exercise prices ranging from $0.25 to $3.00 per share were
outstanding and 6,012,500 shares remained available for future option grants.
The Option Plan will terminate on April 5, 2005, unless terminated sooner by the
Compensation Committee.
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<PAGE> 55
The following table shows for the period from May 16, 1995 (inception) to
December 31, 1995, certain information regarding options granted to, exercised
by, and held at year end by the Named Officers:
OPTIONS GRANTED IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------------------------
NUMBER OF PERCENT OF TOTAL GRANT
SECURITIES OPTIONS GRANTED EXERCISE DATE
UNDERLYING TO EMPLOYEES IN PRICE EXPIRATION PRESENT
NAME OPTIONS GRANTED FISCAL 1995 PER SHARE DATE VALUE
- --------------------------------- --------------- ---------------- --------- ---------- --------
<S> <C> <C> <C> <C> <C>
Allen B. Salmasi................. 700,000 16.7% $.275 7/28/05
Janice I. Obuchowski............. 700,000 16.7% $ .25 7/28/05
Kevin M. Finn.................... 400,000 9.5% $ .25 12/18/05
Edward M. Knapp.................. 600,000 14.3% $ .25 7/3/05
James S. Madsen.................. 600,000 14.3% $ .25 10/9/05
</TABLE>
The following table sets forth information with respect to (i) the exercise
of stock options by the Named Officers during the period from May 16, 1995
(inception) to December 31, 1995, (ii) the number of unexercised options held by
the Named Officers as of December 31, 1995 and (iii) the value as of December
31, 1995 of unexercised in-the-money options calculated on the basis of the
$0.25 fair market value of the underlying securities at December 31, 1995, as
determined by the Company's Board of Directors, minus the respective exercise
price.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
NUMBER OF DECEMBER 31, 1995 DECEMBER 31, 1995
SHARES ----------------- -----------------
ACQUIRED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE VALUE REALIZED UNEXERCISABLE UNEXERCISABLE
- --------------------------------- ----------- -------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Allen B. Salmasi................. -- -- 0/700,000 --
Janice I. Obuchowski............. -- -- 0/700,000 --
Kevin M. Finn.................... -- -- 0/400,000 --
Edward M. Knapp.................. -- -- 0/600,000 --
James S. Madsen.................. -- -- 0/600,000 --
</TABLE>
401(k) Retirement and Savings Plan
Effective as of July 1, 1995, the Board of Directors of the Company adopted
The NextWave Telecom Inc. 401(k) Retirement and Savings Plan (the "Savings
Plan"). The Savings Plan is a profit-sharing plan designed to be qualified under
applicable provisions of the Internal Revenue Code of 1986, as amended (the
"Code"). The Savings Plan covers all employees of the Company who have attained
age 21 and have completed 30 days of service, as that term is defined in the
Savings Plan.
A participant in the Savings Plan may contribute up to 15% of his or her
compensation on a pre-tax basis under the Savings Plan. Also, under the Savings
Plan, the Company may, in its discretion, make matching contributions based on
the pre-tax contributions of a participant that are not in excess of 10% of
compensation. The matching contributions may be up to 100% of the pre-tax
contributions subject to matching. In addition, participants may make after-tax
contributions of up to 10% of compensation under the Savings Plan. A
participant's after-tax contributions are not subject to matching.
Finally, the Company may make in its discretion, certain additional
contributions that generally will be allocated to participants in proportion to
compensation. Discretionary profit-sharing contributions for any plan year will
be allocated to participants who have been credited with 501 or more hours of
service during the plan year and to participants who terminate employment during
the plan year due to death, disability or retirement.
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<PAGE> 56
The total annual contribution for each participant generally may not exceed the
lesser of: (a) 25% of the participant's taxable compensation for such year, or
(b) the greater of (i) 25% of the defined benefit dollar limitation then in
effect under Section 415(b)(1) of the Code, or (ii) $30,000. The Company made no
contributions to the Savings Plan during the period ended December 31, 1995.
Contributions made by, or on behalf of, a participant, and interest,
earnings, gains or losses on such amounts, are credited to accounts maintained
for the participant under the Savings Plan. A participant under the Savings Plan
is fully vested in his or her pre-tax and after-tax contributions accounts.
Vesting in a participant's remaining account is based upon his or her years of
service with the Company. A participant is initially 20% vested after the
completion of two years of service with the Company. The participant's vested
percentage increases by 20% for each subsequent year of service with the
Company, so that the participant is 100% vested after the completion of six
years of service. In addition, a participant becomes fully vested in his or her
accounts upon retirement due to permanent disability, attainment of age 65 or
death. Finally, the Savings Plan provides that the Board of Directors of the
Company may at any time declare the Savings Plan partially or completely
terminated, in which event, the accounts of each participant with respect to
whom the Savings Plan is terminated will become fully vested.
In the event of a termination, partial termination or a complete
discontinuance of contributions, the accounts of each affected participant will
become fully vested.
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<PAGE> 57
PRINCIPAL STOCKHOLDERS
The following tables set forth, as of May 31, 1996, the amount and
percentage ownership of the Company's Series A Common Stock and Series B Common
Stock beneficially owned by each holder of 5% or more of the Series A Common
Stock or Series B Common Stock, by each director and Named Officer of the
Company and by all officers and directors of the Company as a group. Except as
otherwise indicated, and subject to applicable community property and similar
laws, each of the persons named has sole voting and investment power with
respect to the Series A Common Stock or Series B Common Stock shown as
beneficially owned. An asterisk denotes beneficial ownership of less than 1%.
SERIES A COMMON STOCK
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE OF PERCENTAGE OF
OUTSTANDING OUTSTANDING OUTSTANDING
SERIES A SERIES A SERIES B
AMOUNT AND COMMON STOCK COMMON STOCK COMMON STOCK
NATURE OF PRIOR TO THE AFTER THE AFTER THE
BENEFICIAL STOCK STOCK STOCK
NAME AND ADDRESS(1) OWNERSHIP OFFERING OFFERING OFFERING(2)
- ----------------------------------------------- ---------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Allen B. Salmasi
and Nicole N. Salmasi(3)..................... 29,370,589 52.7%
Good News Communications Company, LLC.......... 18,400,800 33.0%
Janice I. Obuchowski(4)........................ 2,917,260 5.2%
James S. Madsen(5)............................. 976,076 1.8%
Kevin M. Finn(6)............................... 856,637 1.5%
Edward M. Knapp................................ 200,000 *
All Directors and Officers as a Group (19
persons, including those named above)........ 35,839,741 64.3%
</TABLE>
- ---------------
(1) The address for all persons named above (except Good News Communications
Company, LLC) is c/o The Company, 9455 Towne Centre Drive, San Diego, CA
92121-1964. The address for Good News Communications Company, LLC is 7710
Balboa Ave., Suite 227-E, San Diego, CA 92111.
(2) From and after the closing of the Stock Offering, at the election of a
majority interest of the holders of Series A Common Stock, all or a part of
the Series A Common Stock (other than 1,000 shares) may convert into fully
paid and nonassessable shares of Series B Common Stock and warrants to
purchase shares of Series B Common Stock at the Conversion Ratio (as
defined). See "Description of Capital Stock."
(3) All shares shown are held of record by Navation Inc., a corporation owned
and controlled by Mr. and Mrs. Salmasi and members of their immediate
family.
(4) All shares shown are held of record by Freedom Mobility Inc., a corporation
owned and controlled by Ms. Obuchowski and members of her immediate family.
(5) All shares shown are held of record by Jarrah, Inc., a corporation owned and
controlled by Mr. Madsen and members of his immediate family.
(6) All shares shown are held of record by Marin/Finn Industries, Inc., a
corporation owned and controlled by Mr. Finn and members of his immediate
family.
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<PAGE> 58
SERIES B COMMON STOCK
<TABLE>
<CAPTION>
PERCENTAGE OF OUTSTANDING PERCENTAGE OF OUTSTANDING
SERIES B SERIES B
COMMON STOCK COMMON STOCK
AMOUNT AND NATURE OF PRIOR TO THE AFTER THE
NAME AND ADDRESS BENEFICIAL OWNERSHIP STOCK OFFERING STOCK OFFERING(1)
- --------------------------------- -------------------- ------------------------- -------------------------
<S> <C> <C> <C>
QUALCOMM Incorporated(2)(3)...... 8,797,222 9.6%
6455 Lusk Avenue
San Diego, CA 92121
PECO Energy Company(2)........... 7,166,667 7.9%
2301 Market Street
Philadelphia, PA 19101
Pohang Steel America Corp.(4).... 6,666,667 7.4%
300 Tice Blvd.
Woolcliff Lake, NJ 07675
Korea Electric Power
Corporation(4)(5).............. 5,528,515 6.1%
167, Samsong-Dong, Kangnam-Gu
Seoul, 135-791, Korea
LG InfoComm, Inc.(4)(5).......... 5,528,515 6.1%
9725 Scranton Road, Suite 140
San Diego, CA 92121
Cerberus Partners, L.P.(4)(5).... 5,147,453 5.7%
950 Third Avenue
New York, NY 10022
Kevin M. Finn(6)................. 66,667 *
c/o The Company
9455 Towne Centre Drive
San Diego, CA 92121-1964
James S. Madsen(7)............... 2,061 *
c/o The Company
9455 Towne Centre Drive
San Diego, CA 92121-1964
All Directors and Officers as a
Group (19 persons, including
those named above)............. 387,061 *
</TABLE>
- ---------------
(1) Based on shares of Series B Common Stock outstanding, which does
not include options or rights to purchase shares of Series B
Common Stock which have not yet vested. For a discussion of Series A Common
Stock convertible into Series B Common Stock see the Series A Common Stock
principal stockholders table on the previous page.
(2) Includes shares of Series B Common Stock subject to purchase within sixty
days upon exercise of warrants to purchase shares of Series B Common Stock
(the "Series B Warrants") by the following domestic investors: QUALCOMM,
1,111,111 and PECO Energy Company, 500,000.
(3) Includes 1,019,444 shares of Series B Common Stock subject to purchase
within sixty days upon conversion of a convertible promissory note held by
QUALCOMM.
(4) Excludes the following shares of Series B Common Stock which will become
issuable upon exercise of Series B Warrants following additional issuances
of equity interests by NextWave to domestic investors, thereby permitting
additional foreign ownership of NextWave's equity interests under the FCC's
rules: Pohang Steel America Corp., 4,404,444; Korea Electric Power
Corporation, 492,436; LG InfoComm, Inc., 492,436; and Cerberus Partners,
L.P., 96,606.
(5) Excludes the following shares of Series B Common Stock which will become
issuable upon exercise of convertible promissory notes following additional
issuances of equity interests by NextWave to domestic investors, thereby
permitting additional foreign ownership of NextWave's equity interests under
the
56
<PAGE> 59
FCC's rules: Korea Electric Power Corporation, 1,138,152; LG InfoComm, Inc.,
1,138,152, and Cerberus Partners, L.P., 86,296.
(6) All shares shown are held of record by Marin/Finn Industries, Inc., a
corporation owned and controlled by Mr. Finn and members of his immediate
family.
(7) All shares shown are held of record by Jarrah, Inc., a corporation owned and
controlled by Mr. Madsen and members of his immediate family.
Pursuant to the terms of an Amended and Restated Series A Shareholders
Agreement entered into as of November 15, 1995 by and among the Company and the
holders of Series A Common Stock (all of whom constitute members of the Control
Group), the holders are restricted from transferring their shares of Series A
Common Stock for a period of three years from the date of award of the Company's
PCS licenses or such longer period of time as may be required to comply with the
FCC's rules and regulations. After the initial three-year period, the holders of
Series A Common Stock that comprise the Qualifying Principals of the Control
Group cannot transfer their shares of Series A Common Stock unless such transfer
is either to another Qualifying Principal or a third party that qualifies as a
Qualifying Principal. The Series A Shareholders Agreement also provides that
upon conversion of shares of Series A Common Stock to Series B Common Stock, the
holders will vote their shares to maintain a representative of Sony Electronics
Inc. on the Board of Directors. See "Description of Capital Stock."
For information regarding the election of directors of the Company, see
"Management -- Board of Directors -- Election of Directors" and for information
regarding other voting provisions of the Company's Restated Certificate of
Incorporation, see "Description of Capital Stock."
57
<PAGE> 60
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Navation Inc. has purchased since inception 29,370,589 shares of Series A
Common Stock from the Company, at a purchase price of $0.25 per share, for an
aggregate consideration of $7,342,647. Mr. Allen Salmasi, the Company's Chairman
of the Board, President and Chief Executive Officer, controls Navation and owns
a 20% interest in Navation Inc., with the remaining interests owned by members
of Mr. Salmasi's immediate family. As payment for 5,340,587 of such shares,
Navation Inc. paid the par value in cash and issued a promissory note to the
Company in the amount of $1,334,612, at an interest rate of 6% per annum, which
matures upon demand if the Company does not repay the Bridge Notes by October 5,
1997 (the "Navation Purchase Note"). If the Company repays the Bridge Notes by
October 5, 1997, the Navation Purchase Note will be cancelled and up to
5,340,587 shares will be returned to the Company to the extent such shares need
not remain outstanding for the Company's continuing compliance with the FCC's
foreign ownership restrictions. See "Certain Indebtedness -- Bridge Notes."
Freedom Mobility Inc. has purchased since inception 2,917,260 shares of
Series A Common Stock, at a purchase price of $0.25 per share, for an aggregate
consideration of $729,315. Ms. Janice Obuchowski, the Company's Vice-Chairman,
owns a majority interest in Freedom Mobility Inc., with the remaining ownership
interests held by members of her immediate family. As payment for 536,244 of the
shares, Freedom Mobility Inc. paid the par value in cash and issued a promissory
note to the Company in the amount of $134,007, at an interest rate of 6% per
annum, which matures upon demand if the Company is unable to repay the Bridge
Notes by October 5, 1997 (the "Freedom Purchase Note"). If the Company repays
the Bridge Notes by October 5, 1997, the Freedom Purchase Note will be cancelled
and up to 536,244 shares will be returned to the Company to the extent such
shares need not remain outstanding for the Company's continuing compliance with
the FCC's foreign ownership restrictions. See "Certain Indebtedness -- Bridge
Notes."
Ms. Obuchowski is the principal owner of Freedom Technologies Inc., which
provides consulting services to the Company pursuant to an informal arrangement,
receiving $120,000 for such services in 1995. In addition, Ms. Obuchowski is of
counsel to the law firm of Halprin, Temple, Goodman & Sugrue in Washington, D.C.
Ms. Obuchowski is married to Mr. Albert Halprin, a partner at Halprin, Temple,
Goodman & Sugrue. The Company retained Halprin, Temple, Goodman & Sugrue to
perform legal services in 1995 and intends to continue this relationship in the
future.
Upon his joining the Company in May 1996, Mr. Gene Welsh received a
$135,000 loan from the Company. The loan bears interest at 6% per annum and
matures on the earlier of January 15, 1998 or termination of employment, except
that Mr. Welsh is obligated to apply any future bonus amounts (net of applicable
taxes) to repayment of the loan.
On May 10, 1996, the Company made a non-recourse loan in the aggregate
approximate principal amount of $600,000 to Mr. Robert M. Kramer, Senior Vice
President, Corporate Finance, to purchase 200,000 shares of Series B Common
Stock (the "Shares") at a price of $3.00 per share. The note is secured by the
Shares, and all proceeds from any sale of the Shares must be applied first to
repayment of the note. The note bears no interest and generally matures on the
earlier of (i) May 10, 2001 or (ii) the earliest time at which Mr. Kramer may
sell all or a portion of the Shares under applicable securities laws following
his termination of employment "for cause" by the Company or without "good
reason" by Mr. Kramer, to the extent of the net proceeds from such sales. Mr.
Kramer's ownership of the Shares vests in two equal installments on May 10, 1997
and May 10, 1998, subject to earlier vesting upon Mr. Kramer's achieving certain
performance objectives or Mr. Kramer's termination other than "for cause" by the
Company or with "good reason" by Mr. Kramer. The Company may demand repayment of
the note at any time after May 10, 1999 if the ten-day average trading price of
the Series B Common Stock exceeds $20 per share. The Company has agreed to
reimburse Mr. Kramer for certain taxes that may be payable in connection with
the loan.
Certain stockholders of the Company have entered into an Amended and
Restated Stockholders' Voting Agreement, pursuant to which such stockholders
have agreed for an initial period of three years (subject to extension in the
event a party is a 6% Stockholder at the end of the initial period) to elect to
the Company's Board of Directors representatives designated by certain "Early
Investors" (as defined in such agreement). As
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<PAGE> 61
of May 31, 1996, none of the representatives designated by such Early Investors
had been elected to the Board. See "Management -- Directors and Executive
Officers -- Election of Directors."
During the period from January through April 1996, the Company performed
consulting services for Korean Information and Communications Co., Ltd, the
president and chief executive officer of which is the father of Stephen Park, an
employee of the Company. Mr. Park is the majority stockholder of Good News
Communications Company, LLC, a Series A Common Stockholder of the Company.
During the three months ended March 31, 1996, the Company recorded consulting
revenues and consulting costs in the amounts of $1,841,000 and $40,000,
respectively, and had related accounts receivable of $1,841,000 outstanding as
of March 31, 1996.
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<PAGE> 62
DESCRIPTION OF CAPITAL STOCK
The following summary description of the capital stock of the Company does
not purport to be complete and is subject to the provisions of the Company's
Restated Certificate of Incorporation, as amended, and Restated Bylaws, which
are included as exhibits to the Registration Statement of which this Prospectus
forms a part and by the provisions of applicable law.
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
The authorized capital stock of the Company consists of 500 million shares
of Common Stock, par value $.0001 per share. Of the 500 million authorized
shares of the Company's Common Stock, 60 million shares have been designated as
Series A Common Stock; 278,980,556 shares have been designated as Series B
Common Stock; 1,019,444 shares have been designated as Series C Common Stock;
and the remaining 160 million shares of Common Stock are undesignated. As of May
31, 1996, 55,760,000 shares of Series A Common Stock were issued and
outstanding, held by 23 stockholders of record, 90,518,793 shares of Series B
Common Stock were issued and outstanding, held by 60 stockholders of record, and
no shares of Series C Common Stock were outstanding. After the Stock Offering,
all rights to acquire Series C Common Stock will become rights to acquire the
same number of shares of Series B Common Stock.
Voting Rights. Under the Company's Restated Certificate of Incorporation,
the holders of the Series A Common Stock have the right to vote on all matters
that come before the stockholders and shall have the right to vote, as a class,
for a majority of the Board of Directors. The holders of Series B Common Stock
have the right, voting as a class, to elect a number of directors equal to the
total number of directors, less the number of directors to be elected by the
holders of Series A Common Stock, except as otherwise required by law. In
addition, the affirmative vote of a majority of holders of Series A Common
Stock, voting separately as a class, and of a majority of the holders of Series
B Common Stock, voting separately as a class, shall be required for the Company
(i) to amend the Company's Restated Certificate of Incorporation or Restated
Bylaws, unless such amendment is necessary to comply with FCC rules and
regulations and such amendment without the affirmative vote of the holders of
each series of Common Stock voting separately is permitted under Delaware law,
(ii) to conduct a sale, lease, mortgage, transfer or other disposal or
encumbrance of all or substantially all of the Company's assets, (iii) to enter
into a merger or other business combination with any other entity, except for a
merger of a wholly-owned subsidiary of the Company with and into the Company,
(iv) to conduct a liquidation, dissolution or winding up of the Company, (v) to
declare dividends of the Company, other than a dividend payable solely in shares
of capital stock or in options to purchase shares of capital stock or a regular
periodic dividend payable in cash and declared out of the earned surplus of the
Company, and (vi) to effect any capital reorganization of the Company or any
reclassification or recapitalization of the capital stock of the Company.
In addition, the prior affirmative vote of a majority of holders of Series
A Common Stock, voting separately as a class, shall be required for the Company
(i) to issue any capital stock or debt or rights to obtain capital stock or debt
with class voting rights equal or superior to those of the Series A Common Stock
or Series B Common Stock or any other issuance of shares of capital stock or
rights to obtain shares of capital stock of the Company, in any single
transaction or series of related transactions, representing thirty percent (30%)
or more of the then outstanding equity interests in the Company, on a fully
diluted basis, (ii) to issue any shares of Series C Common Stock other than
shares of Series C Common Stock which the Company has issued or has committed to
issue on or prior to the date the FCC finally awards PCS licenses to the Company
(the "License Grant Date"), (iii) to issue or be deemed to issue Common Stock to
officers or employees of, or consultants to, the Company pursuant to a stock
grant, option plan, purchase plan or other stock incentive program
(collectively, the "Plans") which issuance or deemed issuance would cause the
number or shares issued or reserved for issuance under such Plans to exceed in
the aggregate 12.5% of the equity of the Company, determined on a fully diluted
basis, or 10 million shares, whichever is greater, (iv) to effect a public
offering of any class of stock of the Company other than shares of Series B
Common Stock, (v) to issue or incur indebtedness by the Company or enter into
any other transaction resulting in the encumbrance of assets of the Company in
any single transaction or series of related transactions, in an aggregate amount
in excess of $50 million, and (vi) to approve any other contract (other than
capital expenditures) requiring payments or
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<PAGE> 63
receipts thereunder by the Company in a single amount of $10 million or more, or
in the aggregate over any period of 12 consecutive months of $50 million or
more. The holders of Series B Common Stock do not have voting rights with
respect to the transactions described in this paragraph. However, after the
tenth anniversary of the License Grant Date, each holder of Series B Common
Stock shall be entitled to one vote per share on all matters submitted to the
vote of the Company's stockholders.
Transfer Restrictions. Holders of Series A Common Stock and Series B
Common Stock shall be subject to certain transfer restrictions pursuant to the
terms of the Company's Restated Certificate of Incorporation, which provides
that any transfer of Common Stock of the Company by any party will be void and
of no force and effect to the extent that such transfer will cause the Company
or any of its Subsidiaries to violate applicable FCC rules and regulations
concerning foreign ownership or which will prevent the Company from qualifying
as a "Designated Entity" and "Small Business" under Part 24 of the rules of the
FCC applicable to broadband PCS.
Series A Conversion Rights. In order for the Company to qualify for the
Entrepreneurs' Auction and as a Small Business, the FCC Rules require that,
during the three years following the date on which the last PCS license in the
"C" or "F" frequency block for which the licensee is a winning bidder is granted
(the "Last PCS License Grant"), (a) a "control group" collectively own at least
25% (the "Required Ownership Percentage") of the Company's fully diluted equity
(the "Control Group") and (b) persons or entities meeting certain FCC
qualifications (the "Qualifying Principals") own at least 60% of this 25% (i.e.,
15%). To remain eligible for the preferences afforded bidders in the
Entrepreneurs' Auction, a Control Group must, during the 10-year term of the PCS
license, maintain the rights to elect a majority of the members of the Company's
Board of Directors and to exercise control over the Company. A Control Group may
satisfy the minimum total equity requirement by holding options or warrants.
Automatic Conversion; Control Group Warrants. Upon any issuance of shares
of Common Stock from and until ten years after the License Grant Date, other
than shares of Series B Common Stock issued (i) upon conversion of shares of
Series A Common Stock, (ii) as a result of any adjustments for subdivisions,
dividends, combinations or consolidations, or (iii) as a dividend or
distribution on Series A or Series B Common Stock for which an adjustment is
made pursuant to (ii) above (the "Additional Shares of Common Stock"), which
issuance would cause the Control Group's equity interest on a fully-diluted
basis to fall below the Required Ownership Percentage (such issuance, a
"Dilutive Issuance"), the Company shall convert at the applicable conversion
ratio (the "Conversion Ratio") a number of shares of Series A Common Stock held
by the Control Group into fully paid and nonassessable shares of Series B Common
Stock and warrants to purchase shares of Series B Common Stock at the then fair
market price such that the number of shares of Series A Common Stock and Series
B Common Stock held by the Control Group in the aggregate, equals the Required
Percentage Ownership. The Series A Conversion Ratio applicable from time to time
is determined as follows: Each share comprising the first 35% of the shares of
the Control Group's Series A Common Stock to be converted will convert into two
shares of Series B Common Stock. The remaining shares of Series A Common Stock
will convert into one share of Series B Common Stock and one warrant to purchase
one share of Series B Common Stock at the then fair market price. In the event
of a Dilutive Issuance at a time when the Control Group holds only 1,000 shares
of Series A Common Stock (the "Minimum Ownership Requirement"), the Control
Group shall be issued warrants to purchase shares of Series B Common Stock at
the price of the Dilutive Issuance in an amount sufficient to maintain the
Control Group's aggregate equity interest in the Company at the Required
Percentage Ownership. The Conversion Ratio is subject to adjustment for certain
corporate events, as set forth in the Restated Certificate of Incorporation.
Upon the tenth anniversary of the License Grant Date, all shares of Series A
Common Stock shall automatically convert into shares of Series B Common Stock
and warrants to purchase shares of Series B Common Stock at the Conversion Ratio
without regard to the Minimum Ownership Requirement. Upon conversion of all
shares of Series A Common Stock held by the Control Group, the Control Group
shall be issued, on a pro-rata basis, warrants to purchase shares of Series B
Common Stock at the price of the Dilutive Issuance, in an amount sufficient to
maintain the Required Ownership Percentage. Notwithstanding the foregoing there
shall be no conversion prior to the termination date of the Series A Common
Stock constituting the Minimum Ownership
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<PAGE> 64
Requirement. Upon conversion of shares of Series A Common Stock hereunder, any
accrued but unpaid dividends with respect to the shares of Series A Common Stock
so converted will become payable.
Voluntary Conversion. From and after the closing of the Stock Offering, at
the election of a majority interest of the holders of Series A Common Stock, all
or part of the Series A Common Stock, subject to the Minimum Ownership
Requirements, may convert into fully paid and nonassessable shares of Series B
Common Stock and warrants to purchase shares of Series B Common Stock at the
Conversion Ratio (as defined in "-- Automatic Conversion; Control Group
Warrants"). Upon any such conversion, any declared but unpaid dividends with
respect to the shares of Series A Common Stock so converted will become payable.
Adjustment to Series A Conversion Ratio. In the event (i) the outstanding
shares of Series A Common Stock or Series B Common Stock shall be combined or
consolidated, by reclassification or otherwise, into a lesser number of shares
of Series A Common Stock and Series B Common Stock, respectively, the Series A
Conversion Ratio in effect immediately prior to such combination or
consolidation shall, concurrently with the effectiveness of such combination or
consolidation, be proportionately increased or decreased as appropriate and (ii)
the Company shall declare or pay any dividend on the Series A Common Stock
payable in shares of Series A Common Stock or on the Series B Common Stock
payable in shares of Series B Common Stock or in the event the outstanding
shares of Series B Common Stock shall be subdivided, by reclassification or
otherwise than by payment of a dividend in shares of Series A Common Stock or
shares of Series B Common Stock, respectively, into a greater number of shares
of Series A Common Stock or Series B Common Stock, respectively, the Series A
Conversion Ratio in effect immediately prior to such dividend or subdivision
shall be proportionately decreased or increased as appropriate.
LISTING
Application has been made to approve the shares of Series B Common Stock
for quotation on The Nasdaq Stock Market National Market under the symbol
"SURF".
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Company's Common Stock is Harris
Trust Company of California, Los Angeles, California.
CERTAIN INDEBTEDNESS
PCS LICENSE DEBT
As a Small Business in the Entrepreneurs' Block Auction, the Company is
entitled to receive preferential financing for its PCS licenses from the U.S.
Government. The total license fee payable to the U.S. Government in respect of
the PCS licenses for which the Company has been named the winning bidder is
approximately $4.2 billion. Under preferential financing terms, the Company paid
an initial deposit of 5% of the license fee, approximately $210 million, at the
time the Company was announced as the winning bidder for its PCS licenses; a
second 5% payment becomes due and payable within 5 days after the FCC announces
the final awards of PCS licenses in the auction. Under the preferential
financing terms, the Company will pay interest only for the first six years of
the license term at a fixed interest rate equal to the 10-year U.S. Treasury
Note rate at the license award date (6.85% per annum at May 31, 1996), with
principal amortized during the seventh through tenth years of the license. As a
C-Block licensee, however, the Company may incur substantial financial
penalties, license revocation or other enforcement measures at the FCC's
discretion, in the event that it fails to make timely quarterly installment
payments. Where a C-Block applicant anticipates defaulting on any required
payment, it may request a three to six month grace period before the FCC cancels
its license. In the event of default by a C-Block licensee, the FCC could
reclaim the licenses, reauction them, and subject the defaulting party to a
penalty comprised of the difference between the price at which it acquired its
license and the amount of the winning bid at reauction, plus an additional
penalty of three percent of the subsequent winning bid. See "Regulation of
Wireless Telecommunications Industry -- The Entrepreneurs' Block."
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<PAGE> 65
BRIDGE NOTES
The Company previously issued $130,348,000 aggregate principal amount of
Bridge Notes. The Bridge Notes are unsecured obligations of the Company and are
subordinated in right of payment to certain "Senior Debt," including the PCS
license debt, equipment manufacturer and vendor financings and certain other
indebtedness. The Bridge Notes provide for a term of six years with an interest
rate of two percent per annum for the first two years of the term of such notes
and an interest rate of 12% per annum for the balance of the term. During the
first three years after the issuance date of the Bridge Notes, the Company may
elect to pay all or a portion of the interest payable by issuing additional
Bridge Notes. Each holder of Bridge Notes may convert all or any portion of such
Notes into Series B Common Stock at any time commencing 150 days after the
Auction Closing Date at a conversion price of $4.00 per share, subject to
certain anti-dilution adjustments. The Company is obligated to prepay the Bridge
Notes in connection with an issuance of high-yield debt securities, including
the Notes offered in the Notes Offering, and issue certain warrants to the
noteholders as described below.
In addition, whether or not the Notes Offering is consummated, the Company
may prepay the Bridge Notes at any time at its option. If the Company prepays
such notes prior to the second anniversary of the date of initial issuance of
such notes, whether pursuant to an optional or mandatory prepayment, the Company
shall issue certain warrants to purchase Series B Common Stock to the holders of
such notes. If the Company prepays such notes at, or any time after, October 6,
1996, the holders of the Bridge Notes would be entitled to receive 32,587,000
warrants to purchase the Company's Series B Common Stock, at an exercise price
of $4.00 per share, subject to antidilution adjustments. The warrants expire on
the fifth anniversary of issuance. The holder of a warrant may only exercise
such warrant to the extent such holders ownership of Series B Common Stock does
not then violate FCC rules and regulations relating to foreign ownership. If the
Company prepays such notes prior to October 6, 1996, the Company would be
obligated to issue warrants to the noteholders pursuant to a formula set forth
in such warrants based upon the initial public offering price for the Company's
Series B Common Stock and the prepayment date's proximity to the Auction Closing
Date, but in no event will the number of warrants issued exceed 32,587,000. If
the Company prepays the Bridge Notes at, or any time after, April 9, 1998,
whether pursuant to an optional or mandatory prepayment, the Bridge Notes are
subject to a call premium of $0.50 per each $1.00 of outstanding principal,
increasing ratably $0.10 per year until 2002, and no warrants will be issued.
CONVERTIBLE PROMISSORY NOTES
In February 1996, LGIC committed to loan the Company $10 million within 45
days of the completion of the C-Block Auction. LGIC funded the loan on June 4,
1996 which bears interest at prime rate and is convertible into shares of Series
B Common Stock at $7.00 per share. The loan is unsecured and the principal and
interest is due and payable on June 3, 1997 if the loan has not been converted
by that date.
In connection with its initial private placement of Series B Common Stock,
the Company issued $17,418,555 aggregate principal amount of Convertible
Promissory Notes to certain foreign investors. The Convertible Promissory Notes
convert automatically into shares of Series B Common Stock at a price of $3.00
per share at such time as conversion is permitted under the FCC's rules and
regulations regarding foreign ownership. In the event the Convertible Promissory
Notes are not fully converted by the first anniversary date of the completion of
the C-Block auction, each foreign shareholder shall have the right to demand
repayment of the principal balance due under the convertible promissory notes
together with interest due thereon, at a rate of six percent per annum. The
Convertible Promissory Notes otherwise become due upon the fifth anniversary of
their issue. In addition, the Company has issued a convertible promissory note
for $10 million aggregate principal amount, convertible into shares at $4.00 per
share.
EQUIPMENT AND VENDOR FINANCING
The Company intends to enter into secured financing agreements with
equipment manufacturers and other vendors in connection with the build-out of
its PCS networks. In April 1996 the Company released its procurement
requirements for CDMA infrastructure equipment. The Company is currently engaged
in product selection and vendor contract negotiations for its seven regions,
which are expected to be completed in the near future. The Company expects to
deploy equipment from multiple vendors in its networks. See
"Business -- Equipment Vendors."
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<PAGE> 66
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Stock Offering, the Company will have outstanding
shares of Series B Common Stock ( shares of Series B Common
Stock if the Underwriters' over-allotment option is exercised in full) and
shares of Series A Common Stock. Series A Common Stock (other than
1,000 shares) is convertible at any time into Series B Common Stock as described
under "Description of Capital Stock -- Common Stock -- Series A Conversion
Rights." The Series B Common Stock offered hereby (except to the extent
purchased by affiliates of the Company) will be freely tradeable without
restriction or registration under the 1933 Act.
The remaining 90,518,793 outstanding Series B Common Stock, all of the
outstanding shares of Series A Common Stock and all Series B Common Stock issued
upon conversion of outstanding Series A Common Stock, or other convertible
securities (the "Restricted Shares") constitute or will constitute restricted
securities under Rule 144 of the 1933 Act. Without consideration of the
contractual restrictions described below, all of the Series B Common Shares
which constitutes Restricted Shares (and all Series B Common Stock issued upon
conversion of Series A Common Stock or other convertible securities) will be
eligible for sale in the public market in accordance with Rule 144 beginning two
years after such securities were acquired or, at the earliest, July , 1997.
The holders of 90,518,793 outstanding shares of Series B Common Stock, the
holders of Warrants to purchase 13,980,556 shares of Series B Common Stock, the
holders of Convertible Promissory Notes of the Company convertible into
5,806,185 shares of Series B Common Stock and the holders of the Bridge Notes
convertible into 32,587,000 shares of Series B Common Stock (or the Warrants to
purchase up to 32,587,000 Shares of Series B Common Stock to be issued upon
repayment of such Bridge Notes) have the right to require the Company, under
certain circumstances, to file a registration statement under the Securities Act
for the sale of such shares of Series B Common Stock. Such holders also have the
right to require the Company to include their shares in a registered offering of
securities by the Company for its own account. The Company, its directors,
executive officers and all other holders of the Company's Common Stock have
agreed not to offer, sell, contract to sell or otherwise dispose of, directly or
indirectly, any shares of Common Stock, securities convertible into,
exchangeable for or repayable with such shares or rights or warrants to acquire
such shares, for a period of 180 days after the date of this Prospectus without
the prior written consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated,
on behalf of the Underwriters, subject to certain limited exceptions included in
the Purchase Agreement.
Restricted Shares may not be sold unless they are registered under the Act
or are sold pursuant to an applicable exemption from registration, including
pursuant to Rule 144. In general, under Rule 144 as currently in effect, a
person (or persons whose shares are aggregated) who has beneficially owned
Series B Common Stocks which constitutes Restricted Shares (or Series A Common
Stock which is converted into Series B Common Stocks) for at least two years,
including affiliates of the Company, would be entitled to sell in brokers'
transactions or to market makers within any three-month period a number of such
Series B Common Stock that does not exceed the greater of one percent of the
then outstanding Series B Common Stock or the average weekly trading volume of
the Series B Common Stock on The NASDAQ National Market during the four calendar
weeks preceding the date on which notice of the sale is filed with the
Commission. Sales under Rule 144 are also subject to certain manner of sale
provisions, notice requirements and the availability of current public
information about the Company.
Affiliates of the Company may sell Series B Common Stock not constituting
Restricted Shares in accordance with the foregoing volume limitations and other
restrictions, but without regard to the two-year holding period. Restricted
Shares held by affiliates of the Company eligible for sale in the public market
under Rule 144 are subject to the foregoing volume limitations and other
restrictions, including the two-year holding period.
Prior to the Stock Offering, there has been no market for the Series B
Common Stock and no predictions can be made as to the effect, if any, that
market sales of Series B Common Stock or the availability of Series B Common
Stock for sale will have on the market price prevailing from time to time.
Nevertheless, sales of substantial amounts of Series B Common Stock in the
public market, for acquisitions or otherwise, could adversely affect prevailing
market prices.
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<PAGE> 67
UNDERWRITING
Subject to the terms and conditions set forth in the Purchase Agreement
(the "Purchase Agreement") among the Company and each of the underwriters named
below (the "Underwriters"), the Company has agreed to sell to each of the
Underwriters, and each of the Underwriters, for whom Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Lehman Brothers Inc., Bear, Stearns & Co. Inc.,
Prudential Securities Incorporated and ING Baring (U.S.) Securities, Inc. are
acting as Representatives (the "Representatives"), has severally agreed to
purchase from the Company, the number of shares of Series B Common Stock set
forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.........................................................
Lehman Brothers Inc. .............................................................
Bear, Stearns & Co. Inc. .........................................................
Prudential Securities Incorporated................................................
ING Baring (U.S.) Securities, Inc. ...............................................
-------
Total................................................................
=======
</TABLE>
In the Purchase Agreement, the Underwriters named therein have agreed,
subject to the terms and conditions set forth therein, to purchase all of the
shares of Series B Common Stock being sold pursuant to such Purchase Agreement
if any of the shares of Series B Common Stock are being purchased. In the event
of default by an Underwriter, the Purchase Agreement provides that, in certain
circumstances, purchase commitments of the non-defaulting Underwriters may be
increased or the Purchase Agreement may be terminated.
The Representatives have advised the Company that the Underwriters propose
initially to offer the shares of Series B Common Stock offered hereby to the
public at the initial public offering price set forth on the cover page of this
Prospectus, and to certain dealers at such price less a concession not in excess
of $ per share of Series B Common Stock. The Underwriters may allow, and
such dealers may reallow, a discount not in excess of $ per share to
certain other dealers. After the Stock Offering, the initial public offering
price, concession, and discount may be changed.
The Company has granted to the Underwriters an option, exercisable for 30
days after the date of this Prospectus, to purchase up to an aggregate of
additional shares of Series B Common Stock at the initial public offering
price set forth on the cover page of this Prospectus, less the underwriting
discount. The Underwriters may exercise this option only to cover
over-allotments, if any, made on the sale of the shares of Series B Common Stock
offered hereby. To the extent that the Underwriters exercise this option, each
Underwriter will be obligated, subject to certain conditions, to purchase the
number of shares proportionate to such Underwriter's initial amount reflected in
the foregoing table.
The Company, its directors, executive officers and all other holders of the
Company's Common Stock have agreed not to offer, sell, contract to sell or
otherwise dispose of, directly or indirectly, any shares of Common Stock,
securities convertible into, exchangeable for or repayable with such shares or
rights or warrants to acquire such shares, for a period of 180 days after the
date of this Prospectus without the prior written consent of Merrill Lynch,
Pierce, Fenner & Smith Incorporated, on behalf of the Underwriters, subject to
certain limited exceptions included in the Purchase Agreement.
Prior to the Stock Offering, there has been no public market for the Series
B Common Stock. The initial public offering price for the Series B Common Stock
has been determined by negotiation among the Company
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<PAGE> 68
and the Representatives of the Underwriters. Among the factors considered in
determining the initial public offering price were prevailing market and
economic conditions, revenues and earnings of the Company, estimates of the
business potential and prospects of the Company, the present state of the
Company's business operations, market valuations of publicly-traded companies
engaged in activities similar to the Company, and other factors deemed relevant.
The initial public offering price set forth on the cover of the Prospectus
should not, however, be considered an indication of the actual value of the
Series B Common Stock. Such price will be subject to change as a result of
market conditions and other factors. There can be no assurance that an active
trading market will develop for the Series B Common Stock or that the Series B
Common Stock will trade in the public market subsequent to the Stock Offerings
at or above the initial public offering price.
The Series B Common Stock has been submitted for approval for quotation on
The Nasdaq National Market under the symbol "SURF".
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments the Underwriters may be required to make in respect thereof.
ING Barings (U.S.) Securities, Inc. acted as a placement agent in
connection with the placement of shares of Series B Common Stock and Convertible
Promissory Notes of the Company and purchased 1,666,667 shares of Series B
Common Stock in such private placement. Prudential Securities Incorporated also
purchased 1,000,000 shares of Series B Common Stock in such private placement.
LEGAL MATTERS
The legality of the Series B Common Stock offered hereby will be passed
upon for the Company by Latham & Watkins, San Diego, California. Certain legal
matters in connection with the Stock Offering will be passed upon for the
Underwriters by Skadden, Arps, Slate, Meagher & Flom, New York, New York.
EXPERTS
The financial statements as of December 31, 1995 and for the period from
May 16, 1995 (inception) to December 31, 1995 included in this Prospectus have
been so included in reliance on the report (which contains an explanatory
paragraph relating to the Company's ability to continue as a going concern as
described in Note 1 to the financial statements) of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), a Registration Statement on Form S-1 under the Act, with respect
to the Series B Common Stock offered hereby. This Prospectus, which constitutes
a part of the Registration Statement, does not contain all of the information
set forth in the Registration Statement and the exhibits and schedules thereto.
For further information with respect to the Company and the Series B Common
Stock offered hereby, reference is hereby made to such Registration Statement,
exhibits and schedules filed as part of the Registration Statement. Statements
contained in this Prospectus as to the contents of any contract or any other
document referred to are not necessarily complete, and in each instance,
reference is made to the copy of such contract or document filed as an exhibit
to the Registration Statement or such other document. Each such statement is
qualified in all respects by such reference to subject exhibit.
After consummation of the Stock Offering, the Company will be subject to
the informational and reporting requirements of the Securities Exchange Act of
1934, as amended, and, in accordance therewith, will be required to file
reports, proxy or information statements, and other information with the
Commission. Such reports, proxy statements and other information, as well as the
Registration Statement of which the Prospectus is a part and the exhibits and
schedules thereto, can be inspected and copied at the public reference
facilities maintained by the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, as well as at the following regional offices: 7
World Trade Center, New York, New York 10048, and 500 W. Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such materials also can be obtained
from the Public Reference Section of the Commission at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
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<PAGE> 69
GLOSSARY OF SELECTED TERMS
Set forth below are certain technical terms defined as they are used in
this Prospectus.
AIN: Advanced Intelligent Network. The means by which a
telecommunications network will provide call control. Database structure and
signal transfer points facilitate call management
maintenance and control.
Analog: A transmission method employing a continuous
(rather than pulsed or digital) electrical signal
that varies in amplitude or frequency in response
to changes in sound impressed on a transducer in
the sending device.
Base Station: Transmitter, receiver, signaling and related
equipment located at each cell site.
BTA: Basic Trading Area. A geographic area devised by
Rand McNally and adopted by the FCC as the PCS C,
D, E and F license service areas.
C-Block Auction: The FCC Auction of 493 30 MHz BTA licenses,
restricted to entities meeting certain financial
and other criteria.
CDMA: Code Division Multiple Access. One of the three
leading PCS and digital cellular technology
platforms.
Cellular: The commercial mobile radio-telephone service
comprised of 25 MHz MSA and RSA licenses in the 800
MHz band. The first mobile radio service to broadly
employ frequency reuse in its system design.
Churn Rate: The rate at which communications service customers
terminate service. It is calculated as a rate per
month for a given measurement period, as the number
of subscriber units disconnected divided by the
average number of subscribers on the networks.
CMRS: Commercial Mobile Radio Service.
Common Carriers: Companies which own or operate transmission
facilities and offer telecommunication services to
the general public on a non-discriminatory basis.
CTIA: The Cellular Telecommunications Industry
Association. A trade association in North America
comprised primarily of cellular and PCS telephone
service providers and some mobile satellite service
providers.
Digital: A method of storing, processing and transmitting
information through the use of distinct electronic
or optical pulses that represent the binary digits
0 and 1. Digital transmission/switching
technologies employ a sequence of discrete,
distinct pulses to represent information, as
opposed to the continuously variable analog signal.
ESMR: Enhanced Specialized Mobile Radio. Radio
communications systems that employ digital
technology with a multi-site configuration that
permits frequency reuse to significantly increase
system capacity. The expanded system capacity of
ESMR systems allows for the provision of a wide
array of services including, enhanced dispatch
(group calling), mobile telephony, text messaging
with acknowledgment (paging) and mobile data.
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<PAGE> 70
FCC: The Federal Communications Commission. An
independent regulatory agency with authority
delegated by Congress to regulate interstate and
foreign communications by wire and radio, and to
manage the nongovernment radio spectrum.
Frequency Reuse: The use of many low-elevation antenna and/or
low-power sites, so that the same frequencies can
be reused in numerous sites separated by a defined
distance without causing interference. Thus
frequency re-use systems can increase capacity,
increase the number of sites and reuse frequencies
more often.
GHz Gigahertz. A unit of frequency equal to one billion
cycles (or hertz) per second.
GSM: Global System for Mobile Communications. One of the
three leading PCS and digital cellular technology
platforms, currently widely deployed in Europe.
Hard Hand-Off: A Cell tower transfer method which simultaneously
disconnects the in-use cell and reconnects with a
new cell.
Local Loop Services: Local telephony services.
MHz: Megahertz. A unit of frequency equal to one million
cycles (or hertz) per second.
MTA: Major Trading Area. A geographic area devised by
Rand McNally and adopted by the FCC as either a PCS
A-Block or B-Block license service area.
MSA: Metropolitan Statistical Area. A geographic area
devised by Rand McNally and adopted by the FCC as a
cellular license service area.
PBX: Private branch exchange.
PCS: Personal Communications Service. Broadband radio
communications that encompasses mobile and
ancillary fixed communications that provide
services to individuals and businesses and can be
integrated with a variety of competing networks. In
Canada and the United States, 120 MHz of PCS
spectrum has been allocated for use by public
systems at the 2 GHz frequency range. It is
expected that PCS will initially consist primarily
of low-cost enhanced voice, two-way data and text
messaging services, primarily directed at the mass
consumer wireless communications market. Such PCS
applications are expected to be followed over time
by services offering integrated voice, data, image
and eventually perhaps video capability.
POPs: A shorthand abbreviation for population. A POP
refers to one person living in a population area
which is included in the coverage area of a
telecommunications service provider.
Protocol: An all-inclusive term used to describe the various
control functions, tuning and methodology standards
by which a communications system operates, as well
as any other equipment system characteristics
necessary to ensure compatibility.
PSTN: Public Switched Telephone Network. A term for the
existing public switched telephone networks
comprised of local and long distance switching
centers interconnected through transmission
facilities.
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RF: Radio Frequency.
RFQ: Request For Quotation.
Roam(ing): A service offered by wireless communications
network carriers which allows subscribers to use
their radio or phone while outside their carrier's
service area. Roaming requires an agreement between
participating carriers.
RSA: Rural Statistical Area. A defined regional
geographical service area devised by Rand McNally
and adopted by the FCC for cellular service areas.
SMR: Specialized Mobile Radio. A two-way radio service
provided within a designated portion of the 800 and
900 MHz frequency bands.
Soft Hand-Off: Cell tower transfer method which establishes a new
cell communications channel prior to disconnecting
the existing channel.
Spectrum: The electromagnetic radio spectrum. The FCC grants
authorizations and licenses to private and
governmental entities to use specified portions
under certain conditions.
TDMA: Time Division Multiple Access. One of the three
leading PCS and digital cellular technology
platforms.
Vocoder: An electronic mechanism that reduces speech signals
to slowly varying signals which can be transmitted
over communication systems of limited frequency
bandwidth.
Wireless Local Loop: Wireless switched local telephony service.
Wireless PBX: Wireless Private Branch Exchange. Dedicated
wireless local network providing telephone service
for medium to large institutions.
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<PAGE> 72
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants..................................................... F-2
Consolidated Balance Sheet at December 31, 1995 and March 31, 1996 (unaudited)........ F-3
Consolidated Statement of Operations for the period from May 16, 1995 (inception) to
December 31, 1995, for the three months ended March 31, 1996 (unaudited), and for
the period from May 16, 1995 (inception) to March 31, 1996 (unaudited).............. F-4
Consolidated Statement of Cash Flows for the period from May 16, 1995 (inception) to
December 31, 1995, for the three months ended March 31, 1996 (unaudited), and for
the period from May 16, 1995 (inception) to March 31, 1996 (unaudited).............. F-5
Consolidated Statement of Changes in Stockholders' Equity for the period from
May 16, 1995 (inception) to December 31, 1995 and for the three months ended
March 31, 1996 (unaudited).......................................................... F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE> 73
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of NextWave Telecom Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of cash flows and of changes in
stockholders' equity present fairly, in all material respects, the financial
position of NextWave Telecom Inc., a development stage enterprise (Note 1), and
its subsidiaries at December 31, 1995, and the results of their operations and
their cash flows for the period from May 16, 1995 (inception) to December 31,
1995 in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As described in Note 1 to the
consolidated financial statements, in order to implement its business plan, the
Company will require significant capital to meet its obligations to the FCC,
build out the PCS infrastructure necessary to provide service, and cover its
operational expenses. These capital requirements raise a substantial doubt about
the Company's ability to continue as a going concern. Management's plans in
regard to this matter, which include raising additional capital in equity and
debt offerings, are also described in Note 1. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
PRICE WATERHOUSE LLP
San Diego, California
June 7, 1996
F-2
<PAGE> 74
NEXTWAVE TELECOM INC.
(a development stage enterprise)
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31, 1996
-----------------------------
DECEMBER PRO FORMA
31, (NOTE 12)
1995 ------------
----------- (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................... $ 4,486,000 $ 6,498,000 $105,529,000
Accounts receivable, net...................................... 93,000 180,000 180,000
Accounts receivable from related party........................ -- 1,841,000 1,841,000
Other current assets.......................................... 13,000 3,000 3,000
----------- ------------ --------------
Total current assets.................................. 4,592,000 8,522,000 107,553,000
Property and equipment, net..................................... 142,000 317,000 317,000
Restricted cash................................................. 875,000 101,714,000 130,348,000
FCC Deposits.................................................... 79,225,000 79,225,000 210,059,000
----------- ------------ --------------
$84,834,000 $189,778,000 $448,277,000
=========== ============ ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................................. $ 156,000 $ 229,000 $ 229,000
Accrued liabilities........................................... 348,000 596,000 596,000
Advances from contingent stock purchase subscribers........... 30,225,000 150,731,000 --
Advances from related party contingent stock purchase
subscriber................................................. 4,875,000 19,769,000 --
Notes payable and capital leases.............................. 19,200,000 24,000 24,000
Notes payable to related party................................ 25,000,000 10,000,000 --
----------- ------------ --------------
Total current liabilities............................. 79,804,000 181,349,000 849,000
Capital leases, less current portion............................ 24,000 11,000 11,000
Convertible senior subordinated notes payable................... -- -- 130,348,000
Convertible notes payable....................................... -- -- 27,817,000
----------- ------------ --------------
Total liabilities..................................... 79,828,000 181,360,000 159,025,000
----------- ------------ --------------
Commitments and contingencies (Note 9)
Stockholders' equity:
Common stock, $0.0001 par value, 500,000,000 shares
authorized:
Series A, 60,000,000 shares designated: 20,000,000 and
39,960,000 shares issued and outstanding actual,
55,760,000 shares issued and outstanding pro forma....... 2,000 4,000 6,000
Series B, 278,980,556 shares designated: no shares issued
or outstanding actual, 90,036,126 shares issued and
outstanding pro forma.................................... -- -- 9,000
Series C, 1,019,444 shares designated: no shares issued or
outstanding actual or pro forma.......................... -- -- --
Paid-in capital............................................... 6,898,000 13,136,000 293,985,000
Subscriptions receivable from founders........................ -- (2,484,000) --
Common stock notes receivable from founders................... -- -- (2,510,000)
Deficit accumulated during development stage.................. (1,894,000) (2,238,000) (2,238,000)
----------- ------------ --------------
Total stockholders' equity............................ 5,006,000 8,418,000 289,252,000
----------- ------------ --------------
$84,834,000 $189,778,000 $448,277,000
=========== ============ ==============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 75
NEXTWAVE TELECOM INC.
(a development stage enterprise)
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS MAY 16, 1995
ENDED (INCEPTION)
MAY 16, 1995 MARCH 31, TO MARCH 31,
(INCEPTION) 1996 1996
TO DECEMBER 31, ------------ -----------------
1995
--------------- (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Consulting revenues from related party........ $ -- $ 1,841,000 $ 1,841,000
Consulting revenues........................... 173,000 40,000 213,000
------------ ------------ -----------
Total revenues........................... 173,000 1,881,000 2,054,000
------------ ------------ -----------
Operating expenses:
Consulting costs............................ 114,000 24,000 138,000
Consulting costs of related party
revenues................................. -- 320,000 320,000
General and administrative.................. 1,631,000 935,000 2,566,000
Selling and marketing....................... 8,000 7,000 15,000
Research and development.................... -- 63,000 63,000
------------ ------------ -----------
Total operating expenses................. 1,753,000 1,349,000 3,102,000
------------ ------------ -----------
Operating (loss) income....................... (1,580,000) 532,000 (1,048,000)
Debt conversion expense....................... -- (150,000) (150,000)
Interest expense.............................. (332,000) (760,000) (1,092,000)
Interest income............................... 18,000 34,000 52,000
------------ ------------ -----------
Net loss...................................... $ (1,894,000) $ (344,000) $(2,238,000)
============ ============ ===========
Pro forma net (loss) income per share
(unaudited)(Note 2)......................... $ (0.01) $ 0.00
============ ============
Shares used in computing pro forma net (loss)
income per share (unaudited)(Note 2)........ 272,730,000 272,753,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 76
NEXTWAVE TELECOM INC.
(a development stage enterprise)
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS MAY 16, 1995
ENDED (INCEPTION)
MAY 16, 1995 MARCH 31, TO MARCH 31,
(INCEPTION) 1996 1996
TO DECEMBER 31, ------------- --------------
1995
--------------- (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss......................................... $ (1,894,000) $ (344,000) $ (2,238,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Debt conversion expense....................... -- 150,000 150,000
Amortization of debt discount................. 176,000 385,000 561,000
Depreciation expense.......................... 14,000 33,000 47,000
Changes in:
Accounts receivable, net................. (93,000) (87,000) (180,000)
Accounts receivable from related party... -- (1,841,000) (1,841,000)
Other current assets..................... (13,000) 10,000 (3,000)
Accounts payable......................... 156,000 73,000 229,000
Accrued liabilities...................... 348,000 248,000 596,000
------------ ------------- -------------
Net cash used in operating activities......... (1,306,000) (1,373,000) (2,679,000)
------------ ------------- -------------
Cash flows from investing activities:
Restricted cash for long-term FCC licenses....... (875,000) (100,839,000) (101,714,000)
Deposits for long-term FCC licenses.............. (79,225,000) -- (79,225,000)
Purchases of property and equipment.............. (105,000) (208,000) (313,000)
------------ ------------- -------------
Net cash used in investing activities......... (80,205,000) (101,047,000) (181,252,000)
------------ ------------- -------------
Cash flows from financing activities:
Proceeds from issuances of common stock.......... 5,000,000 2,506,000 7,506,000
Proceeds from issuances of notes payable and
warrants...................................... 40,000,000 -- 40,000,000
Proceeds from issuances of notes payable to
related party................................. 25,000,000 -- 25,000,000
Advances from contingent stock purchase
subscribers................................... 11,000,000 101,939,000 112,939,000
Advance from related party contingent stock
purchase subscriber........................... 5,000,000 -- 5,000,000
Payments on capital leases....................... (3,000) (13,000) (16,000)
------------ ------------- -------------
Net cash provided by financing activities..... 85,997,000 104,432,000 190,429,000
------------ ------------- -------------
Net increase in cash and cash equivalents.......... 4,486,000 2,012,000 6,498,000
Cash and cash equivalents at beginning of period... -- 4,486,000 --
------------ ------------- -------------
Cash and cash equivalents at end of period......... $ 4,486,000 $ 6,498,000 $ 6,498,000
============ ============= =============
Supplemental cash flow disclosure:
Conversion of notes payable to advances from
contingent stock purchase subscribers......... $ 20,000,000 $ 20,000,000 $ 40,000,000
============ ============= =============
Conversion of notes payable to related party to
advances from related party contingent stock
purchase subscriber........................... $ -- $ 15,000,000 $ 15,000,000
============ ============= =============
Capital contributions through forgiveness of
advances (Note 7)............................. $ 900,000 $ 1,100,000 $ 2,000,000
============ ============= =============
Issuance of warrants to purchase Series B Common
Stock in connection with issuance of notes
payable....................................... $ 1,000,000 $ -- $ 1,000,000
============ ============= =============
Acquisitions of equipment under capital lease
obligations................................... $ 51,000 $ -- $ 51,000
============ ============= =============
Interest paid.................................... $ 32,000 $ 1,000 $ 33,000
============ ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 77
NEXTWAVE TELECOM INC.
(a development stage enterprise)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SERIES A DEFICIT
COMMON STOCK ACCUMULATED
-------------------- DURING TOTAL
NUMBER OF PAID-IN SUBSCRIPTIONS DEVELOPMENT STOCKHOLDERS'
SHARES AMOUNT CAPITAL RECEIVABLE STAGE EQUITY
---------- ------ ----------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Issuances of Series A Common
Stock to founding
stockholders during May
through November 1995...... 20,000,000 $2,000 $ 4,998,000 $ -- $ -- $ 5,000,000
Issuance during November 1995
of warrants to purchase
500,000 shares of Series B
Common Stock............... -- -- 1,000,000 -- -- 1,000,000
Capital contributions during
December 1995 (Note 7)..... -- -- 900,000 -- -- 900,000
Net loss..................... -- -- -- -- (1,894,000) (1,894,000)
---------- ------ ----------- ------------ ------------ ----------
Balance at December 31,
1995....................... 20,000,000 2,000 6,898,000 -- (1,894,000) 5,006,000
Issuances of Series A Common
Stock to founding
stockholders during March
1996 (unaudited)........... 19,960,000 2,000 4,988,000 (2,484,000) -- 2,506,000
Capital contributions during
March 1996 (unaudited)
(Note 7)................... -- -- 1,100,000 -- -- 1,100,000
Issuance during March 1996 of
warrants to purchase
480,556 shares of Series B
Common Stock (unaudited)... -- -- 150,000 -- -- 150,000
Net loss (unaudited)......... -- -- -- -- (344,000) (344,000)
---------- ------ ----------- ------------ ------------ ----------
Balance at March 31, 1996
(unaudited)................ 39,960,000 $4,000 $13,136,000 $(2,484,000) $(2,238,000) $ 8,418,000
========== ====== =========== ============ ============ ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 78
NEXTWAVE TELECOM INC.
(a development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- THE COMPANY AND ITS CAPITAL RESOURCES
THE COMPANY
NextWave Telecom Inc. ("NextWave" or the "Company") was incorporated on May
16, 1995. NextWave is the parent company of three wholly-owned subsidiaries,
NextWave Personal Communications Inc. ("NextWave PCI"), TELE*Code Inc.
("TELE*Code"), and NextWave Wireless Inc. ("NextWave Wireless"). NextWave was
formed to build and operate Personal Communications Services ("PCS") networks.
NextWave PCI was formed to acquire PCS licenses obtained pursuant to the Federal
Communications Commission's ("FCC") PCS auctions. TELE*Code was formed to
provide CDMA-based products and engineering services to the Company and third
parties through the development of products such as application-specific gateway
servers for wireless networks and the provision of specialized radio network
design services and tools. NextWave Wireless was formed to act as an operating
company and parent company for additional subsidiaries to be formed for each of
the Company's regions.
CAPITAL RESOURCES
The Company is a development stage enterprise which has incurred net losses
since inception. In order to implement its business plan, significant capital
will be required to (i) meet the Company's obligation to the FCC, (ii) build out
the PCS network infrastructure necessary to provide service and (iii) cover its
operational expenses. The total bid by the Company in the FCC auction, which
closed in May 1996, was $4,201,187,000, of which $79,225,000 was on deposit with
the FCC as of December 31, 1995. An additional $130,834,000 was paid during May
1996 to meet the initial deposit requirement of $210,059,000; another deposit of
$210,059,000 is required to be paid upon formal grant of the licenses to the
Company, which management expects during 1996. The FCC has not yet granted any
PCS licenses to the Company. The Company's PCS license applications are subject
to challenges by various competing bidders and others, and in order for the PCS
licenses to ultimately be granted to the Company, the FCC must determine that
the Company is in compliance with all applicable FCC regulations, including
foreign ownership restrictions and qualification as a small business. If the
Company is found to be ineligible or is otherwise disqualified from holding PCS
licenses, the FCC could impose substantial financial and regulatory penalties on
it as well as refuse to grant the PCS licenses, which would preclude the Company
from offering PCS services. The remaining $3,781,069,000 is to be paid pursuant
to a U.S. Government loan to be made to the Company as of the date the PCS
licenses are granted. Such loan will be payable quarterly with payments of
interest only for the first six years after the grant of the licenses and then
equal principal payments with interest in the seventh through tenth years after
the grant of the licenses. The interest rate will be fixed at the 10-year
Treasury Note rate at the date of license grant, resulting in quarterly
interest-only payments, expected to commence during 1996, in the amount of
approximately $65,000,000 during the first six years after the grant of the
licenses based on the 10-year Treasury Note rate at date of grant (6.85% at May
31, 1996 (Note 11)). Management believes that the $86,000,000 raised through
December 31, 1995, along with the proceeds from its recently closed private
equity and debt offerings (Note 11), the equity and debt offerings planned for
1996, and the consummation of vendor financing necessary for network build-out
(Note 10) will be adequate to meet its capital requirements through 1997.
Management also believes that the Company will be awarded all PCS licenses for
which it was named the winning bidder in the FCC auction and will be successful
in meeting its operating plan to build out its PCS networks and commence
providing PCS services by the end of 1997. If the Company is unsuccessful in
securing these FCC licenses, it may pursue a strategy of license procurement
through future FCC auctions and/or acquisitions.
F-7
<PAGE> 79
NEXTWAVE TELECOM INC.
(a development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FINANCIAL STATEMENT PREPARATION
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned
subsidiaries. All significant intercompany accounts and transactions have been
eliminated.
CASH EQUIVALENTS
Cash equivalents are highly liquid investments and consist of money market
accounts purchased with maturities of three months or less and exclude FCC
deposits and restricted amounts.
REVENUE RECOGNITION
Consulting revenues are recognized as the services are performed. Revenues
from long-term contracts are recognized using the percentage-of-completion
method, primarily based on costs incurred to date compared to total estimated
costs at completion. Estimated contract losses are recognized when identified.
Amounts received in advance of performance under consulting arrangements are
recorded as deferred revenue.
PROPERTY AND EQUIPMENT
All property and equipment is stated at cost and depreciated using the
straight-line method over its estimated useful life. Repair and maintenance
costs are charged to expense as incurred.
INCOME TAXES
Current income tax expense is the amount of income taxes expected to be
payable for the current year. A deferred tax asset and/or liability is computed
for both the expected future impact of differences between the financial
statement and tax bases of assets and liabilities and for the expected future
tax benefit to be derived from tax loss and tax credit carryforwards. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amount expected to be "more likely than not" realized in future tax returns. Tax
rate changes are reflected in the statement of operations in the period such
changes are enacted.
PRO FORMA NET (LOSS) INCOME PER SHARE (UNAUDITED)
Pro forma net (loss) income per share is computed based on the weighted
average number of common shares and common stock equivalents outstanding during
the respective periods after giving retroactive effect to the conversion, which
occurred upon the closing of the FCC auction (Note 11), of all outstanding
contingent stock purchase subscriptions (Note 4) and convertible notes payable
(Note 5) into shares of Series B Common Stock. Pursuant to Securities and
Exchange Commission Staff Accounting Bulletin No. 83, all common stock, stock
warrants, stock options, and convertible notes payable issued since June 7, 1995
have been included as outstanding for all periods. Historical net (loss) income
per share is not presented because such amounts are not deemed meaningful due to
the significant change in the Company's capital structure that occurred in
connection with the contingencies satisfied as a result of the closing of the
FCC auction.
F-8
<PAGE> 80
NEXTWAVE TELECOM INC.
(a development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DIVERSIFICATION OF CREDIT RISK
The Company's financial instruments that are subject to concentrations of
credit risk consist primarily of cash, cash equivalents and accounts receivable.
The Company's policy is to place its cash and cash equivalents with high credit
quality financial institutions in order to limit the amount of credit exposure.
During the period ended and as of December 31, 1995, all consulting revenues and
receivables were from one customer. No amount has been provided for allowances
for uncollectible accounts receivable at December 31, 1995 as all amounts are
considered by management to be fully collectible.
DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts receivable net
of allowance for doubtful accounts, restricted cash, deposits, accounts payable,
accrued liabilities, advances from contingent stock purchase subscribers, and
notes payable and capital leases approximate fair value because of the short
maturities of these financial instruments.
LONG-LIVED ASSETS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of " ("FAS 121"),
which the Company adopted prospectively as required on January 1, 1996. Pursuant
to this Statement, companies are required to investigate potential impairments
of long-lived assets, certain identifiable intangibles, and associated goodwill,
on an exception basis, when there is evidence that events or changes in
circumstances indicate that an asset's carrying value may not be recoverable. An
impairment loss would be recognized when the sum of the expected future net cash
flows is less than the carrying amount of the asset. The adoption of FAS 121 did
not have a significant impact on the Company's financial position or results of
operations.
STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123"). FAS 123 was adopted by the Company as required for
its 1996 financial statements and did not have a material effect on the
Company's financial position or results of operations. Upon adoption of FAS 123,
the Company continued to measure compensation expense for its stock-based
employee compensation plans using the intrinsic value method prescribed by APB
Opinion No. 25, "Accounting for Stock Issued to Employees," and will provide pro
forma disclosures of net loss and net loss per share in its 1996 financial
statements as if the fair value-based method prescribed by FAS 123 had been
applied in measuring compensation expense.
INTERIM RESULTS (UNAUDITED)
The accompanying balance sheet at March 31, 1996 and the related statements
of operations, of cash flows and of changes in stockholders' equity for the
three months ended March 31, 1996 are unaudited. In the opinion of management,
these statements have been prepared on the same basis as the audited financial
statements and include all adjustments, consisting only of normal recurring
adjustments, necessary for the fair statement of results of the interim period.
The consolidated operating results for the three-month period ended March 31,
1996 are not necessarily indicative of the results to be expected for any other
interim period or any future year. The data disclosed in these notes to
consolidated financial statements as of such date and for this period are also
unaudited.
F-9
<PAGE> 81
NEXTWAVE TELECOM INC.
(a development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS
<TABLE>
<CAPTION>
DEPRECIABLE LIFE DECEMBER 31,
(IN YEARS) 1995
---------------- ------------
<S> <C> <C>
Property and equipment:
Computers and related equipment........................... 3 $142,000
Furniture and fixtures.................................... 3 9,000
Office equipment.......................................... 3 5,000
156,000
Less accumulated depreciation and amortization.............. (14,000)
$142,000
Accrued liabilities:
Salaries, wages and vacation.............................. $ 76,000
Interest.................................................. 124,000
Other..................................................... 148,000
$348,000
</TABLE>
The Company leases computer equipment under non-cancelable capital leases.
As of December 31, 1995, the total recorded value of leased equipment, net of
accumulated amortization of $3,000, was $48,000.
NOTE 4 -- ADVANCES FROM CONTINGENT STOCK PURCHASE SUBSCRIBERS
During November 1995, investors executed contingent stock subscription
agreements to purchase in aggregate 12,000,000 shares of Series B Common Stock
for $3.00 per share for aggregate gross proceeds in the amount of $36,000,000
and to participate, on a pro rata basis to their respective original contingent
investments, in a warrant pool to purchase an aggregate of 7,959,999 shares of
Series B Common Stock for $3.00 per share. Such warrants are exercisable from
their date of issuance until a date one year following the closing of a firm
commitment underwritten public offering of the Company's Series B Common Stock
with aggregate gross proceeds of at least $20,000,000 and a number of shares
issued which equates to at least 5% of the Company's then outstanding equity
interests, on a fully diluted basis. If a warrant holder has not been able to
exercise a warrant due to FCC ownership restrictions (Note 7), the exercise
period of the warrant will be extended to 90 days after the date the warrant
holder becomes able to exercise the warrant without violating the FCC
restrictions. Pursuant to the respective subscription agreements, the issuance
of the subscribed stock and warrants is contingent upon the satisfaction of
certain conditions, including the receipt of certain minimum levels of equity
commitments from investors and the Company's successful bid in the FCC auction
and receipt of notification from the FCC that it was named the winning bidder
for PCS licenses covering basic trading areas with a specified aggregate minimum
population level (Note 11).
During December 1995, the Company commenced another private placement of
contingent subscription agreements to purchase shares of Series B Common Stock
for $3.00 per share and to participate, on a pro rata basis with certain other
investors, in a warrant pool to purchase an aggregate of 5,000,000 shares of
Series B Common Stock for $3.00 per share. Such warrants are exercisable from
their date of issuance until a date one year following the closing of a firm
commitment underwritten public offering of the Company's Series B Common Stock
with aggregate gross proceeds of at least $20,000,000 and a number of shares
issued which equates to at least 5% of the Company's then outstanding equity
interests, on a fully diluted basis. If a warrant holder has not been able to
exercise a warrant due to FCC ownership restrictions (Note 7), the exercise
period of the warrant will be extended to 90 days after the date the warrant
holder becomes able to exercise the
F-10
<PAGE> 82
NEXTWAVE TELECOM INC.
(a development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
warrant without violating the FCC restrictions. Pursuant to the respective
subscription agreements, the issuance of the subscribed stock and warrants is
contingent upon the satisfaction of certain conditions, including the receipt of
certain minimum levels of equity commitments from investors and the Company's
successful bid in the FCC auction and receipt of notification from the FCC that
it was named the winning bidder for PCS licenses covering basic trading areas
with a certain aggregate minimum population level. No investors executed these
contingent stock subscription and warrant agreements during December 1995 (Note
11).
NOTE 5 -- NOTES PAYABLE, CAPITAL LEASES AND NOTES PAYABLE TO RELATED PARTY
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Convertible note payable, $20,000,000 face value, due 45 days after the
completion of the FCC auction or June 30, 1996, whichever is earlier,
unsecured, net of $824,000 unamortized discount assigned to
warrants............................................................. $ 19,176,000
Obligations under capital leases, bearing interest at 9.8% to 11.3%,
monthly principal and interest payments of $2,348 through November
1997................................................................. 48,000
-----------
19,224,000
Less current portion................................................. (19,200,000)
-----------
$ 24,000
===========
Notes payable to related party (Note 10), bearing interest at 6% per
annum, due 30 days after the completion of the FCC auction, secured
by substantially all of the assets of the Company.................... $ 25,000,000
===========
</TABLE>
The $20,000,000 face value unsecured note payable is convertible into a
contingent stock subscription agreement to purchase up to 6,666,667 shares of
Series B Common Stock for $3.00 per share. In connection with the $20,000,000
unsecured note payable, the Company committed to issue to the lender, in lieu of
interest, warrants to purchase a total of 500,000 shares of Series B Common
Stock for $3.00 per share (Note 11). These warrants expire during November 1998.
The Company has assigned a value of $1,000,000 to these warrants and conversion
rights based on an independent valuation, and this amount was recorded as a debt
discount and is being amortized to interest expense over the term of the note
payable (Note 11).
$20,000,000 of the $25,000,000 notes payable (Note 10) is convertible into
a contingent stock subscription agreement to purchase up to 6,666,667 shares of
Series B Common Stock for $3.00 per share. The lender has the option to elect to
receive as payment for approximately $398,000 of the $25,000,000 note payable, a
promissory note in like amount which is convertible into 1,019,444 shares of
Series C Common Stock for $0.39 per share, subject to certain anti-dilution
adjustments (Note 11). This promissory note shall bear interest at 6.0% per
annum and have a maturity date of three years after issuance. The remaining
$4,602,000 of the $25,000,000 note payable is not convertible.
At December 31, 1995, as required by the respective note payable and
contingent stock purchase subscription agreements (Note 4), $79,225,000 of
proceeds from the issuance of these instruments had been submitted to the FCC as
a deposit in connection with the auction of licenses by the FCC and are
classified as FCC deposits in the accompanying balance sheet, and the remaining
$875,000 of the proceeds, net of $900,000 of capital contributions (Note 7), is
restricted for the benefit of the holders of the note payable and contingent
stock purchase subscription agreements pending the outcome of the FCC auction
(Note 4).
F-11
<PAGE> 83
NEXTWAVE TELECOM INC.
(a development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- INCOME TAXES
The Company has not recorded a provision for income taxes as it has
generated a net operating loss for income tax purposes.
Deferred tax assets are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Net operating loss carry forwards....................................... $ 758,000
Less valuation allowance................................................ (758,000)
--------
Net deferred tax asset........................................ $ --
========
</TABLE>
At December 31, 1995, the Company provided a deferred tax asset valuation
allowance for deferred tax assets which management determined were not "more
likely than not" to be realized. At December 31, 1995, the Company had net
operating loss carryforwards for federal and state income tax reporting purposes
in the amount of approximately $1,900,000. These federal and state net operating
loss carryforwards expire during 2010 and 2003, respectively. Should a
substantial change in the Company's ownership occur, there will be an annual
limitation on the utilization of net operating loss carryforwards.
NOTE 7 -- CAPITAL STOCK
The authorized capital stock of the Company consists of 500,000,000 shares
of Common Stock, par value $0.0001 per share, of which 60,000,000, 278,980,556,
and 1,019,444 shares have been designated as Series A, B, and C, respectively.
All voting, dividend, conversion, and liquidation rights of the Company's
capital stock as described below are subject to legal and administrative
requirements of the FCC.
The holders of the Series A Common Stock have the right to vote on all
matters that come before the stockholders and shall have the right to vote, as a
class, for a majority of the Board of Directors. The holders of Series B and C
Common Stock have the right, voting together as a class, to elect the remaining
directors but have no other voting rights other than with respect to certain
actions of the Company as defined in its Restated Certificate of Incorporation.
After the tenth anniversary of the date the FCC licenses are granted, each
holder of Series B and C Common Stock shall be entitled to one vote per share on
all matters submitted to a vote of the Company's stockholders.
Holders of the Series A and B Common Stock shall be entitled to
participate, on a pro rata basis, in preference to the holders of the Series C
Common Stock, in dividends when and if declared by the Company's Board of
Directors.
In order to qualify as a small business in the entrepreneur's auction for
PCS licenses, FCC Rules require that, for a period of three years from the date
on which the Company receives its last license, a control group collectively own
at least 25% of the Company's fully diluted equity and persons or entities
meeting certain FCC qualifications own at least 15% of the Company's fully
diluted equity. In order for the Company to remain eligible for the preferences
afforded entrepreneur and small business bidders in the FCC auction (Note 1), a
control group must, during the 10-year term of the PCS license, maintain the
right to vote at least 50.1% of the Company's voting equity and exercise de
facto control over the Company. Minimum total equity requirements may be
satisfied by holding options or warrants. Series A Common Stock held by this
control group is subject to certain anti-dilution provisions in order to
maintain these minimum total equity requirements. These anti-dilution features
provide for the Series A Common Stock to convert, at the then applicable
conversion ratio as defined in the Restated Certificate of Incorporation, into
Series B Common
F-12
<PAGE> 84
NEXTWAVE TELECOM INC.
(a development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock and warrants to purchase shares of Series B Common Stock at the then fair
market price. Upon the tenth anniversary of the date on which the Company
receives its last license, all shares of Series A Common Stock shall
automatically convert, at the then applicable conversion ratio, into Series B
Common Stock and warrants to purchase Series B Common Stock at the then fair
market price. Upon conversion of shares of Series A Common Stock, any accrued
but unpaid dividends with respect to the shares of Series A Common Stock so
converted will become payable. At the election of a majority interest of the
holders of Series A Common Stock, Series A shares may be converted as described,
and subject to the limitation set forth above.
Any holder of Series C Common Stock may convert at a ratio of one share of
Series C to one share of Series B, subject to certain anti-dilution provisions,
upon the occurrence of certain events as outlined in the Restated Certificate of
Incorporation. Pursuant to the Company's Restated Certificate of Incorporation,
upon consummation of a qualified initial public offering of the Company's Common
Stock (Note 4), all shares of Series C Common Stock will be automatically
converted into shares of Series B Common Stock at this same conversion ratio.
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, the holders of the Series B Common Stock shall be
entitled to receive, in advance of the holders of the Series A and C Common
Stock, an amount per share equal to the sum of the price originally paid for
each outstanding share of the Series B Common Stock and an amount equal to
declared but unpaid dividends on such shares. The remaining assets of the
Company, if any, are distributed to the holders of the Series C and A Common
Stock, in that order, in amounts per share equal to the sum of the price
originally paid for each outstanding share of the Series C or A Common Stock and
an amount equal to declared but unpaid dividends on such shares. Thereafter, any
amounts remaining shall be distributed on a pro rata basis among all holders of
Series A, B, and C Common Stock.
Pursuant to the contingent stock purchase subscription agreements (Note 4),
up to $2,000,000 of the related proceeds shall be contributed to the Company's
capital, through forgiveness of the related advance and note payable balances,
in order to fund its operating expenses. As of December 31, 1995, $900,000 of
proceeds were contributed to the Company's capital by the contingent stock
purchase subscribers to fund the Company's operating expenses.
NOTE 8 -- EMPLOYEE BENEFIT PLANS
EMPLOYEE SAVINGS AND PROFIT SHARING PLAN
Effective July 1, 1995, the Board of Directors of the Company adopted The
NextWave Telecom Inc. 401(k) Retirement and Savings Plan (the "Plan"). Under the
Plan, employees may contribute up to 15% of their salary, subject to annual
limits. The Company may, at its discretion, match a portion of the employee
contributions and make additional contributions based upon earnings. The Company
made no matching contributions during the period ended December 31, 1995.
STOCK OPTION PLAN
Effective September 30, 1995, the Company adopted the 1995 Stock Option
Plan (the "Plan") whereby 15,000,000 shares of the Company's Series B Common
Stock were reserved for issuance pursuant to nonqualified and incentive stock
options to its officers, key employees, directors, and consultants. The Plan is
administered by the Board of Directors or its designees and provides generally
that, for incentive stock options and nonqualified stock options, the exercise
price must not be less than 100% and 85%, respectively, of the fair market value
of the shares for which the option is exercisable as determined by the Board of
Directors at the date of grant. The options expire no later than ten years from
the date of grant and generally vest ratably over a five-year period from the
date of grant. As of December 31, 1995, no shares were exercisable under the
Plan.
F-13
<PAGE> 85
NEXTWAVE TELECOM INC.
(a development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Transactions under the stock option plan during the period ended December 31,
1995 are summarized as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
SHARES AVAILABLE -------------------------
FOR GRANT SHARES PRICE
---------------- --------- -----------
<S> <C> <C> <C>
Options outstanding at Plan inception 15,000,000 -- --
Options granted.............................. (4,200,000) 4,200,000 $0.25-$0.28
Options exercised............................ -- -- --
Options canceled............................. -- -- --
---------- ---------
Options outstanding at December 31, 1995... 10,800,000 4,200,000 $0.25-$0.28
========== =========
</TABLE>
NOTE 9 -- COMMITMENTS AND CONTINGENCIES
The Company leases office space and equipment under various operating and
capital lease arrangements with terms ranging from one to two years. Rent
expense for the period from May 16, 1995 (inception) to December 31, 1995 was
$19,000. Future minimum rental commitments under non-cancelable operating and
capital leases are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
--------- -------
<S> <C> <C>
1996............................................................ $23,000 $28,000
1997............................................................ -- 23,000
------- -------
$23,000 51,000
=======
Less amount representing interest............................... (3,000)
-------
$48,000
=======
</TABLE>
NOTE 10 -- CERTAIN RELATED PARTY TRANSACTIONS
During 1995, the Company retained the services of a consulting firm, the
president and founder of which is a director and Series A Common Stockholder of
the Company. During the period ended December 31, 1995, the Company recorded
consulting expenses of $120,000 related to the services received from this firm
and had related accounts payable of $93,000 at December 31, 1995.
During 1995, the Company received an advance related to a contingent stock
purchase subscription agreement in the amount of $5,000,000 and issued notes
payable in the aggregate amount of $25,000,000 (Note 5) to a certain investor, a
director of which is also a director and Series A Common Stockholder of the
Company. The full amount of the notes payable remained outstanding as of
December 31, 1995. During the period ended December 31, 1995, the Company
recorded interest expense of $124,000 related to the notes payable and had
related interest payable of $124,000 at December 31, 1995.
During November 1995, the Company entered into an equipment requirements
agreement pursuant to which a vendor will supply certain infrastructure
equipment to the Company. A member of the Board of Directors of the Company is
also a Director of this vendor, which became a Series B Common Stockholder of
the Company in May 1996. Pursuant to the terms of the agreement, the Company has
committed to purchase from the vendor, at prices to be negotiated, certain
infrastructure equipment for delivery beginning in the fourth quarter of 1996
and extending through 1997. The Company has also agreed to utilize and implement
certain technology of the vendor and has a further obligation to purchase
certain additional infrastructure equipment, at prices to be negotiated, for a
period of five years from the effective date of the agreement.
F-14
<PAGE> 86
NEXTWAVE TELECOM INC.
(a development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11 -- SUBSEQUENT EVENTS
During the period from January 1996 to May 1996, the Company issued
contingent stock purchase subscription agreements for the purchase of 33,979,667
shares of Series B Common Stock for $3.00 per share for aggregate gross cash
proceeds in the amount of $101,939,000 through March 31, 1996 and for the
purchase of 32,389,792 shares of Series B Common Stock for $3.00 per share for
aggregate gross cash proceeds in the amount of $106,410,000 during April and May
1996. The issuance of such stock is contingent upon the satisfaction of certain
conditions (Note 4). These investors will participate, on a pro rata basis with
certain other investors, in a warrant pool to purchase a total of 5,000,000
shares of the Company's Series B Common Stock for $3.00 per share (Note 4).
During the period from January 1996 to May 1996, the Company issued to the
founding stockholders of the Company 35,760,000 shares of Series A Common Stock
at $0.25 per share for aggregate gross cash proceeds in the amount of $6,430,000
and promissory notes in the amount of $2,510,000. Of this amount, 19,960,000
shares for aggregate consideration of $4,990,000 were issued during the period
from January 1996 to March 31, 1996, including 9,938,000 shares for aggregate
consideration of $2,484,000 which were issued pursuant to subscription
agreements outstanding as of March 31, 1996 with the related proceeds received
during April 1996 and 15,800,000 shares for aggregate consideration of
$3,950,000 were issued subsequent to March 31, 1996, including 10,041,995 shares
for aggregate consideration of $2,510,000 which were issued pursuant to
promissory note agreements which remain outstanding.
During March 1996, a lender converted $15,000,000 of its original
$25,000,000 note payable (Note 5) and another lender converted its entire
$20,000,000 note payable into contingent stock purchase subscription agreements.
The issuance of such stock is contingent upon the satisfaction of certain
conditions (Note 4). As an inducement to convert, the holder of the $20,000,000
note payable was issued warrants to purchase a total of 480,556 shares of Series
B Common Stock for $3.00 per share in connection with the execution of the
subscription agreement. These warrants are exercisable for a period of three
years from date of issuance. The Company has assigned a value of $150,000 to
these warrants based on an independent valuation, and this amount was charged to
expense. Of the $10,000,000 unconverted portion of the original $25,000,000 note
payable, $9,602,000 was repaid during June 1996 and $398,000 was converted into
a long-term note payable which is convertible into Series C Common Stock (Note
5).
During April and May 1996, the Company issued $130,348,000 aggregate
principal amount of Convertible Senior Subordinated Notes Due 2002 (the "Bridge
Notes"). The Bridge Notes provide for a term of six years with an interest rate
of two percent per annum for the first two years of the term of such notes and
an interest rate of 12% per annum for the balance of the term. Each holder of
Bridge Notes may convert all or any portion of such notes into shares of Series
B Common Stock at any time commencing 150 days after the FCC auction closing
date at a conversion price of $4.00 per share, subject to certain anti-dilution
adjustments.
The Company is obligated to prepay the Bridge Notes in connection with an
issuance of high-yield debt securities and to issue certain warrants to the note
holders. If the Company prepays such notes at any time on or prior to October 7,
1996, the Company shall issue warrants to purchase Series B Common Stock at
$4.00 per share, subject to antidilution adjustments. The number of shares of
Series B Common Stock issuable upon exercise of such warrants will be based on a
formula set forth in the warrant agreement but shall not exceed 32,587,000. If
the Company prepays such notes after October 7, 1996 but prior to the second
anniversary of the issuance date of such notes, the number of shares issuable
upon exercise of the warrants shall be 32,587,000. These warrants expire on the
fifth anniversary of their issuance date. If the Company prepays the Bridge
Notes at any time after April 9, 1998, the notes are subject to a call premium
of $0.50 per each $1.00 of outstanding principal, increasing ratably $0.10 per
year until 2002, and no warrants will be issued.
F-15
<PAGE> 87
NEXTWAVE TELECOM INC.
(a development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During April 1996, the Company adopted The NextWave Telecom Inc. Amended
and Restated Stock Option Plan (the "Option Plan") under which 20,000,000 shares
of Common Stock were reserved for issuance upon exercise or grant of stock
options, stock bonuses, restricted stock or stock appreciation rights to
employees, directors and consultants of the Company and its affiliates. The
Option Plan amends and restates the Company's 1995 Stock Option Plan (Note 8),
and all options previously granted as well as all options available for grant
under the 1995 Stock Option Plan are subject to the terms and conditions of the
Option Plan. The terms and conditions of previously granted options did not
change upon adoption by the Company of the Option Plan. The Option Plan provides
for grants of incentive stock options to employees (including officers and
employee directors) of the Company and its affiliates, and non-statutory stock
options to employees (including officers and employee directors), non-employee
directors and consultants of the Company and its affiliates. The Option Plan
also provides for the grant of stock bonuses, the sale of restricted stock and
the grant of stock appreciation rights (in tandem with stock option grants or
independently) to employees, directors and consultants of the Company and its
affiliates.
The terms of stock options granted under the Option Plan will be determined
by the Compensation Committee of the Board of Directors. Stock options may be
granted for periods of up to ten years at a price per share not less than the
fair market value of the Company's Common Stock at the date of grant for
incentive stock options and not less than 85% of the fair market value of the
Company's Common Stock at the date of grant for nonstatutory stock options. The
vesting provisions will provide for at least 20% vesting for each year of
service.
The terms of stock bonuses and restricted stock granted under the Option
Plan will be determined by the Compensation Committee. The purchase price of
restricted stock will not be less than 85% of the fair market value of the
Common Stock on the date of sale.
The terms of stock appreciation rights granted under the Option Plan will
be determined by the Compensation Committee. Stock appreciation rights may be
granted in tandem with the grant of a stock option or independently. A tandem
stock appreciation right will expire upon the exercise of the corresponding
stock option. If a tandem stock appreciation right is exercised, the
corresponding stock option will expire. Independent stock option appreciation
rights may be granted without regard to the grant of a stock option to the
recipient. The appreciation distribution on an exercised stock appreciation
right will be payable in cash or an equivalent number of shares of Common Stock
based on the fair market value on the date of exercise. Through May 1996, no
such stock appreciation rights had been granted.
During the period from January to June 5, 1996, pursuant to the Company's
stock option plans, the Company granted options to purchase 9,787,500 shares of
Series B Common Stock with exercise prices ranging from $0.25 to $3.00 per
share.
During May 1996, the FCC announced that NextWave was the winning bidder in
the FCC's C-Block Auction for PCS licenses in 56 basic trading areas. Upon this
announcement, all conditions related to contingent stock purchase and
subscription and warrant agreements (Notes 4 and 5) were satisfied, all related
shares and warrants were issued, and all related restrictions on cash balances
were removed. The purchase price of the PCS licenses from the U.S. Government
will aggregate $4,201,187,000, of which $79,225,000 was on deposit with the FCC
as of December 31, 1995, $130,834,000 was paid during May 1996, $210,059,000 is
required to be paid upon formal grant of the licenses to the Company, which
management expects during 1996, and the remaining $3,781,069,000 is to be paid
pursuant to a loan, which will be payable quarterly with interest-only payments
for the first six years after the grant of the licenses and then equal principal
payments with interest in the seventh through tenth years after the grant of the
licenses. The interest rate will be fixed at the 10-year Treasury Note rate at
the date of license grant, resulting in quarterly interest-only payments,
expected to commence during 1996, in the amount of approximately $65,000,000
during the first six years after the grant of the licenses (based on the 10-year
Treasury Note rate of 6.85% at May 31, 1996).
F-16
<PAGE> 88
NEXTWAVE TELECOM INC.
(a development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During May 1996, the Company issued $17,419,000 aggregate principal amount
of convertible promissory notes to certain foreign investors. The convertible
promissory notes convert automatically into shares of Series B Common Stock at a
price of $3.00 per share at such time as conversion is permitted under the FCC's
rules and regulations regarding foreign ownership. In the event the convertible
promissory notes are not fully converted by the first anniversary date of the
completion of the C-Block auction, each foreign shareholder shall have the right
to demand repayment of the principal balance due under the convertible
promissory notes together with interest due thereon, at a rate of six percent
per annum. The convertible promissory notes otherwise become due upon the fifth
anniversary of their issue.
During June 1996, the Company issued a $10,000,000 convertible note
payable. The note payable is convertible into shares of Series B Common Stock at
$7.00 per share. Interest on this note payable is at the prime rate, and the
principal and interest is payable on June 3, 1997, if the note payable has not
yet been converted. In connection with the issuance of this note payable, the
Company issued warrants to purchase 250,000 shares of Series B Common Stock at
$3.00 per share to the lender. Such warrants are exercisable for a period of one
year from the consummation of a qualified public offering (Note 4).
During the period from January through April 1996, the Company performed
consulting services for another company, the president and chief executive
officer of which is the father of one of the Company's employees, who is the
majority stockholder of another company that is a Series A Common Stockholder of
the Company. During the three months ended March 31, 1996, the Company recorded
consulting revenues and consulting costs in the amounts of $1,841,000
(unaudited) and $320,000 (unaudited), respectively, and had related accounts
receivable of $1,841,000 (unaudited) outstanding as of March 31, 1996.
Pursuant to stock purchase subscription agreements issued during May 1996,
4,620,300 shares of Series B Common Stock issued for $5.00 per share for
aggregate gross cash proceeds in the amount of $23,102,000.
F-17
<PAGE> 89
NEXTWAVE TELECOM INC.
(a development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 12 -- UNAUDITED PRO FORMA BALANCE SHEET INFORMATION
The following schedule sets forth the Company's unaudited historical, pro
forma, and as adjusted for transactions expected to be consummated balance
sheets as of March 31, 1996. The unaudited pro forma balance sheet as of March
31, 1996 is based on the historical balance sheet as of March 31, 1996, adjusted
to give pro forma effect to certain financing activities of the Company,
occurring subsequent to March 31, 1996, as described below, as if these events
occurred as of March 31, 1996. The unaudited as adjusted for transactions
expected to be consummated balance sheet as of March 31, 1996 is based on the
unaudited pro forma balance sheet as of March 31, 1996, adjusted to give effect
to the potential award of the FCC licenses to the Company.
The unaudited pro forma and as adjusted for transactions expected to be
consummated balance sheet information is not necessarily indicative of the
financial position of the Company as of March 31, 1996 that would actually have
existed if the events described above had occurred on March 31, 1996 nor are
they necessarily indicative of the financial position that may be obtained in
the future.
F-18
<PAGE> 90
NEXTWAVE TELECOM INC.
(a development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
UNAUDITED
UNAUDITED AS ADJUSTED
UNAUDITED UNAUDITED ADJUSTMENTS FOR TRANSACTIONS
HISTORICAL UNAUDITED PRO FORMA FOR TRANSACTIONS EXPECTED TO BE
MARCH 31, PRO FORMA MARCH 31, EXPECTED TO BE CONSUMMATED
1996 ADJUSTMENTS 1996 CONSUMMATED MARCH 31, 1996
------------ ------------- ------------ ---------------- ----------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............. $ 6,498,000 $ 106,410,000(1) $105,529,000 $ (79,711,000)(8) $ 25,818,000
-- 27,419,000(3) -- -- --
-- (9,602,000)(4) -- -- --
-- 2,484,000(5) -- -- --
-- (29,120,000)(6) -- -- --
-- 1,440,000(7) -- -- --
Accounts receivable, net.............. 180,000 -- 180,000 -- 180,000
Accounts receivable from related
party............................... 1,841,000 -- 1,841,000 -- 1,841,000
Other current assets.................. 3,000 -- 3,000 -- 3,000
------------ ------------- ------------ -------------- --------------
Total current assets............ 8,522,000 99,031,000 107,553,000 (79,711,000) 27,842,000
Property and equipment, net............. 317,000 -- 317,000 -- 317,000
Restricted cash......................... 101,714,000 130,348,000(2) 130,348,000 (130,348,000)(8) --
-- (101,714,000)(6) -- -- --
FCC Deposits............................ 79,225,000 130,834,000(6) 210,059,000 $ (210,059,000)(8) --
Capitalized FCC licenses................ -- -- -- 4,201,187,000(9) 4,201,187,000
------------ ------------- ------------ -------------- --------------
$189,778,000 $ 258,499,000 $448,277,000 $3,781,069,000 $4,229,346,000
============ ============= ============ ============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...................... $ 229,000 -- $ 229,000 -- $ 229,000
Accrued liabilities................... 596,000 -- 596,000 -- 596,000
Advances from contingent stock
purchase subscribers................ 150,731,000 $(150,731,000)(1) -- -- --
Advances from related party contingent
stock purchase subscriber........... 19,769,000 (19,769,000)(1) -- -- --
Notes payable and capital leases...... 24,000 -- 24,000 -- 24,000
Notes payable to related party........ 10,000,000 (10,000,000)(4) -- -- --
------------ ------------- ------------ -------------- --------------
Total current liabilities....... 181,349,000 (180,500,000) 849,000 -- 849,000
Capital leases, less current portion.... 11,000 -- 11,000 -- 11,000
Convertible senior subordinated notes
payable............................... -- 130,348,000(2) 130,348,000 -- 130,348,000
Convertible notes payable............... -- 27,419,000(3) 27,817,000 -- 27,817,000
-- 398,000(4) -- -- --
FCC license debt, less current
portion............................... -- -- -- 4,201,187,000(9) 3,781,069,000
-- -- -- (420,118,000)(8) --
------------ ------------- ------------ -------------- --------------
Total liabilities............... 181,360,000 (22,335,000) 159,025,000 3,781,069,000 3,940,094,000
------------ ------------- ------------ -------------- --------------
Commitments and contingencies (Note 9)
Stockholders' equity:
Common stock, $0.0001 par value,
500,000,000 shares authorized:
Series A, 60,000,000 shares
designated: 39,960,000 shares
issued and outstanding actual,
55,760,000 shares issued and
outstanding pro forma............. 4,000 2,000(7) 6,000 -- 6,000
Series B, 278,980,556 shares
designated: no shares issued or
outstanding actual, 90,036,126
shares issued and outstanding pro
forma............................. -- 9,000(1) 9,000 -- 9,000
Series C, 1,019,444 shares
designated: no shares issued or
outstanding actual or pro forma... -- -- -- -- --
Paid-in capital....................... 13,136,000 276,901,000(1) 293,985,000 -- 293,985,000
-- 3,948,000(7) -- -- --
Subscriptions receivable from
founders............................ (2,484,000) 2,484,000(5) -- -- --
Common stock notes receivable from
founders............................ -- (2,510,000)(7) (2,510,000) -- (2,510,000)
Deficit accumulated during development
stage............................... (2,238,000) -- (2,238,000) -- (2,238,000)
------------ ------------- ------------ -------------- --------------
Total stockholders' equity...... 8,418,000 280,834,000 289,252,000 -- 289,252,000
------------ ------------- ------------ -------------- --------------
$189,778,000 $ 258,499,000 $448,277,000 $3,781,069,000 $4,229,346,000
============ ============= ============ ============== ==============
</TABLE>
F-19
<PAGE> 91
NEXTWAVE TELECOM INC.
(a development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
UNAUDITED PRO FORMA ADJUSTMENTS
_____________________________
(1) To reflect issuances of Series B Common Stock for advances from
contingent stock purchase subscriptions issued in the aggregate gross amount of
$277,349,000 (net of $2,000,000 of capital contributions (Note 7)), comprised of
stock subscriptions in the amount of $170,500,000, (net of unamortized debt
discount of $439,000 and $2,000,000 of capital contributions (Note 7)) issued
through March 31, 1996 and $106,410,000 issued subsequent to March 31, 1996,
less these capital contributions.
(2) To reflect issuances of Convertible Senior Subordinated Notes payable
in the aggregate gross amount of $130,348,000. Such proceeds are restricted to
be used only for payment of the second FCC license down payment (Note 1).
(3) To reflect issuances of convertible promissory notes to foreign
investors in the aggregate gross amount of $27,419,000.
(4) To reflect repayment of $9,602,000 of the $10,000,000 note payable
outstanding at March 31, 1996 with the remaining balance of $398,000 converted
into a long-term convertible promissory note.
(5) To reflect receipt of cash in the amount of $2,484,000 related to
founders stock subscriptions receivable at March 31, 1996.
(6) To reflect FCC license down payment made in the amount of $130,834,000
through payments of cash and cash equivalents and restricted cash (net of the
deposit in the amount of $79,225,000 paid prior to March 31, 1996).
(7) To reflect issuances of 15,800,000 shares of Series A Common Stock
issued in the aggregate amount of $3,950,000, comprised of $1,440,000 in cash
and $2,510,000 in the form of promissory notes, issued subsequent to March 31,
1996 to the founding stockholders of the Company.
UNAUDITED AS ADJUSTED FOR TRANSACTIONS EXPECTED TO BE CONSUMMATED ADJUSTMENTS
_____________________________________________________________________
(8) To reflect application of the initial FCC deposit in the amount of
$210,059,000 against the FCC long-term debt and payment of the remaining FCC
license down payment in the amount of $210,059,000.
(9) To reflect capitalization as an intangible asset of FCC licenses
awarded for an aggregate purchase price of $4,201,187,000 and related long-term
debt payable to the FCC, (net of the down payments of $420,118,000) in the
amount of $3,781,069,000 (without any related accrued interest). Capitalized FCC
licenses will be amortized over their forty-year estimated useful lives,
beginning on commencement of PCS services in the respective markets for which
the related PCS licenses were granted. The Company has reflected the PCS
licenses and related debt based on the anticipated terms of the planned
transaction with the FCC. Accounting for the acquisition of these types of
licenses and related debt has little precedent and as the accounting concepts
for these types of transactions evolve, it may be appropriate to apply different
concepts including, valuing the licenses and debt on the basis of a fair value
risk-adjusted interest rate.
F-20
<PAGE> 92
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE SERIES B COMMON STOCK IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPEC-
TUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS
PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 10
Use of Proceeds....................... 21
Dividend Policy....................... 21
Dilution.............................. 22
Capitalization........................ 23
Selected Consolidated Financial
Data................................ 25
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 26
The Wireless Telecommunications
Industry............................ 29
Business.............................. 32
Regulation of The Wireless
Telecommunications Industry......... 42
Management............................ 48
Principal Stockholders................ 55
Certain Relationships and Related
Transactions........................ 58
Description of Capital Stock.......... 60
Certain Indebtedness.................. 62
Shares Eligible for Future Sale....... 64
Underwriting.......................... 65
Legal Matters......................... 66
Experts............................... 66
Additional Information................ 66
Glossary of Selected Terms............ 67
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
------------------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE SERIES B COMMON STOCK,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO
THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
SHARES
LOGO
NEXTWAVE TELECOM INC.
SERIES B COMMON STOCK
------------------------
PROSPECTUS
------------------------
MERRILL LYNCH & CO.
LEHMAN BROTHERS
BEAR, STEARNS & CO. INC.
PRUDENTIAL SECURITIES INCORPORATED
ING BARINGS
, 1996
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 93
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is an itemized statement of expenses incurred in connection
with this Registration Statement. All such expenses will be paid by the Company.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee....................... $103,449
NASD fee.................................................................. 30,500
NASDAQ NMS listing fee.................................................... *
Legal fees and expenses................................................... *
Accounting fees and expenses.............................................. *
Printing and engraving expenses........................................... *
Blue Sky fees and expenses................................................ *
Miscellaneous expenses.................................................... *
-------
TOTAL........................................................... *
=======
</TABLE>
- ---------------
* To be filed by amendment.
All of the above items are estimates except the Securities and Exchange
Commission registration fee and the NASD filing fee.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Section 145 of the Delaware General Corporation Law, the Company has
broad powers to indemnify its directors and officers against liabilities they
may incur in such capacities, including liabilities under the Securities Act of
1933, as amended.
The Company's Restated Certificate of Incorporation and Bylaws provide that
the Company will indemnify its directors and officers to the fullest extent
permitted by Delaware law. The Company's Restated Certificate of Incorporation
also provides that the Company shall, subject to its Bylaws, pay for or
reimburse any expenses incurred by directors and officers in advance of the
final disposition of proceedings for which the Company may be obligated to
indemnify such director or officer, to the fullest extent permitted by Delaware
law.
In addition, the Company's Restated Certificate of Incorporation provides
that, pursuant to Delaware law, its directors shall not be liable for monetary
damages for breach of the directors' fiduciary duty of care to the Company and
its stockholders. This provision in the Restated Certificate of Incorporation
does not eliminate the duty of care, and in appropriate circumstances equitable
remedies such as injunctive or other forms of nonmonetary relief will remain
available under Delaware law. In addition, each director will continue to be
subject to liability for breach of the director's duty of loyalty to the Company
for acts or omissions not in good faith or involving intentional misconduct, for
knowing violations of law, for actions leading to improper personal benefit to
the director, and for payment of dividends or approval of stock repurchases or
redemptions that are unlawful under Delaware law. The Company also intends to
enter into separate indemnification agreements with each of its directors to
effectuate these indemnity provisions and to purchase director's and officer's
liability insurance.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Series A Common Stock. The Company sold 55,760,000 shares of Series A
Common Stock to certain investors from November 1995 to May 1, 1996, primarily
to the Company's directors, officers and employees or entities controlled by the
Company's directors, employees or officers. The shares of Series A Common Stock
were sold for a purchase price of $0.25 per share, for an aggregate
consideration of $13,940,000, $11,429,551 of which was paid in cash and
$2,510,449 of which was paid in promissory notes issued by the
II-1
<PAGE> 94
holders of the Series A Common Stock to the Company. In connection with the
sales of Series A Common Stock, the Company has relied on an exemption from
registration under Rule 506 promulgated under Regulation D of the Securities
Act. The sales of Series A Common Stock were effected through a private
placement solely to a limited number of the Company's founders, without general
solicitation or advertising and without brokers or placement agents.
Series B Common Stock. On May 6, 1996, the Company consummated the sale of
shares of Series B Common Stock in a private placement to
institutional investors, venture capital firms and a limited number of
individual investors. The shares of Series B Common Stock were sold for $3.00
per share, for an aggregate consideration of $252,059,116, all of which was paid
in cash. Subscriptions were placed in escrow and released upon the announcement
of the winning bidders in the C-Block Auction. In connection with the private
placement of the Series B Common Stock, the Company also issued an aggregate of
13,000,000 warrants to purchase shares of Series B Common Stock at an exercise
price of $3.00 per share (the "Series B Warrants"). In addition, the Company
also issued $ aggregate principal amount of convertible promissory
notes ("Convertible Promissory Notes") to certain foreign investors, which will
convert automatically into shares of Series B Common Stock at a conversion price
of $3.00 per share upon additional issuances of equity interests by the Company
to domestic investors, thereby permitting additional foreign ownership of the
Company's equity interests under the FCC's rules. The Company has paid
$9,500,000 in fees to placement agents, including principally ING Barings (U.S.)
Incorporated, in connection with the sale of such shares of Series B Common
Stock. In connection with the sales of Series B Common Stock, Series B Warrants
and Convertible Promissory Notes, the Company has relied on an exemption from
registration under Rule 506 promulgated under Regulation D of the Securities
Act. The sales of Series B Common Stock, Series B Warrants and Convertible
Promissory Notes were effected through a private placement to a limited number
of institutional investors, venture capital firms, strategic investors and other
investors without any general solicitation or advertising, and otherwise in the
manner contemplated by Regulation D.
Pursuant to a letter agreement dated May 6, 1996, the Company sold to
Robert Kramer, an executive officer of the Company, 200,000 shares of Series B
Common Stock for $3.00 per share for a total consideration of $600,000, for
which Mr. Kramer paid the par value per share in cash and the remaining purchase
price by delivering a non-recourse promissory note of approximately $600,000
secured by the shares. The Company relied upon the exemption from registration
under Section 4(2) of the Securities Act for this transaction.
Pursuant to subscription agreements dated as of May 31, 1996, the Company
sold an additional 4,620,300 shares of Series B Common Stock in a private
placement to five investors with close personal ties to the President of the
Company, without any general solicitation or advertising and without brokers or
placement agents. The shares of Series B Common Stock were sold for $5.00 per
share, for an aggregate consideration of $23,101,500. In connection with these
sales of Series B Common Stock, the Company has relied on an exemption from
registration under Rule 506 promulgated under Regulation D of the Securities
Act.
Other Convertible Debt. In November 1995, the Company entered into a
convertible loan agreement with QUALCOMM to borrow $25,000,000, of which
$397,800 was convertible into a promissory note which is convertible at $0.39
per share into 1,019,443 shares of Series C Common Stock (which shall become
rights to acquire Series B Common Stock after the Stock Offering) QUALCOMM
exercised its right to convert the portion of the loan into a convertible
promissory note convertible into Series C Common Stock in May 1996, and the
Company issued such note. The Company relied upon an exemption from registration
under Section 4(2) of the Securities Act in connection with this transaction.
In February 1996, the Company entered into a convertible loan agreement
with LG InFoComm Inc. ("LG"), pursuant to which LG committed to loan up to
$10,000,000 to the Company, which loan is convertible into shares of Series B
Common Stock at a conversion price of $7.00 per share. Upon LG's funding the
loan on June 3, 1996, the Company issued warrants to purchase 250,000 shares of
Series B Common Stock at an exercise price of $4.00 per share, pursuant to the
terms of the convertible loan agreement. The Company relied upon an exemption
from registration under Section 4(2) of the Securities Act in connection with
this transaction.
II-2
<PAGE> 95
PECO Note and Warrants. On November 20, 1995, the Company and Philadelphia
Energy Co. ("PECO") entered into a loan agreement pursuant to which the Company
borrowed $20,000,000 and issued 500,000 warrants to purchase shares of Series B
Common Stock at an exercise price of $3.00 per share. The Company relied upon an
exemption from registration under Section 4(2) of the Securities Act in
connection with this transaction.
Bridge Notes. On April 8, 1996, and on subsequent closing dates through
May 22, 1996, the Company issued $130,348,000 aggregate principal amount of
Convertible Senior Subordinated Notes due 2002 (the "Bridge Notes") to a limited
number of institutional investors, venture capital firms and individual
investors, without any general solicitation or advertising. The Company will pay
approximately $2 million in placement agent fees to CIBC/Wood Gundy Securities,
Inc. in connection with the placement of the Bridge Notes. In connection with
the sale of the Bridge Notes, the Company has relied on an exemption from
registration under Rule 506 promulgated under Regulation D of the Securities
Act.
Stock Options; Warrants. The Company has granted stock options under the
Amended and Restated Stock Option Plan since its inception. For a description of
these options to employees of the Company, see "Management." The Company relied
upon Rule 701 under the Securities Act. In addition, the Company issued warrants
to purchase 28,560 shares of Series B Common Stock at $4.00 per share to one
party in connection with financial advisory services rendered in May 1996. The
Company relied upon the exemption from registration under Section 4(2) of the
Securities Act.
II-3
<PAGE> 96
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION OF EXHIBIT
- ------- ------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Purchase Agreement.(2)
3.1 Restated Certificate of Incorporation of Registrant.(2)
3.2 Bylaws of Registrant, as currently in effect.(2)
4.1 Form of Common Stock Certificate.(2)
4.2 Amended and Restated Series A Shareholders Agreement between the Company and the
holders of Series A Common Stock dated as of November 15, 1995.(1)
4.3 Form of Convertible Promissory Note issued to foreign investors convertible into
Series B Common Stock.(1)
4.4 Form of Warrants to Purchase Series B Common Stock.(1)
4.5 Registration Rights with purchasers of Series B Common Stock, Warrants and
Convertible Promissory Notes.(1)
4.6 Securities Purchase Agreement dated as of April 9, 1996 between the Company and
purchasers of the Bridge Notes, together with form of Bridge Notes, Warrants and
Registration Rights.(1)
4.7 Escrow Agreement dated as of April 9, 1996 by and among the Company, Chemical Bank
and the purchasers of the Bridge Notes.(1)
4.8 Amended and Restated Stockholders' Voting Agreement dated as of November 30,
1995.(1)
4.9 Loan Agreement dated as of February 23, 1996 between the Company and LG InfoComm,
Inc.(1)
5.1 Opinion of Latham & Watkins.(2)
10.1 Agreement dated as of March 12, 1996 between the Company and LCC, LLC.(1)
10.2 Amended and Restated Stock Option Plan.(1)
10.3 Form of Incentive Stock Option under the Plan.(1)
10.4 Form of Nonstatutory Stock Option Agreement.(1)
10.5 Promissory Note, together with Stock Pledge Agreement, from Navation, Inc.(2)
10.6 Promissory Note, together with Stock Pledge Agreement, from Freedom Mobility Inc.(2)
10.7 Promissory Note, together with Stock Pledge Agreement, from Robert Kramer.(2)
10.8 Promissory Note from Gene Welsh.(2)
11.1 Calculation of Pro Forma Net Loss Per Share (Unaudited).(1)
21.1 Subsidiaries of Registrant.(1)
23.1 Consent of Price Waterhouse LLP, Independent Accountants.(1)
23.2 Consent of Latham & Watkins to be contained in Exhibit 5.1.
24.1 Power of Attorney (contained on signature page).
27.1 Financial Data Schedule(1)
</TABLE>
- ---------------
(1) Filed herewith.
(2) To be filed by amendment.
(b) Financial Statement Schedules -- All required information is set forth
in the consolidated financial statements included in the Prospectus
constituting part of this Registration Statement.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
II-4
<PAGE> 97
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 98
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Diego, State of
California, on June 6, 1996.
NEXTWAVE TELECOM INC.
By: /s/ ALLEN B. SALMASI
------------------------------------
Allen B. Salmasi
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Allen B. Salmasi, Janice I. Obuchowski and
Frank A. Cassou, his true and lawful attorney-in-fact, each acting alone, with
full power of substitution and resubstitution for him and in his name, place and
stead, in any and all capacities to sign any and all amendments including
post-effective amendments to this registration statement and any registration
statement filed pursuant to Rule 462(b) under the Securities Act of 1933, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that said attorneys-in-fact or their substitutes, each acting
alone, may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------- --------------
<S> <C> <C>
/s/ ALLEN B. SALMASI President, Chief Executive June 6, 1996
- ------------------------------------------ Officer and Director
Allen B. Salmasi
/s/ GENE M. WELSH Senior Vice President, Finance June 6, 1996
- ------------------------------------------ and Chief Financial Officer
Gene M. Welsh (Chief Financial and Accounting
Officer)
/s/ JANICE I. OBUCHOWSKI Vice Chairman, Executive Vice June 6, 1996
- ------------------------------------------ President and Director
Janice I. Obuchowski
/s/ KEVIN M. FINN Senior Vice President and June 6, 1996
- ------------------------------------------ Director
Kevin M. Finn
/s/ NICOLE N. SALMASI Treasurer and Director June 6, 1996
- ------------------------------------------
Nicole N. Salmasi
</TABLE>
II-6
<PAGE> 99
EXHIBIT INDEX
The following exhibits are filed as part of this Form S-1 Registration
Statement.
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION OF EXHIBIT
- ------- ----------------------------------------------------------------------------------
<C> <S>
1.1 Form of Purchase Agreement.(2)
3.1 Restated Certificate of Incorporation of Registrant.(2)
3.2 Restated Bylaws of Registrant, as currently in effect.(2)
4.1 Form of Common Stock Certificate.(2)
4.2 Amended and Restated Series A Shareholders Agreement between the Company and the
holders of Series A Common Stock dated as of November 15, 1995.(1)
4.3 Form of Convertible Promissory Note issued to foreign investors convertible into
Series B Common Stock.(1)
4.4 Form of Warrants to Purchase Series B Common Stock.(1)
4.5 Registration Rights with purchasers of Series B Common Stock, Warrants and
Convertible Promissory Notes.(1)
4.6 Securities Purchase Agreement dated as of April 9, 1996 between the Company and
purchasers of the Bridge Notes, together with form of Bridge Notes, Warrants and
Registration Rights.(1)
4.7 Escrow Agreement dated as of April 9, 1996 by and among the Company, Chemical Bank
and the purchasers of the Bridge Notes.(1)
4.8 Amended and Restated Stockholders' Voting Agreement dated as of November 30,
1995.(1)
4.9 Loan Agreement dated as of February 23, 1996 between the Company and LG InfoComm,
Inc.(1)
5.1 Opinion of Latham & Watkins.(2)
10.1 Agreement dated as of March 12, 1996 between the Company and LCC, LLC.(1)
10.2 Amended and Restated Stock Option Plan.(1)
10.3 Form of Incentive Stock Option under the Plan.(1)
10.4 Form of Nonstatutory Stock Option Agreement.(1)
10.5 Promissory Note, together with Stock Pledge Agreement, from Navation, Inc.(2)
10.6 Promissory Note, together with Stock Pledge Agreement, from Freedom Mobility,
Inc.(2)
10.7 Promissory Note, together with Stock Pledge Agreement, from Robert Kramer.(2)
10.8 Promissory Note from Gene Welsh.(2)
11.1 Calculation of Pro Forma Net Loss Per Share (Unaudited).(1)
21.1 Subsidiaries of Registrant.(1)
23.1 Consent of Price Waterhouse LLP, Independent Accountants.(1)
23.2 Consent of Latham & Watkins (to be contained in Exhibit 5.1).
24.1 Power of Attorney (contained on signature page).
27.1 Financial Data Schedule(1)
</TABLE>
- ---------------
(1) Filed herewith.
(2) To be filed by amendment.
<PAGE> 1
EXHIBIT 4.2
AMENDED AND RESTATED
SERIES A SHAREHOLDERS AGREEMENT
This AMENDED AND RESTATED SERIES A SHAREHOLDERS AGREEMENT ("Agreement")
amends and restates that certain Series A Shareholders Agreement dated November
15, 1995 and is entered into effective as of May 1, 1996 (the "Effective Date")
by and among NextWave Telecom Inc., a Delaware corporation ("Company") and the
individuals and entities who hold shares of the Company's Series A Common Stock
whose names appear on Exhibit "A" attached hereto and incorporated herein by
this reference, as the same may be amended from time to time (collectively
referred to herein as the "Series A Shareholders" and individually as a "Series
A Shareholder"). This Agreement is made with reference to the following facts:
1. The Series A Shareholders collectively own all of the issued and
outstanding shares of Series A Common Stock of the Company (the "Shares").
2. NextWave Personal Communications Inc., a Delaware corporation and a
wholly owned subsidiary of the Company (the "Subsidiary") has bid as a "Small
Business" in the C-block auction (the "Auction") being conducted by the Federal
Communications Commission ("FCC"). In order to qualify as a small business and
to remain eligible for preferences afforded bidders in the Auction, the FCC
requires that, during the three (3) years following the date on which the last
Personal Communications Service ("PCS") license for which the Subsidiary is a
winning bidder is granted (the "Last License Grant Date"), (a) a "control group"
collectively own at least twenty-five percent (25%) of the equity of the Company
determined on a fully diluted basis and (b) persons or entities within that
control group meeting certain FCC qualifications (the "Qualifying Principals")
own at least sixty percent (60%) of this twenty five percent (25%) (i.e.,
fifteen percent (15%)). The Series A Shareholders collectively comprise the
control group (the "Control Group"). Three of the Series A Shareholders,
Navation Inc., Good News Communications Company L.L.C. and Freedom Mobility
Inc., collectively comprise the Qualifying Principals. For purposes of this
Agreement, Series A Shareholders who do not comprise the Qualifying Principals
shall be collectively referred to herein as "Controlling Shareholders".
3. Each of the Series A Shareholders have executed that certain Amended
and Restated Shareholders' Rights Agreement (the "Shareholders Agreement") by
and among the Company, the Series A Shareholders and the holders of shares of
Series B Common Stock (the "Series B Shareholders") which sets forth certain
restrictions on the transferability of the Company's Series B Common Stock.
4. Each of the Series A Shareholders have executed that certain Amended
and Restated Stockholders' Voting Agreement (the "Voting Agreement") by and
among the Company, the Series A Shareholders, the Series B Shareholders and the
holders of shares of
<PAGE> 2
Series C Common Stock (the "Series C Shareholders"). The Series A Shareholders,
the Series B Shareholders and the Series C Shareholders shall be collectively
referred to herein as the "Shareholders." Pursuant to such Voting Agreement, the
Shareholders of the Company agreed to vote their shares of Series B Common Stock
and Series C Common Stock in such a manner as to elect and maintain in office,
as a director of the Company, one representative designated by each "6%
Shareholder" as defined in the Voting Agreement. In addition, the Shareholders
agreed to vote their shares of Series B Common Stock and Series C Common Stock
in such a manner as to elect and maintain in office as a director of the Company
for the "Interim Period," as defined in the Voting Agreement, one representative
designated by each "Early Investor," as defined in the Voting Agreement,
provided such Early Investor has made an equity investment in the Company prior
to completion of the Auction. Sony Electronics Inc., a Delaware corporation
("Sony"), is an Early Investor under the terms of the Voting Agreement.
5. The Company and Sony are negotiating the terms of a Technical and
Marketing Cooperation Agreement to provide for joint development and other
cooperative activities between Sony and the Company, the consummation of which
will be advantageous to the Company.
6 The parties have determined that it is in the best interests of the
Company and to the mutual advantage of the Series A Shareholders to provide for
continuity and stability in the Company's management and ownership, by setting
forth the terms and conditions whereby (i) the Series A Shareholders may
transfer all or a portion of their Shares under certain circumstances, (ii) the
shareholder(s) of a corporate Series A Shareholder ("Corporate Series A
Shareholder") may transfer all or a portion of his or her shares in such
Corporate Series A Shareholder, and (iii) to provide for the voting of shares of
the Company's Series B Common Stock to be issued upon the conversion of shares
of Series A Common Stock in accordance with the terms hereof to induce Sony to
invest in the Company and establish and maintain joint development activities
with the Company.
NOW, THEREFORE, in consideration of the premises set forth herein, the
mutual terms, covenants, and conditions contained herein, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, it is agreed as follows:
1. SCOPE AND INCEPTION OF AGREEMENT. The term "Shares" for purposes of
this Agreement shall include all shares of Series A Common Stock and any
interest therein, of whatever source or nature, including shares of Series B
Common Stock which shall be issued upon conversion of shares of Series A Common
Stock now or subsequently held by any of the Series A Shareholders.
2. RESTRICTIONS ON TRANSFER OF SHARES. Except as provided to the
contrary herein, a Series A Shareholder may not transfer any Shares, or any
interest in any Shares, unless such Series A Shareholder shall have complied
with the following procedures:
<PAGE> 3
2.1 TRANSFERS BY CONTROLLING SHAREHOLDERS. For a period of
three (3) years from the Last License Grant Date (the "Restricted Period"), no
Controlling Shareholders may offer for sale, sell, assign, pledge, encumber,
hypothecate or in any other way dispose of (collectively, "Transfer") any Shares
in the Company that such Controlling Shareholder now owns or may hereafter
acquire. Any transfer during the Restricted Period in violation of this Section
2.1 shall be null and void and shall be of no effect. Upon termination of the
Restricted Period, the Controlling Shareholders shall be entitled to transfer
their Shares to the fullest extent allowed by law.
2.2 TRANSFERS BY QUALIFYING PRINCIPALS. No Qualifying
Principal may Transfer any Shares in the Company that such Qualifying Principal
now owns or may hereafter acquire during the Restricted Period. Upon expiration
of the Restricted Period, a Qualifying Principal may Transfer its Shares in the
Company only in the manner set forth below:
(a) For a period of seven (7) years after termination of
the Restricted Period (the "Interim Period") or such longer period as required
by FCC regulations to maintain the Subsidiary's status as a "Designated Entity,"
as such term is defined by the FCC, the Qualifying Principals are required to
hold in the aggregate ten percent (10%) of the outstanding equity of the Company
determined on a fully diluted basis (the "Ten Percent Holdings"). The number of
Shares constituting each Qualifying Principal's pro-rata portion of the Ten
Percent Holdings shall be referred to herein as the "Required Minimum Holdings."
Each Qualifying Principal shall have the right to transfer the Shares held by it
in excess of the Required Minimum Holdings (the "Transferable Shares") in the
manner set forth in Section 2.3 below. Upon the expiration of the Interim
Period, a Qualifying Principal shall have the right to freely sell, transfer
or convey its Shares.
2.3 NOTICE OF PROPOSED TRANSFER. The Qualifying Principal
desiring to dispose of its Transferable Shares shall give written notice
("Notice") of such desire to the Company; and the Company shall promptly give
notice to the other Qualifying Principal(s). The Notice shall set forth, with
respect to the proposed transfer, the number of Transferable Shares offered, the
purchase price per share, all other terms and conditions of the offer, and an
offer to sell such Transferable Shares to the Company and/or the remaining
Qualifying Principals on such terms and conditions. The date of the offer shall
be the date upon which the Company actually receives the Notice conforming to
all the requirements set forth herein.
2.4 OPTION OF COMPANY. For thirty (30) calendar days following
receipt of the Notice, the Company shall have the option (except as limited by
applicable law) to elect to purchase up to all of the Transferable Shares
offered at the price and pursuant to the remaining terms and conditions set
forth in the Notice; provided, however, that the Company shall only be entitled
to purchase less than all of the Transferable Shares offered if the remaining
Qualifying Principal(s), pursuant to Section 2.5 below, purchase the remaining
portion of the offered Transferable Shares which the Company does not purchase.
A meeting of the Company's Board of Directors shall be called promptly upon
receipt of the Notice and shall be held during the option period in sufficient
time to allow the Board of Directors to consider the possible purchase
3
<PAGE> 4
of such Transferable Shares by the Company. If the offering Qualifying Principal
is a member of the Company's Board of Directors at the time the Notice is
presented to the Board, he or she shall vote consistently with the vote of a
majority-in-number of the other Directors. The option provided for in this
Section 2.4 shall be exercised by giving written notice to the offering
Qualifying Principal within the 30-day period set forth above.
2.5 OPTION OF REMAINING QUALIFYING PRINCIPAL(S). In the event
that the Company does not exercise its option in accordance with Section 2.4
hereof, the remaining Qualifying Principal(s), for thirty (30) calendar days
following the expiration of the Company's 30-day option period, shall have the
option to elect to purchase a pro-rata portion of the offered Transferable
Shares not acquired by the Company under Section 2.4, at the price and pursuant
to the remaining terms and conditions set forth in the Notice; provided,
however, that the remaining Qualifying Principal(s) shall only be entitled to
purchase less than all of the Transferable Shares offered if the Company,
pursuant to Section 2.4 above, purchases the remaining portion of the offered
Transferable Shares which said Qualifying Principal(s) do not purchase. Any
Qualifying Principal desiring to exercise such Qualifying Principal's option
shall deliver to the Company, and to the offering Qualifying Principal, a
written notice of election to purchase the Transferable Shares with respect to
which the option has been exercised. Each electing Qualifying Principal's
initial right to purchase a pro-rata portion of the Transferable Shares shall be
based on the ratio of the number of Shares which the electing Qualifying
Principal owns to the total number of Transferable Shares held by all remaining
Qualifying Principals. Any Transferable Shares offered to, but not purchased by,
Qualifying Principals declining to exercise their option shall be offered to the
electing Qualifying Principals based on the ratio of the number of Transferable
Shares held by each electing Qualifying Principals to the number of Transferable
Shares held by all such electing Qualifying Principals. This process shall be
repeated until elections to purchase all of the offered Transferable Shares have
been made or until no Qualifying Principal has any further desire to purchase
any additional offered Transferable Shares; in no event, however, will elections
received after expiration of the 30-day period referred to above in this Section
2.5 be honored unless accepted in writing by the offering Qualifying Principal.
If the electing Qualifying Principal and the Company combined do not agree to
purchase all of the offered Transferable Shares, the selling Qualifying
Principal may sell the offered Transferable Shares to a transferee on
the terms and conditions set forth in the Notice within the 45-day period
immediately following the expiration of the Qualifying Principal's 30-day option
period described above; provided, however, that any change from the purchase
terms set forth in the Notice shall require resubmission to the Company and the
Qualifying Principals under this Section 3. If the offering Qualifying Principal
does not enter into an agreement for the sale of the Transferable Shares within
the above-referenced 45-day period, or if such agreement is not consummated
within thirty (30) days of the execution thereof, the option of the remaining
Qualifying Principals provided pursuant to this Section 2.5 will be deemed
revived, and such Transferable Shares will not be offered unless first reoffered
to the Company and the Qualifying Principals in accordance with this Section 2.
A transferee who purchases Transferable Shares pursuant to this
Section 2.5 must agree in writing to be bound by and comply with all provisions
of this Agreement. Such transferred Transferable Shares will remain "Shares"
hereunder, and such transferee will be treated as a "Shareholder" for
purposes of this Agreement.
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<PAGE> 5
2.6 EXCLUDED OFFERS. The right of first offer in this Section
2 will not apply to (i) any transfer to another Qualifying Principal made in
compliance with Section 2.2 hereof, (ii) any transfer to an Affiliate, as
defined herein. For purposes of this Section 2.6, "Affiliate" shall mean any
individual, partnership, corporation, trust or other entity or association,
directly or indirectly, through one or more intermediaries, controlling,
controlled by, or under common control with the Qualifying Principal. The term
"control," as used in the immediately preceding sentence, means, with respect to
a corporation or limited liability company, the right to exercise, directly or
indirectly, more than fifty percent (50%) of the voting rights attributable to
the controlled corporation or limited liability company, and, with respect to
any individual, partnership, trust, other entity or association, the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of the controlled entity.
3. PURCHASE OF SECURITIES ON DEATH OF SHAREHOLDER.
3.1 TRANSFER TO BENEFICIARY. Notwithstanding Section 2 hereof,
upon the death of an individual Series A Shareholder prior to expiration of the
Restricted Period (the "Withdrawing Shareholder"), the Shares of the Withdrawing
Shareholder (including but not limited to all Shares held by a Family Trust
established by the Withdrawing Shareholder), or any interest therein held by the
Withdrawing Shareholder (or his or her successor-in-interest), including but not
limited to the community property interest of the Withdrawing Shareholder's
spouse, may pass to such deceased Withdrawing Shareholder's spouse or immediate
family (the "Beneficiary"), to the extent that such transfer does not violate
the FCC's regulations restricting foreign ownership and does not negatively
impact the Subsidiary's Designated Entity status. The Beneficiary of such Shares
shall execute an amendment to this Agreement pursuant to which such Beneficiary
shall receive the Shares subject to all the provisions contained in this
Agreement. Such Beneficiary shall thereafter also be a "Series A Shareholder"
for purposes of this Agreement. In the event the Beneficiary does not desire to
hold the Shares or such Shares cannot be transferred in accordance with this
Section 3.1 without impairing the Subsidiary's Designated Entity status, the
Shares shall be transferred in accordance with Section 3.2 below.
3.2 TRANSFERS ON DEATH OF SHAREHOLDER. Upon the death of an
individual Series A Shareholder whose Shares are not transferred in accordance
with Section 3.1 above, the Company shall have the right to purchase (except to
the extent limited by applicable law), all of the Shares of the Withdrawing
Shareholder at the Agreed Price provided for in Section 7 hereof, which shall be
paid in accordance with Section 8 hereof. In the event that the Company does not
purchase all the Withdrawing Shareholder's Shares, any Shares not so purchased
may be purchased by the remaining Series A Shareholders at the Agreed Price
provided for in Section 7 hereof, which shall be paid in accordance with Section
8 (based on the ratio of the number of Shares held by such Series A Shareholder
to the number of Shares held by all Series A Shareholders except the Withdrawing
Shareholder) of the Withdrawing Shareholder's Shares, provided, however, that if
any of the remaining Series A Shareholders exercise the foregoing option, the
remaining Series A Shareholders must collectively purchase all of the
Withdrawing Shareholder's Shares not purchased by the Company and the remaining
Series A Shareholders may not purchase a mere portion thereof, unless consented
to by the successor or representative
5
<PAGE> 6
of the Withdrawing Shareholder. All parties shall use their best efforts to
close any purchases of Shares hereunder within one hundred eighty (180) calendar
days of the appointment of a personal representative or equivalent with respect
to the Withdrawing Shareholder.
4. OTHER RESTRICTIONS. Each Corporate Shareholder shall cause each of
its shareholders to enter into agreements consistent with the terms of this
Agreement to ensure that each of its shareholders complies with transfer
restrictions with respect to shares of such Corporate Shareholder.
5. COMPLIANCE WITH FCC OWNERSHIP RESTRICTIONS. Each Series A
Shareholder acknowledges that the Company has elected and its shareholders have
consented to have the Subsidiary treated, for FCC purposes, as a "Designated
Entity" in connection with the Subsidiary's participation in the Auction. Each
Series A Shareholder further acknowledges and agrees that its right to transfer
any of its Shares pursuant to this Agreement shall be limited to the extent that
such transfer would cause the ownership of capital stock of the Company to be in
contravention of (i) the Restated Certificate of Incorporation (the "Restated
Certificate") of the Company, which provides, among other things, that the
Series A Shareholders must hold, in the aggregate, 1,000 shares of Series A
Common Stock, at all times prior to the date when the Company has paid all
principal and interest due to the FCC for the PCS license(s) received by the
Subsidiary (the "Termination Date") and (ii) applicable FCC regulations,
including without limitation, restrictions on foreign ownership, maximum
ownership limitations and voting rights. Each Series A Shareholder further
acknowledges and agrees that, pursuant to the terms of the Restated Certificate,
any transfer of Shares of the Company by any party will be null and void and of
no force and effect to the extent that such transfer will cause the Subsidiary
to violate applicable FCC rules and regulations.
6. DETERMINATION OF THE AGREED PRICE. The price per share ("Agreed
Price") at which Shares may be purchased pursuant to Section 3 hereof shall be
equal to the fair market value on a per share basis of each Share as of the last
day (the "Determination Date") of the most recent calendar month ending before
the date notice is given, or the occurrence of the event triggering the
applicable right to purchase. Said fair market value shall be determined by the
mutual agreement of the parties or, in the event the parties fail to so agree
(within thirty (30) business days after the later of (i) the event or the
exercise of the option requiring or permitting a purchase hereunder, or (ii) the
appointment of a personal representative, executor or guardian as the case may
be), as determined by a qualified appraiser mutually agreed to by the parties
(the "Appraiser"), the cost and expense of which shall be borne by the Company.
In the event that the parties are unable to appoint a mutually acceptable
Appraiser, the parties acknowledge and agree that the Agreed Price shall be
determined via mandatory and binding arbitration in accordance with Section 14
hereof.
7. PAYMENT OF AGREED PRICE. In the event that the Company and/or the
remaining Shareholder(s) ("Purchaser") purchase Shares pursuant to Section 3 of
this Agreement, payment for such Shares shall be made on the date of purchase
established by the Purchaser (within the relevant time periods set forth herein)
by delivery of the following:
6
<PAGE> 7
(a) DOWN PAYMENT. Cash (if any) in the form of a certified or
cashier's check, in an amount equal to twenty-five percent (25%) of the Agreed
Price, provided, however, that the Purchaser may elect in the Purchaser's sole
discretion to pay a greater amount of the Agreed Price in cash; and
(b) PROMISSORY NOTE. The remaining balance of the Agreed Price
shall be in the form of a promissory note (the "Note") in substantially the same
form as attached hereto as Exhibit "B" and which Note shall be secured by a
Pledge Agreement and an Escrow Agreement to be entered into by the Purchaser and
personal representative of the Withdrawing Shareholder (or his or her
successor-in-interest) in substantially the same form as attached hereto as
Exhibit "C", which Pledge Agreement and Escrow Agreement shall include such
terms and provisions (including an escrow arrangement) as necessary to grant a
first priority perfected security interest to the selling Series A Shareholder
(or his or her successor-in-interest) in all of the Shares acquired by Purchaser
in such transaction.
8. TRANSFER OF SHARES. Upon the payment in full of the down payment and
the delivery of the Note described in Section 8 above, the personal
representative of the Withdrawing Shareholder shall deliver to the Purchaser a
receipt for the payment of the purchase price, the certificate(s) endorsed in
blank which evidence the Shares transferred, and a stock assignment separate
from such certificate(s).
9. OPINION OF COUNSEL. Notwithstanding any other provision in this
Agreement, (i) no Shares may be transferred to any person and (ii) no Corporate
Shareholder shall allow the transfer by a shareholder of any of its shares
unless the transferring Series A Shareholder or the Corporate Shareholder, as
applicable, first delivers to the Company an opinion of counsel reasonably
satisfactory to the Company that states that such transfer complies with all
applicable state and federal securities laws and regulations and FCC rules and
regulations applicable to the Company and the Subsidiary.
10. ENDORSEMENT ON SHARE CERTIFICATE. Each certificate representing
Shares of the Company, now or hereafter issued, shall have endorsed on its face
the following words:
"ANY SALE, ENCUMBRANCE, PLEDGE, GIFT OR OTHER TRANSFER OF THE SHARES
REPRESENTED BY THIS CERTIFICATE, OR THE TRANSFER OF ANY INTEREST IN
THOSE SHARES, OF WHATEVER SOURCE OR NATURE, IS RESTRICTED BY THE
PROVISIONS OF THAT CERTAIN SERIES A SHAREHOLDERS AGREEMENT DATED
NOVEMBER 1995, AS AMENDED FROM TIME TO TIME, A COPY OF WHICH MAY BE
INSPECTED AT THE PRINCIPAL OFFICE OF THE COMPANY AND THE PROVISIONS OF
WHICH ARE INCORPORATED HEREIN BY THIS REFERENCE AND RULES AND
REGULATIONS PROMULGATED BY THE FCC FROM TIME TO TIME."
An executed copy of this Agreement shall be delivered to the Secretary of the
Company, such copy to be made available by the Secretary to any person duly
authorized in writing by an
7
<PAGE> 8
existing Series A Shareholder to inspect such Agreement.
11. TERMINATION OF AGREEMENT. This Agreement shall terminate upon:
(a) The Termination Date;
(b) The dissolution of the Company;
(c) The appointment of a receiver to take possession of all or
substantially all of the assets of the Company, a general assignment by the
Company for the benefit of creditors, or any action voluntarily taken by the
Company under any insolvency or bankruptcy act;
(d) Any action involuntarily suffered by the Company under any
insolvency or bankruptcy act, which continues for a period of ninety (90)
calendar days; or
(e) The acquisition of the Company by merger, sale of assets,
sale of stock, or otherwise, resulting in the Series A Shareholders having less
than fifty percent (50%) of the voting power of the surviving entity.
12. SCOPE OF AGREEMENT. In the event of reclassification of the Series
A Common Stock of the Company or any reorganization, recapitalization, stock
split, stock dividend, combination of shares, merger, consolidation or any
change in the capital structure of the Company, all shares obtained as a result
thereof by a Series A Shareholder, in addition to or in exchange for or in
respect of the Shares subject to this Agreement, shall also be subject hereto as
fully as and to the same extent as originally provided herein. Notwithstanding
the foregoing, any shares of Series B Common Stock received by a Series A
Shareholder as a result of the conversion of its Shares shall not be subject to
the terms of this Agreement but shall be subject to the terms of the
Shareholders' Rights Agreement.
13. MANDATORY ARBITRATION. In the event of any dispute regarding the
meaning, instruction, or intent of this Agreement, or of any matter of
performance, fact, law, background, circumstance, or other matter of any kind
whatsoever relating to this Agreement, the parties stipulate and agree that such
dispute shall be submitted at the written election of any party to binding
arbitration in the State of Delaware, conducted in accordance with the
commercial rules of the American Arbitration Association ("AAA") in effect as of
the Effective Date of this Agreement. One arbitrator agreed upon by the parties
shall be appointed, or if the parties cannot agree upon one arbitrator, the AAA
will provide a list of three arbitrators with appropriate expertise and each
party may strike one. The remaining arbitrator will serve as the arbitrator.
Such appointment shall be made within 30 days after the election to arbitrate.
Discovery shall be available to the parties subject to the approval and control
of the arbitrator. The decision by the arbitrator shall be final and binding on
all parties, and may be entered in any court of competent jurisdiction for
enforcement. Each of the parties to this Agreement shall keep confidential all
information furnished to it pursuant to or in connection with any arbitration
proceeding. Unless provided to the contrary herein, all costs of the arbitration
and the fees of the arbitrator shall be allocated between the parties as
determined by the arbitrator, it being the intention of the parties
8
<PAGE> 9
that the prevailing party in such a proceeding be made whole with respect to its
expenses.
14. OTHER PROVISIONS. The following provisions shall apply to this
Agreement:
14.1 ENTIRE AGREEMENT. This Agreement, together with any
schedules or exhibits attached hereto and other agreements expressly referred to
herein, constitutes the entire agreement between parties. All prior or
contemporaneous agreements, understandings, representations, warranties and
statements, oral or written, relating to the subject matter hereof are
superseded and merged herein.
14.2 NOTICE. All notices, requests, demands, directions, and
other communication provided for hereunder must be in writing and must be sent
via overnight courier to the appropriate party at it's or his respective address
set forth below such Series A Shareholder's signature or at any other address as
may be designated by it in a written notice sent to the other parties in
accordance with this paragraph. If any notice is given by overnight mail, it
will be effective when delivered as evidenced by a receipt or if given by
personal delivery, when delivered.
14.3 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the heirs, personal representatives, successors
and assignees of the parties.
14.4 FURTHER ASSURANCES. Each party agrees to perform any
further acts and to execute and deliver any further documents reasonably
necessary to or in furtherance of the intent and purposes of this Agreement,
including voting its Series A Common Stock in favor of an increase in the size
of the Board to accommodate the representative designated by Sony, provided,
however, that if such board seat is not approved, the Series A Shareholders
shall be relieved of the obligations of Section 15.13 in the event compliance
would cause such Series A Shareholder(s) to be in violation of their obligations
under the Voting Agreement.
14.5 REMEDIES. All rights, remedies, undertakings,
obligations, options, covenants, conditions and agreements contained in this
Agreement or provided by law shall be cumulative and no one of them shall be
exclusive of any other. A party may pursue any one or more of its rights,
options or remedies hereunder or may seek damages or specific performance in the
event of any other party's breach hereunder, or may pursue any other remedy by
law or equity, whether or not stated in this Agreement.
14.6 NONWAIVER; MODIFICATION. No failure by a party to take
action by reason of any default by any other party, whether in a single instance
or repeatedly, shall constitute a waiver of any such default or of the
performance required of the defaulting party. No express waiver by a party of a
provision of this Agreement or a default by a party in any one instance shall be
construed as a waiver of the same provision or default in any subsequent
instance. No modification, amendment or discharge of this Agreement shall be
valid unless the same is in writing and signed by the parties hereto.
14.7 GENDER AND NUMBER. In this Agreement, the masculine,
feminine and
9
<PAGE> 10
neuter genders shall be deemed to include one another, as appropriate. Unless
the context otherwise requires, words importing the singular number include the
plural number and vice versa and where any word or phrase is given a defined
meaning in this Agreement, any other part of speech or other grammatical form in
respect of such word or phrase shall have a corresponding meaning.
14.8 GOVERNING LAW. This Agreement shall be governed by and
interpreted and constructed in accordance with the internal laws of the State of
Delaware, as applied to contracts between Delaware residents entered into and to
be performed wholly within Delaware.
14.9 SEVERABILITY; REFORMATION. Should any one or more of the
provisions of this Agreement or of any agreement entered into pursuant to this
Agreement be determined by an arbitrator or court of proper jurisdiction to be
illegal or unenforceable, then such illegal or unenforceable provision shall be
modified by the proper court or arbitrator to the extent necessary and possible
to make such provision enforceable, and such modified provision and all other
provisions of this Agreement and of each other agreement entered into pursuant
to this Agreement shall be given effect separately from the provision or portion
thereof determined to be illegal or unenforceable and shall not be affected
thereby.
14.10 COUNTERPARTS. This Agreement may be executed in more
than one counterpart, each of which shall be deemed an original, but all of
which together shall constitute but one and the same instrument. This Agreement
may be executed via facsimile, with original signatures to follow via overnight
courier.
14.11 TIME OF THE ESSENCE. Time is of the essence under this
Agreement and any amendment, modification or revision of it.
14.12 SHAREHOLDER'S WILL. Each Individual Shareholder agrees
to include in such Shareholder's will direction and authorization to such
Shareholder's personal representative to comply with the terms of this
Agreement. Each individual Series A Shareholder agrees to have his or her spouse
execute a Spousal Consent in substantially the form attached hereto as Exhibit
"D."
14.13 VOTING AGREEMENT. The Series A Shareholders agree that,
in the event Sony does not qualify as a 6% Shareholder (as defined in the Voting
Agreement) at the termination of the Initial Period (as defined in the Voting
Agreement) so long as this Agreement remains in effect and the Company and Sony
have a commercial relationship including reasonably significant joint
development activities (which relationship shall not be deemed terminated if the
Company unreasonably elects not to participate in such activities) the
Shareholders will vote (in proportion to their holdings of shares of Series B
Common Stock) that number of shares of Series B Common Stock owned by them
necessary to elect and maintain in office, as a director of the Company, one
representative designated by Sony. Notwithstanding the foregoing, a Series A
Shareholders shall not be required to take any action hereunder which would
cause such Series A Shareholder to breach the terms of the Voting Agreement. The
Company will notify the Series A Shareholders if the Company and Sony cease to
have the
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<PAGE> 11
commercial relationship referred to in this Section 15.13. This Section 15.13
shall not be amended without Sony's prior written consent.
14.14 THIRD PARTY BENEFICIARY. The terms and provisions of
this Agreement are intended solely for the benefit of each of the parties hereto
and its successors and permitted assigns. Notwithstanding the foregoing, it is
the specific intention of the parties hereto to confer upon Sony third party
beneficiary rights to enforce the terms of Section 15.13 herein.
14.15 AMENDMENTS AND MODIFICATIONS. No amendment, modification
or supplement to this Agreement shall be binding on any of the parties unless it
is in writing. This Agreement may be amended, modified or supplemented by the
parties holding a majority in equity interest at the time of the amendment,
modification or supplement.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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<PAGE> 12
IN WITNESS WHEREOF, the parties have entered into this Series A
Shareholders Agreement, effective as of the date and year first written above.
COMPANY: NEXTWAVE TELECOM INC.,
a Delaware corporation
By:_____________________________
Its:____________________________
CORPORATE SHAREHOLDERS: FREEDOM MOBILITY, INC., a
corporation formed under the laws
of the District of Columbia
By:______________________________
Its:____________________________
GOOD NEWS COMMUNICATIONS
COMPANY, L.L.C. a Delaware limited
liability company
By:_____________________________
Its:____________________________
JARRAH INC.,
a California Corporation
By:_____________________________
Its:______________________________
[SIGNATURE PAGE TO
SERIES A SHAREHOLDERS AGREEMENT CONTINUES]
12
<PAGE> 13
MARIN-FINN INDUSTRIES, INC.
a California Corporation
By:_____________________________
Its:______________________________
NAVATION INC.,
a California corporation
By:_____________________________
Its:____________________________
INDIVIDUAL SHAREHOLDERS:
--------------------------------
Mark Buckner
--------------------------------
Kevin Carroll
--------------------------------
Frank A. Cassou
--------------------------------
Houtan Dehesh
--------------------------------
Mark Gaudino
--------------------------------
Adam Gould
--------------------------------
John W. Ketchum
[SIGNATURE PAGE TO AMENDMENT TO
SERIES A SHAREHOLDERS AGREEMENT CONTINUES]
13
<PAGE> 14
--------------------------------
Edward Knapp
--------------------------------
Richard Kornfeld
--------------------------------
Robert Kramer
--------------------------------
Xu Lewis
--------------------------------
Theresa McCarthy
--------------------------------
Alan Pate
--------------------------------
Mara Ransom
--------------------------------
Greg Theisen
--------------------------------
Mark Wallace
--------------------------------
Rod Walton
--------------------------------
Szu-Wei Wang
[SIGNATURE PAGE TO SERIES A SHAREHOLDERS AGREEMENT]
<PAGE> 1
EXHIBIT 4.3
THIS CONVERTIBLE PROMISSORY NOTE HAS NOT BEEN REGISTERED OR QUALIFIED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED ("SECURITIES ACT") OR THE SECURITIES OR BLUE
SKY LAWS OF ANY STATE AND MAY NOT BE OFFERED OR SOLD UNLESS REGISTERED AND
QUALIFIED PURSUANT TO THE RELEVANT PROVISIONS OF FEDERAL AND STATE SECURITIES OR
BLUE SKY LAWS OR AN EXEMPTION FROM SUCH REGISTRATION AND QUALIFICATION APPLIES.
THEREFORE, NO SALE OR TRANSFER OF THIS NOTE WILL BE MADE, NO ATTEMPTED SALE OR
TRANSFER WILL BE VALID, AND MAKER WILL NOT BE REQUIRED TO GIVE ANY EFFECT TO ANY
SUCH TRANSACTION UNLESS (A) SUCH TRANSACTION SHALL HAVE BEEN DULY REGISTERED
UNDER THE SECURITIES ACT AND QUALIFIED OR APPROVED UNDER APPROPRIATE STATE
SECURITIES OR BLUE SKY LAWS, OR (B) MAKER FIRST RECEIVES AN OPINION OF COUNSEL
SATISFACTORY TO IT THAT SUCH REGISTRATION, QUALIFICATION, OR APPROVAL IS NOT
REQUIRED.
NEXTWAVE TELECOM INC.
CONVERTIBLE PROMISSORY NOTE DUE __, 2001
$_______________ San Diego, California
_____________, 1996
FOR VALUE RECEIVED, the undersigned, NextWave Telecom Inc., a Delaware
corporation ("Maker"), promises to pay to ("Holder") on demand at any time after
May 6, 1997 (the one year anniversary of the termination of the C-block auction
conducted by the Federal Communications Commission) (the "Initial Payment Date")
but prior to May 6, 2001 (the "Expiration Date") the principal sum of __________
Dollars and interest on any principal amount which remains outstanding and
unconverted at the Initial Payment Date. Payments will be made at the office of
Maker in lawful money of the United States of America. All references to dollars
are to U.S. dollars.
SECTION 1. CERTAIN DEFINITIONS. As used in this convertible promissory note
(this "Note"), unless the context otherwise requires:
AVAILABLE SHARES means: (1) if Holder is an Initial Foreign Investor,
the Maximum Foreign Shares, as reduced by any pro-rata conversions of
the principal amount of the Convertible Notes held by Initial Foreign
Investors, and (2) if Holder is a Secondary Foreign Investor, the
Maximum Foreign Shares remaining after the Initial Foreign Investors
have received all of the Series B Common Stock for which they
subscribed, as
<PAGE> 2
reduced by any pro-rata conversions of the principal amount of the
Convertible Notes held by Secondary Foreign Investors.
COMMON STOCK means Maker's authorized Common Stock, $0.0001 par value
per share.
CONVERSION DATE means a date designated by Maker in accordance with
Section 2.
CONVERSION EVENT means an event that, in the opinion of Maker,
increases the number of Available Shares.
CONVERSION PRICE means the price per share of Series B Common Stock at
which the principal of this Note converts as determined in accordance
with Section 3.
CONVERTIBLE NOTES means convertible promissory notes substantially
similar to this Note, including this Note, issued to Initial Foreign
Investors and Secondary Foreign Investors.
EXPIRATION DATE has the meaning given to that expression in the first
sentence of this Note.
FCC RESTRICTIONS has the meaning given to that expression in the
Subscription Agreement.
HOLDER'S PERCENTAGE means a percentage determined by Maker by applying
this formula on a Conversion Date: the amount of Holder's subscription
under the Subscription Agreement divided by either (1) the aggregate
amount of the subscriptions of all Initial Foreign Investors, if Holder
is an Initial Foreign Investor, or (2) the aggregate amount of the
subscriptions of all Secondary Foreign Investors, if Holder is a
Secondary Foreign Investor.
INITIAL FOREIGN INVESTOR has the meaning given to that expression in
the Subscription Agreement.
INITIAL PAYMENT DATE has the meaning given to that expression in the
first sentence of this Note.
RESTRICTED SECURITIES means this Note and any Available Shares issued
to Holder.
SECONDARY FOREIGN INVESTOR has the meaning given to that expression in
the Subscription Agreement.
2
<PAGE> 3
SECURITIES ACT means the Securities Act of 1933, as amended, or any
similar federal statute, and the rules and regulations of the
Securities and Exchange Commission thereunder, all as the same shall be
in effect at the time.
SERIES B COMMON STOCK means Maker's Series B Common Stock, par value
$0.0001.
SUBSCRIPTION AGREEMENT means that certain Subscription Agreement
entered into by Maker and Holder prior to the completion of the C-block
Auction.
SECTION 2. CONVERSION. On the occurrence of a Conversion Event, at any time and
from time to time on or after the date of this Note, but not later than the
Expiration Date, some or all of the principal of this Note will automatically
convert into the right to receive a number of shares of Series B Common Stock
equal to Holder's Percentage multiplied by the number of Available Shares, at
the Conversion Price in effect on the Conversion Date, all on the terms and
conditions provided below. Such shares will be issued to Holder only when Holder
delivers this Note for cancellation in accordance with the following paragraph.
Promptly after the occurrence of a Conversion Event, Maker will notify Holder of
such occurrence and will designate the Conversion Date for such Conversion
Event, which date will be within ten days of the date of such notice. Following
receipt of such notice, Holder will deliver to Maker a letter of transmittal and
instructions substantially in the form of the exhibit to this Note for use in
effecting the surrender of this Note in exchange for certificates representing
Series B Common Stock and (if any principal amount of this Note remains
unconverted) a new note in reduced principal amount. Upon surrender of this Note
to Maker, together with such letter of transmittal, duly executed, Holder will
receive in exchange: (1) the number of shares of Series B Common Stock
determined in accordance with the preceding paragraph and (2) if such number of
shares of Series B Common Stock multiplied by the Conversion Price is less than
the principal amount of this Note, a new convertible note of like tenor and date
in a principal amount equal to the principal amount of this Note reduced by the
conversion effected on the Conversion Date in question; and this Note will
forthwith be canceled. Until surrendered as contemplated by this Section 2, from
and after a Conversion Event this Note will represent only the right to receive
the Series B Common Stock and, if applicable, a new note issuable upon
conversion of this Note and will not evidence any interest in, or any right to
exercise the rights of a stockholder of, Maker. No fractional share will be
issued on conversion of this Note. If on any conversion of this Note a fraction
of a share results, the Company will pay the cash value of that fractional
share, at the Conversion Price.
NOTWITHSTANDING ANYTHING IN THIS NOTE TO THE CONTRARY, NO PART OF THE PRINCIPAL
AMOUNT OF THIS NOTE WILL CONVERT INTO SHARES OF COMMON STOCK IF THE ISSUANCE OF
SUCH SHARES TO HOLDER WOULD CAUSE MAKER TO VIOLATE THE FCC RESTRICTIONS.
3
<PAGE> 4
SECTION 3. CONVERSION PRICE. Except as adjusted in accordance with this Section
3, the Conversion Price will be $3.00 per share.
3.1 Adjustments for Subdivisions, Combinations, or Consolidations of
Common Stock. If the outstanding shares of Common Stock are subdivided,
combined, or consolidated, by reclassification, stock split, stock dividend, or
otherwise into a greater or lesser number of shares of Common Stock, the
Conversion Price in effect immediately prior to such subdivision, combination,
or consolidation will, concurrently with the effectiveness of such subdivision,
combination, or consolidation, be proportionately adjusted.
3.2 Notice of Adjustment of Conversion Price. Whenever Maker takes any
action resulting in any adjustment provided for in this Note, Maker will deliver
or cause to be delivered notice of such action to Holder, which notice will set
forth the Conversion Price resulting from such adjustment.
SECTION 4. INTEREST. From and after the Initial Payment Date, Maker will pay
simple interest in arrears on any principal amount that remains outstanding and
unconverted, computed on the basis of a 365-day year, actual days elapsed, at a
rate of 6% per annum for the period from the date of this Note to the Expiration
Date. Principal converted at any time as provided in this Note will not bear
interest.
SECTION 5. NO VOTING RIGHTS. This Note does not entitle Holder to any voting
rights or other rights as a stockholder of Maker.
SECTION 6. RESTRICTIONS ON TRANSFER. This Note may not be transferred by Holder
if such transfer would cause Maker to violate Section 310 (b) of the
Communications Act of 1934, as amended and any rules and regulations promulgated
thereunder by the Federal Communications Commission. The Restricted Securities
may not be transferred except on the conditions specified in this Section 6.
Each permitted transferee will be subject to the same transfer restrictions
imposed on the Holder by this Note.
6.1 Restrictive Legends. Each certificate for any Common Stock issued
upon conversion of any Note and each certificate for any Common Stock issued to
any subsequent transferee of any such certificate, will be stamped or otherwise
imprinted with legends in substantially the following form and with such other
legends as Maker deems appropriate to comply with applicable laws:
"THIS SECURITY HAS NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF
1933, AS AMENDED ("SECURITIES ACT") OR THE SECURITIES OR BLUE SKY LAWS OF ANY
STATE AND MAY NOT BE OFFERED OR SOLD UNLESS REGISTERED AND QUALIFIED PURSUANT TO
THE RELEVANT PROVISIONS OF FEDERAL AND STATE SECURITIES OR BLUE SKY LAWS OR AN
4
<PAGE> 5
EXEMPTION FROM SUCH REGISTRATION OR QUALIFICATION APPLIES. THEREFORE, NO SALE OR
TRANSFER OF THIS SECURITY WILL BE MADE, NO ATTEMPTED SALE OR TRANSFER WILL BE
VALID, AND THE ISSUER WILL NOT BE REQUIRED TO GIVE ANY EFFECT TO ANY SUCH
TRANSACTION UNLESS (A) SUCH TRANSACTION HAS BEEN DULY REGISTERED UNDER THE
SECURITIES ACT AND QUALIFIED OR APPROVED UNDER APPROPRIATE STATE SECURITIES OR
BLUE SKY LAWS, OR (B) THE ISSUER FIRST RECEIVES AN OPINION OF COUNSEL
SATISFACTORY TO IT THAT SUCH REGISTRATION, QUALIFICATION, OR APPROVAL IS NOT
REQUIRED."
"ANY SALE, ENCUMBRANCE, PLEDGE, GIFT OR OTHER TRANSFER OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE, OR THE TRANSFER OF ANY INTEREST IN SUCH
SECURITIES, IS RESTRICTED BY THE PROVISIONS OF THAT CERTAIN SHAREHOLDERS' RIGHTS
AGREEMENT AS AMENDED FROM TIME TO TIME, A COPY OF WHICH MAY BE INSPECTED AT THE
PRINCIPAL OFFICE OF THE COMPANY AND THE PROVISIONS OF WHICH ARE INCORPORATED BY
THIS REFERENCE."
6.2 Notice of Proposed Transfers. Prior to any transfer or attempted
transfer of any Restricted Securities, the holder of such Restricted Securities
will give written notice to Maker of such holder's intention to make such
transfer. Each such notice will describe the manner and circumstances of the
proposed transfer in sufficient detail. Upon receipt of such notice and prior to
effecting transfer, Maker may request an opinion of counsel of such holder
(which counsel shall be reasonably satisfactory to Maker) stating that such
proposed transfer may be effected without registration under the Securities Act
or any applicable state securities laws. Upon approval by Maker of such
transfer, the holder of the Note shall have the right to convert such Note in
accordance with section 3 of this Note. In the event the transferee is a United
States citizen, such transferee shall have the right to convert the Note at any
time prior to the Expiration Date regardless of section 2 hereof. Each
certificate evidencing the Restricted Securities to be transferred (and each
certificate evidencing any untransferred balance of the Restricted Securities
evidenced by such certificate) shall bear the restrictive legend set forth in
Section 6.1, unless in the opinion of Maker or the opinion of such counsel, if
requested, pursuant to Rule 144(k) of the Securities Act, such legend is not
required.
Maker may deem and treat the person in whose name this Note is registered as the
holder and owner of this Note for the purpose of receiving payments and for all
other purposes, and Maker will not be affected by any notice to the contrary.
SECTION 7. OFFICE OF MAKER. So long as any principal of this Note remains
outstanding, this Note may be presented for conversion as provided in this Note
at 9455 Towne Centre Drive, San Diego, California 92121, for the attention of
Allen Salmasi, unless and until Maker shall designate and maintain some other
office for such purposes and deliver written notice thereof
5
<PAGE> 6
to Holder.
SECTION 8. DEFAULT. If Maker suspends or discontinues its business or makes an
assignment for the benefit of creditors or a composition with creditors or files
a petition in bankruptcy or becomes insolvent or is adjudicated insolvent or
bankrupt or petitions or applies to any tribunal for the appointment of any
receiver, liquidator, or trustee for it or for any substantial part of its
property or assets or commences any proceedings under any bankruptcy,
reorganization, arrangement, readjustment of debt, receivership, dissolution, or
liquidation law or statute of any jurisdiction or there shall be commenced
against Maker any such proceeding which shall remain undismissed for a period of
sixty (60) calendar days or more, or any order, judgment or decree approving the
petition in any such proceeding shall be entered or Maker allows any such
appointment to continue undischarged or unstayed for a period of sixty (60)
calendar days or more or takes any action for the purpose of effecting any of
the foregoing; then an event of default will have occurred. Whenever an event of
default occurs and continues, Holder may declare the entire unpaid balance of
this Note immediately due and payable by giving Maker written notice of the
occurrence of such event of default and such acceleration of principal by Holder
and may exercise any and all remedies available to it under this Note or
otherwise available at law or in equity. Holder's failure to exercise such
option shall not constitute a waiver of the right to exercise the same at any
other time.
SECTION 9. GENERAL TERMS.
9.1 Payments. Maker will pay principal and other amounts under this
Note free and clear of and without deduction for any and all present and future
taxes, levies, imposts, deductions, charges, withholdings, offsets, except as
may be required by virtue of (1) Maker's withholding tax or similar obligations,
and (2) third party garnishment, liens, or similar obligations. Maker will pay
any stamp taxes or any fees imposed by any governmental authority with respect
to the execution, assignment, or discharge of this Note.
9.2 Collection. Should any indebtedness evidenced by this Note be
collected by action at law, or in bankruptcy, receivership, or other court
proceedings, or should this Note be placed in the hands of attorneys for
collection after default, Maker agrees to pay, upon demand by Holder, in
addition to principal and interest and other sums, if any, due and payable
hereon, court costs and reasonable attorneys' fees and other reasonable
collection charges. Should Maker be required to bring any action to enforce its
rights under this Note, it shall be entitled to an award of its court costs and
reasonable attorneys' fees in such action.
9.3 No Waiver. None of the provisions of this Note, and none of
Holder's rights or remedies on account of any past or future defaults, will be
deemed to have been waived by Holder's acceptance of any past due amount or by
any indulgence granted by Holder to any maker, surety, guarantor, or endorser of
this Note.
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<PAGE> 7
9.4 Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of California.
9.5 Notices. Any notice to Maker provided for in this Note will be
addressed to it in care of its Secretary, at its principal executive offices in
San Diego, California, and any notice to Holder will be addressed to its address
on file with Maker or to such other address as either may designate to the other
in writing. Any notice shall be deemed to be duly given if and when enclosed in
a properly sealed envelope and addressed as stated above and deposited, postage
prepaid, in a post office or branch post office regularly maintained by the
United State Government. In lieu of giving notice by mail as aforesaid, any
written notice under this Note may be given to Holder by personal delivery or
via facsimile.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, Maker has caused this Note to be signed in its name by its
president or secretary and attested by its secretary or an assistant secretary.
Dated: , 1996
--------------
NextWave Telecom Inc.,
a Delaware corporation
By --------------------------------------
Allen Salmasi, Chief Executive Officer
ATTEST:
- ---------------------------
8
<PAGE> 1
EXHIBIT 4.4
THIS SECURITY HAS NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF
1933, AS AMENDED ("ACT"), OR THE SECURITIES OR BLUE SKY LAWS OF CALIFORNIA OR
ANY OTHER STATE AND MAY NOT BE OFFERED OR SOLD UNLESS REGISTERED AND/OR
QUALIFIED PURSUANT TO THE RELEVANT PROVISIONS OF FEDERAL AND STATE SECURITIES OR
BLUE SKY LAWS OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION OR QUALIFICATION IS
APPLICABLE. THEREFORE, NO SALE OR TRANSFER OF THIS SECURITY SHALL BE MADE, NO
ATTEMPTED SALE OR TRANSFER SHALL BE VALID, AND THE ISSUER SHALL NOT BE REQUIRED
TO GIVE ANY EFFECT TO ANY SUCH TRANSACTION UNLESS (A) SUCH TRANSACTION SHALL
HAVE BEEN DULY REGISTERED UNDER THE ACT AND QUALIFIED OR APPROVED UNDER
APPROPRIATE STATE OR BLUE SKY LAWS, OR (B) THE ISSUER SHALL HAVE FIRST RECEIVED
AN OPINION OF COUNSEL SATISFACTORY TO IT THAT SUCH REGISTRATION, QUALIFICATION
OR APPROVAL IS NOT REQUIRED.
NEXTWAVE TELECOM INC.
SERIES B COMMON STOCK WARRANT
DATED: May ___, 1996
1. Grant of Warrants. For value received, NextWave Telecom Inc., a
Delaware corporation ("NextWave"), hereby grants to [__________________]
("Warrantholder"), the right and option to purchase (the "Warrants"), from
NextWave from and after the date hereof, on the terms and conditions set forth
herein, an aggregate of [___________________] ([_______]) shares of NextWave's
Series B Common Stock, $0.000l par value (the "NextWave Shares" or the
"Shares"), subject to adjustment as provided below. The exercise price shall be
as set forth in Section 4.
2. Right and Manner of Exercise. Warrantholder's right to exercise the
Warrants hereunder shall vest upon the execution of this Agreement. The Warrants
shall be exercisable from time to time as provided above upon receipt at
NextWave's principal executive office (directed to the attention of the
Secretary of NextWave) of written notice of exercise from Warrantholder. Any
such notice of exercise shall be in the form of Exhibit "A" attached hereto and
(i) shall state the number of NextWave Shares with respect to which the Warrant
is being exercised, (ii) shall be accompanied by a bank cashier's check in
payment of the aggregate exercise price, and (iii) shall include such
representations as are reasonably required by NextWave in order to secure an
exemption from the registration and qualification requirements of the federal
and state securities laws with respect to the issuance of shares upon such
exercise. Promptly upon receipt of such notice, NextWave shall, without transfer
or issue tax to the
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Warrantholder, deliver or cause to be delivered to the Warrantholder, at the
address specified in the Warrantholder's exercise notice, a certificate or
certificates for the Shares; provided, however, that the time of such delivery
may be postponed by NextWave for such reasonable period as may be required to
comply with any requirements of law; and, provided further, however, that the
Warrantholder shall be deemed to be the owner of such shares (and the holder of
all associated rights) and such shares shall be deemed issued and outstanding
upon delivery of the items specified in the foregoing clauses (i), (ii) and
(iii).
NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, WARRANTHOLDER MAY
NOT EXERCISE ANY PART OF THE WARRANTS AND NEXTWAVE WILL NOT ISSUE ANY SHARES OF
COMMON STOCK TO WARRANTHOLDER IF SUCH EXERCISE OR THE ISSUANCE OF SUCH SHARES TO
WARRANTHOLDER WOULD CAUSE NEXTWAVE TO VIOLATE THE REGULATIONS PROMULGATED OR
INTERPRETED BY THE FEDERAL COMMUNICATIONS COMMISSION RESTRICTING THE AGGREGATE
EQUITY INTEREST IN NEXTWAVE WHICH MAY BE HELD BY FOREIGN INVESTORS AND
RESTRICTING THE PERCENTAGE OF EQUITY THAT ANY ONE INVESTOR MAY HOLD IN NEXTWAVE
(THE "FCC RESTRICTIONS").
3. Expiration. Warrantholder's right to exercise the Warrants granted
hereunder shall expire and terminate for all purposes on the one year
anniversary date of a Qualified Public Offering, as defined in the Restated
Certificate of Incorporation of the Corporation. Notwithstanding the foregoing,
in the event Warrantholder has been unable to exercise this Warrant due to the
FCC Restrictions, Warrantholder's right to exercise this Warrant shall continue
until a date ninety (90) days after the day Warrantholder receives notice from
NextWave that Warrantholder can exercise this Warrant without causing a
violation of the FCC Restrictions.
4. Exercise Price; Anti-dilution Provisions. Except as adjusted in
accordance with this Section 4, the exercise price per Share subject to the
Warrants shall be Three and 00/100 Dollars ($3.00) ("Exercise Price"). The
Exercise Price shall be adjusted as follows:
4.1 Adjustments to Exercise Price for Diluting Issues.
(i) Special Definitions. For purposes of this subsection 4.1,
the following definitions shall apply:
(1) ADJUSTMENT TERMINATION DATE shall mean the date on
which NextWave has received an aggregate of $200 million from the issuance or
sale of Common Stock, Options, or Convertible Securities (cumulative, from the
date of incorporation of NextWave).
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(2) OPTIONS shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire either Convertible Securities of
NextWave or any class of NextWave's Common Stock;
(3) CONVERTIBLE SECURITIES shall mean any evidences of
indebtedness, shares or other securities convertible into or exchangeable for
any class of NextWave's Common Stock; and
(4) ADDITIONAL SHARES OF COMMON STOCK shall mean all
shares of any class of NextWave's Common Stock issued, or deemed to be issued
pursuant to sub-section 4.1(iii), by NextWave after the date of this Warrant
(the "Original Issue Date"), other than: (i) shares of NextWave's Common Stock
issued or deemed to be issued upon conversion of shares of Series A Common Stock
or upon issuance or conversion of Series C Common Stock, (ii) shares of
NextWave's Common Stock issued or deemed to be issued upon the exercise of
warrants received upon conversion of shares of Series A Common Stock, (iii)
shares of NextWave's Common Stock issued or deemed to be issued that are
designated Series A Common Stock or Series C Common Stock, (iv) any shares of
NextWave's Common Stock issued or deemed to be issued by virtue of any dividend
on any class of NextWave's Common Stock or (v) shares of NextWave's Common Stock
issued or deemed to be issued to employees or directors of, or consultants to,
NextWave pursuant to an option plan, purchase plan or other stock incentive
program which do not exceed, in the aggregate, the greater of 10,000,000 shares
of Series B Common Stock or 12.5% of the equity of the Company, on a fully
diluted basis (collectively, the "Plans") approved by the Board of Directors of
NextWave.
(ii) No Adjustment of Exercise Price. No adjustment in the Exercise
Price of the Warrants shall be made in respect of the issuance of Additional
Shares of Common Stock, unless the consideration per share for such Additional
Shares of Common Stock issued or deemed to be issued by NextWave is less than
the Exercise Price, as is in effect on the date of, and immediately prior to,
such issue.
(iii) Deemed Issue of Common Stock.
(1) Options and Convertible Securities. In the event that
NextWave, at any time or from time to time after the Original Issue Date, shall
issue any Options or Convertible Securities or shall fix a record date for the
determination of holders of any class of securities entitled to receive any such
Options or Convertible Securities, then the maximum number of shares (as set
forth in the instrument relating thereto without regard to any provisions
contained therein for a subsequent adjustment of such number) of NextWave Common
Stock issuable upon the exercise of such Options or, in the case of Convertible
Securities and Options therefor, the conversion or exchange of such Convertible
Securities, shall be deemed to be issued
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as of the time of such issue or, in case such a record date shall have been
fixed, as of the close of business on such record date, provided that NextWave
Common Stock shall not be deemed to have been issued unless the consideration
per share (determined pursuant to sub-section 4.1(v) hereof) of such Common
Stock would be less than the Exercise Price in effect on the date of and
immediately prior to such issue, or such record date, as the case may be, and
provided further that in any such case in which shares of NextWave Common Stock
are deemed to be issued:
(A) no further adjustment in the Exercise
Price shall be made upon the subsequent issue of Convertible Securities or
shares of NextWave Common Stock upon the exercise of such Options or conversion
or exchange of such Convertible Securities;
(B) if such Options or Convertible
Securities by their terms provide, with the passage of time or otherwise, for
any increase in the consideration payable to NextWave or for any decrease in the
number of shares of NextWave Common Stock issuable upon the exercise, conversion
or exchange thereof, the Exercise Price computed upon the original issuance
thereof (or upon the occurrence of a record date with respect thereto), and any
subsequent adjustments based thereon, shall, upon any such increase or decrease
becoming effective, be recomputed to reflect such increase or decrease insofar
as it affects such Options or the rights of conversion or exchange under such
Convertible Securities; and
(C) no readjustment pursuant to clause (B)
above shall have the effect of increasing the Exercise Price to an amount which
exceeds the lower of: (i) the Exercise Price on the original adjustment date, or
(ii) the Exercise Price that would have resulted from any issuance of Additional
Shares of Common Stock between the original adjustment date and such adjustment
date.
(2) Stock Dividends. For purposes of sub-section 4.1
(iv) (2), in the event NextWave, at any time or from time to time after the
Original Issue Date, shall declare or pay any dividend on any class of NextWave
Common Stock payable in NextWave Common Stock, then NextWave Common Stock shall
be deemed to have been issued immediately after the close of business on the
record date for the determination of holders of any class of securities entitled
to receive such dividend.
(iv) Adjustment of Exercise Price Upon Issuance of Additional
Shares of Common Stock. In the event that NextWave shall issue Additional Shares
of Common Stock for a consideration per share less than the Exercise Price in
effect on the date of and prior to such issue, then, and in such event, the
Exercise Price shall be reduced, concurrently with such issue, to a price
(calculated to the nearest cent) determined as follows:
(1) until the earlier to occur of: (i) receipt by NextWave of
an aggregate of $120 Million from the issuance or sale of NextWave Common Stock,
Options, or Convertible
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Securities (cumulative, from the date of incorporation of NextWave) or (ii)
election by a majority of the holders of Series B Common Stock to close the
offering of shares of Series B Common Stock and Warrants to purchase shares of
Series B Common Stock pursuant to the terms of that certain Confidential Private
Placement Memorandum dated September 25, 1995, as amended from time to time, at
any time after the receipt by the Corporation of at least $70 million from the
sale of shares of Series B Common Stock, the Exercise Price shall be reduced to
the price paid per share for such Additional Shares of Common Stock;
(2) thereafter, until the Adjustment Termination Date, the
Exercise Price shall be determined by multiplying such Exercise Price by a
fraction, (i) the numerator of which shall be the number of shares of all
classes of NextWave Common Stock outstanding immediately prior to such issue
plus the number of shares of NextWave Series B Common Stock which the aggregate
consideration received by NextWave for the total number of Additional Shares of
Common Stock so issued would purchase at such Exercise Price, and (ii) the
denominator of which shall be the number of shares of all classes of NextWave
Common Stock immediately prior to such issue plus the number of such Additional
Shares of Common Stock so issued. For the purposes of this subsection (iv), all
shares of NextWave Common Stock issuable upon conversion of all outstanding
convertible Preferred Stock (if any) and all outstanding Convertible Securities
(including these Warrants), and, upon exercise, all outstanding Options bearing
an exercise price which is lower than the price at which the Additional Shares
of Common Stock were issued (or deemed to be issued), shall be deemed to be
outstanding. Immediately after any Additional Shares of Common Stock are deemed
issued pursuant to subsection (iii), such Additional Shares of Common Stock
shall be deemed to be outstanding for purposes of this clause (2); and
(3) after the Adjustment Termination Date, the
Exercise Price will not be adjusted further for any issuances of Additional
Shares of Common Stock.
(v) Determination of Consideration. For purposes of this
sub-section 4.1, the consideration received by NextWave for the issue of any
Additional Shares of Common Stock shall be computed as follows:
(1) Cash and Property. Such consideration shall:
(A) insofar as it consists of cash, be
computed at the aggregate amount of cash received by NextWave excluding amounts
paid or payable for accrued interest or accrued dividends;
(B) insofar as it consists of property other
than cash, be computed at the fair value thereof at the time of such exercise,
as determined by the Board of Directors in the good faith exercise of its
reasonable business judgment; and
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(C) in the event Additional Shares of Common
Stock are issued together with other shares or securities or other assets of
NextWave for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (A) and (B) above, as
determined in good faith by the Board of Directors.
(2) Options and Convertible Securities. The
consideration per share received by NextWave for Additional Shares of Common
Stock deemed to have been issued pursuant to sub-section 4.1(iii)(1), relating
to Options and Convertible Securities, shall be determined by dividing:
(A) the total amount, if any, received or
receivable by NextWave as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of such
consideration) payable to NextWave upon the exercise of such Options or the
conversion or exchange of such Convertible Securities, or in the case of Options
for Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible Securities; by
(B) the maximum number of shares of NextWave
Common Stock (as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of such number)
issuable upon the exercise of such Options or the conversion or exchange of such
Convertible Securities.
(vi) Adjustments for Subdivisions, Combinations, or Consolidations
of NextWave Common Stock. In the event that the outstanding shares of NextWave
Common Stock shall be subdivided, combined or consolidated, by reclassification,
stock split, stock dividend or otherwise, into a greater or lesser number of
shares of Common Stock, the Exercise Price in effect immediately prior to such
subdivision, combination or consolidation shall, concurrently with the
effectiveness of such subdivision, combination or consolidation, be
proportionately adjusted. Upon any adjustment to the Exercise Price pursuant to
this Section 4.1(vi), the number of shares issuable upon exercise of this
Warrant shall be increased or decreased to a number equal to the quotient
obtained by dividing (i) the product of (a) the Exercise Price in effect
immediately prior to such adjustment multiplied by (b) the number of shares
issuable upon exercise of this Warrant immediately prior to such adjustment by
(ii) the Exercise Price in effect immediately after such adjustment.
4.2 Notice of Adjustment of Exercise Price. Whenever NextWave
shall take any action resulting in any adjustment provided for herein, NextWave
shall forthwith deliver or cause to be delivered notice of such action to
Warrantholder, which notice shall set forth the
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number of NextWave Shares then subject to these Warrants and the purchase price
thereof resulting from such adjustment. Written notice shall be delivered in
accordance with the provisions of Section 10.
4.3 No Fractional Shares. No fraction of a Share shall be
issued upon exercise hereof and fractional Share interests shall be paid in cash
upon exercise by Warrantholder on the basis of a per Share purchase price.
5. Investment Intent; Limited Assignability. The Warrants may not be
sold, pledged, assigned, or transferred unless registered and/or qualified
pursuant to the relevant provisions of Federal and State securities or Blue Sky
laws or an exemption from such registration or qualification is applicable. Any
assignment or transfer not complying with such laws shall be voidable at the
option of NextWave. Warrantholder has acquired these Warrants and the rights
arising hereunder for investment only and not with a view to distribution.
Warrantholder shall not be or have any rights or privileges of a shareholder of
NextWave in respect of the shares issuable upon the exercise of the Warrants,
unless and until such shares shall have been issued pursuant to this Warrant.
6. Acknowledgments; Registration Provisions. Warrantholder is aware
that:
(a) The issuance of Shares hereunder may only be effected in
compliance with state and federal securities laws; and
(b) NextWave is not required under the terms hereof to
register any securities issued pursuant hereto, and the subsequent transfer of
any shares by the Warrantholder may require registration under the Securities
Act of 1933, as amended, or other federal statutes, as well as under applicable
state laws. In the event the Warrants and/or Shares are not registered,
Warrantholder acknowledges that any stock certificate evidencing shares acquired
on exercise of the Warrants shall contain a legend restricting transferability
substantially as follows:
THIS SECURITY HAS NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF
1933, AS AMENDED ("ACT") OR THE SECURITIES OR BLUE SKY LAWS OF ANY STATE AND MAY
NOT BE OFFERED OR SOLD UNLESS REGISTERED AND/OR QUALIFIED PURSUANT TO THE
RELEVANT PROVISIONS OF FEDERAL AND STATE SECURITIES OR BLUE SKY LAWS OR AN
EXEMPTION FROM SUCH REGISTRATION OR QUALIFICATION IS APPLICABLE. THEREFORE, NO
SALE OR TRANSFER OF THIS SECURITY SHALL BE MADE, NO ATTEMPTED SALE OR TRANSFER
SHALL BE VALID, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE ANY EFFECT TO ANY
SUCH TRANSACTION UNLESS (A) SUCH TRANSACTION SHALL HAVE BEEN DULY REGISTERED
UNDER THE ACT AND QUALIFIED OR
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APPROVED UNDER APPROPRIATE STATE OR BLUE SKY LAWS, OR (B) THE ISSUER SHALL HAVE
FIRST RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO IT THAT SUCH REGISTRATION,
QUALIFICATION OR APPROVAL IS NOT REQUIRED.
7. Acceleration of Accrual of Warrant Rights. A dissolution or
liquidation of NextWave or a merger, acquisition, consolidation or other
reorganization of NextWave resulting in the Shareholders having less than fifty
percent (50%) of the voting power of the surviving entity shall cause each
outstanding Warrant to terminate; provided that Warrantholder shall, in such
event, receive at least thirty (30) days' prior written notice by registered
mail of such event and shall have the right at any time prior to any such event
in which NextWave is not the surviving corporation, to exercise the Warrant in
whole or in part. In no event shall NextWave be liable to Warrantholder as a
result of any action taken by Warrantholder in response to a written notice
provided hereunder, including, without limitation, exercise by Warrantholder of
the Warrants in anticipation of a transaction that fails to close for any
reason.
8. Representations of NextWave. So long as these Warrants remain
outstanding and unexpired, NextWave represents that it reserves for issuance
upon the exercise of these Warrants such number of Shares as are subject to
these Warrants. The Shares subject to these Warrants shall, when issued, be
validly issued, fully paid and nonassessable (subject to applicable federal laws
and state laws), and NextWave will pay or cause the payment of, when due and
payable, any and all federal and state taxes or fees that may be payable by
NextWave with respect to the grant of these Warrants or other issuance of shares
of NextWave Common Stock subject to these Warrants; provided, however, any
federal, state or other income tax payable by the Warrantholder by virtue of the
grant of these Warrants, the issuance of any Shares of NextWave Common Stock
upon exercise hereof, or any subsequent disposition of such Shares shall remain
the sole obligation of Warrantholder.
9. Terms of Series B Common Stock Upon Exercise of Warrants. The shares
of Series B Common Stock issuable upon exercise of the Warrants shall have the
rights, preferences and privileges set forth in the Restated Certificate of
Incorporation of NextWave attached hereto as Exhibit "B," as such may be amended
from time to time.
10. Notices. Any notice to NextWave provided for in this Warrant shall
be addressed to it in care of its Secretary, at its principal executive offices
in San Diego, California, and any notice to Warrantholder shall be addressed to
its address on file with NextWave, or to such other address as either may
designate to the other in writing. Any notice shall be deemed to be duly given
if and when enclosed in a properly sealed envelope and addressed as stated above
and deposited, postage prepaid, in a Post Office or branch Post Office regularly
maintained by the United State Government. In lieu of giving notice by mail as
aforesaid, any written notice under this Agreement may be given to Warrantholder
by personal delivery or via facsimile.
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11. Attorneys' Fees. In the event of any litigation arising from this
Agreement, the prevailing party shall be entitled to recover reasonable
attorneys' fees from the other party as costs of suit and not as damages.
12. Governing Law. These Warrants and the interpretation, performance
and enforcement of this Agreement shall be governed by the internal laws of the
State of Delaware.
13. Survival of Covenants. All covenants contained herein which require
performance subsequent to the exercise or termination of the Warrants shall
remain in full force and effect with respect to all Warrants subsequent to the
exercise and/or termination of such Warrants.
[Remainder of Page Intentionally Left Blank]
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<PAGE> 10
FORM
IN WITNESS WHEREOF, the parties hereto have executed this Warrant as of
the date and year first written above.
"NEXTWAVE"
NEXTWAVE TELECOM INC.,
a Delaware corporation
By:
-------------------------
Title: President
By:
-------------------------
Title: Secretary
"WARRANTHOLDER"
By:
------------------------
Title:
------------------------
SIGNATURE PAGE TO
NEXTWAVE TELECOM INC.
SERIES B COMMON STOCK WARRANT
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EXHIBIT 4.5
REGISTRATION RIGHTS
The Company covenants and agrees as follows:
1. Definitions. For purposes of this Section 1:
(a) the term "register," "registered," and "registration"
refer to a registration effected by preparing and filing a registration
statement or similar document in compliance with the Securities Act of 1933, as
amended (the "Act"), and the declaration or ordering of effectiveness of such
registration statement or document;
(b) the term "Registrable Securities" means those shares of
the Company's Series B Common Stock purchased from the Company in connection
with the offer and sale of Series B Common Stock of the Company pursuant to the
terms of that certain Confidential Private Placement Memorandum dated December,
1995 (the "Offering") (including shares received from the Company with respect
to or in replacement of such shares by reason of splits, dividends and
recapitalizations, shares received as a result of the conversion of securities
convertible into shares of Series B Common Stock provided such convertible
securities were issued prior to the completion of the Offering and shares
received upon exercise of the Company's Series B Warrants issued in connection
with the completion of the Offering) but excluding (i) any shares not sold in
compliance with the Shareholders Rights Agreement and (ii) any shares which are
not "restricted securities" pursuant to Rule 144 or other comparable provision
under the Act ("Rule 144");
(c) the number of shares of "Registrable Securities then
outstanding" will be determined by the number of shares of Series B Common Stock
outstanding which are, and the number of shares of Series B Common Stock
issuable pursuant to then exercisable or convertible securities which are,
Registrable Securities;
(d) the term "Holder" means any person who has paid to the
Company a minimum of One Million Dollars ($1,000,000) in connection with its
purchase of Series B Common Stock of the Company (or securities of the Company
which are exercisable or convertible for shares of Series B Common Stock) and
who owns or has the right to acquire Registrable Securities or any assignee
thereof in accordance with Section 12; and
(e) "Market Value" for any security on any given date means
(i) the average closing price for the prior ten (10) trading days for such
security on the principal stock exchange on which such security is traded or
(ii) if not so traded, the closing (or, if no closing price is available, the
average of the bid and asked prices) for such period on the NASDAQ if such
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security is listed on the NASDAQ or (iii) if not listed on any exchange or
quoted on the NASDAQ, such value as may be determined in good faith by the
Company's Board of Directors, which determination shall be conclusively binding
on the parties, except that, at the request of the Holders of Series B Common
Stock, the fair price shall be determined by an investment banking firm
reasonably acceptable to the Company, whose fees will be paid by the Holders of
Series B Common Stock unless the Market Price so determined exceeds 110% of that
set by the Board (in which case the fees shall be paid by the Company).
2. Request for Registration.
(a) If the Company receives at any time after the earlier of
(i) January 1, 1998, or (ii) three (3) months after the effective date of the
first registration statement for a public offering of securities of the Company
in which the aggregate price paid by the public is at least $20,000,000 (other
than a registration statement relating either to the sale of securities to
employees, directors or consultants of the Company pursuant to a stock option,
stock purchase or similar plan or a SEC Rule 145 transaction), a written request
from a Holder(s) that the Company file a registration statement under the Act
covering the registration of such Holder's or Holders' Registrable Securities
then outstanding, then the Company will, within ten days of the receipt thereof,
give written notice of such request to all Holders and will, subject to the
limitations set forth below and of subsection 2(b), effect as soon as
practicable, and in any event shall use its best efforts to effect within sixty
(60) days of the receipt of such request, a registration statement under the Act
of all Registrable Securities which the Holders request to be registered within
thirty (30) days of the mailing of such notice by the Company. Notwithstanding
the foregoing, the Company's obligation to effect the requested registration
shall be conditioned upon the anticipated aggregate offering price of the
Registrable Securities exceeding $20,000,000.
(b) If the Holders initiating the registration request
pursuant to this Agreement ("Initiating Holders") intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
they will so advise the Company as a part of their request made pursuant to this
Section 2 and the Company will include such information in the written notice
referred to in subsection 2(a). The underwriter will be selected by the Company
with prior consultation with the initiating Holders and will be reasonably
acceptable to a majority in interest of the Initiating Holders. In such event,
the right of any Holder to include such Holder's Registrable Securities in such
registration will be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting (unless otherwise mutually agreed by a majority in interest of the
Initiating Holders and such Holder) to the extent provided in this Agreement.
All Holders proposing to distribute their securities through such underwriting
will (together with the Company as provided in subsection 4(e)) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by a majority in interest of the Initiating
Holders. Notwithstanding any other provision of this Section 2, if the
underwriter advises the Initiating Holders in writing that marketing factors
require a limitation of the number of shares to be underwritten, then the
Initiating Holders will so advise all Holders of Registrable Securities
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<PAGE> 3
which would otherwise be underwritten pursuant to this Agreement, and the number
of shares of Registrable Securities that may be included in the underwriting
will be allocated among all Holders thereof, including the Initiating Holders,
in proportion (as nearly as practicable) to the amount of Registrable Securities
of the Company owned by each Holder; provided, however, that the number of
shares of Registrable Securities to be included in such underwriting will not be
reduced unless all other securities are first entirely excluded from the
underwriting.
(c) The Company is obligated to effect only two such
registrations pursuant to this Section 2.
(d) Notwithstanding the foregoing, if the Company furnishes to
Holders requesting a registration statement pursuant to this Section 2, a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company and its shareholders for such registration statement
to be filed and it is therefore essential to defer the filing of such
registration statement, the Company will have the right to defer taking action
with respect to such filing for a period of not more than one hundred twenty
(120) days after receipt of the request of the Initiating Holders.
(e) The Company shall have no obligation to any Holder under
this Section 2 with respect to whom the Company has obtained an opinion of
counsel, in a form reasonably satisfactory to such Holder, to the effect that
the Registrable Securities involved may be immediately sold to the public
without registration thereof, whether pursuant to Rule 144 or otherwise; or (ii)
if within ten (10) days of the time that the registration is requested under
these registration rights provisions, the Company offers to purchase the
Registrable Securities to be included at Market Value less anticipated brokerage
commissions.
3. Request for S-3 Registration.
(a) If the Company receives at any time after one (1) year
after the effective date of the first registration statement for the Company's
IPO, a written request from a Holder(s) that the Company file a registration
statement under the act covering the registration of such Holder's or Holders'
Registrable Securities then outstanding, then the Company will, within ten days
of the receipt thereof, give written notice of such request to all Holders and
will, subject to the limitations set forth below and of subsection 3(b), effect
as soon as practicable, and in any event shall use its best efforts to effect
within sixty (60) days of the receipt of such request, a registration statement
on Form S-3 under the Act of all Registrable Securities which the Holders
request to be registered within thirty (30) days of the mailing of such notice
by the Company. Notwithstanding the foregoing, the Company's obligation to
effect the requested registration shall be conditioned upon (i) the anticipated
aggregate offering price of the Registrable Securities exceeding $2,000,000 and
(ii) the Company's meeting the then-current eligibility requirements for the use
of Form S-3.
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<PAGE> 4
(b) If the Holders initiating the registration request
pursuant to this Agreement ("Initiating S-3 Holders") intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
they will so advise the Company as a part of their request made pursuant to this
Section 3 and the Company will include such information in the written notice
referred to in subsection 3(a). The underwriter will be selected by the Company
with prior consultation with the Initiating S-3 Holders and will be reasonably
acceptable to a majority in interest of the Initiating S-3 Holders. In such
event, the right of any Holder to include such Holder's Registrable Securities
in such registration will be conditioned upon such Holder's participation in
such underwriting and the inclusion of such Holder's Registrable Securities in
the underwriting (unless otherwise mutually agreed by a majority in interest of
the Initiating S-3 Holders and such Holder) to the extent provided in this
Agreement. All Holders proposing to distribute their securities through such
underwriting will (together with the Company as provided in subsection 5(e))
enter into an underwriting agreement in customary form with the underwriter or
underwriters selected by the Company. Notwithstanding any other provision of
this Section 3, if the underwriter advises the Initiating Holders in writing
that marketing factors require a limitation of the number of shares to be
underwritten, then the Initiating S-3 Holders will so advise all Holders of
Registrable Securities which would otherwise be underwritten pursuant to this
Agreement, and the number of shares of Registrable Securities that may be
included in the underwriting will be allocated among all Holders thereof,
including the Initiating S-3 Holders, in proportion (as nearly as practicable)
to the amount of Registrable Securities of the Company owned by each Holder;
provided, however that the number of shares of Registrable Securities to be
included in such underwriting will not be reduced unless all other securities
are first entirely excluded from the underwriting.
(c) Notwithstanding the foregoing, the Company is obligated to
effect only one such registration pursuant to this Section 3 during each twelve
month period after the first anniversary of the Company's IPO; provided,
however, that the Company shall be deemed to fulfill such obligation only when
such registration has become effective and, provided further, that the Company
will pay all registration expense in connection with any registration initiated
at the request of a Holder to the extent provided below in Section 7.
(d) Notwithstanding the foregoing, if the Company furnishes to
Holders requesting a registration statement pursuant to this Section 3 a
certificate signed by the President of the Company stating that, in the good
faith judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company and its shareholders for such registration statement
to be filed and it is therefore essential to defer the filing of such
registration statement, the Company will have the right to defer taking action
with respect to such filing for a period of not more than one hundred twenty
(120) days after receipt of the request of the Initiating S-3 Holders.
(e) The Company shall have no obligation to any Holder under
this Section 3 with respect to whom the Company has obtained an opinion of
counsel, in a form reasonably satisfactory to such Holder, to the effect that
the Registrable Securities included may be
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<PAGE> 5
immediately sold to the public without registration thereof, whether pursuant to
Rule 144 or otherwise; or (ii) if within ten (10) days of the time that the
registration is requested under these registration rights provisions, the
Company offers to purchase the Registrable Securities to be included at Market
Value less anticipated brokerage commissions; provided, that such purchase is an
all cash purchase and is consummated within forty-five (45) days of the
Company's receipt of the Holder's request for registration.
4. Company Registration. If (but without any obligation to do so) the
Company proposes to register (including for this purpose a registration effected
by the Company for shareholders other than the Holders) any of its stock or
other securities under the Act in connection with the public offering of such
securities solely for cash (other than a registration relating solely to the
sale of securities to participants in a Company stock plan, or a registration on
any form which does not include substantially the same information as would be
required to be included in a registration statement covering the sale of the
Registrable Securities), the Company will, at such time, promptly give each
Holder written notice of such registration no less than forty-five (45) days
prior to the proposed effective date of such registration. Upon the written
request of each Holder given within thirty (30) days after mailing of such
notice by the Company, the Company will, subject to the provisions of Section 8,
cause to be registered under the Act all of the Registrable Securities that each
such Holder has requested to be registered.
5. Obligations of the Company. Whenever required under this Exhibit D
to effect the registration of any Registrable Securities, the Company will, as
expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its best efforts to cause
such registration statement to become effective, and, upon the request of the
Holders of a majority of the Registrable Securities registered thereunder, keep
such registration statement effective for up to 120 days.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Act with respect to the disposition of all securities covered
by such registration statement.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as they may reasonably request
in order to facilitate the disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as will be reasonably requested by the
Holders, provided that the Company will not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general
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<PAGE> 6
consent to service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting will also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
(g) Use its best efforts to furnish, at the request of any
Holder requesting registration of Registrable Securities pursuant to this
Exhibit D, on the date that such Registrable Securities are delivered to the
underwriters for sale in connection with a registration pursuant to this Exhibit
D, if such securities are being sold through underwriters, or, if such
securities are not being sold through underwriters, on the date that the
registration statement with respect to such securities becomes effective, (i) an
opinion, dated such date, of the counsel representing the Company for the
purposes of such registration, in form and substance as is customarily given to
underwriters in an underwritten public offering, addressed to the underwriters,
if any, and to the Holders requesting registration of Registrable Securities and
(ii) a letter dated such date, from the independent certified public accountants
of the Company, in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public offering,
addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities.
6. Furnishing of Information.
(a) It will be a condition precedent to the obligations of the
Company to take any action pursuant to this Exhibit D with respect to the
Registrable Securities of any selling Holder that such Holder will furnish to
the Company such information regarding itself, the Registrable Securities held
by it, and the intended method of disposition of such securities as will be
required to effect the registration of such Holder's Registrable Securities.
(b) The Company will have no obligation with respect to any
registration requested pursuant to Sections 2 and 3 if, due to the operation of
subsection 5(a), the number of shares or the anticipated aggregate offering
price of the Registrable Securities to be included in the registration does not
equal or exceed the number of shares or the anticipated aggregate offering price
required to originally trigger the Company's obligation to initiate such
registration as specified in subsection 2(a) and 3(a).
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7. Expenses of Demand Registration. The Company shall bear all expenses
other than Selling Holder Expenses (defined below) incurred in any Registration,
including, without limitation, all registration and filing fees (including all
expenses incident to filing with the National Association of Securities Dealers,
Inc.), fees and expenses of complying with securities and blue sky laws,
printing expenses and fees and disbursements of the independent certified public
accountants (including for any special audits) and of the Company's counsel.
Each Selling Holder shall bear his or her equitable share of any Selling Holder
Expenses. "Seller Holder Expenses" shall consist of (i) Selling Holder's legal
costs, (ii) any proportionate share of brokerage or underwriting fees, expenses
or commissions and (iii) any other costs required to be paid by Selling Holders
in order to comply with state securities laws and regulations.
8. Underwriting Requirements. In connection with any offering involving
an underwriting of shares of the Company's capital stock, the Company will not
be required under Section 4 to include any of the Holders' securities in such
underwriting unless they accept the terms of the underwriting as agreed upon
between the Company and the underwriters selected by it (or by other persons
entitled to select the underwriters), and then only in such quantity as the
underwriters determine in their sole discretion will not jeopardize the success
of the offering by the Company. If the total amount of securities, including
Registrable Securities, requested by shareholders to be included in such
offering exceeds the amount of securities sold other than by the Company that
the underwriters determine in their sole discretion is compatible with the
success of the offering, then the Company will be required to include in the
offering only that number of such securities, including Registrable Securities,
which the underwriters determine in their sole discretion will not jeopardize
the success of the offering (the securities so included to be apportioned pro
rata among the selling shareholders according to the total amount of securities
entitled to be included therein owned by each selling shareholder or in such
other proportions as will mutually be agreed to by such selling shareholders)
but in no event will (i) the amount of securities of the selling shareholder
included in the offering be reduced below 30% of the total amount of securities
included in such offering, unless such offering is the initial public offering
of the Company's securities in which case the selling shareholders may be
excluded if the underwriters make the determination described above and no other
shareholder's securities are included or (ii) notwithstanding (i) above, any
shares being sold by a shareholder exercising a demand registration right
similar to that granted in Section 2 or 3 be excluded from such offering. For
purposes of the preceding parenthetical concerning apportionment, for any
selling shareholder which is a Holder of Registrable Securities and which is a
partnership or corporation, the partners, retired partners and shareholders of
such Holder, or the estates and family members of any such partners and retired
partners and any trusts for the benefit of any of the foregoing persons will be
deemed to be a single "selling shareholder," and any pro-rata reduction with
respect to such "selling shareholder" will be based upon the aggregate amount of
shares carrying registration rights owned by all entities and individuals
included in such "selling shareholder," as defined in this sentence.
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9. Delay of Registration. No Holder will have any right to obtain or
seek an injunction restraining or otherwise delaying any registration pursuant
to Section 4 as the result of any controversy that might arise with respect to
the interpretation or implementation of this Exhibit D.
10. Indemnification. If any Registrable Securities are included in a
registration statement under this Exhibit D:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, any underwriter (as defined in the Act) for such
Holder and each person, if any, who controls such Holder or underwriter within
the meaning of the Act or the Securities Exchange Act of 1934, as amended (the
"1934 Act"), against any losses, claims, damages, or liabilities (joint or
several) to which they may become subject under the Act, or the 1934 Act,
insofar as such losses, claims, damages, or liabilities (or actions in respect
thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation"): (i) any untrue statement
or alleged untrue statement of a material fact contained in such registration
statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, (ii) the omission or alleged
omission to state therein a material fact required to be stated therein, or
necessary to make the statements therein not misleading, or (iii) any violation
or alleged violation by the Company of the Act, the 1934 Act, state securities
laws or any rule or regulation promulgated under the Act, or the 1934 Act or
state securities laws; and the Company will pay to each such Holder, underwriter
or controlling person, any legal or other expenses reasonably incurred by them
(as incurred) in connection with investigating or defending any such loss,
claim, damage, liability, or action; provided, however, that the indemnity
agreement contained in this subsection 10(a) will not apply to amounts paid in
settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Company (which consent will
not be unreasonably withheld), nor will the Company be liable in any such case
for any such loss, claim, damage, liability, or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by such Holder.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers and agents who has signed the registration statement, each person, if
any, who controls the Company within the meaning of the Act, any underwriter,
any other Holder selling securities in such registration statement and any
controlling person of any such underwriter or other Holder, against any losses,
claims, damages, or liabilities (joint or several) to which any of the foregoing
persons may become subject, under the Act, or the 1934 Act insofar as such
losses, claims, damages, or liabilities (or actions in respect thereto) arise
out of or are based upon any Violation, in each case to the extent (and only to
the extent) that such Violation occurs in reliance upon and in conformity with
written information furnished by such Holder expressly for use in connection
with such registration; and each such Holder will pay, any legal or other
expenses reasonably incurred by
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<PAGE> 9
any person intended to be indemnified pursuant to this subsection 10(b) (as
incurred), in connection with investigating or defending any such loss, claim,
damage, liability, or action; provided, however, that the indemnity agreement
contained in this subsection 10(b) will not apply to amounts paid in settlement
of any such loss, claim, damage, liability or action if such settlement is
effected without the consent of the Holder, which consent will not be
unreasonably withheld; provided, that, in no event will any indemnity under this
subsection 10(b) exceed the gross proceeds from the offering received by such
Holder.
(c) Promptly after receipt by an indemnified party under this
Section 10 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 10, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party will have the right to participate in, and, to the extent the
indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) will have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party is inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, will relieve such
indemnifying party of any liability to the indemnified party under this Section
10, but the omission so to deliver written notice to the indemnifying party will
not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 10.
(d) If the indemnification provided for in this Section 10 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage, or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party to this Agreement, will contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party will be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
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(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement will control.
(f) The obligations of the Company and Holders under this
Section 10 will survive the completion of any offering of Registrable Securities
in a registration statement under this Exhibit D, and otherwise.
11. Reports Under Securities Exchange Act of 1934. With a view to
making available to the Holders the benefits of Rule 144 promulgated under the
Act and any other rule or regulation of the SEC that may at any time permit a
Holder to sell securities of the Company to the public without registration or
pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in SEC Rule 144, at all times after ninety (90) days
after the effective date of the first registration statement filed by the
Company for the offering of its securities to the general public;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and
(c) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of SEC Rule 144 (at
any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Act and the 1934 Act (at any
time after it has become subject to such reporting requirements), or that it
qualifies as a registrant whose securities may be resold pursuant to Form S-3
(at any time after it so qualifies), (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company, and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the SEC which permits the
selling of any such securities without registration or pursuant to such form.
12. Assignment of Registration Rights. The rights to cause the Company
to register Registrable Securities pursuant to this Exhibit D may be assigned
(but only with all related obligations) by a Holder to (i) transferee(s) or
assignee(s) of such securities who, after such assignment or transfer, holds
Registrable Securities (subject to appropriate adjustment for stock splits,
stock dividends, combinations and other recapitalizations) with an aggregate
Market Value of at least $1,000,000 or (ii) transferee(s) or assignee(s) of such
securities who, after such assignment or transfer, holds all of the Registrable
Securities of the transfering Holder, provided the Company is, within a
reasonable time after such transfer, furnished with written notice of the name
and address of such transferee(s) or assignee(s) and the securities with respect
to which such registration rights are being assigned; and provided, further,
that such assignment will be effective only if immediately following such
transfer the further disposition of such securities by
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the transferee(s) or assignee(s) is restricted under the Act. Notwithstanding
the foregoing, the right to cause the Company to register Registrable Securities
pursuant to this Exhibit D may be assigned by a Holder to any transferee
permitted under that certain Amended and Restated Shareholders' Rights
Agreement.
13. Limitations on Subsequent Registration Rights.
(a) From and after the date of this Agreement, the Company
will not, without the prior written consent of the Holders of a majority of the
outstanding Registrable Securities, enter into any agreement with any holder or
prospective holder of any securities of the Company which would allow such
holder or prospective holder (i) to include such securities in any registration
filed under Section 2, unless under the terms of such agreement, such holder or
prospective holder may include such securities in any such registration only to
the extent that the inclusion of his securities will not reduce the amount of
the Registrable Securities of the Holders which is included or (ii) to make a
demand registration which could result in such registration statement being
declared effective prior to the earlier of either of the dates set forth in
subsection 2(a) or within 120 days of the effective date of any registration
effected pursuant to Section 2
(b) If the Company grants any person rights (i) to demand that
the Company register securities of the Company under the 1933 Act or (ii) to
have securities or the Company included in a Registration Statement, which are
more favorable than these registration rights provisions in any regard
(including, without limitation, those relating to the expenses to be borne by
the Company), the rights granted herein shall be deemed to be amended to include
such more favorable rights in addition to these set forth herein.
14. "Market Stand-Off" Agreement. Each Shareholder hereby agrees that,
during the period of duration specified by the Company and an underwriter of
Series B Common Stock or other securities of the Company, following the
effective date of a registration statement of the Company filed under the Act,
it will not, to the extent requested by the Company and such underwriter,
directly or indirectly sell, offer to sell, contract to sell (including, without
limitation, any short sale), grant any option to purchase or otherwise transfer
or dispose of (other than to donees who agree to be similarly bound) any
securities of the Company held by it at any time during such period except
Series B Common Stock included in such registration, not to exceed 180 days;
provided, however, that all officers and directors of the Company and all other
persons with registration rights (whether or not pursuant to this Agreement)
enter into similar agreements.
In order to enforce the foregoing covenant, the Company may
impose stop-transfer instructions with respect to the Registrable Securities of
each Shareholder (and the shares or securities of every other person subject to
the foregoing restriction) until the end of such period.
11
<PAGE> 12
15. Termination of Registration Rights. No Holder will be entitled to
exercise any right provided for in this Exhibit D after the later of (i)
December 31, 2000 or (ii) two years after the date of a Qualified Public
Offering, as defined in the Restated Certificate of Incorporation.
12
<PAGE> 1
EXHIBIT 4.6
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT, dated as of April 9, 1996 (as
amended, supplemented or otherwise modified from time to time in accordance with
the terms hereof, this "Agreement"), is entered into by and among NEXTWAVE
TELECOM INC., a Delaware corporation (the "Company"), the purchasers named on
the signature pages hereof and each other purchaser who hereafter becomes a
party hereto in accordance with Section 2.1(b) hereof (all of the foregoing
other than the Company, together with their respective successors and permitted
assigns, the "Purchasers").
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. Definitions. The following terms, as used herein, have the
following meanings:
"Acquired Subsidiary" means a Person which becomes a direct or indirect
Subsidiary of the Company in connection with the acquisition of such Person.
"Additional Convertible Bridge Notes" means Convertible Bridge Notes
issued in satisfaction of the Company's obligations to pay interest on the
outstanding Convertible Bridge Notes in accordance with the terms thereof.
"Adjustment Factor" has the meaning set forth in Section 10.2(b)
hereof.
"Affiliate" means, with respect to any Person, any other Person that,
directly or indirectly, controls, is controlled by or is under common control
with such Person. For purposes of this definition, "control" (including, with
correlative meanings, the terms "controlling", "controlled by" and "under common
control with"), means the possession, directly or indirectly, of the power (i)
to vote 15% or more of the securities having ordinary voting power for the
election of directors of such Person or (ii) to direct or cause the direction of
the management and policies (including investment policies) of that Person,
whether by contract or otherwise.
"Agreement" has the meaning set forth in the preamble hereto.
"Amended and Restated Shareholders' Rights Agreement" means an
agreement in the form of Exhibit E hereto, as the same may be amended or
modified from time to time in accordance with the terms thereof.
NEXTWAVE SECURITIES PURCHASE AGREEMENT
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"Amended and Restated Stockholders' Voting Agreement" means an
agreement in the form of Exhibit D hereto, as the same may be amended or
modified from time to time in accordance with the terms thereof.
"Auction Closing Date" means the first Business Day following the day
when the FCC publicly announces the high bidders after the closing of bidding in
the C-Block Auction.
"Authorizations" means all applications, filings, reports, documents,
recordings and registrations with, and all validations, exemptions, franchises,
waivers, approvals, orders or authorizations, consents, licenses, certificates
and permits from, the FCC, any State Authority and any other Federal, state or
local Governmental Authorities.
"Base Warrants" has the meaning set forth in Section 10.2(b) hereof.
"Base 10.2(c) Warrants" has the meaning set forth in Section 10.2(c)(1)
hereof.
"Base 10.2(d) Warrants" has the meaning set forth in Section 10.2(d)(1)
hereof.
"Bridge Documents" means this Agreement, the Registration Rights as set
forth in Exhibit B, the Escrow Agreement, all of the Securities and the
Subsidiary Guaranty.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in the City of New York are authorized or required by law
to close.
"C-Block Auction" means the FCC C-Block auction of PCS Licenses.
"C-Block Payment Terms" means the payment terms provided by the United
States Government or an agency thereof to the License Subsidiary in connection
with the acquisition of PCS Licenses issued in the C-Block Auction, which
Indebtedness may be guaranteed by the Company.
"Capital Stock" means any and all shares, interests, participations,
warrants, options or other equivalents (however designated) of capital stock of
a corporation or any and all equivalent ownership interests in a Person (other
than a corporation).
"Capitalized Lease" means any lease which is required under generally
accepted accounting principles to be capitalized on the balance sheet of the
lessee.
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NEXTWAVE SECURITIES PURCHASE AGREEMENT
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"Capitalized Lease Obligations" means the aggregate amount which is
required under generally accepted accounting principles to be reported as a
liability on the balance sheet of a Person as lessee under a Capitalized Lease.
"Closing" means the Initial Closing or the Subsequent Closing, as
applicable.
"Commitment" means, with respect to any Purchaser, the amount set forth
next to each Purchaser's name on the applicable signature page hereof or, if
applicable, on the Supplemental Signature Page of such Purchaser.
"Common Stock" means shares now or hereafter authorized of any class of
common stock of the Company and any other stock of the Company, however
designated, that has the right (subject to any prior rights of any class or
series of preferred stock) to participate in any distribution of the assets or
earnings of the Company without limit as to per share amount.
"Commission" means the Securities and Exchange Commission.
"Company" has the meaning set forth in the preamble hereto.
"Conversion Price" has the meaning set forth in Section 9.1 hereof.
"Convert Shares" means the shares of the Company's Series B Common
Stock issued or issuable, as the case may be, from time to time upon conversion
of the Convertible Bridge Notes, including, without limitation, any securities
issuable with respect thereto by way of conversion, stock dividend or stock
split or in connection with a combination of shares, recapitalization, merger,
consolidation, other reorganization or otherwise.
"Convertible Bridge Notes" or "Notes" means the Company's Convertible
Senior Subordinated Notes substantially in the form set forth as Exhibit A
hereto and shall include any Additional Convertible Bridge Notes.
"Current Market Price" has the meaning set forth in Section 9.11
hereof.
"Default" means any event or condition which, with the giving of notice
or lapse of time or both, would, unless cured or waived, become an Event of
Default.
"Escrow Account" has the meaning set forth in Section 2.2(b) hereof.
"Escrow Agent" has the meaning set forth in Section 2.2(b) hereof.
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NEXTWAVE SECURITIES PURCHASE AGREEMENT
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"Escrow Agreement" has the meaning set forth in Section 2.2(b) hereof.
"Escrow Termination Date" means, for each Purchaser, the date on which
such Purchaser's remaining principal deposits in the Escrow Account are released
to the Company and/or returned, together with any interest income earned with
respect thereto, to such Purchaser in accordance with the terms hereof and of
the Escrow Agreement.
"Event of Default" shall have the meaning ascribed to such term in the
Convertible Bridge Notes.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Indebtedness" means all Indebtedness disclosed on Schedule
6.14 hereto.
"Existing Investments" means all investments disclosed on Schedule 6.23
hereto.
"FCC" means the Federal Communications Commission or any Governmental
Authority which succeeds to the powers and functions thereof.
"FCC License" means any license, permit, consent, certificate of
compliance, franchise, approval, waiver or authorization granted or issued by
the FCC, including, without limitation, any of the foregoing authorizing or
permitting the acquisition, construction or operation of a PCS system.
"First Deposit" means the first 5% deposit required to be made to the
FCC upon final award of the high bidders in the C-block Action.
"First Deposit Shortfall" means the amount, if any, which is necessary
to pay the First Deposit assuming that the following amounts will be applied
toward the payment of such deposit: the Company's cash on hand or in any escrow
account from all financial transactions excluding amounts in the Escrow Account,
the proceeds from the sale of Series A Common Stock to the extent included in
such cash on hand, and the amount of any fees, commissions and taxes payable, or
reasonably anticipated to be payable within (15) Business Days, by the Company
and/or its License Subsidiary.
"Governmental Authority" means any nation or government, any federal,
state, city, town, municipality, county, local or other political subdivision
thereof or thereto and any department, commission, board, bureau,
instrumentality, agency or other entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
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NEXTWAVE SECURITIES PURCHASE AGREEMENT
<PAGE> 5
"High Yield Financing" means the sale of preferred stock of the Company
or any indebtedness for borrowed money of the Company or its Subsidiaries other
than Permitted Financings.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"Indebtedness" means as to any Person: (i) indebtedness of or
guaranteed by such Person for borrowed money; (ii) indebtedness of or guaranteed
by such Person for the deferred purchase price of property or services (other
than current trade payables incurred in the ordinary course of business and
payable in accordance with customary practices); (iii) indebtedness of or
guaranteed by such Person evidenced by bonds, debentures, notes or other similar
instruments (other than performance, surety and appeal or other similar bonds
arising in the ordinary course of business); (iv) obligations and liabilities of
or guaranteed by such Person secured by a Lien upon property owned by such
Person, whether or not owing by such Person and even though such Person has not
assumed or become liable for the payment thereof; (v) obligations or liabilities
of or guaranteed by such Person created or arising under any conditional sales
contract or other title retention agreement with respect to property used and/or
acquired by such Person, even though the rights and remedies of the lessor,
seller and/or lender thereunder are limited to repossession of such property;
(vi) Capitalized Lease Obligations of or guaranteed by such Person; (vii) all
liabilities of or guaranteed by such Person in respect of letters of credit,
acceptances and similar obligations created for the account of such Person; and
(viii) net liabilities of or guaranteed by such Person under interest rate cap
agreements, interest rate swap agreements, foreign currency exchange agreements
and other hedging agreements or arrangements calculated on a basis concurred in
by the Company's independent public accountants in accordance with accepted
practice.
"Indemnified Matters" has the meaning set forth in Section 11.5(c)
hereof.
"Indemnified Parties" has the meaning set forth in Section 11.5(c)
hereof.
"Initial Closing" has the meaning set forth in Section 2.2(a) hereof.
"Initial Public Offering" means the initial underwritten public
offering of the Company's Series B Common Stock pursuant to an effective
registration statement under the Securities Act.
"IPO Price" has the meaning set forth in Section 10.2(c) hereof.
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NEXTWAVE SECURITIES PURCHASE AGREEMENT
<PAGE> 6
"License Subsidiary" means NextWave Personal Communications Inc., a
Delaware corporation, formed by the Company for the limited purpose of holding
all FCC Licenses and other Authorizations.
"Lien" means any mortgage, deed of trust, pledge, lien, security
interest, charge or other encumbrance or security arrangement of any nature
whatsoever, including but not limited to any conditional sale or title retention
arrangement, and any assignment, deposit arrangement or lease intended as, or
having the effect of, security.
"Majority Holders" means, at any time, the holders of 60% of the
aggregate outstanding principal amount of the Convertible Bridge Notes.
"Material Adverse Effect" means a material adverse effect on: (a) the
business, properties, assets, nature of the assets, liabilities, operations or
financial condition of the Company and its Subsidiaries taken as a whole, or (b)
the validity or enforceability of any of the Bridge Documents or of the rights
or remedies of the holders of the Convertible Bridge Notes.
"Noteholders' Representative" means the indenture trustee or other
trustee, agent or representative for the Convertible Bridge Notes approved
pursuant to Section 7.1(d) of this Agreement.
"Pari Passu Financing" means unsecured Indebtedness of the Company
(other than Working Capital Financing, Existing Indebtedness and Shareholder
Repurchase Notes) pari passu in right of payment with the Convertible Bridge
Notes in an aggregate amount not to exceed the Second Deposit Shortfall.
"Part 24" means 47 CFR Part 24 of the Rules and Regulations of the FCC
or such other parts or subparts that may be substituted for or combined with
such Part 24.
"PCS" means personal communications services licensed under Part 24,
together with the facilities from time to time licensed by the FCC pursuant to
Part 24 as shall be necessary to provide such communications services offered by
the Company and its Subsidiaries.
"PCS Business" means the business consisting of designing, procuring,
equipping, owning, operating or managing one or more PCS or other communication
systems or services, and the design, development and sale of products for use in
such systems.
"PCS License" means an FCC License authorizing the construction,
ownership and operation of a PCS system pursuant to Part 24.
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NEXTWAVE SECURITIES PURCHASE AGREEMENT
<PAGE> 7
"Permitted Financing" means (without duplication) Indebtedness of the
Company and/or its Subsidiaries arising in connection with:
(i) any and all Senior Debt,
(ii) Pari Passu Financing in an aggregate amount at any time
outanding which does not exceed the Second Deposit Shortfall,
(iii) up to $45,000,000 in aggregate principal amount of Working
Capital Financing,
(iv) all "Existing Indebtedness",
(v) the Notes,
(vi) Indebtedness of any Subsidiary of the Company acquired after
the date of this Agreement which is in effect on the date of its
acquisition, and refinancings thereof, provided that (a) such Indebtedness
is not incurred in contemplation of such acquisition, (b) in connection
with any refinancing of such Indebtedness, the aggregate principal amount
of such Indebtedness is not increased and the refinancing is on terms no
less favorable to the acquired Subsidiary than the Indebtedness being
refinanced, and (c) such Indebtedness and refinancings are not guaranteed
by the Company or its other Subsidiaries unless such guarantee is
subordinated to the Notes to at least the same extent that the Notes are
subordinated to the Senior Debt, and
(vii) any Shareholder Repurchase Notes.
"Permitted Investments" means (i) marketable direct obligations issued
or unconditionally guaranteed by the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within six (6) months from the date of acquisition thereof;
(ii) commercial paper, maturing not more than 270 days after the issue rated P-1
by Moody's Investors Services, Inc. or A-1 by Standard & Poor's Ratings Group;
(iii) overnight bank deposits, certificates of deposit and bankers' acceptances
in each case maturing not more than 270 days after the date of issue, issued by
commercial banking institutions, and money market or demand deposit accounts
maintained at commercial banking institutions, each of which is a member of the
Federal Reserve System and has a combined capital and surplus and undivided
profits of not less that $500,000,000; and (iv) repurchase agreements having
maturities of not more than 90 days from the date of acquisition which are
entered into with the commercial banking institutions described in clause (iii)
above which are secured by readily marketable direct obligations of the United
States Government or any agency thereof.
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NEXTWAVE SECURITIES PURCHASE AGREEMENT
<PAGE> 8
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, joint stock company,
government (or any agency or political subdivision thereof) or other entity of
any kind.
"POPS" means potential subscribers of PCS.
"Proprietary or Privileged Information" means, collectively, with
respect to the Company or any of its Subsidiaries, (i) trade secrets and
know-how, (ii) communications protected by the attorney-client privilege, (iii)
drafts of proposed contracts or written or verbal summaries of proposed
contracts, (iv) any non-public information the disclosure of which would breach
the terms of any confidentiality agreement binding upon the Company or any of
its Subsidiaries, and (v) any other confidential or proprietary information the
disclosure of which would, in the Company's good faith judgment, be reasonably
likely to have a material adverse effect on the business, properties, assets,
nature of the assets, liabilities, operations or financial condition of the
Company and its Subsidiaries taken as a whole.
"Purchase Money Financing" means Capitalized Leases and/or other
Indebtedness incurred by the Company and/or any of its Subsidiaries for the
purpose of financing the purchase price of equipment, real property or real
property improvements.
"Purchaser" or "Purchasers" means those persons or entities named as
such on the signature page hereof.
"Quoted Price" has the meaning set forth in Section 9.11 hereof.
"Registration Rights" means the registration rights set forth in
Exhibit B applicable to the Series B Common Stock issued upon conversion of the
Convertible Bridge Notes or upon exercise of the Warrants.
"Related Agreements" has the meaning set forth in Section 3.7 hereof.
"Representative" means the Senior Debt Representative, if any, or the
Noteholders' Representative, if any, as the case may be.
"Requisite Holders" means, at any time, the holders of not less than
25% of the aggregate outstanding principal amount of the Convertible Bridge
Notes at such time.
"Restricted Transferee" means any Person that acquires any Securities
who is (a) a supplier to the Company or any of its Subsidiaries, (b) a
competitor of
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NEXTWAVE SECURITIES PURCHASE AGREEMENT
<PAGE> 9
the Company or any of its Subsidiaries, or (c) a telecommunications service
provider.
"Second Deposit" means the second 5% deposit required to be made to the
FCC upon final award to the high bidders in C-Block Auction.
"Second Deposit Shortfall" means, with respect to:
(a) Vendor Bridge Financing, the amount, if any, which is
necessary to pay the Second Deposit remaining plus any penalties or
premiums then due and payable to the FCC in connection with the C-Block
Auction, assuming that the following amounts, without duplication, will be
applied toward the payment of such amount: (i) the proceeds of any
Underwriter Bridge Financing, (ii) the proceeds of any Pari Passu
Financing, and (iii) the Company's cash on hand and in any escrow account
including in the Escrow Account, excluding the proceeds from the issuance
of Series A Common Stock to the extent included in such cash on hand and
the amount of any fees, commissions and taxes payable by the Company and/or
its License Subsidiary,
(b) Underwriter Bridge Financing, the sum of (A) the amount, if
any, which is necessary to pay the Second Deposit remaining plus any
penalties or premiums then due and payable to the FCC in connection with
the C-Block Auction, assuming that the following amounts, without
duplication, will be applied toward the payment of such amount: (i) the
proceeds of any Vendor Bridge Financing, (ii) the proceeds of any Pari
Passu Financing, and (iii) the Company's cash on hand and in any escrow
account including in the Escrow Account excluding the proceeds from the
issuance of Series A Common Stock to the extent included in any cash on
hand and the amount of any fees, commission and taxes payable by the
Company and/or its License Subsidiary and (B) $5,000,000 if the financing
under clause (A) above is consummated.
(c) Pari Passu Financing, the amount, if any, which is necessary
to pay the Second Deposit remaining plus any penalties or premiums then due
and payable to the FCC in connection with C-Block Auction, assuming that
the following amounts, without duplication, will be applied toward the
payment of such amount: (i) the proceeds of any Underwriter Bridge
Financing, (ii) the proceeds of any Vendor Bridge Financing, and (iii) the
Company's cash on hand and in any escrow account including in the Escrow
Account excluding the proceeds from the issuance of Series A Common Stock
to the extent included in such cash on hand, fees, commissions and taxes
payable.
"Securities" means the Convertible Bridge Notes, the Convert Shares,
the Warrants or the Warrant Shares, or any or all of them, as the context may
require.
"Securities Act" means the Securities Act of 1933, as amended.
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NEXTWAVE SECURITIES PURCHASE AGREEMENT
<PAGE> 10
"Senior Debt" means, without duplication, Indebtedness of the Company
and/or its Subsidiaries arising in connection with:
(i) any and all Purchase Money Financing and C-Block Payment
Terms;
(ii) Underwriter Bridge Financing in an aggregate amount which does
not exceed the Second Deposit Shortfall,
(iii) Vendor Bridge Financing in an aggregate amount which does not
exceed the Second Deposit Shortfall,
(iv) renewals and refinancings of the foregoing (other than as
prohibited by the definition of Underwriter Bridge Financing), provided
that, in the case of Indebtedness described in the foregoing clauses (ii)
and (iii), the aggregate principal amount of such Indebtedness is not
increased in connection with such refinancing, such refinancing would fall
within the definition of the refinanced Indebtedness and such refinancing
is on terms no less favorable to the Company or its Subsidiaries than the
Indebtedness being refinanced.
"Senior Debt Payment Default" has the meaning set forth in Section
7.3(a).
"Senior Debt Representative" means the indenture trustee or other
trustee, agent or representative for an issue of Senior Debt.
"Series A Shareholders' Agreement" means the Company's Series A
Shareholders' Agreement dated as of November 30, 1995, as the same may be
amended or modified from time to time in accordance with the terms thereof.
"Shareholder Repurchase Note" means a promissory note issued by the
Company in connection with the repurchase of Common Stock under the terms of the
Series A Shareholders' Agreement and the Amended and Restated Shareholders'
Rights Agreement.
"State Authority" means any state regulatory agency or body that
exercises jurisdiction over the rates or services or the ownership, construction
or operation of any PCS system or over Persons who own, construct or operate PCS
systems by reason of the nature or type of the business subject to regulation
and not pursuant to laws and regulations of general applicability to Persons
conducting business in such state.
"State Authority Authorization" means any Authorization issued by a
State Authority.
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NEXTWAVE SECURITIES PURCHASE AGREEMENT
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"Subsequent Closing" has the meaning set forth in Section 2.2(a)
hereof.
"Subordinated Obligations" has the meaning set forth in Section 7.1(b).
"Subsidiary" means, with respect to any Person, any corporation or
other entity of which a majority of the capital stock or other ownership
interests having ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions are at the time directly
or indirectly owned by such Person.
"Subsidiary Guaranty" means a guaranty of the Company's Subsidiaries
other than the License Subsidiary in the form of Exhibit G hereto.
"Supplemental Signature Page" means an agreement in the form of Exhibit
F hereto, duly executed in triplicate by any Person who desires to become a
Purchaser hereunder and under the Escrow Agreement, and acknowledged by the
Company.
"Time of Purchase" has the meaning set forth in Section 2.2(a) hereof.
"Transaction Document" has the meaning set forth in Section 4.1(b)
hereof.
"Transfer" means any disposition of Securities that would constitute a
sale thereof under the Securities Act.
"Underwriter Bridge Financing" means financing provided to the Company
(i) by an underwriter or placement agent selected to participate in the Initial
Public Offering or in any High Yield Financing in an amount not to exceed the
Second Deposit Shortfall, or (ii) by a commercial bank (a) in an amount not to
exceed the Second Deposit Shortfall, (b) with a stated maturity of not longer
than one year, and (c) without any refinancing or renewal thereof.
"Vendor Bridge Financing" means financing (other than Purchase Money
Financing) provided to the Company and/or its Subsidiaries by equipment
suppliers and PCS resellers in an amount not to exceed the Second Deposit
Shortfall.
"Warrants" means warrants to purchase the Company's Series B Common
Stock, substantially in the form attached hereto as Exhibit C.
"Warrant Exercise Price" has the meaning set forth in Section 10.2(b)
hereof.
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NEXTWAVE SECURITIES PURCHASE AGREEMENT
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"Warrant Shares" means the shares of the Company's Series B Common
Stock issued or issuable, as the case may be, from time to time upon exercise of
the Warrants, including, without limitation, any securities issuable with
respect thereto by way of conversion, stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger,
consolidation, other reorganization or otherwise.
"Working Capital Financing" means working capital loans and other such
financial accommodations made to or for the account of the Company from a
vendor, supplier, commercial bank, savings and loan association, trust company
or commercial finance company, the proceeds of which are not required to be used
for the purchase of equipment or PCS Licenses.
SECTION 1.2. Accounting Terms and Determinations. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial statements
required to be delivered hereunder shall be prepared in accordance with
generally accepted accounting principles as in effect from time to time, applied
on a consistent basis (except for changes concurred in by the Company's
independent public accountants). For purposes of this Agreement, references to
assets, liabilities, revenues, costs or other similar items relating to the
Company or any of its Subsidiaries shall be deemed to include, with respect to
any joint operating agreement or partnership agreement to which the Company or
such Subsidiary is a party, such portion, but only such portion, of the assets,
liabilities, revenues, costs or other similar items covered by such joint
operating agreement or partnership agreement as shall equal the then
proportional interest of the Company or such Subsidiary under such joint
operating agreement or partnership agreement, determined, where applicable, in
accordance with the rules for proportionate consolidation in accordance with
generally accepted accounting principles.
ARTICLE II
PURCHASES AND SALES OF NOTES
SECTION 2.1. Commitments to Purchase.
(a) The Company agrees to issue and sell to each Purchaser and,
subject to the terms and conditions set forth herein and in reliance on the
representations and warranties of the Company contained herein, each of the
Purchasers severally agrees to purchase, a Convertible Bridge Note in the amount
of such Purchaser's Commitment; provided, however, that in no event shall the
aggregate principal amount of Convertible Bridge Notes issued by the Company
hereunder exceed $100,000,000. The purchase price for each Convertible Bridge
Note shall be 100% of the principal amount thereof.
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NEXTWAVE SECURITIES PURCHASE AGREEMENT
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(b) From time to time until and including the fifteenth (15th)
Business Day after the Auction Closing Date, but subject to the limitation on
the aggregate amount of Convertible Bridge Notes set forth in the proviso to
Section 2.1(a), one or more Persons may become Purchasers hereunder by executing
and delivering to the Company three originals of a Supplemental Signature Page
for acceptance by the Company (who will provide copies thereof to each of the
existing Purchasers and an original thereof to each of the Escrow Agent and such
new Purchaser), and a completed I.R.S. Form W-8, W-9, 1001 or 4224, as
applicable, for delivery to the Escrow Agent at the time of such Purchaser's
execution of a Supplemental Signature Page. Once the originals of an executed
Supplemental Signature Page have been accepted by the Company, such Purchaser
shall have the rights and obligations of a Purchaser under this Agreement and
each of the other Bridge Documents with the same force and effect as though such
Person were an original Purchaser hereunder or thereunder.
SECTION 2.2. The Closings.
(a) The purchase and sale of the first $52,200,000 of Convertible
Bridge Notes will take place at a closing at the offices of Latham & Watkins in
New York, New York at 10:00 A.M. (New York time) on April 9, 1996 (the "Initial
Closing"). The purchase and sale of any additional remaining Convertible Bridge
Notes will take place at a closing (the "Subsequent Closing") at the offices of
Latham & Watkins in New York, New York at 10:00 A.M. (New York time) on such
date(s) as the applicable Purchaser(s) and the Company may agree in writing. The
date and time of each Closing is referred to herein as its "Time of Purchase".
(b) On or prior to the Initial Closing, the Company shall
establish, for the benefit of all existing and future Purchasers, an escrow
account (the "Escrow Account") with Chemical Bank (the "Escrow Agent") pursuant
to an agreement in the form of Exhibit H hereto (the "Escrow Agreement"). Not
later than 3:00 p.m. (New York time) on the date of a Closing, each Purchaser
participating in a Closing shall deliver by wire transfer to the Escrow Account
immediately available funds in an amount equal to the purchase price of the
Convertible Bridge Note purchased by such Purchaser hereunder. All interest
earned on the monies deposited in the Escrow Account by each Purchaser, whether
or not such Purchaser's deposit is ultimately released to the Company, shall
accrue for the benefit of such Purchaser and shall be paid over to such
Purchaser on the Escrow Termination Date with respect to such Purchaser as
provided in the Escrow Agreement.
(c) At each Closing, against payment as set forth in subsection
(b) above, the Company shall deliver to each applicable Purchaser a single
Convertible Bridge Note in the amount of such Purchaser's Commitment.
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(d) At the applicable Closing, each Purchaser shall execute and
deliver to the Company (i) the Amended and Restated Stockholders' Voting
Agreement and (ii) the Amended and Restated Shareholders' Rights Agreement.
(e) There shall be no releases of funds from the Escrow Account to
the Company except pursuant to subsections (f) and (g) of this Section 2.2 and
pursuant to the terms of the Escrow Agreement.
(f) Upon the announcement by the FCC of the final high bidders for
PCS Licenses in the C-Block Auction, the Company shall promptly deliver to each
Purchaser a certificate in the form attached as Exhibit B-1 or D-1 to the Escrow
Agreement, as applicable. No principal deposit of any Purchaser shall be
released from the Escrow Account in connection with the First Deposit until each
of the following conditions is met (or waived in writing by the applicable
Purchaser):
(i) the FCC announces that the Company is the final high- bidder
for PCS Licenses in the C-Block Auction representing at least 50 million
POPS,
(ii) a First Deposit Shortfall Exists and the Company requires
funds from the Escrow Account to pay the First Deposit Shortfall, provided
that the amount released from the Escrow Account shall not exceed the First
Deposit Shortfall and shall not occur until two (2) Business Days prior to
the date such deposit is required to be paid,
(iii) no Default or Event of Default exists, or would exist after
giving effect to the release from the Escrow Account,
(iv) each of the representations and warranties set forth in
Sections 3.1, 3.2(a) (second sentence only), 3.3(b), 3.4, 3.5, 3.6, 3.11,
3.16, 3.17(a) and (c) and 3.18 of this Agreement is true and correct as of
the release date, and
(v) the Escrow Agent and each of the Purchasers has received a
certificate signed by the Company's chief executive officer attesting to
satisfaction of the conditions set forth in the foregoing clauses (i)-(iv)
and setting forth the calculation of the First Deposit Shortfall, together
with an opinion of Halprin, Temple, Goodman & Sugrue in the form of Exhibit
B-2 to the Escrow Agreement.
If the Company fails to satisfy all of the conditions for the release
of the deposited funds set forth in this Section 2.2(f), it shall deliver
to each Purchaser by no later than the close of business on the fifth
Business Day prior to the date the First Deposit is required to be paid a
certificate of non-compliance in the form attached as Exhibit D-1 to the
Escrow Agreement.
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Each Purchaser shall then have the right on an individual basis and in its
sole discretion to waive in writing the foregoing conditions and release
its deposited funds by delivery to the Company of a waiver in the form
attached as Exhibit D-2 to the Escrow Agreement by no later than the close
of business on the third Business Day prior to the date the First Deposit
is required to be paid. If a Purchaser fails to waive such non-compliance
prior to the time specified in the preceding sentence, then (a) all
principal of and interest on such non-waiving Purchaser's Convertible
Bridge Note shall be immediately due and payable, (b) each such Purchaser's
funds in the Escrow Account will be returned to such Purchaser in full or
partial repayment of its Note, and (c) no Warrants will be issued in
respect of such repayment.
(g) Upon the announcement by the FCC of the award of PCS Licenses
in the C-Block Auction, the Company shall promptly deliver a certificate in the
form attached as Exhibit C-1 or D-1 to the Escrow Agreement, as applicable, to
each Purchaser. All remaining principal deposits of any Purchaser in the Escrow
Account will be released to the Company only upon satisfaction of each of the
following conditions (or waiver in writing by the applicable Purchaser):
(i) the FCC has awarded to the Company PCS Licenses in the C-Block
Auction representing at least 50 million POPS,
(ii) The Company has sufficient funds from all sources permitted by
the terms of this Agreement to pay the Second Deposit, provided that the
remaining principal deposits in the Escrow Account shall not be released
from the Escrow Account until two (2) Business Days prior to the date the
Second Deposit is required to be paid to the FCC,
(iii) no Default or Event of Default exists, or would exist after
giving effect to the release from the Escrow Account,
(iv) each of the representations and warranties set forth in
Sections 3.1, 3.2(a) (second sentence only), 3.3(b), 3.4, 3.5, 3.6, 3.11,
3.16, 3.17(a) and (c) and 3.18 of this Agreement is true and correct as of
the release date, and
(v) the Escrow Agent and each of the Purchasers has received a
certificate signed by the Company's chief executive officer attesting to
satisfaction of the conditions set forth in the foregoing clauses (i)-(iv),
and setting forth the calculation of the sources of the payment of the
Second Deposit together with an opinion of Halprin, Temple, Goodman &
Sugrue in the form of Exhibit C-2 to the Escrow Agreement.
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If the Company fails to satisfy all of the conditions for the release
of the deposited funds set forth in this Section 2.2(g), it shall deliver
to each Purchaser, by no later than the close of business on the fifth
(5th) Business Day prior to the date the Second Deposit is required to be
paid, a certificate of non-compliance in the form attached as Exhibit D-1
to the Escrow Agreement. Each Purchaser shall then have the right on an
individual basis and in its sole discretion to waive in writing the
foregoing conditions and release its deposited funds by delivery to the
Company of a waiver in the form attached as Exhibit D-2 to the Escrow
Agreement by no later than the close of business on the third Business Day
prior to the date the Second Deposit is required to be paid. If a Purchaser
fails to waive such non-compliance prior to the time specified in the
preceding sentence, then (a) all principal of and interest on such
non-waiving Purchaser's Convertible Bridge Note shall be immediately due
and payable, (b) each such Purchaser's funds in the Escrow Account will be
returned to such Purchaser in full or partial repayment of its Note, and
(c) no Warrants will be issued in respect of such repayment.
(h) If all deposited funds have not been released from the Escrow
Account to the Company on or before January 9, 1997, but subject to each
Purchaser's right on an individual basis and in its sole discretion to waive in
writing the Escrow conditions and release its deposited funds including this
condition, on January 9, 1997 all principal of and interest on each non-waiving
Purchaser's Convertible Bridge Note shall be immediately due and payable, each
such Purchaser's funds in the Escrow Account will be returned to such Purchaser
in full or partial repayment of its Note, and no Warrants will be issued in
respect of such prepayment.
(i) Notwithstanding anything to the contrary, including without
limitation, the deposit of the purchase price of each Note in the Escrow Account
and the conditions for release of the deposited funds contained in this
Agreement and the Escrow Agreement, this Agreement and each Note shall become
effective for the Company and the Purchaser of such Note on the Closing with
respect to such Purchaser.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to each Purchaser as set forth
below:
SECTION 3.1. Organization and Standing, Certificate and Bylaws.
The Company is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Delaware and has full power and
authority to own and operate its properties and assets and to carry on its
business as now
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conducted and, subject to the Company's or the License Subsidiary's receipt of
PCS Licenses representing not less than 50 million POPS, as proposed to be
conducted. The Company has furnished each of the Purchasers with copies of its
Restated Certificate of Incorporation and its Bylaws, as amended from time to
time, and said copies are true, correct and complete and contain all amendments
through each Time of Purchase and each date on which funds are released from the
Escrow Account to the Company. The Company is qualified to do business in each
state where such qualification is required where the failure to so qualify could
reasonably be expected to have a Material Adverse Effect.
SECTION 3.2. Capitalization.
(a) As of the date of the Initial Closing, the authorized capital
stock of the Company consists of 300,000,000 shares of Common Stock, $0.0001 par
value, of which 48,000,000 shares will be designated Series A Common Stock,
250,980,556 shares will be designated Series B Common Stock, and 1,019,444
shares will be designated Series C Common Stock. All issued and outstanding
shares of the Company's Common Stock have been duly authorized and validly
issued, are fully paid and nonassessable, and have been issued in compliance
with all applicable federal and state securities laws. At the Auction Closing
Date, the outstanding shares of the Series A Common Stock will represent 25% of
the Common Stock on a fully diluted basis.
(b) As of the date of the Initial Closing, the Company's debt and
equity capitalization is as set forth on Schedule 3.2 hereto.
(c) The outstanding shares of Series B Common Stock are not
subject to, nor were they issued in violation of, any preemptive rights of
stockholders of the Company or any right of first refusal or other similar right
in favor of any Person. As of the date of the Initial Closing, there are not any
shareholder, voting or other agreements or arrangements, written or oral, to
which the Company or any Subsidiary is a party or which, to the knowledge of the
Company or any Subsidiary, exist, relating to or in any way restricting or
otherwise affecting the voting or transfer of any capital stock of the Company
other than (i) the express provisions of its Restated Certificate of
Incorporation and Bylaws, (ii) the Amended and Restated Stockholders' Voting
Agreement, (iii) the Amended and Restated Shareholders' Rights Agreement, (iv)
the Series A Shareholders' Agreement and (v) as set forth on Schedule 3.2
hereto.
(d) Except as set forth in Schedule 3.2 hereto, as of the date of
the Initial Closing: (i) there is no subscription, warrant, option or other
right (contingent or otherwise) to purchase or acquire any shares of any class
of capital stock of the Company authorized or outstanding, (ii) there is no
commitment of the Company to issue any shares, warrants, options or other such
rights or to distribute to holders of any class of its capital stock any
evidences of indebtedness or any assets, and (iii) the Company has no obligation
(contingent or otherwise) to
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purchase, redeem or otherwise acquire any shares of capital stock of the Company
or any interest therein or to pay any dividend or make any other distribution in
respect thereof.
SECTION 3.3. Subsidiaries.
(a) As of the date of the Initial Closing, the Company has no
Subsidiaries other than the License Subsidiary and TELE*Code Inc., a Delaware
corporation, and the Company does not own or control, directly or indirectly,
any equity interest in any other corporation, association or business entity.
(b) Each Subsidiary of the Company is duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation and has full power and authority to own and operate its properties
and assets and to carry on its business as now conducted and, subject to the
Company's or the License Subsidiary's receipt of PCS Licenses representing not
less than 50 million POPS, as proposed to be conducted. Each Subsidiary is
qualified to do business in each state where such qualification is required
where the failure to so qualify could reasonably be expected to have a Material
Adverse Effect.
(c) Except as set forth on Schedule 3.19, 100% of the voting
capital stock of each Subsidiary is owned by the Company, free and clear of any
Liens.
SECTION 3.4. Authorization. All corporate action on the part of the
Company and its Subsidiaries and their respective officers, directors and
shareholders necessary for the due authorization, execution and delivery of this
Agreement and the other Bridge Documents, as applicable, and the performance of
all the obligations of the Company and its Subsidiaries hereunder and
thereunder, subject to compliance with the HSR Act and Section 310(b) of the
Communications Act of 1934, and for the authorization, issuance, sale and
delivery of the Securities has been taken or will be taken prior to such sale
and delivery. The Bridge Documents, when executed and delivered, shall
constitute valid and legally binding obligations of the Company and its
Subsidiaries, as applicable, enforceable in accordance with their respective
terms, subject to laws of general application relating to bankruptcy, insolvency
and the relief of debtors and subject to the availability of equitable remedies.
SECTION 3.5. Validity of Securities. When issued upon conversion of the
Convertible Bridge Notes and/or the exercise of the Warrants in compliance with
the provisions of this Agreement and the Restated Certificate of Incorporation
of the Company, the Common Stock issuable upon conversion of the Notes and/or
the exercise of the Warrants will be validly issued, fully paid and
nonassessable, and will be free of any Liens; provided, however, that the
Convertible Bridge Notes, the Warrants and the Common Stock may be subject to
restrictions on transfer under state and/or federal securities laws and the
rules and regulations of
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the FCC or as otherwise required by such laws at the time a transfer is
proposed, as provided in the Amended and Restated Stockholders' Voting Agreement
and the Amended and Restated Shareholders' Rights Agreement and as set forth on
Schedule 3.5 hereto.
SECTION 3.6. Rights in Proprietary Information. Except as set forth in
Schedule 3.6, neither the Company nor any of its Subsidiaries has violated, or,
by conducting its business as presently proposed to be conducted, could
reasonably be expected to violate, any of the patents, trademarks, service
marks, or other proprietary rights of any other Person, except for such
violations, individually or in the aggregate, as could not reasonably be
expected to have a Material Adverse Effect. The Company and its Subsidiaries
have sufficient rights to proprietary information, other than an FCC License, to
conduct their business as currently contemplated.
SECTION 3.7. Material Contracts and Agreements. Except as set forth in
Schedule 3.7, and excluding the Bridge Documents and the obligations described
in Section 3.8 below, neither the Company nor any of its Subsidiaries has any
contract, agreement, lease or other commitment, written or oral, absolute or
contingent, for which the Company or such Subsidiary is obligated to pay, or
will receive, in excess of Seventy-Five Thousand Dollars ($75,000). All executed
written contracts, agreements and instruments listed on Schedule 3.7
(collectively, the "Related Agreements") are valid and binding obligations of
the Company or the Subsidiary party thereto, are in full force and effect, and
neither the Company, nor any Subsidiary nor, to the best of the Company's
knowledge, any other party thereto, is in breach of any of the material
provisions thereof.
SECTION 3.8. Obligations to Related Parties. Set forth on Schedule 3.8
is a listing of (a) all of the Indebtedness of the Company and its Subsidiaries
to all officers, directors, shareholders and employees of the Company, including
any member of their immediate families (other than normal accrued wages and
travel expense vouchers), and (b) all of the Indebtedness of the Company's
officers, directors, shareholders and employees, including any member of their
immediate families (other than expense advances made in the ordinary course of
the Company's business) to the Company, which schedule is complete and correct
in all material respects as of the date of this Agreement.
SECTION 3.9. Conduct of Business; Liabilities. Neither the Company nor
any of its Subsidiaries is in default under, and no condition exists that with
notice or lapse of time would constitute a default by the Company or any
Subsidiary under: (i) any mortgage, loan agreement, evidence of indebtedness or
other instrument evidencing borrowed money to which the Company or any
Subsidiary is a party or by which it or its properties are bound, or (ii) any
judgment, order or injunction of any court, arbitrator or governmental agency,
in any of the foregoing cases, individually or in the aggregate, that could
reasonably be expected to result in a Material Adverse Effect.
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SECTION 3.10. Financial Statements. The Company has furnished to each
of the Purchasers its unaudited consolidated balance sheet as of February 29,
1996. Such balance sheet was prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
specified and presents fairly the financial position of the Company and its
Subsidiaries as of such date. As of the date of such balance sheet, except as
set forth on Schedule 3.10 hereto, there are no liabilities, contingent or
otherwise, not disclosed in such balance sheet that involve a material amount.
SECTION 3.11. Compliance with Laws and Other Instruments. The Company
is not in violation of, and the Company's execution, delivery and performance of
the Bridge Documents and its issuance and sale of the Notes will not violate,
any term of its Restated Certificate of Incorporation or Bylaws. Neither the
Company nor any of its Subsidiaries is in violation of any statute, rule or
regulation applicable to any of them except for such violations as could not,
individually or in the aggregate, be reasonably expected to have a Material
Adverse Effect. The Company's execution, delivery and performance of the Bridge
Documents, and its issuance and sale of the Notes pursuant hereto, and TELE*Code
Inc.'s execution, delivery and performance of the Subsidiary Guaranty will not
result in any violation of any mortgage, indenture, contract, agreement,
instrument, judgment, decree or order, or be in conflict with or constitute a
default under any of such documents, or result in the creation of any Lien upon
any of the properties or assets of the Company or any of its Subsidiaries. There
is no term of the Restated Certificate of Incorporation or Bylaws of the Company
or any of its Subsidiaries or any mortgage, indenture, contract, agreement or
instrument or judgment, decree or order binding on the Company or any of its
Subsidiaries which could reasonably be expected to result in a Material Adverse
Effect.
SECTION 3.12. ERISA.
(a) Except as set forth on Schedule 3.12, neither the Company nor
any other organization which is a member of a controlled group of organizations
within the meaning of Section 414(b), (c), (m), or (o) of the Internal Revenue
Code of 1986, as amended (the "Code") (an "ERISA Affiliate"), of which the
Company is a member, has any obligation, contingent or otherwise, under any
"employee benefit plan" as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA") (a "Benefit Plan").
(b) With respect to each Benefit Plan for which the Company and/or
any of its Subsidiaries has obligations: (i) such Benefit Plan has been
maintained in material compliance with ERISA, the Code, the terms of such
Benefit Plan and other applicable laws, (ii) no such Benefit Plan is subject to
Title IV of ERISA, and (iii) neither the Company nor any ERISA Affiliate has
engaged in any "prohibited transaction" within the meaning of Section 4975(c) of
the Code or Section 406 of ERISA. Neither the Company nor any ERISA Affiliate is
or has been
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required to contribute during any period within the six years preceding the
Initial Closing to any "multi-employer plan" (as defined in Section 3(37) of
ERISA).
SECTION 3.13. Permits. The Company and its Subsidiaries have all
franchises, permits, licenses and all Authorizations of any Governmental
Authority (including, without limitation, the FCC and any State Authority),
necessary for the conduct of their business as it is now being conducted, the
lack of which could reasonably be expected to have a Material Adverse Effect.
The Company and its Subsidiaries believe they can obtain, when necessary and
without undue burden or expense, any similar authority for the conduct of their
business as now planned to be conducted. The Company is not in default, and the
execution, delivery and performance of this Agreement and the other Bridge
Documents will not result in a default, under any of its material franchises,
permits, licenses or other similar authority.
SECTION 3.14. Litigation. Schedule 3.14 sets forth a complete list of
all actions, suits and proceedings pending, or to the knowledge of the Company,
threatened, against the Company or any of its Subsidiaries as of the date
hereof. Except as set forth on Schedule 3.14, there is no action, suit,
proceeding or investigation as of the date hereof pending against the Company or
its Subsidiaries, or to the best knowledge of the Company and its Subsidiaries,
threatened against the Company or its Subsidiaries (including, without
limitation, any action, suit, proceeding or investigation pending or currently
threatened involving the prior employment of any of the Company's employees,
their use in connection with the Company's business of any information or
techniques allegedly proprietary to any of their former employers, their
obligations under any agreements with prior employers, or negotiations by the
Company with potential backers of, or investors in, the Company or its proposed
business) that could reasonably be expect to result, individually or in the
aggregate, in a Material Adverse Effect. As of the date hereof, the Company and
its Subsidiaries are not a party to, or to the best of its knowledge, named in
any order, writ, injunction, judgment or decree of any court or government
agency or instrumentality which individually or in the aggregate could
reasonably be expect to have a Material Adverse Effect.
SECTION 3.15. Employee Salaries. As of the date of this Agreement,
Schedule 3.15 hereto sets forth a complete list of each of the employees to whom
the Company or a Subsidiary is obligated to pay more than $75,000 per year in
compensation and the amount of such agreed compensation.
SECTION 3.16. Disclosure. (a) All written information with respect to
the Company and its Subsidiaries, the acquisition and use of the PCS Licenses,
the business and assets of the Company and its Subsidiaries furnished to the
Purchasers by or on behalf of the Company, were, at the time the same were so
furnished, complete and correct in all material respects. No fact is known to
the Company which is reasonably likely to have a Material Adverse Effect and has
not
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been set forth in such written information or otherwise disclosed in writing to
the Purchasers.
(b) No representation, warranty or statement made by the Company
in the Bridge Documents, or in any certificate required to be delivered pursuant
hereto or thereto contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the Company's statements
contained in the Bridge Documents or any such certificate not misleading in
light of the circumstances in which they were made.
SECTION 3.17. FCC Compliance. Except for such noncompliances and
failures to obtain Authorizations as could not, individually or in the
aggregate, reasonably be expected to result in a Material Adverse Effect:
(a) The Company and its Subsidiaries have complied with all rules,
regulations and policies promulgated by the FCC relating to the C-Block
Auction;
(b) The Company and its Subsidiaries reasonably believe that they
will be able to secure all Authorizations with the FCC, and, if applicable,
any State Authority and any other Governmental Authority exercising
jurisdiction over the Company and its Subsidiaries (or the construction of
delivery systems therefor) required for the conduct of the business and
operations of the Company and its Subsidiaries as currently conducted and
as proposed to be conducted; and
(c) The current ownership and operation by the Company and its
Subsidiaries of its PCS Business complies with the Communications Act of
1934, as amended, and all rules, regulations and policies of the FCC, any
State Authority and of any other Governmental Authority.
SECTION 3.18. Use of Financing. The proceeds of the Convertible Bridge
Notes shall be used by the Company, first, for the First Deposit and the Second
Deposit to the extent permitted in Sections 2(f) above and 2(g) of this
Agreement and, thereafter, for general corporate purposes.
SECTION 3.19. Existing Liens. Schedule 3.19 hereto sets forth all Liens
on the property of the Company or any Subsidiary existing on the date hereof.
SECTION 3.20. Taxes. All tax returns required to be filed by the
Company and any of its Subsidiaries have been properly prepared, executed and
filed. All taxes, assessments, fees and other governmental charges upon the
Company and its Subsidiaries or upon any of their respective properties, income,
sales or franchises which are shown thereon as due and payable have been paid,
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unless payment thereof is being contested in good faith by appropriate
proceedings which stay the imposition of any penalty, fine or Lien resulting
from the non-payment thereof and with respect to which, adequate reserves
therefor are being maintained.
SECTION 3.21. Holding Company and Investment Company Acts. Neither the
Company nor any of its Subsidiaries is a (i) a "holding company" or a
"subsidiary company" of a "holding company" or an "affiliate" of a "holding
company", as such terms are defined in the Public Utility Holding Company Act of
1935, as amended, or (ii) an "investment company" or an "affiliated person" or
"promoter" of, or "principal underwriter" of or for, an "investment company", as
such terms are defined in the Investment Company Act of 1940, as amended.
SECTION 3.22. Offering of the Notes. Neither the Company nor any other
agent acting on behalf of the Company has, directly or indirectly, offered the
Securities or any similar security of the Company for sale to, or solicited any
offers to buy the Securities or any similar security of the Company from, or
otherwise approached or negotiated with respect thereto with, any Person or
Persons (other than the Purchasers and any other potential holder of any
Convertible Bridge Notes) that were not "accredited investors," as such term is
defined in Regulation D under the Securities Act, and neither the Company nor
any agent acting on its behalf has taken or will take any action which would
subject the issuance or sale of the Securities to the provisions of Section 5 of
the Securities Act.
SECTION 3.23. Governmental Approvals. The execution, delivery and
performance by the Company of this Agreement and each other Bridge Document to
which the Company is a party, and the purchase and sale of the Notes hereunder
and the execution by TELE*Code Inc. of the Subsidiary Guaranty, do not require
the approval or consent of, or any filing with, any Governmental Authority.
SECTION 3.24. Certificate of Incorporation and Bylaws; Books. The
copies of the Restated Certificate of Incorporation and Bylaws of the Company
and TELE*Code Inc. and all amendments to each, which have heretofore been
delivered to each Purchaser, are true, correct and complete as of the date when
delivered. The minute books of the Company contain true and complete records of
all meetings and consents in lieu of meetings of its Board of Directors (and any
committee thereof) since the time of its organization. The stock books of the
Company are true, correct and complete.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASERS
SECTION 4.1. Purchase for Investment; Authority; Binding
Agreements. Each Purchaser severally and not jointly represents and warrants to
the Company that:
(a) such Purchaser is an Accredited Investor within the
meaning of Rule 501(a) under the Securities Act and the Securities to
be acquired by it pursuant to the Bridge Documents are being acquired
for investment and, notwithstanding such Purchaser's right to transfer
such Securities in accordance with this Agreement, such Purchaser will
not offer, sell, transfer, pledge, hypothecate or otherwise dispose of
its Securities in violation, or create a violation by the Company, of
the Securities Act, the Communications Act of 1934, as amended, or
applicable FCC rules and regulations;
(b) the execution, delivery and performance of the Bridge
Documents to which such Purchaser is a party, the Amended and Restated
Stockholders' Voting Agreement and the Amended and Restated
Shareholders' Rights Agreement (collectively, such Purchaser's
"Transaction Documents") and the purchase of the Securities pursuant to
the Bridge Documents are within such Purchaser's corporate, partnership
or other organization powers and have been duly and validly authorized
by all requisite action on the part of such Purchaser, and each of such
documents to which such Purchaser is a signatory has been duly executed
and delivered by such Purchaser;
(c) each of such Purchaser's Transaction Documents constitutes
a valid and binding agreement of such Purchaser, enforceable against
such Purchaser in accordance with its terms except as enforcement
thereof may be limited by laws of general application relating to
bankruptcy, insolvency and the relief of debtors and by the
availability of equitable remedies; and
(d) such Purchaser has such knowledge and experience in
financial and business matters so as to be capable of evaluating the
merits and risks of its investment in the Securities, and such
Purchaser is capable of bearing the economic risks of such investment.
SECTION 4.2. Solicitation by Purchasers. No form of general
solicitation or general advertising was used by such Purchaser or, to the best
of its knowledge, any other Person acting on behalf of such Purchaser, in
respect of the Securities or in connection with its purchase of the Securities.
Neither such Purchaser nor any Person acting on behalf of such Purchaser has,
either directly or indirectly, sold or offered for sale to any Person any of the
Securities or any other
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similar security of the Company except as contemplated by or disclosed in the
Bridge Documents.
ARTICLE V
CONDITIONS PRECEDENT TO CLOSING
SECTION 5.1. Conditions to Purchasers' Obligations at the
Closing. The obligation of each Purchaser to purchase its Convertible Bridge
Note is subject to the satisfaction of the following conditions
contemporaneously with the applicable Time of Purchase:
(a) Such Purchaser shall have received, in form and substance
satisfactory to it, an unaudited consolidated balance sheet of the
Company and its Subsidiaries as of February 29, 1996;
(b) Since February 29, 1996, there shall not have been any
event, occurrence or development, or set of circumstances or facts,
with respect to the Company and/or its Subsidiaries, that has had or is
reasonably likely to have a Material Adverse Effect, and such Purchaser
shall have received a certificate of the Chief Executive Officer of the
Company confirming such fact;
(c) There shall exist no action, suit, investigation,
litigation or proceeding pending or threatened in any court or before
any arbitrator or governmental instrumentality contesting the validity
or enforceability of any of the Bridge Documents, and there shall exist
no other action, suit, investigation, litigation or proceeding pending
in any court or before any arbitrator or governmental instrumentality
that could reasonably be expected to have a Material Adverse Effect,
and such Purchaser shall have received a certificate of the Chief
Executive Officer of the Company confirming such fact;
(d) There shall not exist any Default or Event of Default, and
no Default or Event of Default will result from this Agreement becoming
effective in accordance with its terms and such Purchaser shall have
received a certificate to such effect, dated the Time of Purchase,
executed on behalf of the Company by the Chief Executive Officer of the
Company;
(e) The representations and warranties of the Company
contained herein shall be true and correct in all material respects on
and as of the Time of Purchase as if made on and as of such time
(except for such representations and warranties which are made only as
of a prior date) and the Company shall have performed and complied in
all material respects with all covenants and agreements required by
this Agreement to be performed by it or complied with by it at or prior
to the Time of Purchase, and such
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Purchaser shall have received a certificate to such effect, dated the
Time of Purchase, executed on behalf of the Company from the Chief
Executive Officer of the Company;
(f) Such Purchaser shall have received its Convertible Bridge
Note, duly executed by the Company in the denomination and registered
in the name of such Purchaser pursuant to Section 2.2;
(g) Such Purchaser shall have received a certificate of the
Secretary or an Assistant Secretary of the Company and TELE*Code Inc.
dated the applicable Time of Purchase and certifying (i) that attached
thereto is a true, correct and complete copy of resolutions duly
adopted by the Board of Directors of the Company or TELE*Code Inc., as
applicable, authorizing the execution, delivery and performance of this
Agreement and the other Bridge Documents, and that such resolutions
have not been amended, modified, revoked or rescinded and (ii) as to
the incumbency and specimen signatures of each officer executing each
such document on behalf of the Company or TELE*Code Inc., and such
certificates and the resolutions attached thereto shall be in form and
substance reasonably satisfactory to such Purchaser;
(h) Such Purchaser shall have received true and complete
copies of the Restated Certificate of Incorporation and Bylaws of the
Company and TELE*Code Inc, certified as of the Time of Purchase as
complete and correct copies thereof by the Secretary or an Assistant
Secretary of the Company and TELE*Code Inc.;
(i) Such Purchaser shall have received a certificate, dated
not more than 30 days prior to the Time of Purchase, of the appropriate
official(s) of the states of incorporation and each state of foreign
qualification of the Company and its Subsidiaries, certifying as to the
subsistence in good standing of, and the payment of taxes by the
Company and its Subsidiaries and listing all charter documents on file
with such officials;
(j) Such Purchaser shall have received an opinion of Latham &
Watkins, special counsel to the Company and TELE*Code Inc., reasonably
acceptable to such Purchaser and its counsel;
(k) The Company shall have paid all fees, costs, expenses and
taxes then payable by the Company pursuant to Section 11.5 hereof for
which the Company has received a written statement or invoice in
reasonable detail;
(l) TELE*Code Inc. shall have executed and delivered the
Subsidiary Guaranty;
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(m) All other documentation relating to the Bridge Documents
shall have been executed by each of the parties thereto and delivered
to such Purchaser in form and substance reasonably satisfactory to
Purchaser and in compliance with all applicable laws and regulations;
and
(n) Such Purchaser shall have received all other such
certificates, instruments, agreements or other documents as such
Purchaser shall reasonably request.
SECTION 5.2. Conditions to the Company's Obligations. The
obligation of the Company to issue and sell to any Purchaser its Convertible
Bridge Note pursuant to this Agreement is subject to the satisfaction, at or
prior to the applicable Time of Purchase, of the following conditions:
(a) The representations and warranties of such Purchaser
contained in this Agreement shall be true and correct in all material
respects on and as of the applicable Time of Purchase as if made on and
as of such time;
(b) Such Purchaser shall have executed and delivered to the
Company a counterpart of this Agreement, the Escrow Agreement, the
Amended and Restated Stockholders' Voting Agreement and the Amended and
Restated Shareholders' Rights Agreement and shall have delivered to the
Escrow Agent a completed I.R.S. Form W-8, W- 9, 1001 or 4224, as
applicable;
(c) The issue and sale of the Convertible Bridge Notes by the
Company shall not be prohibited by any applicable law, court order or
governmental regulation; and
(d) Contemporaneously therewith, the purchase price for the
Convertible Bridge Notes shall have been deposited in immediately
available funds into the Escrow Account.
ARTICLE VI
COVENANTS
SECTION 6.1. Information. The Company shall deliver or shall
cause the Company's Subsidiaries to deliver, as applicable, to each Purchaser
and other holders of Securities:
(a) as soon as available and in any event within 90 days after
the end of each fiscal year of the Company, a consolidated balance
sheet of the Company and its Subsidiaries as of the end of such fiscal
year and the related consolidated statements of income and a
consolidated statement of
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cash flows and stockholders' equity (deficit) for such fiscal year,
certified by Price Waterhouse or other independent public accountants
of nationally recognized standing;
(b) as soon as available and in any event within 45 days after
the end of each of the first three quarters of each fiscal year of the
Company, a consolidated balance sheet of the Company and its
Subsidiaries as of the end of such quarter and the related consolidated
statements of income and consolidated statement of cash flows and
stockholders' equity (deficit) for such quarter and for the portion of
the Company's fiscal year ended at the end of such quarter, in each
instance prepared in accordance with generally accepted accounting
principles;
(c) simultaneously with the delivery of each set of financial
statements referred to in clauses (a) and (b) above, a certificate of
the Chief Executive Officer or the chief accounting officer of the
Company stating whether any Default or Event of Default exists on the
date of such certificate and, if any Default or Event of Default then
exists, setting forth the details thereof and the action which the
Company is taking or proposes to take with respect thereto;
(d) not later than 30 days after the end of each fiscal month
following a request by a holder of at least $5,000,000 principal amount
of Notes and delivered promptly after becoming available only to such
holder, a consolidated balance sheet of the Company and its
Subsidiaries as of the end of each month and the related consolidated
statements of income and consolidated statement of cash flows and
stockholders' equity (deficit) for such month, prepared in accordance
with generally accepted accounting principles;
(e) within 5 days after any officer of the Company obtains
knowledge of any Default or Event of Default, if such Default or Event
of Default is then continuing, a certificate of the Chief Executive
Officer or the chief accounting officer of the Company setting forth
the details thereof and the action which the Company is taking or
proposes to take with respect thereto;
(f) as soon as available, and in any event, within 5 days
after receipt or delivery thereof, copies of all material notices that
the Company receives or delivers in connection with the FCC Licenses or
any PCS License, which are reasonably likely to have a Material Adverse
Effect, except for information which is protected by attorney-client
privilege or protective order;
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(g) promptly upon their becoming available, a copy of all
reports, financial statements or other information delivered by the
Company to its shareholders;
(h) as soon as available and in any event within 45 days after
the end of each fiscal quarter of each fiscal year of the Company, a
report identifying any material PCS License or State Authority
Authorization that has been lost, surrendered or canceled during such
period;
(i) promptly after the commencing thereof but in any event not
later than 15 days after receipt of notice or service of legal process
with respect thereto or the obtaining of knowledge thereof, notice of
each material forfeiture, action, suit or proceeding, and of all other
material proceedings by or before any Governmental Authority
(including, without limitation, the FCC or any State Authority), and
any material development in respect of such legal or other proceedings,
in each case involving the Company or any of its Subsidiaries except
for information protected by the attorney-client privilege or by a
protective order; and
(j) such other information relating to the financial
condition, business, prospects or corporate affairs of the Company and
its Subsidiaries as any Purchaser or the holders may from time to time
reasonably request, provided, however, that the Company will not be
obligated in any event to provide information which it deems in good
faith to be Proprietary or Privileged Information.
SECTION 6.2. Inspection. The Company will permit each
Purchaser and other holders, at their expense, to visit and inspect the
Company's properties, to examine its books of account and records and to discuss
the Company's affairs, finances and accounts with its officers, all at such
reasonable times as may be requested by such Purchaser or other holders, prior
to an Event of Default in advance by written notice given at least two (2)
Business Days prior to any proposed visit or inspection; provided, however, that
the Company will not be obligated to provide access to information which it
deems in good faith to be Proprietary or Privileged Information, and provided
further, that such Purchaser and other holders do not interfere with the normal
business operations of the Company.
SECTION 6.3. Termination of Information and Inspection
Covenants. The covenants set forth in Sections 6.1 and 6.2 hereof will terminate
and be of no further force or effect with respect to a Purchaser upon the
repayment or conversion in full of such Purchaser's Convertible Bridge Note;
provided, however, that if the Company becomes subject to the periodic reporting
requirements of Sections 12(g) or 15(d) of the Exchange Act, the covenant set
forth in Section 6.1(d) shall terminate and the covenants set forth in Sections
6.1(a), 6.1(b) and 6.1(g) shall be deemed to be satisfied upon the delivery to
each Purchaser of the reports filed with the Commission within 10 days after
filing.
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SECTION 6.4. Payment of Obligations. The Company shall pay and
discharge at or before maturity all its material obligations and liabilities,
including, without limitation, tax liabilities, assessments and governmental
charges or levies imposed on it or upon its income or profits or upon any of its
material properties, except where the same may be contested in good faith by
appropriate proceedings, and shall maintain, in accordance with generally
accepted accounting principles, appropriate reserves for the accrual of any of
the same.
SECTION 6.5. Compliance with Laws, Etc. The Company shall
comply, and cause each of its Subsidiaries (i) to comply with all applicable
laws, rules, regulations, judgments, treaties, orders and decrees (including,
without limitation all environmental laws applicable to it and ERISA); and (ii)
to comply with the requirements of all FCC Licenses and State Authority
Authorizations held by the Company and its Subsidiaries and all applicable laws,
rules, regulations and orders of Governmental Authorities (including, without
limitation, the FCC and any State Authority) unless, in the case of clauses (i)
and (ii) above, failure so to comply could not reasonably be expected to have a
Material Adverse Effect.
SECTION 6.6. Permits, Etc. The Company shall maintain and
preserve, and cause each of its Subsidiaries to maintain and preserve all
permits, licenses, authorizations, approvals, entitlements and accreditations
which are necessary to the proper conduct of its business as it is then being
conducted and shall remain, and cause each of its Subsidiaries to remain in good
standing in each jurisdiction in which the character of the properties owned or
leased by it or in which the transaction of its business makes such
qualification necessary, unless failure to maintain and preserve such permits,
licenses, authorizations, approvals, entitlements, accreditation and
qualifications could not reasonably be expected to have a Material Adverse
Effect.
SECTION 6.7. Keeping of Records and Books of Account. The
Company shall, and shall cause each of its Subsidiaries to keep adequate records
and books of account, with complete entries made in accordance with generally
accepted accounting principles consistently applied.
SECTION 6.8. Insurance. The Company shall, and shall cause
each of its Subsidiaries to (a) keep adequately insured, by financially sound
and reputable insurers, all property of a character usually insured by Persons
engaged in the same or a similar business, similarly situated, against loss or
damage of the kinds customarily insured against by such Persons and (b) carry,
with financially sound and reputable insurers, such other insurance (including,
without limitation, liability insurance) in such amounts as are available at
reasonable expense and to the extent believed necessary in the good faith
business judgment of the Company. Upon the request of the Majority Purchasers,
the Company will provide the Purchasers with copies of certificates of insurance
summarizing the amounts and types of insurance carried by the Company and its
Subsidiaries and the name of the applicable insurer.
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SECTION 6.9. Change in Nature of Business. The Company shall
not make, or permit any of its Subsidiaries to make, any change in the nature of
its business as carried on and proposed to be carried on at the date hereof
except changes that will not fundamentally and substantively alter the character
of their business from that conducted or proposed to be conducted by the Company
at the Time of Purchase. Neither the Company nor any of its Subsidiaries will
engage to any substantial extent in any line or lines of business activity other
than the PCS Business. The Company will actively and diligently use its best
efforts to keep in full force and effect all FCC Licenses and other
Authorizations.
SECTION 6.10. Punctual Payment; Use of Proceeds.
(a) The Company will duly and punctually pay or cause to be
paid all principal, interest and premiums payable with respect to the Notes in
accordance with the terms thereof.
(b) The Company will not use the proceeds of the financing
committed for herein for any purpose other than as set forth in Section 3.18
hereof.
SECTION 6.11. ERISA. (a) The Company shall (i) make available
to the Purchasers copies of all annual reports (Form 5500 Series) relating to a
Benefit Plan, together with all attachments thereto, promptly following the date
on which any such form is filed with the Internal Revenue Service, (ii) notify
the Purchasers within ten (10) Business Days after it or any ERISA Affiliate
knows or has reason to know that a prohibited transaction (as defined in Section
406 of ERISA or Section 4975 of the Code) has occurred with respect to a Benefit
Plan and shall send a statement of the Chief Executive Officer of the Company
describing such transaction and the action which the Company or any ERISA
Affiliate has taken, is taking or proposes to take, with respect thereto, and
(iii) shall notify the Purchasers within ten (10) Business Days after it or any
ERISA Affiliate sends notice of a plant closing or mass layoff (as defined in
the Worker Adjustment and Retraining Notification Act) to employees.
(b) The Company will not, and will not permit any ERISA
Affiliate to: (i) adopt or permit any ERISA Affiliate to adopt any "employee
welfare benefit plan" within the meaning of Section 3(1) of ERISA which provides
benefits to employees after termination of employment other than as required by
Section 601 of ERISA, COBRA or other applicable law; or (ii) engage, or permit
any ERISA Affiliate to engage in any prohibited transaction as described in
Section 406 of ERISA or Section 4975 of the Code for which a statutory or class
exemption is not available or a private exemption has not previously been
obtained from the Department of Labor.
SECTION 6.12. Option to Adopt More Favorable Terms.
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(a) In the event the Company and/or any of its Subsidiaries
obtains Vendor Bridge Financing with an all in interest rate in excess of the
prime rate plus 2.5% per annum, the Company shall, upon the written request of
any holder of a Convertible Bridge Note, amend the terms of such Purchaser's
Note to increase the rates of interest thereon (including the default rate) by
the amount of such excess.
(b) In the event the Company and/or any of its Subsidiaries
grants to the provider of any Vendor Bridge Financing warrants for the purchase
of the Company's Common Stock or securities convertible or exchangeable into
Common Stock which the Purchaser determines in its sole discretion either (i)
contain a more favorable exercise or conversion price than is set forth in the
Warrants or (ii) permit the holder thereof to purchase a greater percentage of
the Common Stock relative to the size of the Vendor Bridge Financing being
provided than the percentage that the Warrant Shares bear to the aggregate
amount of the Convertible Bridge Notes, then the Company shall, upon the written
request of any holder of a Convertible Bridge Note, amend the terms of such
Purchaser's Warrant to grant to such Purchaser the more favorable exercise or
conversion price and/or to increase the percentage of Warrant Shares that may be
acquired thereunder to the same percentage as provided for in the Vendor Bridge
Financing.
(c) In the event the Company and/or any of its Subsidiaries
obtains Underwriter Bridge Financing or Vendor Bridge Financing with terms in
the aggregate which any Purchaser in its sole discretion deems more favorable to
the lenders under such facility than the terms of the Bridge Documents, the
Company shall, upon the written request of any holder of a Convertible Bridge
Note exchange such Purchaser's Note (and all Bridge Documents) in their entirety
for the agreements and securities delivered under such Underwriter Bridge
Financing or Vendor Bridge Financing, as applicable; provided that, if a
Purchaser elects to convert its Note into the Underwriter Bridge Financing or
the Vendor Bridge Financing, (i) it will agree to be subordinate to the lender
with respect to any and all payments required to be made under the Underwriter
Bridge Financing or the Vendor Bridge Financing on terms no less favorable to
the holders of the Notes than the subordination provisions contained herein;
(ii) the Purchaser will be entitled to an interest rate of 1% per annum above
the applicable rate in such Underwriter Bridge Financing or Vendor Bridge
Financing; and (iii) the Purchaser will not be bound by or entitled to any terms
specific to the operation or conduct of the Company's PCS Business contained in
the Vendor Bridge Financing.
(d) In the event the Company and/or any of its Subsidiaries
obtains Pari Passu Financing with terms in the aggregate which any Purchaser in
its sole discretion deems more favorable to the lenders under such facility than
the terms of the Bridge Documents, the Company shall, upon written request of
any holder of a Convertible Bridge Note, exchange such Purchaser's Note (and all
Bridge Documents) in their entirety for the agreements and securities delivered
under such Pari Passu Financing.
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(e) In the event the Company intends to consummate an
Underwriter Bridge Financing, Vendor Bridge Financing or Pari Passu Financing,
the Company will provide each holder of a Convertible Bridge Note with written
notice of the proposed financing, together with all of the proposed
documentation for the financing, and upon written request of such holder within
ten (10) Business Days of holder's receipt of such notice, the Company will take
the actions requested by the holder pursuant to the terms of subsections (a),
(b), (c) or (d) of this Section 12, as applicable; provided, however, that
nothing contained in this Section 6.12 shall prevent the Company from prepaying
the Convertible Bridge Notes pursuant to terms of this Agreement from any
requesting holder rather than taking the actions required hereunder; and
provided, further that nothing contained herein requires the Company to delay
the closing of an Underwriter Bridge Financing, Vendor Bridge Financing or Pari
Passu Financing until the termination of the notice period.
SECTION 6.13. Transactions with Affiliates. The Company shall
not, and shall not permit any of its Subsidiaries to, enter into any
transaction, including, without limitation, any purchase, sale, lease or
exchange of property or the rendering of any service, with any Affiliate unless
such transaction is (a) in the ordinary course of the Company's or such
Subsidiary's business and (b) upon fair and reasonable terms no less favorable
to the Company or such Subsidiary than it would obtain in a comparable arm's
length transaction with a Person who is not an Affiliate as determined by the
Company's independent directors (if any) or, in the absence of any independent
directors, a majority of the Company's disinterested directors; provided,
however, that the foregoing shall not apply to transactions between the Company
and any of its Subsidiaries other than Acquired Subsidiaries.
SECTION 6.14. Indebtedness. The Company shall not and shall
not permit any of its Subsidiaries to create, incur or suffer to exist, any
Indebtedness other than Permitted Financings. The Company's Existing
Indebtedness is set forth on Schedule 6.14.
SECTION 6.15. Liens. The Company shall not and shall not
permit any of its Subsidiaries to create or suffer to exist any Lien upon or
with respect to any of their properties, rights or other assets, whether now
owned or hereafter acquired, or assign or otherwise transfer, or permit its
Subsidiaries to assign or otherwise transfer, any right to receive income, other
than the following:
(a) Liens created in connection with the C-Block Payment
Terms;
(b) Liens arising from sublicenses of FCC Licenses and other
Authorizations by the License Subsidiary to the Company or another Subsidiary;
(c) Liens granted in connection with any Purchase Money
Financing;
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(d) Liens securing Vendor Bridge Financing and Underwriter
Bridge Financing;
(e) Liens existing on the date hereof, as set forth in
Schedule 3.19 hereto;
(f) Liens for taxes, assessments or governmental charges or
levies to the extent that the payment thereof shall not be required by Section
6.4 hereof;
(g) restrictions on the use of real property and minor
irregularities in the title thereto which do not (i) secure obligations for the
payment of money or (ii) materially impair the value of such property or its use
by the Company and its Subsidiaries in the normal course of such Person's
business;
(h) Liens on the assets of any Subsidiary acquired after the
date of this Agreement which exist at the time of such Subsidiary's acquisition
and are not incurred in contemplation of the acquisition; and
(i) Liens on certain shares of the Company's Common Stock
granted to secure Shareholder Repurchase Notes under the terms thereof.
SECTION 6.16. Merger, Consolidation, Sale of Assets, Etc. The
Company shall not, and shall not permit any of its Subsidiaries to:
(a) Merge or consolidate with any Person, or permit any of its
Subsidiaries to merge or consolidate with any Person; provided, however, that
any wholly-owned Subsidiary may be merged into the Company or another such
wholly-owned Subsidiary other than the License Subsidiary, or may consolidate
with another such wholly-owned Subsidiary other than the License Subsidiary, so
long as (i) no other provision of this Agreement would be violated thereby, (ii)
the Company gives the holders of the Notes at least thirty (30) days' prior
written notice of such merger or consolidation, and (iii) the Company and its
Subsidiaries receives any necessary approvals of the FCC and the relevant State
Authorities; provided, further, that the Company may create a new Subsidiary and
merge it with or into another company to facilitate the acquisition of such
company; and provided, further, that the License Subsidiary may merge or
consolidate with another wholly-owned Subsidiary so long as such Subsidiary has
no liabilities or operations.
(b) Sell, assign, lease (other than subleases, sublicenses and
other rights to use (but not ownership) of PCS Licenses and rights associated
therewith) or otherwise transfer or dispose of, whether in one transaction or in
a series of related transactions, all or any substantial portion of their
properties, rights or other assets whether now owned or hereafter acquired to
any Person. For purposes of this subsection (b), the term "substantial portion"
means 7.5% of the consolidated assets or consolidated earnings before interest
and taxes of the Company or any of
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its Subsidiaries, which is selling, assigning, leasing, transferring or
disposing of properties, rights or assets.
SECTION 6.17. Change of Management. If either Allen Salmasi or
Edward Knapp ceases to be actively involved in the management of the Company's
and the Subsidiaries' businesses, the Company shall replace such Person within
six (6) months.
SECTION 6.18. Dividends. The Company shall not declare, make
or pay, as applicable: (i) any dividend or other distribution, direct or
indirect, on account of any shares of any class of its capital stock, except a
dividend payable solely in shares of that class of stock or in any junior class
of stock to the holders of that class, or (ii) any redemption, retirement,
sinking fund or similar payment, purchase or other acquisition for value, direct
or indirect, of any shares of any class of its capital stock, except pursuant to
repurchase rights provided in employee stock agreements, the Series A
Shareholders' Agreement and the Amended and Restated Shareholders' Rights
Agreement.
SECTION 6.19. License Information. Promptly after the Company
or the License Subsidiary has been awarded its PCS License, FCC License or other
Authorization, a certificate of the Chief Executive Officer containing a true
and complete list of all PCS Licenses and other FCC Licenses or Authorizations
from State Authorities awarded to the Company or the License Subsidiary.
SECTION 6.20. License Subsidiary. The Company will cause all
FCC Licenses and, to the extent permitted by State law or regulation, other
State Authority Authorizations at all times to be held in the name of the
License Subsidiary. The Company will not permit the License Subsidiary to become
directly or indirectly obligated in respect of the Notes or any other
Indebtedness or to grant Liens on its assets (in each case except in connection
with the C-Block Payment Terms) (other than subleases and sublicenses of, and
other rights to use but not own, PCS Licenses and rights associated therewith)
or to engage in any line or lines of business activity or to hold any property
other than FCC Licenses and State Authority Authorizations; provided, however,
that nothing herein shall (i) preclude the License Subsidiary from sublicensing
the FCC Licenses and other State Authority Authorizations to the Company and its
Subsidiaries, or (ii) preclude the Company and/or the License Subsidiary (to the
extent permitted by applicable FCC laws, rules and regulations) from granting
Liens on the stock of the License Subsidiary and/or on the proceeds of the sale
or other disposition of the FCC Licenses to secure any Senior Debt. The License
Subsidiary will at all times be wholly-owned by the Company.
SECTION 6.21. Subsidiary Guarantors. The Company will cause
all of its existing and future Subsidiaries (other than the License Subsidiary
and other than Subsidiaries less than wholly-owned by the Company) to become
parties to the Subsidiary Guaranty at the time such Subsidiary is formed or
acquired;
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provided, however, that no Subsidiary which is acquired by the Company or any of
its Subsidiaries after the date of this Agreement shall be required to become a
party to the Subsidiary Guaranty if (a) execution and delivery of the Subsidiary
Guaranty would constitute a default or an event of default under any of such
Subsidiary's Indebtedness existing at the time of its acquisition and (b) the
Company and its other Subsidiaries are not required to guarantee such Acquired
Subsidiary's Indebtedness, so long as such Acquired Subsidiary provides the
Subsidiary Guaranty as soon as it is permitted to do so without causing such
default or event of default.
SECTION 6.22. Equity. After the Auction Closing Date, the
Company shall not issue any shares of Series A Common Stock or Series C Common
Stock (other than those shares set forth on Schedule 3.2). Concurrently with the
Initial Public Offering, all shares of Series C Common Stock shall be converted
into Series B Common Stock and (unless advised to the contrary by the Company's
underwriters or otherwise prevented by law) all shares of Series A Common Stock,
except for 1,000 shares of Series A Common Stock, shall be converted into Series
B Common Stock and, if required by the Company's Restated Certificate of
Incorporation, warrants to purchase Series B Common Stock. Series B Common Stock
shall be the only capital stock of the Company issued in the Initial Public
Offering.
SECTION 6.23. Investments. The Company shall not and shall not
permit any of its Subsidiaries to make any loan or advance to any Person or
purchase, hold or otherwise acquire, any Capital Stock, other securities or
obligations of, or any interest in, any Person, other than:
(i) Permitted Investments;
(ii) investments existing on the date hereof, as set forth in
Schedule 6.23;
(iii) loans or advances to its Subsidiaries that are
Guarantors;
(iv) loans or advances to employees in the ordinary course in
an aggregate amount not to exceed $500,000 during the period ending two years
from the Initial Closing and $1,000,000 thereafter;
(v) the Company's equity investment in an Acquired Subsidiary;
and
(vi) loans or advances to any Person (other than its
Subsidiaries that are Guarantors) or purchases or acquisitions of any
Capital Stock, other securities or obligations of, or any interest in
any Person (other than its Subsidiaries that are Guarantors), up to in
the aggregate the greater of
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$10,000,000 or 4% of the total equity capital raised by the Company
since its incorporation.
SECTION 6.24. Subsidiary Dividends. The Company and its
Subsidiaries shall not permit any restriction on a Subsidiary's ability to
declare and pay dividends to the Company in an amount necessary to (a) pay the
operating expenses of the Company and (b) pay any of the Company's obligations
hereunder and under the Notes other than restrictions contained in Indebtedness
of Acquired Subsidiaries which was in existence prior to the acquisition and not
incurred in contemplation of such acquisition.
SECTION 6.25. Corporate Existence. The Company will, and will
cause each of its Subsidiaries to, preserve and keep in full force and effect
its corporate existence, rights and franchises; provided, however, that (i) the
Subsidiaries may consummate any merger or consolidation permitted under Section
6.16 hereof, and (ii) the Company shall not be required to preserve the
corporate existence, rights and franchises of any Subsidiary if, in the judgment
of the Board of Directors of the Company, such existence or preservation is not
material to the conduct of business of the Company and its Subsidiaries, taken
as a whole.
ARTICLE VII
SUBORDINATION
SECTION 7.1. Agreement to Subordinate; Right to Appoint
Representatives.
(a) The Company agrees, and each holder of a Convertible
Bridge Note by acceptance thereof agrees, that the Indebtedness evidenced by the
Convertible Bridge Notes is subordinated in right of payment, to the extent and
in the manner provided in this Article, to the prior payment in full of all
Senior Debt, and that the subordination is for the benefit of the holders of
Senior Debt.
(b) For purposes of this Article VII, "Subordinated
Obligations" means the Company's obligations to pay principal of and interest
(including, without limitation, interest accruing after the filing of a petition
under any bankruptcy law, whether or not allowable as a claim thereunder) on and
all premium and all amounts received pursuant to a claim for rescission of the
Notes or Bridge Documents or tort damages arising out of or in respect of any
breach of a representation or covenant in any of the Bridge Documents.
(c) The Company hereby agrees to give prompt written notice to
the record holders of the Subordinated Obligations or the Noteholders'
Representative, if any, of the occurrence of any event of default on or
acceleration of the Senior Debt, and to give prompt written notice to the record
holders of the
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<PAGE> 38
Senior Debt or the Senior Debt Representative, if any, of the occurrence of any
Default, Event of Default or acceleration of the Subordinated Obligations.
(d) The Company may at any time upon notice to the Purchasers
but at the Company's expense appoint an investment bank, a commercial bank or a
trust company reasonably acceptable to the Majority Holders (and pursuant to
documentation containing such rights and obligations as are reasonably
acceptable to the Majority Holders) to serve as the Senior Debt Representative
and/or the Noteholders' Representative. At any time there is more than one
holder of the Company's Senior Debt, the Company shall, at the Company's
expense, appoint an investment bank, a commercial bank or a trust company
reasonably acceptable to the holders of such Senior Debt, to serve as the Senior
Debt Representative or, unless and until the holders of a majority of the
Company's Senior Debt object, the Company will serve as the Senior Debt
Representative. The Company will give prompt written notice to the holders of
the Subordinated Obligations of the appointment of a Senior Debt Representative
other than the Company, and to the holders of the Senior Debt of the appointment
of a Noteholders' Representative, in each case, together with all relevant
information for notices. Until the holders of the Subordinated Obligations
receive notice of the appointment of a Senior Debt Representative in accordance
with this Section and/or the name and notice information for the sole holder of
the Senior Debt, as applicable, they shall be entitled to assume that the
Company is acting in such capacity.
SECTION 7.2. Liquidation; Dissolution; Bankruptcy. Upon any
distribution or dissolution of the Company or in a bankruptcy, reorganization,
insolvency, receivership or similar proceeding relating to the Company or its
property:
(a) holders of Senior Debt shall be entitled to receive
payment in full in cash or provided for in a manner satisfactory to the
holders of such Senior Debt of the principal of and interest (including
interest accruing after the commencement of any such proceeding) to the
date of payment on the Senior Debt before holders shall be entitled to
receive any payment of the Subordinated Obligations; and
(b) until the Senior Debt is paid in full in cash or be
provided for in a manner satisfactory to the holders of such Senior
Debt, any distribution to which holders would be entitled but for this
Article shall be made to holders of Senior Debt as their interests may
appear, except that holders of Subordinated Obligations may receive
securities that are subordinated to Senior Debt to at least the same
extent as the Convertible Bridge Notes.
For purposes of this Article VII, a distribution may consist of cash, securities
or other property, by set-off or otherwise.
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<PAGE> 39
SECTION 7.3. No Payment on Subordinated Obligations in Certain
Circumstances. "Payment Blockage Period" has the meaning set forth in Section
7.3(b) hereof.
(a) Payment Defaults. No direct or indirect payment will be
made on account of the Subordinated Obligations, or to acquire any of the
Convertible Bridge Notes for cash or property other than capital stock of the
Company, or on account of the redemption provisions of the Convertible Bridge
Notes upon the occurrence of any of the following events (each, a "Senior
Payment Default"):
(i) upon the maturity of any Senior Debt by lapse of time,
acceleration or otherwise, unless and until all such Senior Debt shall
first be paid in full or provided for in cash or provided for in a
manner satisfactory to the holders of such Senior Debt, or
(ii) in the event that the Company defaults in the payment of
any principal of or interest on or any other amounts payable on or due
in connection with any Senior Debt when it becomes due and payable,
whether at maturity or at a date fixed for prepayment or by declaration
or otherwise, unless and until such default has been cured or waived in
writing or has ceased to exist.
(b) Non-Payment Defaults. Upon the happening of any event of
default (other than a Senior Payment Default) with respect to any Senior Debt,
as such event of default is defined in the instruments evidencing such Senior
Debt or under which it is outstanding, permitting the holders thereof to
accelerate its maturity, upon written notice of the event of default given to
the Company and the Purchasers (or, if applicable, the Noteholders'
Representative, by the holder(s) of such Senior Debt or, if applicable, the
Senior Debt Representative), then, unless and until such event of default has
been cured or waived in writing or has ceased to exist or such notice has been
withdrawn by such holder(s) or the Senior Debt Representative, no direct or
indirect payment will be made by the Company with respect to the Subordinated
Obligations or to acquire any of the Notes for cash, property or securities
other than capital stock of the Company or with regard to redemption of the
Notes; provided that this Section 7.3(b) will not prevent (i) the making of any
payment when due of accrued and unpaid interest on the Notes by issuing
Additional Convertible Notes or (ii) the making of any payment of principal,
interest or premium on the Notes for a period of more than 179 days after the
date the written notice of the default is given unless Section 7.2 or 7.3(a)(i)
hereof is then applicable. Immediately after the end of the 179-day (or shorter)
period (each, a "Payment Blockage Period") the Company will pay all sums not
paid during the Payment Blockage Period because of this Section 7.3(b) unless
Section 7.3(a)(i) is then applicable. During any period of 360 consecutive days,
only one Payment Blockage Period may be commenced.
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<PAGE> 40
SECTION 7.4. When Distribution Must Be Paid Over. In the event
that the Company shall make any payment to a holder of Convertible Bridge Notes
on account of the principal, interest or premium on the Convertible Bridge Notes
at a time when such payment is prohibited by Section 7.2 or 7.3, such payment
shall be held by such holder, in trust for the benefit of, and shall be paid
forthwith over and delivered to, the Senior Debt Representative for the benefit
of the holders of Senior Debt (pro rata as to each of such holders on the basis
of the respective amounts of Senior Debt held by them), as their respective
interests may appear, or, if no Senior Debt Representative is then required
under Section 7.1(d), to the Company, for application to the payment of all
Senior Debt remaining unpaid to the extent necessary to pay all Senior Debt in
full in accordance with its terms, after giving effect to any concurrent payment
or distribution to or for the holders of Senior Debt. If a distribution is made
to holders of Convertible Bridge Notes that because of this Article should not
have been made to them, the holders of Convertible Bridge Notes who receive the
distribution shall hold it in trust for holders of Senior Debt and pay it over
to the Company or, if applicable, to the Senior Debt Representative.
SECTION 7.5. Notice by Company. The Company shall promptly
notify the holders of the Convertible Bridge Notes of any facts known to the
Company that would cause a payment of principal of, or interest or premium on
the Notes to violate this Article, but failure to give such notice shall not
affect the subordination of the Convertible Bridge Notes to the Senior Debt
provided in this Article.
SECTION 7.6. Subrogation. After all Senior Debt is paid in
full and until the Notes are paid in full, holders of Convertible Bridge Notes
shall be subrogated to the rights of holders of Senior Debt to receive
distributions applicable to Senior Debt to the extent that distributions
otherwise payable to the holders of Convertible Bridge Notes have been applied
to the payment of Senior Debt. A distribution made under this Article to holders
of Senior Debt which otherwise would have been made to holders of Convertible
Bridge Notes is not, as between the Company and holders of Convertible Bridge
Notes, a payment by the Company on the Convertible Bridge Notes.
SECTION 7.7. Relative Rights. This Article defines the
relative rights of holders of Convertible Bridge Notes and holders of Senior
Debt. Nothing in this Agreement shall:
(1) impair, as between the Company and holders of
Convertible Bridge Notes, the obligation of the Company, which
is absolute and unconditional, to pay principal of and
interest and premium on the Convertible Bridge Notes in
accordance with their terms;
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<PAGE> 41
(2) affect the relative rights of holders of
Convertible Bridge Notes and creditors of the Company other
than holders of Senior Debt; or
(3) prevent any holder of Convertible Bridge Notes
upon the occurrence of an Event of Default, from accelerating
its Subordinated Obligations or exercising its other available
remedies, subject to the rights of holders of Senior Debt to
receive distributions otherwise payable to holders of
Convertible Bridge Notes.
If the Company fails because of this Article to pay any principal of or interest
or premium on Convertible Bridge Notes on the due date, the failure is still a
Default or Event of Default.
SECTION 7.8. Subordination May Not Be Impaired by Company. No
right of any holder of Senior Debt to enforce the subordination of the
indebtedness evidenced by the Convertible Bridge Notes shall be impaired by any
act or failure to act by the Company or by its failure to comply with this
Agreement.
SECTION 7.9. Distribution or Notice to Representatives.
Whenever a distribution is to be made or a notice is to be given to holders of
Senior Debt, the distribution may be made and the notice given to the Senior
Debt Representative, if any. Whenever a notice is to be given to holders of
Subordinated Obligations, the notice may be given to the Noteholders'
Representative, if any.
ARTICLE VIII
LIMITATION ON TRANSFERS
SECTION 8.1. Restrictions on Transfer. None of the Securities
shall be transferable except upon the conditions specified in this Article 8,
which conditions are intended to ensure, among other things, compliance with the
provisions of the Securities Act, the Communications Act of 1934, as amended,
and the rules and regulations of the FCC in respect of the Transfer of any of
such Securities or any interest therein. Any proposed transferee of any
Securities (or any interest therein) shall agree to take and hold such
Securities (or any interest therein) subject to the provisions and upon the
conditions specified in this Article 8. Each Transfer of any Convertible Bridge
Note (or portion thereof) shall be in a minimum principal amount of $500,000.
SECTION 8.2. Restrictive Legends. (a) Each certificate for the
Securities issued to any Purchaser or to a subsequent transferee shall (unless
otherwise permitted by the provisions of Section 8.2(b) or Section 8.3) include
a legend in substantially the following form:
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<PAGE> 42
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED OR
SOLD, UNLESS IT HAS BEEN REGISTERED UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS OR UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE
AND THEN ONLY IN COMPLIANCE WITH THE RESTRICTIONS ON TRANSFER SET FORTH
IN THE SECURITIES PURCHASE AGREEMENT DATED AS OF APRIL 9, 1996, A COPY
OF WHICH MAY BE OBTAINED FROM NEXTWAVE TELECOM INC. AT ITS PRINCIPAL
EXECUTIVE OFFICE.
(b) Any holders of Securities registered pursuant to the
Securities Act and qualified under applicable state securities laws may exchange
such Securities on transfer for new securities that shall not bear the legend
set forth in paragraph (a) of this Section 8.2.
SECTION 8.3. Notice of Proposed Transfers. Five (5) Business
Days prior to any proposed Transfer (other than Transfers of Securities
registered under the Securities Act), the holder thereof shall give written
notice to the Company of such holder's intention to effect such Transfer,
setting forth the amount of the Securities proposed to be Transferred and the
name and the country of origin of the proposed transferee (and if not a natural
person, of its direct and indirect owners), and shall be accompanied by (A) an
opinion of counsel reasonably satisfactory to the Company addressed to the
Company to the effect that the proposed Transfer of such Securities may be
effected without registration under the Securities Act, (B) such representation
letters in form and substance reasonably satisfactory to the Company and
consistent with the terms of this Agreement to ensure compliance with the
provisions of the Securities Act, (C) a Supplemental Signature Page duly
executed in triplicate and if then applicable, an I.R.S. Form W-8, W-9, 1001 or
4224, as applicable, for delivery to the Escrow Agent if then applicable, and
(D) duly executed counterparts of (i) the Amended and Restated Stockholders'
Voting Agreement and (ii) the Amended and Restated Shareholders' Rights
Agreement; provided, that such holder need not provide the Company with the
opinion of counsel referred to in clause (A) above if such proposed Transfer is
to an Affiliate of such holder. If such proposed Transfer is to a Restricted
Transferee, such proposed Transfer may be effected only if the Company approves
in writing the Transfer to the proposed Restricted Transferee (which approval
shall not be unreasonably withheld or delayed), and except, as provided in the
preceding sentence, no proposed Transfer to any proposed transferee (whether a
Restricted Transferee or otherwise) may be effected unless the Company shall
have received such notice of transfer, opinion of counsel, and other documents
referred to in the immediately preceding sentence, whereupon the holder of such
Securities shall be entitled to Transfer such Securities in accordance with the
terms of the notice delivered by the holder to the Company. Each certificate
evidencing the Securities transferred as above provided shall bear the legend
set forth in Section 8.2(a) except that such certificate shall not bear such
legend if the opinion of counsel referred to above is to the further effect that
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<PAGE> 43
neither such legend nor the restrictions on Transfer in Sections 8.1 through 8.3
are required in order to ensure compliance with the provisions of the Securities
Act.
SECTION 8.4. Compliance with FCC Ownership Restrictions. Each
Purchaser acknowledges that the Company has elected and its shareholders have
consented to have the Company treated, for FCC purposes, as a Designated Entity
and Small Business (as defined by Part 24 of the FCC regulations relating to
broadband Personal Communications Services) in connection with the Company's
participation in the FCC's PCS License auction process and its bid for PCS
Licenses as a Designated Entity and Small Business. Each Purchaser further
acknowledges that its right to convert its Convertible Bridge Note into Convert
Shares, exercise the Warrants or transfer the Warrant Shares or Convert Shares
shall be limited to the extent that such would cause the ownership of the
capital stock of the Company to be no longer so qualified under applicable FCC
regulations, including without limitation, restrictions on foreign ownership,
maximum ownership requirements and voting rights. Each Purchaser further
acknowledges and agrees that, pursuant to the terms of the Restated Certificate,
any transfer of Securities of the Company by any party will be null and void and
of no force and effect to the extent that such transfer will cause the Company
to violate applicable FCC rules and regulations or no longer be eligible as a
Designated Entity and Small Business. Each Purchaser will provide to the
Company, upon the Company's reasonable request at the Company's expense, such
properly signed corporate documents as, in the opinion of legal counsel to the
Company, may be necessary (i) to maintain the Company's eligibility as a
Designated Entity and Small Business and (ii) to comply with the FCC's foreign
ownership limitations and other regulations as adopted from time to time. Upon
any Purchaser's reasonable written request, made not more than four times per
year, the Company will from time to time provide the Purchasers with an updated
schedule of the Company's foreign ownership and the number and percentage of
shares held by foreign shareholders.
ARTICLE IX
CONVERSION
SECTION 9.1. Conversion Privilege. Each holder of one or more
Convertible Bridge Notes may, subject to the provisions of Section 8.4 hereof,
convert all or any portion of such Notes into Series B Common Stock of the
Company at any time commencing 150 days after the Auction Closing Date and until
the close of business on April 9, 2002, upon surrender of the Convertible Bridge
Notes, the principal of which is so to be converted, accompanied by written
notice of conversion in the form of the Conversion Notice attached to and made a
part of the Convertible Bridge Note, duly executed, to the Company at any time
during usual business hours at the office or agency maintained by it for such
purpose. The conversion price is $4.00 per share, subject to adjustment as
provided in Article 9 (the "Conversion Price"). The number of shares of Series B
Common Stock issuable upon conversion of Convertible Bridge Notes shall be
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<PAGE> 44
determined as follows: Divide the entire principal amount of Convertible Bridge
Notes surrendered for conversion (exclusive of any call premium that may
otherwise be payable upon redemption of the Notes pursuant to Sections 10.1(c)
or 10.4(c)), by the Conversion Price in effect at such time and round the result
to the nearest 1/100 of a share. Prior to any delivery of a written notice of
conversion referred to above by a holder of a Note that is directly or
indirectly owned by a non-U.S. person, the Company shall provide such holder
with written notice as to whether the delivery of shares of Common Stock
issuable upon conversion of all or a portion of such holder's Convertible Bridge
Note is prohibited at such time by the provisions of Section 8.4 hereof. The
Company shall provide such notice within three (3) Business Days of the receipt
by the Company of a written request from such holder based upon information
provided to the Company by such holder in such request regarding such holder's
ownership. Any conversion notice referred to herein which relates to the
conversion by a holder of a Convertible Bridge Note that is prohibited by
Section 8.4 hereof shall be ineffective and null and void to the extent
prohibited by Section 8.4 hereof, except for a notice of conversion provided by
the holder to the Company after a notice of prepayment has been provided to the
holder by the Company pursuant to Sections 10.1(d) or 10.4(e) or (f) hereof.
SECTION 9.2. Conversion Procedure. (a) Upon the surrender, as
herein provided, of a Convertible Bridge Note for conversion, the Company shall,
subject to the provisions of Section 8.4 hereof, issue and deliver or cause to
be delivered at its said office or agency, to or upon the written order of the
holder of the Convertible Bridge Note so surrendered, certificates representing
the whole number of fully paid and nonassessable shares of Series B Common Stock
into which the Convertible Bridge Note may be converted in accordance with the
provisions of this Article 9. Such conversion, subject to the provisions of
Section 8.4 hereof, shall be deemed to have been made as of the close of
business on the date that the Convertible Bridge Note shall have been
surrendered for conversion by delivery thereof with a written notice of
conversion duly executed, so that the rights of the holder of the Convertible
Bridge Note as a holder shall cease at such time and, subject to the following
provisions of this Section 9.2, the Person or Persons entitled to receive the
shares of Series B Common Stock upon conversion of the Convertible Bridge Note
shall be treated for all purposes as having become the record holder or holders
of such shares at such time and such conversion shall be at the Conversion Price
in effect at such time.
(b) Upon conversion of a Convertible Bridge Note which is
converted in part only, the Company shall execute and deliver to or on the order
of the holder thereof, at the expense of the Company, a new Convertible Bridge
Note in the principal amount equal to the unconverted portion of such Note.
SECTION 9.3. Taxes on Conversion. The Company will pay any and
all stamp, transfer and similar fees and taxes that may be payable in respect of
the issuance or delivery of shares upon conversion pursuant hereto by the holder
of
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<PAGE> 45
any Convertible Bridge Note; provided, however, that in no event shall the
Company be obligated to pay stamp, transfer or similar fees and taxes in more
than one state in addition to the state where the Company maintains its books
and records with respect to any conversion. The Company shall not be liable for
any other taxes, including without limitation, taxes based on items of income
and gain, which may be payable in respect of the Securities.
SECTION 9.4. Company to Provide Stock. The Company has
reserved and shall continue to reserve out of its authorized but unissued Series
B Common Stock or its Series B Common Stock held in treasury enough shares of
Series B Common Stock to permit the full conversion of the Convertible Bridge
Notes. All shares of Series B Common Stock which may be issued upon conversion
of the Convertible Bridge Notes shall be fully paid and non-assessable and are
not entitled to any preemptive or other similar rights, except as provided in
the Amended and Restated Shareholders' Rights Agreement. The Company shall
endeavor to list such shares on each national securities exchange on which the
Series B Common Stock is listed.
SECTION 9.5. Fractional Shares. No fractional shares or scrip
representing fractional shares shall be issued upon the conversion of the
Convertible Bridge Notes. If any such conversion would otherwise require the
issuance of a fractional share, an amount equal to such fraction multiplied by
the current market price per share of the Series B Common Stock on the last
trading day prior to the conversion shall be paid to the holder in cash by the
Company.
SECTION 9.6. Registration Rights. The Company hereby grants to
the Purchasers Registration Rights with respect to the resale of shares of
Series B Common Stock issuable upon conversion of the Convertible Bridge Notes
or exercise of the Warrants.
SECTION 9.7. Adjustment for Changes in Capital Stock.
(a) In case the Company
(1) declares or pays a dividend or makes a distribution on its
Common Stock in shares of its Common Stock;
(2) subdivides its outstanding shares of Common Stock into a
greater number of shares;
(3) combines its outstanding shares of Common Stock into a
smaller number of shares;
(4) makes a distribution on its Common Stock in shares of its
capital stock other than Common Stock or preferred stock; or
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<PAGE> 46
(5) issues by reclassification of its Common Stock any shares
of its capital stock;
then the Conversion Price in effect immediately prior to such action shall be
proportionately adjusted so that the holder of any Convertible Bridge Note
thereafter converted may receive the aggregate number and kind of shares of
capital stock of the Company which he or she would have owned immediately
following such action if such Convertible Bridge Note had been converted
immediately prior to such action.
The adjustment shall become effective immediately after the
record date in the case of a dividend or distribution and immediately after the
effective date in the case of a subdivision, combination or reclassification.
If after an adjustment a holder of a Convertible Bridge Note
upon conversion of it may receive shares of two or more classes of capital stock
of the Company, the Board of Directors of the Company shall determine the
allocation of the adjusted Conversion Price between the classes of capital
stock. After such allocation, which shall be made by the Board of Directors of
the Company in good faith and on a reasonable basis, the conversion privilege
and the Conversion Price of each class of capital stock shall thereafter be
subject to adjustment on terms comparable to those applicable to Common Stock in
this Section 9.
Such adjustment shall be made successively whenever any event
listed above shall occur.
(b) If the Company sets a record date for the distribution of
any rights, options or warrants to all holders of its Common Stock entitling
them for a period expiring within 60 days after the record date mentioned above
to purchase shares of Common Stock at a price per share less than the Current
Market Price per share on that record date, the Conversion Price shall be
adjusted in accordance with the formula:
O + N x P
-----
C' = C x M
---------
O + N
where:
C' = the adjusted Conversion Price.
C = the current Conversion Price.
O = the number of shares of Common Stock outstanding on the
record date (treating any outstanding shares of Series A and
Series C
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<PAGE> 47
Common Stock as if such shares had been converted to Series B
Common Stock ("on an as-converted basis").
N = the number of additional shares of Common Stock offered
pursuant to such rights issuance (treating any additional
shares of Series A and
Series C Common Stock on an as-converted basis).
P = the offering price per share of the additional shares.
M = the Current Market Price per share of Common Stock on the
record date.
The adjustment shall be made successively whenever any such
rights, options or warrants are issued and shall become effective immediately
after the record date for the determination of stockholders entitled to receive
the rights, options or warrants. If no rights, options or warrants are
distributed or at the end of the period during which such rights, options or
warrants are exercisable, not all rights, options or warrants shall have been
exercised, the Conversion Price shall be immediately readjusted to what it would
have been if "N" in the above formula had
been the number of shares actually issued.
(c) If the Company sets a record date for distribution to all
holders of its Common Stock of any of its assets (including but not limited to
cash, but excluding ordinary dividends), debt securities, preferred stock, or
any rights or warrants to purchase debt securities, preferred stock, assets or
other securities of the Company, the Conversion Price shall be adjusted in
accordance with the formula:
C' = C x (M - F)
-----
M
where:
C' = the adjusted Conversion Price.
C = the current Conversion Price.
M = the Current Market Price per share of Common Stock on the
record date mentioned above.
F = the fair market value on the record date of the assets,
securities, rights or warrants applicable to one share of
Common Stock. The Board of Directors shall determine the fair
market value in good faith and on a reasonable basis.
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The adjustment shall be made successively whenever any such
distribution is made and shall become effective immediately after the record
date for the determination of stockholders entitled to receive the distribution.
If such distribution is not made, the Conversion Price shall be immediately
readjusted to what it would have been without regard to such distribution.
This subsection does not apply to rights, options or warrants
referred to in subsection (b) of this Section 9.7
(d) If the Company issues shares of Common Stock for a
consideration per share less than the Current Market Price per share on the date
the Company fixes the offering price of such additional shares, the Conversion
Price shall be adjusted in accordance with the following formula:
P
-
C' = C x O + M
-----
A
where:
C'= the adjusted Conversion Price.
C = the then current Conversion Price.
O = the number of shares of Series B Common Stock outstanding
(treating any outstanding shares of Series A and Series C
Common Stock on an as-converted basis) immediately prior to
the issuance of such additional shares.
P = the aggregate consideration received for the issuance of
such additional shares.
M = the Current Market Price per share of Series B Common Stock
on the date of issuance of such additional shares.
A = the number of shares of Series B Common Stock outstanding
(treating any outstanding shares of Series A and Series C
Common Stock on an as-converted basis) immediately after the
issuance of such additional shares.
The adjustment contemplated by this subsection (d) shall be
made successively whenever any such issuance is made and shall become effective
immediately after such issuance.
This subsection (d) shall not apply to:
(1) any of the transactions described in subsections (a), (b)
and (c);
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(2) the exercise of Options (as hereinafter defined) or the
conversion or exchange of Convertible Securities (as hereinafter
defined), including such securities outstanding as of the date hereof
or listed on Schedules 3.2 or 6.14 of this Agreement;
(3) shares of Common Stock issued or deemed to be issued that
are designated Series A Common Stock on or before the Auction Closing
Date;
(4) shares of Series B Common Stock issued or deemed to be
issued upon conversion of shares of Series A Common Stock or Series C
Common Stock or exercise of Options issuable upon conversion of the
Company's Series A Common Stock at the conversion price provided for in
the Company's Restated Certificate of Incorporation at the Auction
Closing Date;
(5) shares of Common Stock subscribed for or issued (or
issuable upon exercise of Options or conversion or exchange of
Convertible Securities) on or prior to the Auction Closing Date at a
price of not less than $3.00 per share;
(6) shares of Common Stock issued or deemed to be issued to
employees or directors of, or consultants to, Next Wave pursuant to an
option plan, purchase plan, or other stock incentive program or
agreement which do not exceed, in the aggregate, the greater of
15,000,000 shares of Series B Common Stock or 12.5% of the equity of
the Company, on a fully diluted basis (collectively, the "Plans")
approved by the Board of Directors of the Company at a price of not
less than 85% of the fair market value per share as defined in such
Plan.
(7) the issuance of Series B Common Stock in a bona fide
public offering pursuant to a firm commitment underwriting;
(8) following the Initial Public Offering, the issuance of
Series B Common Stock in a bona fide private placement through a
placement agent that is a member firm of the National Association of
Securities Dealers, Inc. (except to the extent that any discount from
the Current Market Price shall exceed 20% of the then Current Market
Price); or
(9) shares of Common Stock issuable upon exercise of the
Options described in subsection (e)(4) of this Section 9.7.
(e) If the Company issues any securities, convertible into or
exchangeable for Common Stock ("Convertible Securities") or options, rights or
warrants exercisable into Common Stock or Convertible Securities ("Options")
(other than the Convertible Bridge Notes or the Warrants or securities issued in
transactions
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<PAGE> 50
described in Section (c)) for a consideration per share of Common Stock
initially deliverable upon conversion, exchange or exercise of such securities
less than the Current Market Price per share on the date of issuance of such
securities, the Conversion Price shall be adjusted in accordance with the
following formula:
P
-
C' = C x O + M
-----
O + D
where:
C'= the adjusted conversion price.
C = the current conversion price.
O = the number of shares of Common Stock outstanding (treating
any outstanding shares of Series A and Series C Common Stock
on an as-converted basis) immediately prior to such issuance.
P = the aggregate consideration received for the issuance of
such securities.
M = the Current Market Price per share of Common Stock on the
issuance date.
D = the maximum number of shares of Common Stock (treating any
outstanding shares of Series A and Series C Common Stock on an
as-converted basis) deliverable upon conversion, exercise or
exchange of such securities at the conversion or exercise
price or exchange rate.
The adjustment contemplated by this subsection (e) shall be
made successively whenever any such issuance is made and shall become effective
immediately after the issuance.
No further adjustment in the Conversion Price shall be made
upon the subsequent issue of Convertible Securities or shares of Common Stock
upon the exercise of Options or conversion or exchange of such Convertible
Securities.
If all of the Common Stock deliverable upon conversion,
exchange or exercise of such securities have not been issued when such
securities are no longer outstanding, then the Conversion Price shall promptly
be readjusted to the Conversion Price which would then be in effect had the
adjustment upon the issuance of such securities been made on the basis of the
actual number of shares of Common Stock issued upon conversion, exercise or
exchange of such securities.
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This subsection (e) shall not apply to:
(1) the Convertible Bridge Notes and Warrants issued on the
date hereof, Additional Convertible Bridge Notes issued pursuant to the
terms of such Convertible Bridge Notes and other Convertible Securities
and Options outstanding on the date hereof or subscribed for or issued
on or prior to the Auction Closing Date at a conversion or exercise
price not less than $3.00 per share, or listed on Schedules 3.2 or 6.14
of this Agreement;
(2) Options issuable upon conversion of Series A Common Stock
as provided in the Company's Restated Certificate of Incorporation at
the Auction Closing Date as adjusted for any of the events specified in
this Section 9.7 hereof;
(3) Options issued or deemed to be issued to employees or
directors of, or consultants to, the Company pursuant to a Plan
approved by the Company's Board of Directors at a price of not less
than 85% of fair market value of such Options as defined in such Plan;
(4) issuances of up to 5,000,000 Options with an exercise
price of not less than $3.00 per share that may be issued to resellers
of the Company's PCS services in strategic transactions (as such number
of shares and exercise price may be adjusted for stock splits, stock
dividends and the like from time to time);
(5) the issuance of Convertible Securities in a bona fide
public offering pursuant to a firm commitment underwriting; or
(6) following the Initial Public Offering, the issuance of
Convertible Securities or Options in a bona fide private placement
through a placement agent that is a member firm of the National
Association of Securities Dealers, Inc. (except to the extent that any
discount from the Current Market Price shall exceed 20% of the then
Current Market Price) so long as such Convertible Securities or Options
are traded in a public market prior to such issuance.
No further adjustment shall be made upon the
subsequent issue of Convertible Securities or shares of the Company's
Common Stock upon exercise of Options or conversion or exchange of
Convertible Securities.
(f) For purposes of any computation respecting consideration received
pursuant to subsections (d) and (e) of this Section 9.7, the following shall
apply:
(1) in the case of the issuance of shares of Common Stock for
cash, the consideration shall be the amount of such cash, provided that
in no case shall any deduction be made for any commissions, discounts
or
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other expenses incurred by the Company for any underwriting of the
issue or otherwise in connection therewith;
(2) in the case of the issuance of shares of Common Stock for
a consideration in whole or in part other than cash, the consideration
other than cash shall be deemed to be the fair market value thereof as
determined in good faith by the independent directors of Board of
Directors (irrespective of the accounting treatment thereof), whose
determination shall be conclusive, and described in a Board resolution;
(3) in the case of the issuance of Convertible Securities, the
aggregate consideration received therefor shall be deemed to be the
consideration received by the Company for the issuance of such
securities plus the additional minimum consideration, if any, to be
received by the Company upon the conversion or exchange thereof (the
consideration in each case to be determined in the same manner as
provided in clauses (1) and (2) of this subsection).
(g) The Company from time to time may reduce the Conversion Price by
any amount for any period of time if the period is at least 20 days and if the
reduction is irrevocable during the period; provided, however, that in no event
may the Conversion Price be less than the par value of a share of Common Stock.
Whenever the Conversion Price is reduced, the Company shall
provide holders of Convertible Bridge Notes a notice of the reduction. The
Company shall provide notice at least 15 days before the date the reduced
Conversion Price takes effect. The notice shall state the reduced Conversion
Price and the period it will be in effect.
A reduction hereunder of the Conversion Price does not change
or adjust the Conversion Price otherwise in effect for purposes of subsections
(a), (b), (c), (d) and (e) of this Section 9.7.
SECTION 9.8. Notice of Adjustment. Whenever the Conversion
Price is adjusted, the Company shall promptly mail to the holders a notice of
the adjustment, briefly stating the facts requiring the adjustment and the
manner of computing it.
SECTION 9.9. Notice of Certain Transactions. If:
(1) the Company takes any action that would require
an adjustment in the Conversion Price under this Section 9.7;
(2) the Company takes any action that would require
an amendment to this Agreement pursuant to Section 9.10; or
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(3) there is a liquidation or dissolution of the
Company,
the Company shall provide holders a notice stating the proposed record
date for a dividend, distribution, issuance, combination, reclassification,
consolidation, merger, transfer, lease, issuance, sale, liquidation or
dissolution. The Company shall provide notice at least 15 days before such date.
Failure to provide the notice or any defect in it shall not affect the validity
of the transaction or the rights of holders of Notes.
SECTION 9.10. Reorganization of the Company. To the extent
permitted by Section 6.16, if the Company is a party to a consolidation,
combination, transfer or lease of all or substantially all of its assets or
merger that reclassifies or changes its outstanding Series B Common Stock (a
"Reorganization"), the person obligated to deliver securities, cash or other
assets upon conversion of Convertible Bridge Notes shall, as a condition to
effectiveness of the Reorganization, enter into an amendment to this Agreement.
The amended Agreement shall provide that the holder of a Convertible Bridge Note
may convert it into the kind and amount of securities, cash or other assets that
he would have owned immediately after the Reorganization if he had converted the
Note immediately before the effective date of the Reorganization. The Company
shall not effect any such Reorganization, unless upon or prior to the
consummation thereof the successor corporation (if other than the Company) shall
assume by written instrument the obligation to deliver to the holders of the
Convertible Bridge Notes such securities, cash or other assets as such holder
shall be entitled to purchase in accordance with the foregoing provisions. The
successor Company shall provide holders a notice briefly describing the amended
Agreement.
If the issuer of securities deliverable upon conversion of
Convertible Bridge Notes under the amendment to this Agreement is an Affiliate
of the formed, surviving, transferee or lessee corporation, that issuer shall
join in the amendment to this Agreement.
If this Section 9.10 applies, subsections (a), (b), (c), (d)
and (e) of Section 9.7 do not apply.
SECTION 9.11. Current Market Price. The "Current Market Price"
per share of Common Stock shall be: (i) if prior to the Initial Public Offering,
the Conversion Price; (ii) if at the Initial Public Offering or within
twenty-five (25) trading days thereafter, the IPO Price; and (iii) at any time
subsequent to the period set forth in clause (ii) above, the "Current Market
Price" per share of Series B Common Stock on any date shall be the average of
the Quoted Prices of the Series B Common Stock for the twenty-five (25)
consecutive trading days immediately preceding the date of such determination.
The "Quoted Price" of the Series B Common Stock shall be the last reported sales
price of the Series B Common Stock as reported by the New York Stock Exchange
or, if the Series B Common Stock is listed on another securities exchange, the
last reported sales price of the Series B
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Common Stock on such exchange which shall be for consolidated trading if
applicable to such exchange, or as reported by the NASDAQ National Market
System, or, if the Series B Common Stock is neither so reported nor listed, the
average of the last reported bid and ask prices of the Series B Common Stock. In
the absence of one or more such quotations, the current market price shall be
determined in good faith by the independent directors of the Board of Directors
on the basis of such quotations as it considers reasonably appropriate.
SECTION 9.12. No Adjustments to Conversion Price. No
adjustment in the Conversion Price in accordance with the provisions of
paragraphs (a), (b), (c), (d) or (e) of Section 9.7 hereof need be made if such
adjustment would amount to a change in such Conversion Price of less than 1%;
provided, however, that the amount of adjustment which is not made by reason of
the provisions of this Section 9.12 shall be carried forward and taken into
account at the time of any subsequent adjustment in the Conversion Price.
No adjustment need be made for a transaction referred to in
subsections (a), (b), (c), (d) or (e) of this Section 9.7 to the extent holders
participate in the transaction.
No adjustment need be made for rights to purchase Common Stock
pursuant to a Company plan for reinvestment of dividends or interest approved by
the Board of Directors of the Company.
No adjustment need be made for a change in the par value or no
par value of the Common Stock.
All adjustments under this Article IX shall be made to the
nearest cent or to the nearest 1/100 of a share, as the case may be.
SECTION 9.13. Company Determination Final. Any determination
that the Company or the Board of Directors must make pursuant to subsection (a),
(c), (d), (e) or (f) of Section 9.7, Section 9.11 or Section 9.12 of this
Article 9 is presumptively correct absent manifest error.
SECTION 9.14. When Issuance or Payment May Be Deferred. In any
case in which Section 9.7 shall require that an adjustment in the Conversion
Price be made effective as of a record date for a specified event, the Company
may elect to defer until the occurrence of such event (i) issuing to the holder
of any Convertible Note converted after such record date the Series B Common
Stock and other capital stock of the Company, if any, issuable upon such
conversion over and above the Series B Common Stock and other capital stock of
the Company, if any, issuable upon such conversion on the basis of the
Conversion Price prior to such adjustment and (ii) paying to such holder any
amount in cash in lieu of a fractional share; pursuant to Section 9.5 hereto;
provided, however, that the Company shall deliver to such holder a due bill or
other appropriate instrument evidencing such
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holder's right to receive such additional Series B Common Stock, other capital
stock and cash upon the occurrence of the event requiring such adjustment.
ARTICLE X
PREPAYMENT
SECTION 10.1. Mandatory Prepayment of Convertible Bridge
Notes.
(a) If the Company consummates a High-Yield Financing at any
time after the Auction Closing Date but prior to 150 days after the Auction
Closing Date, the Company shall prepay the entire principal amount of the
outstanding Convertible Bridge Notes at a redemption price equal to 100% of the
principal amount of the Notes, together with accrued interest through the date
of prepayment and the holder shall receive Warrants pursuant to Section 10.2(a).
The Company shall provide written notices to holders of the Notes as required
under Section 10.2(d) and payment shall be made within two (2) Business Days
after the date the Company consummates the High Yield Financing.
(b) If the Company consummates a High-Yield Financing at any
time at or after 150 days after the Auction Closing Date but prior to the second
anniversary of the date of the Initial Closing, the Company shall, subject to
each holder's rights to convert its Notes pursuant to Section 10.1(d), prepay
the entire principal amount of the outstanding Convertible Bridge Notes at a
redemption price equal to 100% of the principal amount of the Notes, together
with accrued interest through the date of prepayment and the holder shall
receive Warrants pursuant to Section 10.2(a).
(c) If the Company consummates any High-Yield Financing at any
time at or after the second anniversary of the date of the Initial Closing, the
Company shall, subject to the each holder's right to convert its Notes pursuant
to Section 10.1(d), prepay the entire principal amount of the outstanding
Convertible Bridge Notes at a redemption price equal to 100% of the principal
amount of the Notes, together with accrued interest through the date of
prepayment and any call premium payable pursuant to Section 10.4(d). If Notes
are converted by the holders thereof prior to a redemption pursuant to this
subsection, only the outstanding principal amount of such Notes shall be
converted, and no call premium shall be payable by the Company upon such
conversion.
(d) If the Convertible Bridge Notes are called for redemption
pursuant to a mandatory prepayment by the Company at any time pursuant to
Sections 10.1(b) or 10.1(c), each holder may convert all or any portion of its
outstanding Convertible Bridge Notes prior to such prepayment in accordance with
this Section 10.1(d). In connection with its High-Yield Financing, the Company
shall estimate in good faith the projected date that its high-yield securities
will be priced by the Company's underwriter or placement agent, and shall
deliver to each
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Purchaser written notice of such estimated pricing date at least fifteen (15)
Business Days' prior to such date. Within two (2) Business Days after the date
of the actual pricing of such High-Yield Financing, the Company shall deliver to
each Purchaser written notice of such pricing date, and, in the case of a
mandatory prepayment pursuant to Sections 10.1(b) or 10.1(c), such notice also
shall specify the Warrant Determination Price (as defined in Section 10.2(g)).
Each holder may convert all or any portion of its outstanding Convertible Bridge
Notes at any time prior to the close of business on the fourteenth (14th)
Business Day after the actual pricing date specified in such notice or, if the
proceeds of the High Yield Financing have been deposited in escrow, the fifth
(5th) Business Day after the proceeds have been released from escrow, but in no
event less than fourteen (14) Business Days after the actual pricing date. If
any Convertible Bridge Notes are not surrendered for conversion in accordance
with the provisions of Section 9.2 during such 14 Business Day-period or such 5
Business Day-period, as applicable, the Company promptly shall prepay all of
such outstanding Notes pursuant to Sections 10.1(b) or 10.1(c), as applicable.
In the event that, in accordance with this Section 10.1(d), a holder has
provided a notice of conversion to the Company on a timely basis, but the
Company is prevented from converting all or a portion of such holder's
Convertible Bridge Note, pursuant to the provisions of Section 8.4 hereof, the
Company shall convert all or a portion of the holder's Note that is not
prohibited by Section 8.4 hereof and shall promptly prepay such portion of the
Note that is prohibited from conversion, at a redemption price of 100% of the
principal amount of the Note, together with accrued interest through the date of
prepayment (but without any call premium provided for in Section 10.1(c)) and
the Base Warrants at the Warrant Exercise Price, with respect to all or a
portion of the Note that is prohibited from conversion pursuant hereto.
(e) For purposes of this Article X, the term "consummates a
High- Yield Financing" means the Company has issued the securities and received
the proceeds thereof, in the High Yield Financing, it being understood that the
deposit of funds into escrow shall not constitute consummation of a High-Yield
Financing until the release of funds from escrow to the Company.
SECTION 10.2. Issuance of Warrants.
(a) At the time of the redemption by the Company of the
Convertible Bridge Notes pursuant to Sections 10.1(a), 10.1(b), 10.1(d) (but
only pursuant to the last sentence thereof) 10.4(a), 10.4(b), 10.4(e) (but only
pursuant to the last sentence thereof) or 10.4(f) (but only pursuant to the last
sentence thereof), the Company shall grant and issue to Purchaser Warrants to
purchase shares of Series B Common Stock, in an amount computed pursuant to
Sections 10.2(b) through 10.2(g).
(b) If Warrants are issued to a Purchaser prior to 150 days
after the Auction Closing Date and prior to the Initial Public Offering, the
Company shall issue to each Purchaser that number of Warrants equal to the
outstanding principal
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amount of such Purchaser's Notes divided by $4.00, subject to adjustment as
described in the last sentence of this subsection (b) and subject to the
cancellation provisions of Section 10.2(f). The Warrants shall have an exercise
price equal to $4.00 per share, subject to adjustment as described in the last
sentence of this subsection (b). For purposes of Sections 10.2(c) through
10.2(g), the number of Warrants issuable to such Purchaser pursuant to this
Section 10.2(b) shall be referred to as the "Base Warrants." Such $4.00 price
shall be adjusted after the date hereof pursuant to the terms of Section 4 of
the Warrants as if such Warrants had been outstanding from the date hereof to
the date of issuance; such price, as adjusted, is hereinafter referred to as the
"Warrant Exercise Price."
References in this Section 10.2 hereof to IPO Price or Current
Market Price for purposes of calculating the number of Warrants to be issued
hereunder shall be adjusted for any stock splits, stock dividends,
reclassifications, combinations or subdivisions of the Company's Series B Common
Stock between the date hereof and the date of issuance of the Warrants.
An adjustment factor shall be used to adjust the number of
Base Warrants for any stock splits, stock dividends, reclassifications,
combinations or subdivisions of the Company's Series B Common Stock between the
date hereof and the date of issuance of the Warrants (the "Adjustment Factor").
The initial Adjustment Factor shall be equal to one (1). The Adjustment Factor
shall be decreased proportionately for stock splits and stock dividends and
shall be increased proportionately for combinations and subdivisions. The
adjustment shall be made successively whenever any such transaction occurs and
shall become effective on the record date with respect to such transaction,
subject to the provisions of Section 9.14 of this Agreement as if such
provisions applied to the adjustments described in this paragraph.
(c)(1) If Warrants are issued to a Purchaser prior to 120 days
after the Auction Closing Date and concurrently with the Initial Public
Offering, the number of Warrants to be issued by the Company to such Purchaser
shall be computed by reference to the initial price to the public of the Series
B Common Stock in the Initial Public Offering (the "IPO Price"). If the IPO
Price of the Series B Common Stock is less than $5.00 per share, the Company
shall issue the number of Warrants to Purchaser equal to such Purchaser's Base
Warrants, at the Warrant Exercise Price. If the IPO Price of the Series B Common
Stock is more than $9.00 per share, the Company shall issue to Purchaser the
number of Warrants equal to twenty percent (20%) of such Purchaser's Base
Warrants, at the Warrant Exercise Price. If the IPO Price of the Series B Common
Stock is between $5.00 and $9.00 per share, the Company shall issue to Purchaser
an aggregate number of Warrants (the "Base 10.2(c) Warrants") equal to (i) such
Purchaser's Base Warrants multiplied by the Adjustment Factor divided by (ii)
the difference between the IPO Price and Warrant Exercise Price, at the Warrant
Exercise Price. For example, assuming the Warrant Exercise Price is $4.00 per
share, if the IPO Price of the Series B Common Stock were $6.00, the Base
10.2(c) Warrants that the Company
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would issue is fifty percent (50%) of such Purchaser's Base Warrants; at an IPO
Price of $7.00, the Base 10.2(c) Warrants that the Company would issue is
thirty-three and one-third percent (33-1/3%) of such Purchaser's Base Warrants;
and at an IPO Price of $8.00, the Base 10.2(c) Warrants that the Company would
issue is twenty-five percent (25%) of such Purchaser's Base Warrants.
(c)(2) If Warrants are issued to a Purchaser at or after 120
days and prior to 150 days after the Auction Closing Date and concurrently with
the Initial Public Offering, the number of Warrants to be issued by the Company
to such Purchaser shall be computed by reference to the IPO Price. If the IPO
Price of the Series B Common Stock is less than $5.00 per share the, Company
shall issue the number of Warrants to Purchaser equal to such Purchaser's Base
Warrants, at the Warrant Exercise Price. If the IPO Price of the Series B Common
Stock is more than $9.00 per share, the Company shall issue to Purchaser the
number of Warrants equal to sixty percent (60%) of such Purchaser's Base
Warrants, at the Warrant Exercise Price. If the IPO Price of the Series B Common
Stock is between $5.00 and $9.00 per share, the Company shall issue to Purchaser
an aggregate number of Warrants equal to the quotient of (i) the sum of such
Purchaser's Base 10.2(c) Warrants and such Purchaser's Base Warrants, divided by
(ii) two, at the Warrant Exercise Price. For example, assuming the Warrant
Exercise Price is $4.00 per share, if the IPO Price of the Series B Common Stock
were $6.00, the Company would issue seventy-five percent (75%) of such
Purchaser's Base Warrants; at an IPO Price of $7.00, the Company would issue
sixty-six and two thirds percent (66 2/3%) of such Purchaser's Base Warrants;
and at an IPO Price of $8.00, the Company would issue sixty-two and one-half
percent (62 1/2%) of such Purchaser's Base Warrants.
(d)(1) If the Warrants are issued to Purchaser prior to 120
days after the Auction Closing Date and after the Initial Public Offering, the
number of Warrants to be issued by the Company to such Purchaser shall be
computed by reference to the Current Market Price of the Series B Common Stock.
If the Current Market Price of the Series B Common Stock is less than $5.00 per
share, the Company shall issue to such Purchaser the number of Warrants equal to
such Purchaser's Base Warrants, at the Warrant Exercise Price. If the Current
Market Price of the Series B Common Stock is more than $9.00 per share, the
Company shall issue to such Purchaser the number of Warrants equal to twenty
percent (20%) of such Purchaser's Base Warrants, at the Warrant Exercise Price.
If the Current Market Price of the Series B Common Stock is between $5.00 and
$9.00 per share, the Company shall issue to such Purchaser an aggregate number
of Warrants (the "Base 10.2(d) Warrants") equal to (i) such Purchaser's Base
Warrants multiplied by the Adjustment Factor divided by (ii) the difference
between the Current Market Price and Warrant Exercise Price, at the Warrant
Exercise Price per share. For example, assuming the Warrant Exercise Price is
$4.00 per share, if the Current Market Price of the Series B Common Stock were
$6.00, the Base 10.2(d) Warrants that the Company would issue is fifty percent
(50%) of such Purchaser's Base Warrants; at a Current Market Price of $7.00, the
Base 10.2(d)
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Warrants that the Company would issue is thirty-three and one-third percent (33-
1/3%) of such Purchaser's Base Warrants; and at a Current Market Price of $8.00,
the Base 10.2(d) Warrants that the Company would issue is twenty-five percent
(25%) of such Purchaser's Base Warrants.
(d)(2) If the Warrants are issued to Purchaser at or after 120
days and prior to 150 days after the Auction Closing Date and after the Initial
Public Offering, the number of Warrants to be issued by the Company to such
Purchaser shall be computed by reference to the Current Market Price of the
Series B Common Stock. If the Current Market Price of the Series B Common Stock
is less than $5.00 per share, the Company shall issue to such Purchaser the
number of Warrants equal to such Purchaser's Base Warrants, at the Warrant
Exercise Price. If the Current Market Price of the Series B Common Stock is more
than $9.00 per share, the Company shall issue to such Purchaser the number of
Warrants equal to sixty percent (60%) of such Purchaser's Base Warrants, at the
Warrant Exercise Price. If the Current Market Price of the Series B Common Stock
is between $5.00 and $9.00 per share, the Company shall issue to such Purchaser
an aggregate number of Warrants equal to the quotient of (i) the sum of such
Purchaser's Base 10.2(d) Warrants and such Purchaser's Base Warrants, divided by
(ii) two, at the Warrant Exercise Price. For example, assuming the Warrant
Exercise Price is $4.00 per share, if the Current Market Price of the Series B
Common Stock were $6.00, the Company would issue seventy-five percent (75%) of
such Purchaser's Base Warrants; at a Current Market Price of $7.00, the Company
would issue sixty-six and two thirds percent (66 2/3%) of such Purchaser's Base
Warrants; and at a Current Market Price of $8.00, the Company would issue
sixty-two and one-half percent (62 1/2%) of such Purchaser's Base Warrants.
(e) If the Warrants are issued to a Purchaser at or after 150
days after the Auction Closing Date, the Company shall issue to such Purchaser
an aggregate number of Warrants equal to such Purchaser's Base Warrants, at
Warrant Exercise Price.
(f) In the event the Company previously has issued Warrants to
a Purchaser pursuant to Section 10.2(b) and the Company completes its Initial
Public Offering prior to 150 days after the Auction Closing Date, the Company
and Purchaser agree that a portion of such Purchaser's Warrants equal to the
"Cancellation Amount," if any, shall be cancelled immediately and of no further
force and effect. The "Cancellation Amount" shall be the difference between (i)
the number of Warrants issued to such Purchaser pursuant to Section 10.2(b) and
(ii) (A) prior to 120 days after the Auction Closing Date, that number of
Warrants that would be issued to such Purchaser under the formula set forth in
Section 10.2(c)(1) and (B) at or after 120 days and prior to 150 days after the
Auction Closing Date, that number of Warrants that would be issued to such
Purchaser under the formula set forth in Section 10.2(c)(2). For example,
assuming the Warrant Exercise Price is $4.00 per share, if the IPO Price is
$6.00 per share, the Cancellation Amount would be fifty percent (50%) of such
Purchaser's Base
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Warrants prior to 120 days after the Auction Closing Date and twenty-five
percent (25%) thereafter. Promptly following any cancellation of Warrants
pursuant to this Section 10.2(f), such Purchaser shall surrender its Warrant to
the Company, which shall replace such Warrant with a substitute Warrant
representing the actual number of shares that could then be purchased upon
exercise of such Warrant following the cancellation hereunder. The Company shall
promptly provide written notice to such Purchaser specifying the Cancellation
Amount and the calculation thereof.
(g) As used in this Agreement, "Warrant Determination Price"
means (i) if Warrants are issued prior to the Initial Public Offering, the
Warrant Exercise Price, unless the Company completes its Initial Public Offering
prior to 150 days after the Auction Closing Date, in which case the IPO Price
shall be used, (ii) if Warrants are issued concurrently with the Initial Public
Offering and prior to 150 days after the Auction Closing Date, the IPO Price,
(iii) if Warrants are issued after the Initial Public Offering but prior to 150
days after the Auction Closing Date, the Current Market Price on the date of
notice specified in Sections 10.1(d) or 10.4(e) hereof, and (iv) if Warrants are
issued at or after 150 days after the Auction Closing Date, the Warrant Exercise
Price. In no event shall the Warrant Determination Price be less than the
Warrant Exercise Price.
(h) All notices of conversion given pursuant to this Article X
shall be irrevocable.
SECTION 10.3. Registration Rights. The Company hereby grants
to each Purchaser and the other holders Registration Rights with respect to the
resale of the Warrants and the shares of Series B Common Stock issuable upon
exercise of the Warrants.
SECTION 10.4. Option to Prepay Convertible Bridge Notes.
(a) At any time prior to 150 days after the Auction Closing
Date, the Company may prepay the Convertible Bridge Notes with any source of
funds (other than a High-Yield Financing) at a redemption price equal to 100% of
the outstanding principal amount of the Notes, together with accrued interest
through the date of prepayment and the holder shall receive Warrants pursuant to
Section 10.2(a). Payment shall be made on such redemption date.
(b) At any time at or after 150 days after the Auction Closing
Date but prior to the second anniversary of the date of the Initial Closing, the
Company may, subject to each holder's right to convert its Notes pursuant to
Section 10.4(e), prepay the Convertible Bridge Notes with any source of funds
(other than a High-Yield Financing) at a redemption price equal to 100% of the
outstanding principal amount of the Notes, together with accrued interest
through the date of prepayment, and the holder shall receive Warrants pursuant
to Section 10.2(a).
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(c) At any time at or after the second anniversary of the date
of the Initial Closing, the Company may, subject to each holder's right to
convert its Notes pursuant to Section 10.4(f), prepay the Convertible Bridge
Notes with any source of funds (other than a High-Yield Financing) at a
redemption price equal to 100% of the outstanding principal amount of the Notes,
together with accrued interest through the date of prepayment and a call premium
in an amount computed pursuant to Section 10.4(d). If Notes are converted by the
holders thereof prior to a redemption pursuant to this subsection, only the
outstanding principal amount of such Notes shall be converted, and no call
premium shall be payable by the Company upon such conversion.
(d) The call premium to be paid to the holders upon redemption
of the Convertible Bridge Notes pursuant to Sections 10.1(c) and 10.4(c) shall
be $0.50 for each $1.00 of outstanding principal and accrued interest at the
time beginning two years after the Initial Closing, increasing ratably by $0.10
each year thereafter until April 9, 2002. The call premium shall be pro-rated
for the interim portion of a year prior to the redemption of the Convertible
Bridge Notes pursuant to Sections 10.1(c) and 10.4(c). For example, if the
Company redeemed the Convertible Bridge Notes outstanding at the end of the
thirtieth (30th) month after the Initial Closing, the call premium would be
$0.55 per $1.00.
(e) If the Convertible Bridge Notes are called for redemption
pursuant to an optional prepayment by the Company at any time pursuant to
Section 10.4(b), each holder may convert, subject to Section 9.1 hereof, all or
any portion of its outstanding Convertible Bridge Notes prior to such prepayment
in accordance with this Section 10.4(e). In connection with such repayment at
any time, the Company shall establish a reference date pursuant to which the
Company shall calculate the Current Market Price of its Series B Common Stock
prior to redemption. The Company shall deliver to each Purchaser written notice
of such reference date twenty-five (25) Business Days' prior to such date.
Within two (2) Business Days after such reference date, the Company shall
deliver to each Purchaser written notice of such reference date and such notice
also shall specify the Warrant Determination Price (as defined in Section
10.2(g)). Each holder may convert all or any portion of its outstanding
Convertible Bridge Notes at any time prior to the close of business on the
fifteenth (15) Business Day after the reference date specified in such notice.
If any Convertible Bridge Notes are not surrendered for conversion in accordance
with the provisions of Section 9.2 during such 15 Business Day-period, the
Company thereafter shall promptly prepay all of such outstanding Notes pursuant
to Section 10.4(b). In the event that, in accordance with this Section 10.4 (e),
a holder has provided a notice of conversion to the Company on a timely basis,
but the Company is prevented from converting all or a portion of such holder's
Convertible Bridge Note pursuant to the provisions of Section 8.4 hereof, the
Company shall convert all or a portion of the holder's Note that is not
prohibited by Section 8.4 hereof and shall promptly prepay such portion of the
Note that is prohibited from conversion at a redemption price of 100% of the
principal amount of the Note, together with accrued interest through the date
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of prepayment and the Base Warrants at the Warrant Exercise Price, with respect
to all or a portion of the Note that is prohibited from conversion pursuant
hereto.
(f) If the Convertible Bridge Notes are called for redemption
pursuant to an optional prepayment by the Company at any time pursuant to
Section 10.4(c), each holder may convert, subject to Section 9.1 hereof, all or
any portion of its outstanding Convertible Bridge Notes prior to such prepayment
in accordance with this Section 10.4(f). In connection with such repayment, the
Company shall provide to each holder fifteen (15) Business Days' notice of the
date by which each holder must convert its Notes prior to redemption. Each
holder may convert all or any portion of its outstanding Convertible Bridge
Notes at any time prior to the close of business on the fifteenth (15th)
Business Day after the date of such notice. If any Convertible Bridge Notes are
not surrendered for conversion in accordance with the provisions of Section 9.2
during such 15 Business Day-period, the Company shall thereafter promptly prepay
all of such outstanding Notes pursuant to Section 10.4(c). In the event that, in
accordance with this Section 10.4(f), a holder has provided a notice of
conversion to the Company on a timely basis, but the Company is prevented from
converting all or a portion of such holder's Converting Bridge Note pursuant to
the provisions of Section 8.4 hereof, the Company shall convert all or a portion
of the holder's Note that is not prohibited by Section 8.4 hereof and shall
promptly prepay such portion of the Note that is prohibited from conversion, at
a redemption price of 100% of the principal amount of the Note, together with
accrued interest through the date of prepayment (but without any call premium
provided in Section 10.4(c)) and the Base Warrants at the Warrant Exercise
Price, with respect to all or a portion of the Note that is prohibited from
conversion pursuant hereto.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1. Notices. All notices, demands and other
communications to any party hereunder shall be in writing (including telecopier
or similar writing) and shall be given to such party at its address set forth on
the signature pages hereof, or such other address as such party may hereinafter
specify for the purpose (in the case of the Company by notice to each Purchaser
or in the case of a Purchaser, by notice to the Company). Each such notice,
demand or other communication shall be effective (i) if given by facsimile
transmission, when such facsimile is transmitted with telephonic confirmation of
receipt to the facsimile number specified on the signature page hereof, (ii) if
given by mail, four days after such communication is deposited in the mail with
first class postage prepaid, addressed as aforesaid or (iii) if given by Federal
Express or any other means, when delivered at the address specified in this
Section.
SECTION 11.2. No Waivers; Amendments. (a) No failure or delay
on the part of any party in exercising any right, power or remedy hereunder
shall
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operate as a waiver thereof, nor shall any single or partial exercise of any
such right, power or remedy preclude any other or further exercise thereof or
the exercise of any other right, power or remedy. The remedies provided for
herein and in the other Bridge Documents are cumulative and are not exclusive of
any remedies that may be available to any party at law or in equity or
otherwise.
(b) Any provision of this Agreement may be amended or waived
if, but only if, such amendment or waiver is in writing and is signed by the
Company and the Majority Holders; provided that without the consent of each
holder of any Notes affected thereby, an amendment or waiver may not (i) reduce
the aggregate principal amount of Notes whose holders must consent to an
amendment, supplement or waiver, (ii) reduce the rate or extend the time for
payment of interest or premium on any Notes, (iii) reduce the principal amount
of or extend the stated maturity of any Notes or alter the redemption
provisions, conversion rights, mandatory prepayment provisions, or Warrants
issuable with respect thereto, (iv) make any Note payable in money or property
other than as stated therein; (vi) increase the percentage approval for holders
to accelerate the Notes or exercise any remedies thereunder, (vi) amend this
Section or (viii) release any Material Subsidiary (as defined in the Note) from
its Subsidiary Guaranty; and provided further, that no holder of any Notes shall
be entitled to consent to the addition of any Purchaser pursuant to a
Supplemental Signature Page unless the addition of such Purchaser would cause
the aggregate Commitments to exceed the amount set forth in Section 2.1(a). In
determining whether the holders of the requisite principal amount of Notes have
concurred in any direction, consent, or waiver as provided in this Agreement or
in the Convertible Bridge Notes, Notes which are owned by the Company or any
other obligor on the Notes, or by any Person controlling, controlled by, or
under common control with any of the foregoing, shall be disregarded and deemed
not to be outstanding for the purpose of any such determination; and provided
further that no such amendment, supplement or waiver which affects the rights of
Purchaser, otherwise than solely in its capacity as a holder of the Notes, shall
be effective with respect to it without its prior written consent. Any waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which it was given. No notice to or demand on the Company or any
holder in any case shall entitle the Company or any holder to any other or
further notice or demand in similar or other circumstances.
SECTION 11.3. Successors and Assigns. This Agreement shall be
binding upon the Company and upon the Purchasers and the Purchasers' respective
successors and permitted assigns. The Company may not assign or otherwise
transfer its rights or obligations under the Bridge Documents to any other
Person without the prior written consent of each holder of Notes. All provisions
hereunder purporting to give rights to the Purchasers and their Affiliates or to
holders of Securities are for the express benefit of such Persons.
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SECTION 11.4. New York Law; Submission to Jurisdiction; Waiver
of Jury Trial. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED
BY THE LAWS OF THE STATE OF NEW YORK. EACH PARTY HERETO HEREBY SUBMITS TO THE
NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN
DISTRICT OF NEW YORK AND OF ANY STATE COURT SITTING IN NEW YORK CITY FOR
PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT
OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY HERETO IRREVOCABLY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH
A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN
BROUGHT IN AN INCONVENIENT FORUM. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES
ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. IF AT ANY
TIME THE COMPANY NO LONGER MAINTAINS AN OFFICE IN THE STATE OF NEW YORK, THE
COMPANY AGREES TO APPOINT AN AGENT FOR SERVICE OF PROCESS IN THE STATE OF NEW
YORK AND TO NOTIFY THE HOLDERS OF THE NOTES OF SUCH AGENT'S NAME AND ADDRESS.
THE COMPANY HEREBY WAIVES PERSONAL SERVICE OF ANY PROCESS UPON IT AND AGREES
THAT PROCESS MAY BE SERVED BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT
REQUESTED.
SECTION 11.5. Expenses; Transfer Taxes; Indemnification.
(a) The Company agrees to pay or cause to be paid, on the
Initial Closing and each Subsequent Closing or, in other circumstances, within
fifteen (15) days after receipt of written demand setting forth in reasonable
detail the amounts claimed thereunder, all reasonable out-of-pocket expenses,
including but not limited to reasonable fees and expenses of a single law firm
acting as special counsel to all of the Purchasers, from time to time arising
from or relating to:
(i) the negotiation, execution and delivery of the Bridge
Documents,
(ii) the negotiation, preparation, execution and delivery of
any amendments, waivers or consents to any of the Bridge Documents
requested by the Company, and/or
(iii) the collection of the Convertible Bridge Notes and the
enforcement of the Purchasers' rights under any of the Bridge
Documents;
provided, however, in no event shall the Company be liable to pay attorneys'
fees pursuant to the foregoing clause (i) incurred through the Initial Closing
in excess of $125,000 plus reasonable disbursements.
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<PAGE> 65
(b) The Company further agrees (I) to pay all stamp,
documentary and transfer taxes, fees and similar impositions now or hereafter
determined by any Purchaser (or by any subsequent holder of Convertible Bridge
Notes that is an Affiliate of a Purchaser) to be payable in connection with such
Person's purchase of, Transfer to an Affiliate of, or conversion of, its
Convertible Bridge Note or its acquisition of Warrants, and the Company agrees
to save such Persons harmless from and against any and all present or future
claims, liabilities or losses with respect to or resulting from any omission to
pay or delay in paying any such taxes, fees or impositions, and (ii) if the
Company either fails to make any payment required by the preceding clause (i),
any such Person may pay such tax, fee or imposition, and the reasonable expenses
of such Person incurred in connection therewith shall be reimbursed on or within
15 days after receipt by the Company of written demand setting forth in
reasonable detail the amounts claimed thereunder; provided, however, in no event
shall the Company be obligated to pay stamp, transfer or similar fees and taxes
in more than one state in addition to the state where the Company maintains its
books and records with respect to any conversion. The Company shall not be
liable for any other taxes, including without limitation, taxes based on items
of income and gain, which may be payable in respect of the Securities.
(c) The Company further agrees to defend, protect, indemnify,
and hold harmless the holders of the Convertible Bridge Notes and their
respective directors, officers, agents, employees and affiliates (collectively,
the "Indemnified Parties") from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, claims,
costs, expenses of any kind or nature whatsoever (including, without limitation,
the fees and disbursements of counsel for such Indemnified Parties in connection
with any investigative, administrative or judicial proceeding, whether or not
such Indemnified Parties shall be designated a party thereto), imposed on,
incurred by, or asserted against such Indemnified Parties in any manner relating
to or arising out of the Bridge Documents, or any act, event or transaction
related or attendant thereto, the purchase of the Convertible Bridge Notes and
the use or intended use of the proceeds of thereof (collectively, "Indemnified
Matters"); provided, however, the Company shall not have any obligation to any
Indemnified Party hereunder with respect to Indemnified Matters to the extent
caused by or resulting from (i) a dispute among the Purchasers or the holders of
the Securities, or (ii) the willful misconduct or gross negligence of such
Indemnified Party, or (iii) the breach by any Purchaser of its obligations under
the Bridge Documents, in each case, as determined by the final non-appealable
judgment of a court of competent jurisdiction.
SECTION 11.6. Entire Agreement. This Agreement and the other
Bridge Documents constitute the entire agreement of the parties with respect to
the subject matter hereof, and there are no promises, undertakings,
representations or warranties by the Company or the holders of the Convertible
Bridge Notes relative to such subject matter not expressly set forth or referred
to herein or in the other Bridge Documents.
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SECTION 11.7. Severability. If any term, provision, covenant
or restriction of this Agreement is held by a court of competent jurisdiction to
be invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated.
SECTION 11.8. Counterparts. This Agreement may be executed in
any number of counterparts each of which shall be an original with the same
effect as if the signatures thereto and hereto were upon the same instrument.
[Balance of page intentionally left blank]
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized officers, as of the
date first above written.
NEXTWAVE TELECOM INC.
By:____________________________________
Allen Salmasi
Chief Executive Officer
5355 Mira Sorrento Place
Sorrento Towers West, Suite 100
San Diego, California 92121
Attention: Frank A. Cassou, Esq.
Facsimile: (619) 642-1912
Confirmation: (619) 597-7519
<PAGE> 68
CONVERTIBLE SENIOR SUBORDINATED NOTE
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY STATE SECURITIES LAWS, AND MAY NOT BE OFFERED OR SOLD,
UNLESS IT HAS BEEN REGISTERED UNDER SUCH ACT AND APPLICABLE STATE SECURITIES
LAWS OR UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE AND THEN ONLY IN
COMPLIANCE WITH THE RESTRICTIONS ON TRANSFER SET FORTH IN THE SECURITIES
PURCHASE AGREEMENT DATED AS OF April 9, 1996, A COPY OF WHICH MAY BE OBTAINED
FROM NEXTWAVE TELECOM INC. AT ITS PRINCIPAL EXECUTIVE OFFICE.
No. _______ $ _______
Issuance Date: __________, 199_
NEXTWAVE TELECOM INC.
Convertible Senior Subordinated Note
NEXTWAVE TELECOM INC., a Delaware corporation (the
"COMPANY"), for value received hereby promises to pay to
______________
and registered assigns the principal sum of
__________ MILLION DOLLARS
by wire transfer of immediately available funds to the account of the Holder (as
hereinafter defined) at such bank in the United States as may be specified in
writing by the Holder to the Company (the "Bank Account"), on or prior to April
9, 2002 (the "Maturity Date"), in such coin or currency of the United States of
America as at the time of payment shall be legal tender for the payment of
public and private debts, and to pay interest, quarterly in arrears on the
unpaid principal balance hereof as hereinafter provided. Interest shall commence
to accrue at the rate(s) set forth below on each portion of the purchase price
of this Note on the date on which such portion of the purchase price hereof is
released from escrow to the Company (each, an "Escrow Release Date"), and shall
be payable, in arrears, with respect to each such portion on the last day of
each March, June, September
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and December occurring after its Escrow Release Date (unless such day is not a
Business Day, in which event on the next succeeding Business Day) (each, an
"INTEREST PAYMENT DATE"). Interest on the unpaid principal balance hereof shall
be payable by wire transfer of immediately available funds to the Bank Account
from the most recent Interest Payment Date to which interest has been paid on
this Note, or if no interest has been paid on this Note, from the applicable
Escrow Release Date until payment in full of the principal sum hereof has been
made, or, to the extent permitted by this Note, by the issuance of Additional
Convertible Bridge Notes, as described below.
The interest rate (the "INTEREST RATE") shall be two percent (2%)
per annum from and after the Escrow Release Date to but excluding April 9, 1998,
on which date the interest rate shall increase to twelve percent (12%) per
annum, until the principal amount of this Note is paid in full or the principal
amount is converted to Series B Common Stock pursuant to the terms of the
Agreement (hereinafter defined); provided, however, that if any payment of
principal of or interest on this Note is not paid when due or during the
continuance of an Event of Default (as hereinafter defined), the Company shall
pay interest on such overdue amount, upon demand of the Holder, at the rate of
15% per annum, which shall accrue from the date on which such payment was due to
the date on which payment of such overdue amount has been made or duly provided
for.
Until April 9, 1999, the Company shall have the right, in lieu of
payment of interest in cash, to pay all or a portion of the interest payable on
any Interest Payment Date by issuing additional Convertible Senior Subordinated
Bridge Notes ("ADDITIONAL CONVERTIBLE BRIDGE NOTES") in a principal amount up to
the full amount of such interest payable. Such Additional Convertible Bridge
Notes shall otherwise be identical to the outstanding Convertible Bridge Notes
and shall be issued to the Holders of the Convertible Bridge Notes in
proportions such that each Holder shall receive the same ratio of cash interest
to Additional Convertible Bridge Notes on such Interest Payment Date. Such
Additional Convertible Bridge Notes shall be issued only in denominations of
$1,000 and multiples thereof. Any interest otherwise payable in Additional
Convertible Bridge Notes which cannot be so paid because an Additional
Convertible Bridge Note would have a denomination less than $1,000 (or not be a
multiple thereof) shall be paid in cash.
Interest on this Note will be calculated on the basis of a 365-
(or, when appropriate, a 366-) day year and paid for the actual number of days
elapsed.
This Note is one of a duly authorized issue of Convertible Senior
Subordinated Notes of the Company (the "CONVERTIBLE BRIDGE NOTES") referred to
in the Securities Purchase Agreement dated as of April 9, 1996 among the Company
and the Purchasers named therein (as the same may be amended from time to time
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in accordance with its terms, the "AGREEMENT"), and is entitled to the benefits
of the Agreement. Subject to the limitations set forth in the Agreement, the
Convertible Bridge Notes are transferable and assignable to one or more
purchasers in minimum principal amounts of $500,000. The Company agrees to issue
from time to time replacement Convertible Bridge Notes in the form hereof to
facilitate such transfers and assignments.
The Company shall keep at its principal office a register (the
"REGISTER") in which shall be entered the names and addresses of the registered
Holders of the Convertible Bridge Notes and particulars of the respective Notes
held by them and of all transfers of the Convertible Bridge Notes. References to
the "HOLDER" or "HOLDERS" shall mean the Person listed in the Register as the
payee of this Note or any other Convertible Bridge Note, as applicable. The
ownership of the Convertible Bridge Notes shall be proven by the Register.
1. Certain Terms Defined. All capitalized terms defined in the
Agreement and not otherwise defined herein shall have the meanings provided for
in the Agreement.
2. Covenants. Unless the Majority Holders otherwise consent in
writing, the Company covenants and agrees to observe and perform each of its
obligations and undertakings contained in Article VI of the Agreement, which
obligations and undertakings are expressly assumed herein by the Company and
made for the benefit of the Holders.
3. Events of Default.
(a) Event of Default Defined; Acceleration of Maturity; Waiver of
Default. In case one or more of the following events of default (individually,
an "Event of Default") (whatever the reason for such Event of Default and
whether it shall be voluntary or involuntary or be effected by operation of law
or pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body) shall have occurred and
be continuing:
(i) default by the Company in the payment of all or any part of
the principal or premium, if any, on any of the Convertible Bridge
Notes as and when the same shall become due and payable either at
maturity, upon any mandatory prepayment or redemption, by declaration
or otherwise, whether or not any such payment is permitted under the
provisions of Article VII of the Agreement; or
(ii) default by the Company in the payment of any installment of
interest upon any of the Convertible Bridge Notes as and when the same
shall become due and payable, whether or not any such payment is
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permitted under the provisions of Article VII of the Agreement, and
continuance of such default for a period of 10 days; or
(iii) failure on the part of the Company duly to observe or
perform the covenants and agreements contained in Section 6.16 of the
Agreement; or
(iv) failure on the part of the Company duly to observe or perform
any of the covenants and agreements contained in the Agreement (except
any covered by clauses (i), (ii) and (iii) of this Section 3), if such
failure shall continue for a period of 30 days after the date on which
written notice specifying such failure, stating that such notice is a
"Notice of Default" hereunder and demanding that the Company remedy the
same, shall have been given by registered or certified mail, return
receipt requested, to the Company by the Requisite Holders; or
(v) the Company or any of its Subsidiaries having assets or
earnings before interest and taxes ("EBIT") of more than 7.5% of the
consolidated assets or consolidated EBIT of the Company and its
Subsidiaries during the fiscal year then most recently ended (any such
Subsidiary, a "Material Subsidiary"), shall commence a voluntary case
or other proceeding seeking liquidation, reorganization or other relief
with respect to itself or its debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect or seeking the appointment
of a trustee, receiver, liquidator, custodian or other similar official
of it or any substantial part of its property, or shall consent to any
such relief or to the appointment of or taking possession by any such
official in an involuntary case or other proceeding commenced against
it, or shall make a general assignment for the benefit of creditors, or
shall fail generally to pay its debts as they become due, or shall take
any corporate action to authorize any of the foregoing; or
(vi) an involuntary case or other proceeding shall be commenced
against the Company or any of its Material Subsidiaries seeking
liquidation, reorganization or other relief with respect to it or its
debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or other
proceeding shall remain undismissed and unstayed for a period of 60
days; or an order for relief shall be entered against the Company or
any of its Material Subsidiaries under the federal bankruptcy laws as
now or hereafter in effect; or
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(vii) the License Subsidiary shall suffer the cancellation,
non-renewal or adverse modification of one or more PCS Licenses now or
hereafter held by the License Subsidiary which results in the License
Subsidiary's holding PCS Licenses representing less than 50 million
POPS, and such failure to hold PCS Licenses representing at least 50
million POPS shall continue for a period of 30 or more consecutive days
after notice thereof to the Company by the Requisite Holders; or
(viii) any representation or warranty made by the Company in any
Bridge Document shall be false in any material respect on the date as
of which made; or
(ix) the Company or any Material Subsidiary shall fail to make any
payment of principal, interest or premium when due (whether by
scheduled maturity, required prepayment, acceleration, demand or
otherwise) with respect to any Indebtedness (other than Indebtedness
evidenced by Convertible Bridge Notes), which Indebtedness has an
outstanding principal balance in excess of $5,000,000 in the aggregate
("Material Indebtedness") if the effect thereof is to cause or to
permit the holder of such Material Indebtedness to cause an
acceleration, mandatory redemption, a requirement that Company or such
Material Subsidiary offer to purchase such Material Indebtedness or
other required repurchase of such Material Indebtedness; or any
Material Indebtedness shall be otherwise declared to be due and payable
(by acceleration or otherwise) or required to be prepaid, redeemed or
otherwise repurchased by the Company or any Material Subsidiary (other
than by a regularly scheduled required prepayment) prior to the stated
maturity thereof; or any other breach, default or event of default
shall occur under any instrument, agreement or indenture pertaining to
any Material Indebtedness, if the effect thereof is to cause an
acceleration, mandatory redemption, a requirement that Company or such
Material Subsidiary offer to purchase such Material Indebtedness or
other required repurchase of such Material Indebtedness; or any such
Material Indebtedness shall be otherwise declared to be due and payable
(by acceleration or otherwise) or required to be prepaid, redeemed or
otherwise repurchased by the Company or any Material Subsidiary (other
than by a regularly scheduled required prepayment) prior to the stated
maturity thereof; or
(x) one or more judgments or orders (other than a judgment
described in clause (v) or (vi) of this Section 3) for the payment of
money exceeding any applicable insurance or bond coverage by more than
$5,000,000 in the aggregate shall be rendered against the Company or
any Material Subsidiary and either (A) such judgment(s) or order(s)
shall remain undischarged, unvacated, unbonded or unstayed for a period
of 30
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consecutive days or (B) the applicable judgment creditor shall commence
enforcement proceedings to realize on such judgment(s) or order(s); or
(xi) the Company or any Subsidiary shall contest the
enforceability of, deny liability under, or commence any proceeding
seeking to invalidate, any provision of any of the Bridge Documents; or
(xii) any court of competent jurisdiction shall enter a judgment,
or any Governmental Authority of competent jurisdiction shall issue an
order, holding that any material provision of any of the Bridge
Documents is invalid, null and void, or unenforceable and such judgment
or order shall remain undischarged, unvacated, unbonded or unstayed for
a period of 30 consecutive days;
then, and in each and every such case (other than under clauses (v) and (vi)),
unless the principal of all Convertible Bridge Notes shall have already become
due and payable (and except to the extent the principal of any of the
Convertible Bridge Notes shall have been converted into Series B Common Stock),
the Requisite Holders, by notice in writing to the Company, may declare the
entire principal amount of the Convertible Bridge Notes together with accrued
interest thereon to be immediately due and payable. If an Event of Default
specified in clause (v) or (vi) above occurs, the principal of and accrued
interest on the Convertible Bridge Notes will be immediately due and payable
without any declaration or other act on the part of the Holders. The Majority
Holders may, on behalf of the Holders of all the Convertible Bridge Notes, by
written notice to the Company, rescind an acceleration and its consequences if
all existing Events of Default have been cured or waived, except nonpayment of
principal or interest that has become due solely because of the acceleration,
and if the rescission would not conflict with any judgment or decree then in
effect; provided that any uncured monetary defaults existing other than solely
because of the acceleration may be waived only by the Holders of all the
Convertible Bridge Notes that have not been converted into Series B Common
Stock.
(b) Powers and Remedies Cumulative; Delay or Omission Not Waiver
of Default. No right or remedy herein or in any other Bridge Document conferred
upon or reserved to the Holders is intended to be exclusive of any other right
or remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
under the other Bridge Documents or now or hereafter existing at law or in
equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
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No delay or omission of the Holders to exercise any right or power
accruing upon any Event of Default occurring and continuing as aforesaid shall
impair any such right or power or shall be construed to be a waiver of any such
Event of Default or an acquiescence therein; and every power and remedy given by
the Convertible Bridge Notes or by law may be exercised from time to time, and
as often as shall be deemed expedient, by the Holders.
4. Conversion of Convertible Bridge Notes. At any time at or after
150 days following the Auction Closing Date, the Holder may, subject to the
provisions of Section 8.4 of the Agreement, convert all or any portion of this
Note into shares of the Company's Series B Common Stock, at an initial
conversion price of $4.00 per share, subject to adjustment as set forth in
Article IX of the Agreement, which Article, together with Section 8.4 of the
Agreement, is incorporated herein by this reference.
5. Prepayment of Convertible Bridge Notes. Subject to the terms
set forth in the Agreement, including, without limitation, the provisions of
Section 2.2 and Article X thereof, which provisions are incorporated herein by
this reference: (a) the Company may prepay the Convertible Bridge Notes at any
time, and (b) the Company must prepay the Convertible Bridge Notes upon the
consummation of a High Yield Financing and as provided in Section 2.2 of the
Agreement.
6. Subordination. The Convertible Bridge Notes are subordinated to
Senior Debt to the extent provided in the Agreement. The Company agrees, and
each Holder by accepting Convertible Bridge Notes agrees, to such subordination.
7. Modification of this Note. This Note may be modified without
prior notice to any Holder but with the written consent of the applicable number
of Holders of Convertible Bridge Notes specified in Section 11.2 of the
Agreement.
8. Miscellaneous. This Note shall be deemed to be a contract under
the laws of the State of New York, and for all purposes shall be construed in
accordance with the laws of said State. The parties hereto, including all
endorsers hereof, hereby waive presentment, demand, notice, protest and all
other demands and notices in connection with the delivery, acceptance,
performance and enforcement of this Note, except as specifically provided
herein, and assent to extensions of the time of payment, or forbearance or other
indulgence without notice. The Company hereby submits to the nonexclusive
jurisdiction of the United States District Court for the Southern District of
New York and of any state court sitting in New York City for purposes of all
legal proceedings arising out of or relating to this Note. The Company
irrevocably waives, to the fullest extent permitted by law, any objection which
it may now or hereafter have to the laying of the venue of any such proceeding
brought in such a court and any claim that
A-7
<PAGE> 75
any such proceeding brought in such a court has been brought in an inconvenient
forum. THE COMPANY HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY
IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS NOTE. If at any time
the Company no longer maintains an office in the State of New York, the Company
agrees to appoint an agent for service of process in the State of New York and
to notify the Holder of such agent's name and address. THE COMPANY HEREBY WAIVES
PERSONAL SERVICE OF ANY PROCESS UPON IT AND AGREES THAT PROCESS MAY BE SERVED BY
REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED.
The Holder of this Note, by its acceptance hereof, agrees to be
bound by the provisions of this Note and the Agreement which are expressly
binding on such Holder.
IN WITNESS WHEREOF, the Company has caused this instrument to be
duly executed and delivered as of the date of issuance set forth above.
NEXTWAVE TELECOM INC.
By:_________________________________
Allen Salmasi
Chief Executive Officer
A-8
<PAGE> 76
FORM OF WARRANT
---
THIS SECURITY HAS NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF
1933, AS AMENDED ("ACT"), OR THE SECURITIES OR BLUE SKY LAWS OF NEW YORK OR ANY
OTHER STATE AND MAY NOT BE OFFERED OR SOLD UNLESS REGISTERED AND/OR QUALIFIED
PURSUANT TO THE RELEVANT PROVISIONS OF FEDERAL AND STATE SECURITIES OR BLUE SKY
LAWS OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION OR QUALIFICATION IS
APPLICABLE. THEREFORE, NO SALE OR TRANSFER OF THIS SECURITY SHALL BE MADE, NO
ATTEMPTED SALE OR TRANSFER SHALL BE VALID, AND THE ISSUER SHALL NOT BE REQUIRED
TO GIVE ANY EFFECT TO ANY SUCH TRANSACTION UNLESS (A) SUCH TRANSACTION SHALL
HAVE BEEN DULY REGISTERED UNDER THE ACT AND QUALIFIED OR APPROVED UNDER
APPROPRIATE STATE OR BLUE SKY LAWS, OR (B) THE ISSUER SHALL HAVE FIRST RECEIVED
AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO IT THAT SUCH REGISTRATION,
QUALIFICATION OR APPROVAL IS NOT REQUIRED.
NEXTWAVE TELECOM INC.
SERIES B COMMON STOCK WARRANT
DATED: ______________, 199__
1. Grant of Warrants. FOR VALUE RECEIVED, NextWave Telecom Inc., a
Delaware corporation ("NEXTWAVE" or the "COMPANY"), hereby grants to
[__________________] ("WARRANTHOLDER"), the right and option to purchase (the
"WARRANTS"), from NextWave from and after the date hereof, on the terms and
conditions set forth herein, an aggregate of [___________________] ([_______])
shares of NextWave Series B Common Stock, $0.0001 par value (the "NEXTWAVE
SHARES" or the "SHARES"), subject to adjustment as provided below. The exercise
price shall be as set forth in Section 4.
2. Right and Manner of Exercise. Warrantholder's right to exercise the
Warrants hereunder shall vest upon the execution of this Warrant. The Warrants
shall be exercisable, subject to the provisions of Section 8.4 of the Securities
Purchase Agreement dated as of April 9, 1996 by and between the Company and
certain purchasers ("Securities Purchase Agreement"), from time to time as
provided above upon receipt at NextWave's principal executive office (directed
to the attention of the Secretary of NextWave) of written notice of exercise
from Warrantholder. Any such notice of exercise shall be in the form of Exhibit
"A" attached hereto and (i) shall state the number of NextWave Shares with
respect to which the Warrant is being exercised, (ii) shall be accompanied by a
bank cashier's
<PAGE> 77
check or wire transfer in payment of the aggregate exercise price, and (iii)
shall include such representations as are reasonably required by NextWave in
order to secure an exemption from the registration and qualification
requirements of the federal and state securities laws with respect to the
issuance of shares upon such exercise. Promptly upon receipt of such notice,
NextWave shall, without transfer or issue tax to the Warrantholder, deliver or
cause to be delivered to the Warrantholder, at the address specified in the
Warrantholder's exercise notice, a certificate or certificates for the Shares;
provided, however, that the time of such delivery may be postponed by NextWave
for such reasonable period as may be required to comply with any requirements of
law; and, provided further, however, that the Warrantholder shall be deemed to
be the owner of such shares (and the holder of all associated rights) and such
shares shall be deemed issued and outstanding upon delivery of the items
specified in the foregoing clauses (i), (ii) and (iii). Upon request of a
Warrantholder, the Company will provide information regarding any applicable
requirements of law which could delay such delivery.
NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, WARRANTHOLDER MAY
NOT EXERCISE ANY PART OF THE WARRANTS AND NEXTWAVE WILL NOT ISSUE ANY SHARES OF
SERIES B COMMON STOCK TO WARRANTHOLDER IF SUCH EXERCISE OR THE ISSUANCE OF SUCH
SHARES TO WARRANTHOLDER WOULD CAUSE NEXTWAVE TO VIOLATE THE REGULATIONS
PROMULGATED OR INTERPRETED BY THE FEDERAL COMMUNICATIONS COMMISSION RESTRICTING
THE AGGREGATE EQUITY INTEREST IN NEXTWAVE WHICH MAY BE HELD BY FOREIGN INVESTORS
AND RESTRICTING THE PERCENTAGE OF EQUITY THAT ANY ONE INVESTOR MAY HOLD IN
NEXTWAVE.
3. Expiration. Subject to Section 10 below, the Warrants granted
hereunder shall expire and terminate for all purposes at 5:00 p.m., San Diego
time on (fifth anniversary) , and no rights hereunder shall exist thereafter.
4. Adjustment of Exercise Price and Number of Shares Issuable. Except
as adjusted in accordance with this Section 4, the exercise price per Share
subject to the Warrants shall be _________ Dollars ($____) ("EXERCISE PRICE").
The Exercise Price and the number of Shares issuable upon the exercise of the
Warrants are subject to adjustment from time to time upon the occurrence of the
events enumerated in this Section. For purposes of this Section 4, "COMMON
STOCK" means shares now or hereafter authorized of any class of common stock of
NextWave and any other stock of NextWave, however designated, that has the right
(subject to any prior rights of any class or series of preferred stock) to
participate in any distribution of the assets or earnings of NextWave without
limit as to per share amount.
(a) Adjustment for Change in Capital Stock. If NextWave:
(1) declares or pays a dividend or makes a distribution on its
Common Stock in shares of its Common Stock;
<PAGE> 78
(2) subdivides its outstanding shares of Common Stock into a
greater number of shares;
(3) combines its outstanding shares of Common Stock into a smaller
number of shares;
(4) makes a distribution on its Common Stock in shares of its
capital stock other than Common Stock or preferred stock; or
(5) issues by reclassification of its Common Stock any shares of
its capital stock;
then the Exercise Price and the number and kind of shares of capital stock of
NextWave issuable upon the exercise of a Warrant as in effect immediately prior
to such action shall be proportionately adjusted so that the holder of any
Warrant thereafter exercised may receive the aggregate number and kind of shares
of capital stock of NextWave which he or she would have owned immediately
following such action if such Warrant had been exercised immediately prior to
such action.
The adjustment shall become effective immediately after the record
date in the case of a dividend or distribution and immediately after the
effective date in the case of a subdivision, combination or reclassification.
If after an adjustment a holder of a Warrant upon exercise of it
may receive shares of two or more classes of capital stock of NextWave, NextWave
shall determine the allocation of the adjusted Exercise Price between the
classes of capital stock. After such allocation, which shall be made by the
Board of Directors of the Company in good faith and on a reasonable basis, the
exercise privilege and the Exercise Price of each class of capital stock shall
thereafter be subject to adjustment on terms comparable to those applicable to
Common Stock in this Section 4.
Such adjustment shall be made successively whenever any event
listed above shall occur.
(b) Adjustment for Rights Issue.
If NextWave sets a record date for the distribution of any
rights, options or warrants to all holders of its Common Stock entitling them
for a period expiring within 60 days after the record date mentioned below to
purchase shares of Common Stock at a price per share less than the Current
Market Price per share on that record date, the Exercise Price shall be adjusted
in accordance with the formula:
<PAGE> 79
O +(N x P)
-------
E' = E x M
-----------
O + N
where:
E' = the adjusted Exercise Price.
E = the current Exercise Price.
O = the number of shares of Common Stock outstanding on the
record date (treating any outstanding shares of Series A and
Series C Common Stock as if such shares had been converted to
Series B Common Stock ("on an as-converted basis")).
N = the number of additional shares of Common Stock offered
pursuant to such rights issuance (treating any outstanding
shares of Series A and
Series C Common Stock on an as-converted basis).
P = the offering price per share of the additional shares.
M = the Current Market Price per share of Common Stock on the
record date.
The adjustment shall be made successively whenever any such
rights, options or warrants are issued and shall become effective immediately
after the record date for the determination of stockholders entitled to receive
the rights, options or warrants. If no rights, options or warrants are
distributed or at the end of the period during which such rights, options or
warrants are exercisable, not all rights, options or warrants shall have been
exercised, the Exercise Price shall be immediately readjusted to what it would
have been if "N" in the above formula had
been the number of shares actually issued.
(c) Adjustment for Other Distributions.
If NextWave sets a record date for distribution to all holders
of its Common Stock any of its assets (including but not limited to cash, but
excluding ordinary dividends), debt securities, preferred stock, or any rights
or warrants to purchase debt securities, preferred stock, assets or other
securities of NextWave, the Exercise Price shall be adjusted in accordance with
the formula:
E' = E x (M - F)
--------
M
where:
<PAGE> 80
E' = the adjusted Exercise Price.
E = the current Exercise Price.
M = the Current Market Price per share of Common Stock on the
record date mentioned above.
F = the fair market value on the record date of the assets,
securities, rights or warrants applicable to one share of
Common Stock. The Board of Directors shall determine the fair
market value in good faith and on a reasonable basis.
The adjustment shall be made successively whenever any such
distribution is made and shall become effective immediately after the record
date for the determination of stockholders entitled to receive the distribution.
If such distribution is not made, the Exercise Price shall be immediately
readjusted to what it would have been without regard to such distribution.
This subsection does not apply to rights, options or warrants
referred to in subsection (b) of this Section 4.
(d) Adjustment for Common Stock Issue.
If NextWave issues shares of Common Stock for a consideration
per share less than the Current Market Price per share on the date NextWave
fixes the offering price of such additional shares, the Exercise Price shall be
adjusted in accordance with the formula:
E' = E x O + P
----
M
----------
A
where:
E' = the adjusted Exercise Price.
E = the then current Exercise Price.
O = the number of shares outstanding immediately prior to the
issuance of such additional shares (treating outstanding
shares of Series A and
Series C Common Stock on an as-converted basis).
P = the aggregate consideration received for the issuance of
such additional shares.
<PAGE> 81
M = the Current Market Price per share on the date of issuance
of such additional shares.
A = the number of shares outstanding immediately after the
issuance of such additional shares (treating outstanding
shares of Series A and Series C Common Stock on an
as-converted basis).
The adjustment shall be made successively whenever any such
issuance is made, and shall become effective immediately after such issuance.
This subsection (d) does not apply to:
(1) any of the transactions described in subsections (a), (b)
and (c) of this Section 4;
(2) the exercise of Options (as hereinafter defined) or the
conversion or exchange of Convertible Securities (as hereinafter
defined), including such securities outstanding as of the date hereof,
or listed on Schedules 3.2 or 6.14 of the Securities Purchase
Agreement;
(3) shares of Common Stock issued or deemed to be issued that
are designated Series A Common Stock on or before the Auction Closing
Date (as defined in the Securities Purchase Agreement);
(4) shares of Common Stock issued or deemed to be issued upon
conversion of shares of Series A Common Stock or Series C Common Stock
or exercise of Options issuable upon conversion of NextWave's Series A
Common Stock, at the conversion or exercise price provided in the
Company's Restated Certificate of Incorporation at the Auction Closing
Date, as adjusted for any of the events specified in this Section 4;
(5) shares of Common Stock subscribed for or issued (or
issuable upon exercise of Options or conversion or exchange of
Convertible Securities) on or prior to the Auction Closing Date at not
less than $3.00 per share;
(6) shares of Common Stock issued or deemed to be issued to
employees or directors of, or consultants to, NextWave pursuant to an
option plan, purchase plan, or other stock incentive program or
agreement which do not exceed, in the aggregate, the greater of
15,000,000 shares of Series B Common Stock or 12.5% of the equity of
the Company, on a fully diluted basis (collectively, the "Plans")
approved by the Board of Directors of NextWave at a price of not less
than 85% of the fair market value per share as defined in such Plan;
<PAGE> 82
(7) Series B Common Stock issued in a bona fide public
offering pursuant to a firm commitment underwriting;
(8) following the initial public offering of NextWave's Series
B Common Stock ("Initial Public Offering"), Series B Common Stock
issued in a bona fide private placement through a placement agent which
is a member firm of the National Association of Securities Dealers,
Inc. (except to the extent that any discount from the Current Market
Price shall exceed 20% of the Current Market Price); or
(9) shares of Common Stock issuable upon exercise of the
Options described in subsection (e)(4) of this Section 4.
(e) Adjustment for Convertible Securities or Options Issue.
If NextWave issues any securities convertible into or
exchangeable for Common Stock (collectively "Convertible Securities") or
options, rights or warrants to subscribe for, purchase or otherwise acquire any
class of Common Stock or Convertible Securities (collectively, "Options") (other
than securities issued in transactions described in subsections (b) and (c) of
this Section 4) for a consideration per share of Common Stock initially
deliverable upon conversion or exchange of such securities less than the Current
Market Price per share on the date of issuance of such securities, the Exercise
Price shall be adjusted in accordance with this formula:
E' = E x O+ P
----
M
---------
O + D
where:
E' = the adjusted Exercise Price.
E = the then current Exercise Price.
O = the number of shares outstanding immediately prior to the
issuance of such securities (treating outstanding shares of
Series A and Series C
Common Stock on an as-converted basis).
P = the aggregate consideration received for the issuance of
such securities or to be received upon exercise of such
securities.
M = the Current Market Price per share on the date of issuance
of such securities.
<PAGE> 83
D = the maximum number of shares deliverable upon conversion,
exercise or in exchange for such securities at the conversion
price, exercise price or exchange rate.
The adjustment shall be made successively whenever any such
issuance is made, and shall become effective immediately after such issuance.
No further adjustment in the Exercise Price shall be made upon
the subsequent issue of Convertible Securities or shares of Common Stock upon
the exercise of Options or conversion or exchange of such Convertible
Securities.
If all of the Common Stock deliverable upon conversion,
exchange or exercise of such securities have not been issued when such
securities are no longer outstanding, then the Exercise Price shall promptly be
readjusted to the Exercise Price which would then be in effect had the
adjustment upon the issuance of such securities been made on the basis of the
actual number of shares of Common Stock issued upon conversion or exchange of
such securities.
This subsection (e) does not apply to:
(1) the Company's Convertible Senior Subordinated Notes
("Convertible Bridge Notes") substantially in the form set forth as
Exhibit A to the Securities Purchase Agreement and Warrants issued on
the date hereof, additional Convertible Bridge Notes issued pursuant to
the terms of such Convertible Bridge Notes, and other Convertible
Securities and Options outstanding on the date hereof or subscribed for
or issued on or prior to the Auction Closing Date at a conversion or
exercise price not less than $3.00 per share, or listed on Schedules
3.2 or 6.14 to the Securities Purchase Agreement;
(2) Options issuable upon conversion of NextWave's Series A
Common Stock as provided in the Company's Restated Certificate of
Incorporation at the Auction Closing Date, as adjusted for any of the
events specified in Section 4 hereof;
(3) Options issued or deemed to be issued to employees or
directors of, or consultants to, the Company pursuant to a Plan
approved by the Company's Board of Directors at a price of not less
than 85% of fair market value of the Options as defined in such Plan;
(4) Issuances of up to 5,000,000 Options with an exercise
price of not less than $3.00 per share that may be issued to resellers
of the Company's PCS services in strategic transactions (as such number
of Shares and Exercise Price may be adjusted (for stock splits, stock
dividends and the like from time to time);
<PAGE> 84
(5) Convertible Securities and Options issued in a bona fide
public offering pursuant to a firm commitment underwriting; or
(6) Following the Initial Public Offering, Convertible
Securities and Options issued in a bona fide private placement through
a placement agent which is a member firm of the National Association of
Securities Dealers, Inc. (except to the extent that any discount from
the Current Market Price shall exceed 20% of the then Current Market
Price) so long as such Convertible Securities or Options are traded in
a public market prior to such issuance.
(f) Current Market Price.
In subsections (b), (c), (d) and (e) of this Section 4, the
"CURRENT MARKET PRICE" per share of Common Stock shall be: (i) if prior to the
Initial Public Offering, the Exercise Price; (ii) if at the Initial Public
Offering or within twenty-five (25) trading days thereafter, the initial price
to the public in such offering; and (iii) at any time subsequent to the period
set forth in clause (ii) above, the "CURRENT MARKET PRICE" per share of Series B
Common Stock on any date shall be the average of the Quoted Prices of the Series
B common Stock for the twenty-five (25) consecutive trading days immediately
preceding the date of such determination. The "QUOTED PRICE" of the Series B
Common Stock shall be the last reported sales price of the Series B Common Stock
as reported by the New York Stock Exchange or, if the Series B Common Stock is
listed on another securities exchange, the last reported sales price of the
Series B Common Stock on such exchange which shall be for consolidated trading
if applicable to such exchange, or as reported by the NASDAQ National Market
System, or, if the Series B Common Stock is neither so reported nor listed, the
average of the last reported bid and ask prices of the Series B Common Stock. In
the absence of one or more such quotations, the current market price shall be
determined in good faith by the independent directors of the Board of Directors
on the basis of such quotations as it considers reasonably appropriate.
(g) Consideration Received.
For purposes of any computation respecting consideration
received pursuant to subsections (d) and (e) of this Section 4, the following
shall apply:
(1) in the case of the issuance of shares of Common Stock for
cash, the consideration shall be the amount of such cash, provided that
in no case shall any deduction be made for any commissions, discounts
or other expenses incurred by NextWave for any underwriting of the
issue or otherwise in connection therewith;
(2) in the case of the issuance of shares of Common Stock for
a consideration in whole or in part other than cash, the consideration
other
<PAGE> 85
than cash shall be deemed to be the fair market value thereof as
determined in good faith by the independent directors of the Board of
Directors (irrespective of the accounting treatment thereof), whose
determination shall be conclusive, and described in a Board resolution;
(3) in the case of the issuance of Convertible Securities, the
aggregate consideration received therefor shall be deemed to be the
consideration received by NextWave for the issuance of such securities
plus the additional minimum consideration, if any, to be received by
NextWave upon the conversion or exchange thereof (the consideration in
each case to be determined in the same manner as provided in clauses
(1) and (2) of this subsection).
(h) When De Minimis Adjustment May Be Deferred.
No adjustment in the Exercise Price need be made unless the
adjustment would require an increase or decrease of at least 1% in the Exercise
Price. Any adjustments that are not made shall be carried forward and taken into
account in any subsequent adjustment.
All calculations under this Section shall be made to the
nearest cent or to the nearest 1/100th of a share, as the case may be.
(i) When No Adjustment Required.
No adjustment need be made for a transaction referred to in
subsections (a), (b), (c), (d) or (e) of this Section 4 to the extent
Warrantholders participate in the transaction.
No adjustment need be made for rights to purchase Common Stock
pursuant to a Company plan for reinvestment of dividends or interest approved by
the Board of Directors of the Company.
No adjustment need be made for a change in the par value or no
par value of the Common Stock.
(j) Notice of Adjustment.
Whenever the Exercise Price is adjusted, NextWave shall
provide the notices required by subsection (t) hereof.
(k) Voluntary Reduction.
NextWave from time to time may reduce the Exercise Price by
any amount for any period of time if the period is at least 20 days and if the
reduction
<PAGE> 86
is irrevocable during the period; provided, however, that in no event may the
Exercise Price be less than the par value of a share of Common Stock.
Whenever the Exercise Price is reduced, NextWave shall provide
Warrantholders a notice of the reduction. NextWave shall provide notice at least
15 days before the date the reduced Exercise Price takes effect. The notice
shall state the reduced Exercise Price and the period it will be in effect.
A reduction hereunder of the Exercise Price does not change or
adjust the Exercise Price otherwise in effect for purposes of subsections (a),
(b), (c), (d) and (e) of this Section 4.
(l) Notice of Certain Transactions.
If:
(1) NextWave takes any action that would require an adjustment
in the Exercise Price pursuant to subsections (a), (b), (c), (d) or (e)
of this Section 4;
(2) NextWave takes any action that would require a
supplemental Warrant Agreement pursuant to subsection (m) of this
Section 4; or
(3) there is a liquidation or dissolution of NextWave,
NextWave shall provide Warrantholders a notice stating the proposed record date
for a dividend or distribution or the proposed effective date of a subdivision,
combination, reclassification, consolidation, merger, transfer, lease,
liquidation or dissolution. NextWave shall provide notice at least 15 days
before such date. Failure to provide the notice or any defect in it shall not
affect the validity of the transaction or the rights of Warrantholders
hereunder.
(m) Reorganization of Company.
If NextWave consolidates or merges with or into, or transfers
or leases all or substantially all its assets to, any person, upon consummation
of such transaction the Warrants shall automatically become exercisable for the
kind and amount of securities, cash or other assets which the holder of a
Warrant would have owned immediately after the consolidation, merger, transfer
or lease if the holder had exercised the Warrant immediately before the
effective date of the transaction. Concurrently with, and as a condition to
effectiveness of, the consummation of such transaction, the corporation formed
by or surviving any such consolidation or merger if other than NextWave, or the
person to which such sale or conveyance shall have been made, shall enter into a
supplemental Warrant so providing and further providing for adjustments which
shall be as nearly equivalent as may be practical to the adjustments provided
for in this Section. The
<PAGE> 87
successor Company shall provide Warrantholders a notice describing the
supplemental Warrant.
If the issuer of securities deliverable upon exercise of
Warrants under the supplemental Warrant is an affiliate of the formed,
surviving, transferee or lessee corporation, that issuer shall join in the
supplemental Warrant.
If this subsection (m) applies, subsections (a), (b), (c), (d)
and (e) of this Section 4 do not apply.
(n) Company Determination Final.
Any determination that NextWave or the Board of Directors must
make pursuant to subsection (a), (c), (d), (e), (f), (g) or (i) of this Section
4 is presumptively correct absent manifest error.
(o) When Issuance or Payment May Be Deferred.
In any case in which this Section 4 shall require that an
adjustment in the Exercise Price be made effective as of a record date for a
specified event, NextWave may elect to defer until the occurrence of such event
(i) issuing to the holder of any Warrant exercised after such record date the
Shares and other capital stock of NextWave, if any, issuable upon such exercise
over and above the Shares and other capital stock of NextWave, if any, issuable
upon such exercise on the basis of the Exercise Price prior to such adjustment
and (ii) paying to such holder any amount in cash in lieu of a fractional share
pursuant to subsection (u) hereof; provided, however, that NextWave shall
deliver to such holder a due bill or other appropriate instrument evidencing
such holder's right to receive such additional Shares, other capital stock and
cash upon the occurrence of the event requiring such adjustment.
(p) Adjustment in Number of Shares.
Upon each adjustment of the Exercise Price pursuant to this
Section 4, each Warrant outstanding prior to the making of the adjustment in the
Exercise Price shall thereafter evidence the right to receive upon payment of
the adjusted Exercise Price that number of shares of Common Stock (calculated to
the nearest hundredth) obtained from the following formula:
N'= N x E
-----
E'
where:
N' = the adjusted number of Warrant Shares issuable upon exercise
of a Warrant by payment of the adjusted Exercise Price.
<PAGE> 88
N = the number or Warrant Shares previously issuable upon
exercise of a Warrant by payment of the Exercise Price prior
to adjustment.
E' = the adjusted Exercise Price.
E = the Exercise Price prior to adjustment.
(q) Form of Warrants.
Irrespective of any adjustments in the Exercise Price or the
number or kind of shares purchasable upon the exercise of the Warrants, Warrants
theretofore or thereafter issued may continue to express the same price and
number and kind of shares as are stated in the Warrants initially issuable
pursuant to this Warrant.
(r) Special Antidilution Provisions. Notwithstanding the foregoing,
until the earlier of: (i) receipt by NextWave of an aggregate of $120 million
from the issuance or sale of NextWave Common Stock, Options or Convertible
Securities, cumulative from and after the date of incorporation of NextWave, or
(ii) election by a majority of the holders of Series B Common Stock to close the
offering of shares of Series B Common Stock and Warrants pursuant to the terms
of that certain Confidential Private Placement Memorandum dated September 25,
1995, as amended from time to time, at any time after the receipt by the Company
of at least $70 million from the sale of shares of Series B Common Stock,
instead of the adjustments provided for pursuant to subsections (b), (c), (d)
and (e) of this Section 4, in the event an adjustment would have been applicable
under such subsections if the issuance or distribution were less than Current
Market Price, the Exercise Price then in effect shall be reduced to the offering
price per share for an issuance or distribution described in subsection (b), the
fair market value per share for an issuance or distribution described in
subsection (c), the price paid per share for an issuance or distribution
described in subsection (d) or the consideration per share to be received upon
conversion, exercise or exchange for an issuance or distribution described in
subsection (e), as applicable, without regard to whether the issuance is less
than the Current Market Price at the time of issuance.
(s) Section 6.12 Adjustment. Pursuant to Section 6.12 of the Securities
Purchase Agreement, the Exercise Price then in effect and the number of shares
of Common Stock into which the Warrants is exercisable may be adjusted. From and
after the date of such adjustments, the provisions of this Section 4 shall
continue to apply with respect to adjustments to the so adjusted Exercise Price
and the so adjusted number of shares of Common Stock.
(t) Notice of Adjustment of Exercise Price. Whenever NextWave shall
take any action resulting in any adjustment provided for herein, NextWave shall
forthwith deliver or cause to be delivered notice of such action to
Warrantholder, which notice shall set forth the number of NextWave Shares then
subject to these
<PAGE> 89
Warrants and the purchase price thereof resulting from such adjustment. Written
notice shall be delivered in accordance with the provisions of Section 11.
(u) No Fractional Shares. No fraction of a Share shall be issued
upon exercise hereof and fractional Share interests shall be paid in cash upon
exercise by Warrantholder on the basis of a per Share purchase price.
5. Investment Intent; Limited Assignability. The Warrants may not be
sold, pledged, assigned, or transferred unless registered and/or qualified
pursuant to the relevant provisions of Federal and State securities or Blue Sky
laws or an exemption from such registration or qualification is applicable. Any
assignment or transfer not complying with such laws shall be voidable at the
option of NextWave. Warrantholder has acquired these Warrants and the rights
arising hereunder for investment only and not with a view to any distribution,
except for any transfer which permitted under the Securities Purchase Agreement
to which this Warrant is attached and only in compliance with federal and state
securities laws. Warrantholder shall not be or have any rights or privileges of
a shareholder of NextWave in respect of the shares issuable upon the exercise of
the Warrants, unless and until such shares shall have been issued pursuant to
this Warrant.
6. Acknowledgments; Registration Provisions. Warrantholder is aware
that:
(a) The issuance of Shares hereunder may only be effected in
compliance with state and federal securities laws; and
(b) Except as provided in the Registration Rights Agreement attached
as Exhibit B to the Securities Purchase Agreement, NextWave is not required
under the terms hereof to register any securities issued pursuant hereto, and
the subsequent transfer of any shares by the Warrantholder may require
registration under the Securities Act of 1933, as amended, or other federal
statutes, as well as under applicable state laws. In the event the Warrants
and/or Shares are not registered, Warrantholder acknowledges that any stock
certificate evidencing shares acquired on exercise of the Warrants shall contain
a legend restricting transferability substantially as follows:
THIS SECURITY HAS NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED ("ACT") OR THE SECURITIES OR BLUE SKY LAWS OF
ANY STATE AND MAY NOT BE OFFERED OR SOLD UNLESS REGISTERED AND/OR
QUALIFIED PURSUANT TO THE RELEVANT PROVISIONS OF FEDERAL AND STATE
SECURITIES OR BLUE SKY LAWS OR AN EXEMPTION FROM SUCH REGISTRATION OR
QUALIFICATION IS APPLICABLE. THEREFORE, NO SALE OR TRANSFER OF THIS
SECURITY SHALL BE MADE, NO ATTEMPTED SALE OR TRANSFER SHALL BE VALID,
AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE ANY EFFECT TO
<PAGE> 90
ANY SUCH TRANSACTION UNLESS (A) SUCH TRANSACTION SHALL HAVE BEEN DULY
REGISTERED UNDER THE ACT AND QUALIFIED OR APPROVED UNDER APPROPRIATE
STATE OR BLUE SKY LAWS, OR (B) THE ISSUER SHALL HAVE FIRST RECEIVED AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO IT THAT SUCH
REGISTRATION, QUALIFICATION OR APPROVAL IS NOT REQUIRED.
7. Representations and Covenants of NextWave. So long as these Warrants
remain outstanding and unexpired, NextWave represents and covenants that it will
reserve for issuance upon the exercise of these Warrants such number of Shares
as are subject to these Warrants. The Shares subject to these Warrants shall,
when issued, be validly issued, fully paid and nonassessable (subject to
applicable federal laws and state laws), and NextWave will pay or cause the
payment of, when due and payable, any and all federal and state taxes or fees
that may be payable by NextWave with respect to the grant of these Warrants or
other issuance of shares of NextWave Common Stock subject to these Warrants;
provided, however, that in no event shall the Company be obligated to pay stamp,
transfer or similar fees and taxes in more than one state in addition to the
state where the Company maintains its books and records with respect to any
grant or issuance. The Company shall not be liable for any other taxes,
including without limitation, taxes based on items of income and gain, which may
be payable in respect of the Securities.
8. Terms of Series B Common Stock Upon Exercise of Warrants. The shares
of Series B Common Stock issuable upon exercise of the Warrants shall have the
rights, preferences and privileges set forth in the Restated Certificate of
Incorporation of NextWave attached hereto as Exhibit "B," as such may be amended
from time to time.
9. Company's Right to Redeem Warrants. At any time after the third
anniversary of the date of issuance of these Warrants, if the Quoted Price of
the Company's Series B Common Stock for ten (10) consecutive trading days is at
least 150% of the Warrant Determination Price (as defined below), the Company
may, in its sole discretion, deliver a written notice to the holder of these
Warrants initiating the Company's right to redeem these Warrants (the "FIRST
REDEMPTION NOTICE"), specifying the number of Warrants held by such
Warrantholder and the Warrant Determination Price. If during the next
twenty-five (25) consecutive trading days from and after the date of the First
Redemption Notice, the Quoted Price of the Company's Series B Common Stock
remains at least 150% of the Warrant Determination Price, the Company shall
deliver to the Warrantholder a second redemption notice (the "SECOND REDEMPTION
NOTICE"), setting forth in reasonable detail the average Quoted Price of the
Series B Common Stock during the previous twenty-five (25) consecutive trading
days (the "REDEMPTION STOCK PRICE") and reaffirming the Company's intent to
redeem the Warrantholders' Warrants. If during the next fifteen (15) consecutive
trading days the Quoted Price of the Series B Common Stock remains at least 150%
of the Warrant
<PAGE> 91
Determination Price, then the Company shall, subject to applicable law and to
the Warrantholder's right to exercise its Warrants in accordance with the terms
and conditions thereof prior to the expiration of such fifteen-day period,
redeem all of the Warrantholder's outstanding and unexercised Warrants promptly
after the expiration of such fifteen-day period, for a consideration per Warrant
equal to the difference between (i) 150% of the Warrant Determination Price and
(ii) the then-current Exercise Price of such Warrant (the "Appreciation");
provided, however, that the Company may not redeem hereunder such portion of the
Warrants that are prohibited from exercise by the Warrantholder pursuant to
Section 8.4 of the Securities Purchase Agreement. In payment of the Warrant
consideration, the Company shall issue and deliver to the Warrantholder that
number of freely-tradeable shares of Series B Common Stock equal to the quotient
of (A) the product of the number of shares of Common Stock then issuable
pursuant to the Warrants to be redeemed times the Appreciation, divided by (B)
the Redemption Stock Price. The Company and the Warrantholder agree to execute
such documents and provide such information as may be necessary for the parties
to effect such issuance of shares in compliance with applicable federal and
state securities laws. The "WARRANT DETERMINATION PRICE" shall be the price of
the Company's Series B Common Stock used to compute the number of Warrants
issued to the original holder of these Warrants pursuant to Section 10.2 of the
Securities Purchase Agreement as adjusted from time to time by any stock splits,
stock dividends, reclassifications or other events of the type referred to in
subsection (a) of Section 4 hereof.
10. Notices. Any notice to NextWave provided for in this Warrant shall
be addressed to it in care of its Secretary, at its principal executive offices
in San Diego, California, and any notice to Warrantholder shall be addressed to
its address on file with NextWave, or to such other address as either may
designate to the other in writing. Any notice shall be deemed to be duly given
(i) if given by telecopy, when such telecopy is transmitted with telephonic
confirmation of receipt to the telecopy number specified on the signature page
hereof, (ii) if given by mail, four days after such communication is deposited
in the mail with first class postage prepaid, addressed as aforesaid or (iii) if
given by Federal Express or any other means, when delivered at the address
specified in this Section.
11. Attorneys' Fees. In the event of any litigation arising from this
Agreement, the prevailing party shall be entitled to recover reasonable
attorneys' fees from the other party as costs of suit and not as damages.
12. Governing Law. These Warrants and the interpretation, performance
and enforcement of this Agreement shall be governed by the internal laws of the
State of Delaware.
13. Survival of Covenants. All covenants contained herein which require
performance subsequent to the exercise or termination of the Warrants shall
<PAGE> 92
remain in full force and effect with respect to all Warrants subsequent to the
exercise and/or termination of such Warrants.
<PAGE> 93
IN WITNESS WHEREOF, the parties hereto have executed this Warrant as of
the date and year first written above.
"NEXTWAVE"
NEXTWAVE TELECOM INC.,
a Delaware corporation
By: _________________________
Title: President
By: _________________________
Title: Secretary
"WARRANTHOLDER"
---------------------------------
By: ________________________
Title: ________________________
Address: ______________________
______________________
______________________
______________________
Telecopy No. (___) _______________
Confirmation No. (___) ___________
SIGNATURE PAGE TO
NEXTWAVE TELECOM INC.
SERIES B COMMON STOCK WARRANT
<PAGE> 94
REGISTRATION RIGHTS
THE COMPANY COVENANTS AND AGREES AS FOLLOWS:
1. Definitions. For purposes of this Section 1:
(a) the term "REGISTER," "REGISTERED," and "REGISTRATION" refer to
a registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act of 1933, as amended (the
"Act"), and the declaration or ordering of effectiveness of such registration
statement or document;
(b) the term "REGISTRABLE SECURITIES" means the Warrants issued or
issuable under the Securities Purchase Agreement and those shares of the
Company's Series B Common Stock issued or issuable by the Company in connection
with the conversion of certain Convertible Senior Subordinated Notes, or upon
the exercise of certain Warrants issued or issuable in connection with the
prepayment of such Convertible Senior Subordinated Notes by the Company, in each
instance pursuant to the terms of the Securities Purchase Agreement to which
this EXHIBIT B is attached (including shares received from the Company with
respect to or in replacement of such shares by reason of splits, dividends,
combinations and recapitalizations) but excluding (i) any shares not sold in
compliance with the Amended and Restated Shareholders Rights Agreement and (ii)
any shares which are not "restricted securities" pursuant to Rule 144 or other
comparable provision under the Act ("Rule 144") or which may be sold without
registration pursuant to Rule 144;
(c) the number of shares of "REGISTRABLE SECURITIES THEN
OUTSTANDING" will be determined by the number of shares of Series B Common Stock
outstanding which are, and the number of shares of Series B Common Stock
issuable pursuant to then exercisable or convertible securities which are,
Registrable Securities;
(d) the term "HOLDER" means any person who has paid to the Company
a minimum of Five Hundred Thousand Dollars ($500,000) in connection with its
purchase of Convertible Senior Subordinated Notes of the Company and who owns or
has the right to acquire Registrable Securities or any assignee thereof in
accordance with Section 12 and any person who holds Warrants to purchase at
least 25,000 shares of Series B Common Stock;
(e) "MARKET VALUE" for any security on any given date means (i)
the average closing price for the prior twenty five (25) trading days for such
security on the principal stock exchange on which such security is traded or
(ii) if not so traded, the closing (or, if no closing price is available, the
average of the bid and
<PAGE> 95
asked prices) for such period on the NASDAQ if such security is listed on the
NASDAQ or (iii) if not listed on any exchange or quoted on the NASDAQ, such
value as may be determined in good faith by the Company's Board of Directors,
and;
(f) the term "SERIES B PURCHASER" means any person who has
subscribed for the purchase of shares of Series B Common Stock pursuant to the
Company's Confidential Private Placement Memorandum and Subscription Agreement,
prior to the closing of the FCC C-Block auction of Personal Communications
Services licenses, or any permitted assignee of such person.
2. Request for Registration.
(a) If the Company receives at any time after the earlier of (i)
January 1, 1998, or (ii) three (3) months after the effective date of the first
registration statement for a public offering of securities of the Company in
which the aggregate price paid by the public is at least $20,000,000 (other than
a registration statement relating either to the sale of securities to employees,
directors or consultants of the Company pursuant to a stock option, stock
purchase or similar plan or a SEC Rule 145 transaction) (the "IPO"), a written
request from a Holder(s) that the Company file a registration statement under
the Act covering the registration of such Holder's or Holders' Registrable
Securities then outstanding, then the Company will, within ten days of the
receipt thereof, give written notice of such request to all Holders and will,
subject to the limitations set forth below and of subsection 2(b), effect as
soon as practicable, and in any event shall use its best efforts to effect
within sixty (60) days of the receipt of requests representing at least
$20,000,000 in aggregate of anticipating offering price of Registrable
Securities, a registration statement under the Act of all Registrable Securities
which the Holders request to be registered within twenty (20) days of the notice
by the Company. Notwithstanding the foregoing, the Company's obligation to
effect the requested registration shall be conditioned upon the anticipated
aggregate offering price of the Registrable Securities equaling or exceeding
$20,000,000.
(b) If the Holders initiating the registration request pursuant to
this Agreement ("INITIATING HOLDERS") intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they will so
advise the Company as a part of their request made pursuant to this SECTION 2
and the Company will include such information in the written notice referred to
in subsection 2(a). The underwriter will be selected by the Company with prior
consultation with the initiating Holders and will be reasonably acceptable to a
majority in interest of the Initiating Holders. In such event, the right of any
Holder to include such Holder's Registrable Securities in such registration will
be conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting (unless
otherwise mutually agreed by a majority in interest of the Initiating Holders
and such Holder)
<PAGE> 96
to the extent provided in this Agreement. All Holders proposing to distribute
their securities through such underwriting will (together with the Company as
provided in SUBSECTION 5(e)) enter into an underwriting agreement in customary
form with the underwriter or underwriters selected for such underwriting by the
Company. Notwithstanding any other provision of this SECTION 2, if the
underwriter advises the Company in writing that marketing factors require a
limitation of the number of shares to be underwritten, then the Company or its
representative, as the case may be, will so advise all Holders of Registrable
Securities which would otherwise be underwritten pursuant to this Agreement, and
the number of shares of Registrable Securities that may be included in the
underwriting will be allocated among all Holders thereof, including the
Initiating Holders, in proportion (as nearly as practicable) to the amount of
Registrable Securities of the Company owned by each Holder; provided, however,
that the number of shares of Registrable Securities to be included in such
underwriting will not be reduced unless all other securities are first entirely
excluded from the underwriting.
(c) The Company is obligated to effect only two such registrations
pursuant to this SECTION 2; provided, however, that the Company shall be deemed
to fulfill such obligation only when such registration has become effective and,
provided further, that the Company will pay all registration expenses in
connection with any registration initiated at the request of a Holder to the
extent provided below in SECTION 7.
(d) Notwithstanding the foregoing, if the Company furnishes to
Holders requesting a registration statement pursuant to this SECTION 2, a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company and its shareholders for such registration statement
to be filed and it is therefore essential to defer the filing of such
registration statement, the Company will have the right to defer taking action
with respect to such filing for a period of not more than one hundred twenty
(120) days after receipt of the request of the Initiating Holders.
(e) The Company shall have no obligation to any Holder under this
SECTION 2 (i) with respect to whom the Company has obtained an opinion of
counsel, in a form reasonably satisfactory to such Holder, to the effect that
the Registrable Securities involved may be immediately sold to the public
without registration thereof, whether pursuant to Rule 144 or otherwise; or (ii)
if within ten (10) days of the time that the registration is requested under
these registration rights provisions, the Company offers to purchase the
Registrable Securities to be included at Market Value less 5(cent) per share of
Series B Common Stock; provided that such purchase is an all cash purchase and
is consummated within forty-five (45) days of the Company's receipt of the
Holder's request for registration.
3. Request for S-3 Registration.
<PAGE> 97
(a) If the Company receives at any time after one (1) year after
the effective date of the first registration statement for the Company's IPO, a
written request from a Holder(s) that the Company file a registration statement
under the Act covering the registration of such Holder's or Holders' Registrable
Securities then outstanding, then the Company will, within ten days of the
receipt thereof, give written notice of such request to all Holders and will,
subject to the limitations set forth below and of subsection 3(b), effect as
soon as practicable, and in any event shall use its best efforts to effect
within sixty (60) days of the receipt of requests representing at least
$2,000,000 in aggregate of anticipated offering price of Registrable Securities,
a registration statement on Form S-3 under the Act of all Registrable Securities
which the Holders request to be registered within twenty (20) days of the notice
by the Company. Notwithstanding the foregoing, the Company's obligation to
effect the requested registration shall be conditioned upon (i) the anticipated
aggregate offering price of the Registrable Securities equaling or exceeding
$2,000,000 and (ii) the Company's meeting the then-current eligibility
requirements for the use of Form S-3.
(b) If the Holders initiating the registration request pursuant to
this Agreement ("INITIATING S-3 HOLDERS") intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they will so
advise the Company as a part of their request made pursuant to this SECTION 3
and the Company will include such information in the written notice referred to
in SUBSECTION 3(a). The underwriter will be selected by the Company with prior
consultation with the Initiating S-3 Holders and will be reasonably acceptable
to a majority in interest of the Initiating S-3 Holders. In such event, the
right of any Holder to include such Holder's Registrable Securities in such
registration will be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting (unless otherwise mutually agreed by a majority in interest of the
Initiating S-3 Holders and such Holder) to the extent provided in this
Agreement. All Holders proposing to distribute their securities through such
underwriting will (together with the Company as provided in SUBSECTION 5(e))
enter into an underwriting agreement in customary form with the underwriter or
underwriters selected by the Company. Notwithstanding any other provision of
this SECTION 3, if the underwriter advises the Company in writing that marketing
factors require a limitation of the number of shares to be underwritten, then
the Company will so advise all Holders of Registrable Securities which would
otherwise be underwritten pursuant to this Agreement, and the number of shares
of Registrable Securities that may be included in the underwriting will be
allocated among all Holders thereof, including the Initiating S-3 Holders, in
proportion (as nearly as practicable) to the amount of Registrable Securities of
the Company owned by each Holder; provided, however, that the number of shares
of Registrable Securities to be included in such underwriting will not be
reduced unless all other securities are first entirely excluded from the
underwriting.
<PAGE> 98
(c) Notwithstanding the foregoing, the Company is obligated to
effect only one such registration pursuant to this SECTION 3 during each twelve
month period after the first anniversary of the Company's IPO; provided,
however, that the Company shall be deemed to fulfill such obligation only when
such registration has become effective and, provided further, that the Company
will pay all registration expenses in connection with any registration initiated
at the request of a Holder to the extent provided below in SECTION 7.
(d) Notwithstanding the foregoing, if the Company furnishes to
Holders requesting a registration statement pursuant to this Section 3, a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company and its shareholders for such registration statement
to be filed and it is therefore essential to defer the filing of such
registration statement, the Company will have the right to defer taking action
with respect to such filing for a period of not more than one hundred twenty
(120) days after receipt of the request of the Initiating S-3 Holders.
(e) The Company shall have no obligation to any Holder under this
SECTION 3 (i) with respect to whom the Company has obtained an opinion of
counsel, in a form reasonably satisfactory to such Holder, to the effect that
the Registrable Securities involved may be immediately sold to the public
without registration thereof, whether pursuant to Rule 144 or otherwise; or (ii)
if within ten (10) days of the time that the registration is requested under
these registration rights provisions, the Company offers to purchase the
Registrable Securities to be included at Market Value less 5(cent) per share of
Series B Common Stock; provided that such purchase is an all cash purchase and
is consummated within forty-five (45) days of the Company's receipt of the
Holder's request for registration.
4. Company Registration. If (but without any obligation to do so) the
Company proposes to register (including for this purpose a registration effected
by the Company for shareholders other than the Holders) any of its stock or
other securities under the Act in connection with the public offering of such
securities solely for cash (other than a registration relating solely to the
sale of securities to participants in a Company stock plan, or a registration on
any form which does not include substantially the same information as would be
required to be included in a registration statement covering the sale of the
Registrable Securities), the Company will, at such time, promptly give each
Holder written notice of such registration no less than forty-five (45) days
prior to the proposed effective date of such registration. Upon the written
request of each Holder given within twenty (20) days after notice by the
Company, the Company will, subject to the provisions of Section 8, cause to be
registered under the Act all of the Registrable Securities that each such Holder
has requested to be registered. The foregoing notwithstanding, the Company shall
not be required to register the Registrable Securities of any Holder to the
extent that such inclusion would reduce the amount of Registrable Securities
requested to be included in such registration statement by
<PAGE> 99
any Series B Purchaser. If less than all of the Registrable Securities requested
by the Holder may be included in any registration statement as a result of the
foregoing sentence, the Registrable Securities so included shall be apportioned
pro rata among such Holders. The registration expenses of the Holders of the
Registrable Securities incurred pursuant to this SECTION 4 shall be paid by the
Company to the extent provided in SECTION 7 below.
5. Obligations of the Company. Whenever required under this EXHIBIT
B to effect the registration of any Registrable Securities, the Company will, as
expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, subject to applicable law, keep
such registration statement effective until such time as the Company has filed
and had declared effective an S-3 registration statement, and in the case of an
S-3 registration statement filed pursuant to Section 3, to keep such
registration statement effective to the extent permitted by and subject to
applicable law.
(b) Prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Holders such numbers of copies of the
registration statement, each amendment and supplement thereto, the prospectus
included in such registration statement, including a preliminary prospectus, in
conformity with the requirements of the Act, and such other documents as they
may reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as will be reasonably requested by the Holders,
provided that the Company will not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting will also enter into and perform its
obligations under such an agreement.
<PAGE> 100
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
(g) Use its best efforts to furnish, at the request of any Holder
requesting registration of Registrable Securities pursuant to this EXHIBIT B, on
the date that such Registrable Securities are delivered to the underwriters for
sale in connection with a registration pursuant to this EXHIBIT B, if such
securities are being sold through underwriters, (i) an opinion, dated such date,
of the counsel representing the Company for the purposes of such registration,
in form and substance as is customarily given to underwriters in an underwritten
public offering, addressed to the underwriters, if any, and to the Holders
requesting registration of Registrable Securities and (ii) a letter dated such
date, from the independent certified public accountants of the Company, in form
and substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering, addressed to the
underwriters, if any, and to the Holders requesting registration of Registrable
Securities.
(h) Cause all such Registrable Shares to be listed on each
securities exchange on which similar securities issued by the Company are then
listed.
(i) Provide a transfer agent and registrar for all such
Registrable Shares not later than the effective date of such registration
statement.
(j) Make available for inspection by any Holder participating in
such registration, any underwriter participating in any disposition pursuant to
such registration statement and one counsel, accountant or other agent retained
by such Holders or any such one counsel selected by such Holders as a group,
underwriter, all financial and other records, pertinent corporate documents and
properties of the Company reasonably requested, and cause the Company's
officers, directors, employees and independent accountants to supply information
reasonably requested by any Holder or any such underwriter, attorney, accountant
or agent in connection with such registration statement, provided that the
Company shall be under no obligation to disclose Proprietary or Privileged
Information (as defined in the Securities Purchase Agreement to which this
Exhibit B is attached).
(k) Advise the Holders participating in such registration after it
shall receive notice or obtain knowledge thereof, of the issuance of any stop
order by the SEC suspending the effectiveness of such registration statement or
the initiation or threatening of any proceeding for such purpose and promptly
use all reasonable efforts to prevent the issuance of any stop order or to
obtain its withdrawal if such stop order should be issued.
<PAGE> 101
(l) Within a reasonable period prior to the filing of any
registration statement or prospectus, or any amendment or supplement to such
registration statement or prospectus, furnish a copy thereof to the Holders
participating in such registration and, except with respect to any registration
pursuant to Section 4, refrain from filing any such registration statement,
prospectus, amendment or supplement to which one counsel, selected by such
Holders as a group, shall have reasonably objected to on the grounds that such
document does not comply in all material respects with the requirements of the
Act or the rules and regulations thereunder, unless, in the case of an amendment
or supplement, in the opinion of counsel for the Company the filing of such
amendment or supplement is reasonably necessary to protect the Company from any
liabilities under the applicable federal or state law and such filing will not
violate applicable laws.
(m) Otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the SEC, and make available to its security
holders, as soon as reasonably practicable, an earnings statement covering the
period of at least twelve months beginning with the first day of the Company's
first full fiscal quarter after the effective date of the registration
statement, which earnings statement shall satisfy the provisions of Section
11(a) of the Act and Rule 158 thereunder.
6. Furnishing of Information.
(a) It will be a condition precedent to the obligations of the
Company to take any action pursuant to this EXHIBIT B with respect to the
Registrable Securities of any selling Holder that such Holder will furnish to
the Company such information regarding itself, the Registrable Securities held
by it, and the intended method of disposition of such securities as will be
required to effect the registration of such Holder's Registrable Securities.
(b) The Company will have no obligation with respect to any
registration requested pursuant to SECTIONS 2 AND 3 if, due to the operation of
subsection 6(a), the number of shares or the anticipated aggregate offering
price of the Registrable Securities to be included in the registration does not
equal or exceed the number of shares or the anticipated aggregate offering price
required to originally trigger the Company's obligation to initiate such
registration as specified in subsections 2(a) and 3(a).
7. Expenses of Registration. The Company shall bear all expenses
other than Selling Holder Expenses (defined below) incurred in any Registration,
including, without limitation, all registration and filing fees (including all
expenses incident to filing with the National Association of Securities Dealers,
Inc.), messenger and delivery expenses, fees and expenses of complying with
federal and state securities and blue sky laws, printing expenses and fees and
disbursements of the independent certified public accountants (including for any
special audits), fees for the Company's counsel and fees for one counsel for the
<PAGE> 102
Holders, as a group. Each Selling Holder shall bear his or her equitable share
of any Selling Holder Expenses. "SELLER HOLDER EXPENSES" shall consist of (i)
Selling Holder's legal costs (except for the one counsel provided to the Holders
as a group by Company) and (ii) any proportionate share of brokerage or
underwriting fees, expenses or commissions.
8. Underwriting Requirements. In connection with any offering
involving an underwriting of shares of the Company's capital stock, the Company
will not be required under Section 4 to include any of the Holders' securities
in such underwriting unless they accept the terms of the underwriting as agreed
upon between the Company and the underwriters selected by it (or by other
persons entitled to select the underwriters), and then only in such quantity as
the underwriters determine in their sole discretion will not jeopardize the
success of the offering by the Company. If the total amount of securities,
including Registrable Securities, requested by shareholders to be included in
such offering exceeds the amount of securities sold other than by the Company
that the underwriters determine in their sole discretion is compatible with the
success of the offering, then the Company will be required to include in the
offering only that number of such securities, including Registrable Securities,
which the underwriters determine in their sole discretion will not jeopardize
the success of the offering (the securities so included to be apportioned pro
rata among the selling shareholders according to the total amount of securities
entitled to be included therein owned by each selling shareholder or in such
other proportions as will mutually be agreed to by such selling shareholders)
but, subject to the rights of the Series B Purchasers, in no event will (i) the
amount of securities of the selling shareholder included in the offering be
reduced below 30% of the total amount of securities included in such offering,
unless such offering is the initial public offering of the Company's securities
in which case the selling Holder may be excluded if the underwriters make the
determination described above and no other shareholder's securities are included
or (ii) notwithstanding (i) above, any shares being sold by a shareholder
exercising a demand registration right similar to that granted in Section 2 or 3
be excluded from such offering. For purposes of the preceding parenthetical
concerning apportionment, for any selling shareholder which is a Holder of
Registrable Securities and which is a partnership or corporation, the partners,
retired partners and shareholders of such Holder, or the estates and family
members of any such partners and retired partners and any trusts for the benefit
of any of the foregoing persons will be deemed to be a single "selling
shareholder," and any pro-rata reduction with respect to such "selling
shareholder" will be based upon the aggregate amount of shares carrying
registration rights owned by all entities and individuals included in such
"selling shareholder," as defined in this sentence.
9. Delay of Registration. No Holder will have any right to obtain or
seek an injunction restraining or otherwise delaying any registration pursuant
to Section 4 as the result of any controversy that might arise with respect to
the interpretation or implementation of this EXHIBIT B.
<PAGE> 103
10. Indemnification. If any Registrable Securities are included in a
registration statement under this Exhibit B:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, their respective partners, officers, employees,
directors and agents, any underwriter (as defined in the Act) for such Holder
and each person, if any, who controls such Holder or underwriter within the
meaning of the Act or the Securities Exchange Act of 1934, as amended (the "1934
ACT"), against any losses, claims, damages, or liabilities (joint or several) to
which they may become subject under the Act, or the 1934 Act, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon any of the following statements, omissions or
violations (collectively a "Violation"): (i) any untrue statement or alleged
untrue statement of a material fact contained in such registration statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation of the Act, the 1934 Act, state securities laws or any rule or
regulation promulgated under the Act, or the 1934 Act or state securities laws;
and the Company will pay to each such Holder, underwriter or controlling person,
any legal or other expenses reasonably incurred by them (as incurred) in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this subsection 10(a) will not apply to amounts paid in settlement of any
such loss, claim, damage, liability, or action if such settlement is effected
without the consent of the Company (which consent will not be unreasonably
withheld or delayed), nor will the Company be liable in any such case for any
such loss, claim, damage, liability, or action to the extent that it arises out
of or is based upon a Violation (other than alleged violations) as ultimately
determined by a final judgment of a court of competent jurisdiction which occurs
in reliance upon and in conformity with written information furnished expressly
for use in connection with such registration by such Holder.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers and agents who has signed the registration statement, each person, if
any, who controls the Company within the meaning of the Act, any underwriter,
any other Holder selling securities in such registration statement and any
controlling person of any such underwriter or other Holder, against any losses,
claims, damages, or liabilities (joint or several) to which any of the foregoing
persons may become subject, under the Act, or the 1934 Act insofar as such
losses, claims, damages, or liabilities (or actions in respect thereto) arise
out of or are based upon any Violation (other than alleged violations), in each
case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by such
Holder expressly for use in connection with such registration as ultimately
determined by a final judgment of a court of
<PAGE> 104
competent jurisdiction; and each such Holder will pay any legal or other
expenses reasonably incurred by any person intended to be indemnified pursuant
to this SUBSECTION 10(b) (as incurred), in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided, however,
that the indemnity agreement contained in this SUBSECTION 10(b) will not apply
to amounts paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of the Holder, which
consent will not be unreasonably withheld or delayed; provided that in no event
will any indemnity under this SUBSECTION 10(b) exceed the gross proceeds from
the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this
SECTION 10 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this SECTION 10, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party will have the right to participate in, and, to the extent the
indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) will have the right to retain one separate counsel,
with the reasonable fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party is inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, will relieve such
indemnifying party of any liability to the indemnified party under this Section
10, but the omission so to deliver written notice to the indemnifying party will
not relieve it of any liability that it may have to any indemnified party
otherwise than under this SECTION 10. The payments required by this SECTION 10
will be made periodically throughout the course of investigation or defense, as
and when bills are received or expenses incurred, provided that the indemnified
party seeking reimbursement of expenses hereunder undertakes in a writing
reasonably satisfactory to the indemnifying party, to repay all amounts
previously paid over to the indemnified party if it is ultimately determined (by
a final judgment of a court of competent jurisdiction) that such party is not
entitled to indemnification hereunder.
(d) If the indemnification provided for in this SECTION 10 is held
by a court of competent jurisdiction to be unavailable to an indemnified party
with respect to any loss, liability, claim, damage, or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party to this Agreement, will contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage, or expense
in such
<PAGE> 105
proportion as is appropriate to reflect the relative fault of the indemnifying
party on the one hand and of the indemnified party on the other in connection
with the statements or omissions that resulted in such loss, liability, claim,
damage, or expense as well as any other relevant equitable considerations. The
relative fault of the indemnifying party and of the indemnified party will be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a material fact
relates to information supplied by the indemnifying party or by the indemnified
party and the parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement or omission.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement will control.
(f) The obligations of the Company and Holders under this Section
10 will survive the completion of any offering of Registrable Securities in a
registration statement under this Exhibit B, and otherwise.
11. Reports Under Securities Exchange Act of 1934. With a view to
making available to the Holders the benefits of Rule 144 promulgated under the
Act and any other rule or regulation of the SEC that may at any time permit a
Holder to sell securities of the Company to the public without registration or
pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times after ninety (90) days
after the effective date of the first registration statement filed by the
Company for the offering of its securities to the general public;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and
(c) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of SEC Rule 144 (at
any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Act and the 1934 Act (at any
time after it has become subject to such reporting requirements), or that it
qualifies as a registrant whose securities may be resold pursuant to Form S-3
(at any time after it so qualifies), (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company with the SEC, and (iii) such other information as may be reasonably
requested in availing any Holder of any rule or regulation of the SEC which
permits the selling of any such securities without registration or pursuant to
such form.
<PAGE> 106
12. Assignment of Registration Rights. The rights to cause the Company
to register Registrable Securities pursuant to this Exhibit B may be assigned
(but only with all related obligations) by a Holder to (i) transferee(s) or
assignee(s) of such securities who, after such assignment or transfer, holds
Registrable Securities (subject to appropriate adjustment for stock splits,
stock dividends, combinations and other recapitalizations) with an aggregate
Market Value of at least $500,000 or (ii) transferee(s) or assignee(s) of such
securities who, after such assignment or transfer, holds all of the Registrable
Securities of the transferring Holder, provided the Company is, within a
reasonable time after such transfer, furnished with written notice of the name
and address of such transferee(s) or assignee(s) and the securities with respect
to which such registration rights are being assigned.
13. Limitations on Subsequent Registration Rights.
(a) From and after the date of this Agreement, the Company will
not, without the prior written consent of the Holders of a majority of the
outstanding Registrable Securities, enter into any agreement with any holder or
prospective holder of any securities of the Company which would allow such
holder or prospective holder (i) to include such securities in any registration
filed under SECTION 2, unless under the terms of such agreement, such holder or
prospective holder may include such securities in any such registration only to
the extent that the inclusion of his securities will not reduce the amount of
the Registrable Securities of the Holders which is included or (ii) to make a
demand registration which could result in such registration statement being
declared effective within 120 days of the effective date of any registration
effected pursuant to SECTION 2
(b) From and after the date of this Agreement, if the Company
grants any person rights (i) to demand that the Company register securities of
the Company under the 1933 Act or (ii) to have securities of the Company
included in a Registration Statement, which are more favorable than these
registration rights provisions in any regard (including, without limitation,
those relating to the expenses to be borne by the Company), the rights granted
herein shall be deemed to be amended to include such more favorable rights in
addition to these set forth herein.
14. "Market Stand-Off" Agreement. Each Shareholder hereby agrees that
if an offering is made by means of a proposed underwriting, during the period of
duration specified by the Company and an underwriter of Series B Common Stock
or other securities of the Company, following the effective date of a
registration statement of the Company filed under the Act, it will not, to the
extent requested by the Company and such underwriter, directly or indirectly
sell, offer to sell, contract to sell (including, without limitation, any short
sale), grant any option to purchase or otherwise transfer or dispose of (other
than to donees who agree to be similarly bound) any securities of the Company
held by it at any time during such period except Series B Common Stock included
in such registration, not to exceed
<PAGE> 107
180 days in the case of the Company's IPO and not to exceed 90 days in the case
of all subsequent registration statements for underwritten offerings; provided,
however, that all officers and directors of the Company and all other persons
with registration rights (whether or not pursuant to this Agreement) enter into
similar agreements.
In order to enforce the foregoing covenant, the Company may
impose stop-transfer instructions with respect to the Registrable Securities of
each Shareholder (and the shares or securities of every other person subject to
the foregoing restriction) until the end of such period.
15. Termination of Registration Rights. No Holder will be entitled to
exercise any right provided for in this Exhibit B after the later of (i) April
9, 2004 or (ii) two years after the date of a Qualified Public Offering, as
defined in the Company's Restated Certificate of Incorporation.
16. Adjustments Affecting Registrable Shares. The Company will not
take any action, or permit any change to occur, with respect to its securities
which would adversely affect the ability of the Holders to include Registrable
Shares in a registration undertaken pursuant hereto. However, nothing in this
Agreement shall limit the Company's ability to register, offer and sell
securities.
17. Amendments. The approval by Holders of at least 75% in interest
of the Registrable Securities then outstanding hereunder shall be required to
amend, modify or waive the provisions of this Exhibit B.
18. Notices. The notice provision set forth in the Securities
Purchase Agreement shall apply to all notices delivered under this Exhibit B.
<PAGE> 1
EXHIBIT 4.7
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this "Agreement") is entered into as of
April 9, 1996, by and among Chemical Bank, a New York state-chartered bank (the
"Escrow Agent"), NextWave Telecom Inc., a Delaware corporation (the "Company"),
and each of the existing and future holders of the Notes (hereinafter defined),
each of which holders will become a party to this Agreement effective as of the
date of such holder's execution hereof or of a Supplemental Signature Page
(hereinafter defined). Each such holder shall be referred to herein as a
"Purchaser" and all such holders shall be collectively referred to herein as the
"Purchasers."
RECITALS
A. The Purchasers and the Company have entered into a Securities
Purchase Agreement dated as of April 9, 1996 (as amended, modified or
supplemented from time to time, the "Purchase Agreement"), pursuant to which
each Purchaser has or will acquire one of the Company's Convertible Senior
Subordinated Notes due April 9, 2002 (the "Notes").
B. The Company and the Purchasers wish to provide for the
creation of a separate escrow account (the "Escrow Account") into which will be
deposited the proceeds from the sale by the Company of the Notes, to be invested
and released in accordance with the terms of this Agreement.
C. The Company and the Purchasers desire to have the Escrow
Agent serve as the escrow agent, and the Escrow Agent desires to serve as the
escrow agent, on the terms and subject to the conditions set forth herein.
NOW, THEREFORE, it is hereby agreed among the parties as follows:
1. Appointment of Escrow Agent. The Company hereby appoints, and
each of the Purchasers (on behalf of itself and all subsequent transferees of
all or any portion of its Note) hereby appoints, the Escrow Agent as their
escrow agent, and the Escrow Agent hereby accepts the appointment upon the terms
and conditions set forth herein. The Escrow Agent shall be compensated for the
services provided hereunder in accordance with the additional conditions,
attached hereto as Exhibit "A" and incorporated herein by this reference (the
"Additional Conditions").
<PAGE> 2
2. Escrow Account.
(a) Not later than 3:00 p.m. (New York time) on the date on which
each Purchaser acquires its Note, such Purchaser shall deliver by wire transfer
to the Escrow Account immediately available funds in an amount equal to 100% of
the face principal amount of such Note (such deposit amount is hereinafter
referred to as each Purchaser's "Principal Proceeds").
(b) Each Purchaser's Principal Proceeds shall be held by the
Escrow Agent and invested in Permitted Investments (hereinafter defined)
selected from time to time by the applicable Purchaser by written notice to the
Escrow Agent not later than 11:00 a.m. (New York time) on a business day of the
Escrow Agent (hereinafter, a "Business Day"). If investment instructions are not
received from a Purchaser by the Escrow Agent by such time, the Escrow Agent
shall automatically invest such Purchaser's Principal Proceeds in overnight
commercial paper having a rating of A-1 or better from Standard & Poor's
Corporation and P-1 from Moody's Investor Services, Inc. ("Commercial Paper")
until the next Business Day. If a Purchaser's Principal Proceeds are not
received by 12:00 noon (New York time) on a Business Day, the Escrow Agent shall
make a good faith effort to invest such Principal Proceeds when received in
overnight time deposits with commercial banks ("Overnight Time Deposits") until
the next Business Day. As used herein, "Permitted Investments" means Commercial
Paper, Overnight Time Deposits and Chemical Bank's All-Treasury Mutual Fund
known as The Hanover Fund.
(c) The Principal Proceeds deposited by each Purchaser shall be
clearly identified in the books and records of the Escrow Agent as being held in
its capacity as Escrow Agent for the account of such Purchaser and the Company.
All interest and other income derived from Permitted Investments of a
Purchaser's Principal Proceeds shall accrue for the benefit of and be income
solely of such Purchaser for tax and all other purposes. For purposes of
reporting to tax authorities, each Purchaser shall provide a completed I.R.S.
Form W-8, W-9, 1001 or 4224, as applicable, to the Escrow Agent at the time of
such Purchaser's execution of this Agreement or of a Supplemental Signature
Page.
(d) The Company shall pay all fees and expenses of the Escrow
Agent in accordance with the Additional Conditions.
3. Disbursement of Funds. The balances in the Escrow Account and
all earnings derived from Permitted Investments made therewith shall be
disbursed by the Escrow Agent in accordance with the following instructions:
(a) If, by 12:00 noon (New York time) on any Business Day prior to
January 9, 1997, the Company delivers to the Escrow Agent a certificate executed
by the Company's Chief Executive Officer in the form of Exhibit "B-1" hereto
requesting a release of a portion of the Principal Proceeds from the Escrow
Account, together with a copy of a signed opinion of Halprin, Temple, Goodman &
<PAGE> 3
Sugrue in the form of Exhibit "B-2" hereto, the Escrow Agent shall determine
each Purchaser's Ratable Share thereof, liquidate such portion of each
Purchaser's Permitted Investments as may be necessary to disburse its Ratable
Share of the requested amount and wire transfer the requested amount of the
aggregate Principal Proceeds to the Company's (or its subsidiary's) account
specified in such certificate. Following the disbursement, the Escrow Agent
shall adjust each Purchaser's amount of Principal Proceeds to reflect its
Ratable Share of such disbursement. As used herein, "RATABLE SHARE" means, on
any date of determination, the ratio of the outstanding principal balance of
each Purchaser's Note to the aggregate outstanding principal balance of all of
the Purchasers' Notes.
(b) If, by 12:00 noon (New York time) on any Business Day prior to
January 9, 1997, the Company delivers to the Escrow Agent a certificate executed
by the Company's Chief Executive Officer in the form of Exhibit "C-1" hereto,
instructing the Escrow Agent to disburse all remaining Principal Proceeds in the
Escrow Account, together with a copy of a signed opinion of Halprin, Temple,
Goodman & Sugrue in the form of Exhibit "C-2" hereto, the Escrow Agent shall
liquidate all Permitted Investments in the Escrow Account and wire transfer (i)
to the Company's (or its subsidiary's) account specified in such Certificate,
all remaining Principal Proceeds (after deduction of unpaid fees and expenses
owing to the Escrow Agent in accordance with the Additional Conditions), and
(ii) to each Purchaser's account specified below its signature hereto (or on any
Supplemental Signature Page), such Purchaser's income from its Permitted
Investments.
(c) If (i) by 12:00 noon (New York time) on any Business Day prior
to January 9, 1997, the Company delivers to the Escrow Agent a certificate
executed by the Company's Chief Executive Officer in the form of Exhibit "D-1"
hereto requesting that the Purchasers release all or a portion of their
Principal Proceeds in the Escrow Account notwithstanding the Company's failure
to meet one or more of the conditions to such release set forth in the Purchase
Agreement, and (ii) by 12:00 noon (New York time) on the third Business Day
after delivery of such certificate, any Purchaser in its sole discretion
delivers a waiver of noncompliance certificate in the form of Exhibit "D-2"
hereto (each such Purchaser, a "Waiving Purchaser"), the Escrow Agent shall:
(A) if only a portion of the remaining Principal Proceeds are
requested to be released, the Escrow Agent shall determine each Waiving
Purchaser's Adjusted Ratable Share thereof, and (1) liquidate such
portion of each Waiving Purchaser's Permitted Investments as may be
necessary to disburse its Adjusted Ratable Share of the requested
amount and wire transfer the same to the Company's (or its
subsidiary's) account specified in such certificate, and (2) liquidate
each other Purchaser's Permitted Investments and wire transfer, to such
other Purchaser's account specified below its signature hereto (or on
any Supplemental Signature Page), such other Purchaser's Principal
Proceeds, together with all income from its Permitted
<PAGE> 4
Investments. Following such disbursements, the Escrow Agent shall
adjust each Waiving Purchaser's amount of Principal Proceeds to reflect
its Adjusted Ratable Share of the disbursement described in the
foregoing clause (1) and shall adjust each other Purchaser's amount of
Principal Proceeds to zero. As used herein, "Adjusted Ratable Share"
means, on any date of determination, the ratio of the outstanding
principal balance of each Waiving Purchaser's Note to the aggregate
outstanding principal balance of all Waiving Purchasers' Notes.
(B) if all remaining Principal Proceeds are requested to be
released, liquidate all Permitted Investments in the Escrow Account and
wire transfer (1) to the Company's (or its subsidiary's) account
specified in such certificate, all remaining Principal Proceeds of each
Waiving Purchaser (after deduction of unpaid fees and expenses owing to
the Escrow Agent in accordance with the Additional Conditions), (2) to
each other Purchaser, to such other Purchaser's account specified below
its signature hereto (or on any Supplemental Signature Page), such
other Purchaser's Principal Proceeds, together with all income from its
Permitted Investments, and (3) to each Waiving Purchaser, to such
Waiving Purchaser's account specified below its signature hereto (or on
any Supplemental Signature Page), such Waiving Purchaser's income from
its Permitted Investments.
(d) If, by 12:00 noon (New York time) on any Business Day on or
prior to January 9, 1997, the Company delivers to the Escrow Agent any
Purchaser's Note marked "cancelled," the Escrow Agent shall promptly liquidate
such Purchaser's Permitted Investments and disburse (i) to the Company, by wire
transfer of immediately available funds to such account of the Company (or any
of its subsidiaries) as the Company may specify in writing to the Escrow Agent,
such Purchaser's remaining Principal Proceeds, and (ii) to such Purchaser, all
interest and other investment income earned thereon.
(e) If, by 12:00 noon (New York time) on any Business Day on or
prior to January 9, 1997, the Company delivers to the Escrow Agent a copy of any
executed conversion notice in the form of Exhibit "F" hereto with blanks
completed (each, a "Conversion Notice"), the Escrow Agent shall promptly
liquidate such Purchaser's Permitted Investments and disburse (i) to the
Company, by wire transfer of immediately available funds to such account of the
Company (or any of its subsidiaries) as the Company may specify in writing to
the Escrow Agent, the amount of such Purchaser's remaining Principal Proceeds
specified for conversion in the Conversion Notice, and (ii) to such Purchaser,
all interest and other investment income earned thereon.
(f) If, by 12:00 noon (New York time) on January 9, 1997, (i) the
Company has failed to deliver to the Escrow Agent the certificate described in
Section 3(b) or the certificate described in 3(c) with respect to a release
pursuant
<PAGE> 5
to Section 3(c)(B), (ii) the Company has delivered to the Escrow Agent the
certificate described in Section 3(c) with respect to a release pursuant to
Section 3(c)(B), but no Purchaser has delivered a waiver of noncompliance
certificate as described therein, or (iii) the Company has failed to deliver to
the Escrow Agent a cancelled Note of each Purchaser or a Conversion Notice from
each Purchaser in the full amount of its Note, the Escrow Agent shall disburse
to each Purchaser such Purchaser's remaining Principal Proceeds, together with
any interest or other investment income earned thereon.
(g) Any payment by the Escrow Agent to a Purchaser pursuant to
this Section 3 shall be made, at the option of such Purchaser, by official bank
check or by wire transfer to an account designated in writing by such Purchaser,
as the case may be.
(h) The Escrow Agent shall not disburse any of the Principal
Proceeds or investment income derived therefrom in any manner inconsistent with
this Agreement. The Escrow Agent shall have the right to rely on any and all
certificates it receives pursuant to this Section 3, and the genuineness of all
signatures thereto.
4. Transfer of Notes.
(a) At or prior to any permitted transfer of the Notes pursuant to
Purchase Agreement and prior to termination of this Agreement, the proposed
transferee shall execute and deliver to the Company for acceptance three
originals of a supplemental signature page in the form of Exhibit "E" hereto
(each, a "Supplemental Signature Page"). Upon the Company's acceptance of such
originals of a Supplemental Signature Page, the Company shall promptly fax such
Supplemental Signature Page to the Escrow Agent and to the proposed transferee,
whereupon this Agreement shall become binding upon and inure to the benefit of
such proposed transferee as though it were an original Purchaser party hereto
and the transferee will have all of the rights and obligations of a "Purchaser"
hereunder. The Company shall also deliver, by overnight courier, a
fully-executed original of each Supplemental Signature Page accepted by the
Company to each of the Escrow Agent and the transferee named therein. The Escrow
Agent shall not be obligated to recognize any transfer of Notes until the Escrow
Agent's receipt by fax of the applicable fully-executed Supplemental Signature
Page from the Company.
(b) From time to time, upon the written request of the Escrow
Agent, the Company shall furnish the Escrow Agent with a copy of the current
register of the names and addresses of the registered holders of the Notes and
the outstanding principal balances of each of the Notes.
<PAGE> 6
5. Termination of the Agreement. This Agreement and all of the
obligations of the Escrow Agent hereunder shall terminate upon the final
disbursement of the funds in the Escrow Account as provided herein.
6. Rights and Duties of Escrow Agent.
(a) The Escrow Agent's duties and responsibilities, in its
capacity as such, shall be limited to those expressly set forth in this
Agreement, and, except as set forth herein, Escrow Agent shall not be subject
to, nor obliged to recognize, any other agreement between any or all of the
parties hereto even though reference thereto may be made herein; provided,
however, that, with Escrow Agent's written consent, which shall not be
unreasonably withheld, this Agreement may be amended at any time by an
instrument in writing signed by all of the then parties in interest.
(b) The Escrow Agent, in its capacity as such, is authorized, in
its sole discretion, to disregard any and all notices or directions given by
either the Company or the Purchasers or by any other person, firm or
corporation, except (i) such notices, directions and instructions as are
specifically provided for herein and (ii) any binding arbitration award or final
court order.
(c) The Escrow Agent, in its capacity as such, (i) shall not be
personally liable for any act taken or omitted hereunder if taken or omitted by
the Escrow Agent in good faith and in the exercise of its own best judgment, and
(ii) shall be fully protected in relying upon any written notice, demand,
certificate or document believed in the Escrow Agent's good faith to be genuine,
provided that the same purports to be signed by the proper party thereof.
(d) The Escrow Agent, in its capacity as such, shall not be
responsible for the sufficiency or accuracy of the form, execution, validity or
genuineness of documents or securities now or hereafter deposited hereunder, or
of any endorsement thereon, or for any lack of endorsement thereon, or for any
description therein.
(e) The Escrow Agent shall have no obligation to inform any party
of any other transaction or of any facts within the Escrow Agent's knowledge,
even though the same may concern this Agreement or the funds from time to time
credited to the Escrow Account.
(f) In the event the Escrow Agent becomes aware of conflicting
demands or claims with respect to this Agreement or the funds held hereunder,
the Escrow Agent shall have the right to discontinue any further acts until such
conflict is resolved to the Escrow Agent's reasonable satisfaction, and the
Escrow Agent shall then have the further right to commence a bill of
interpleader or other appropriate legal proceeding or defend any action for the
determination of such conflict, in which event the Company agrees to indemnify
and pay the Escrow
<PAGE> 7
Agent for all costs and reasonable attorneys' fees incurred therein. The duties,
obligations, rights and liabilities of the Escrow Agent shall be determined
solely by the provisions of this Agreement, and the Escrow Agent shall not be
liable to any person except for the performance of such duties and obligations
as are specifically set forth in this Agreement. The Escrow Agent shall have no
liability with respect to the amount or sufficiency of interest or other income
earned on Permitted Investments of the Principal Proceeds.
(g) The Escrow Agent assumes no liability except as expressed in
this Agreement and as required by the observance of due diligence in accordance
with ordinary business practices, and such liability shall inure to the benefit
of the undersigned and to no other persons. Nothing in this Agreement, expressed
or implied, shall or is intended to confer upon any person other than the
parties now or hereafter signatories hereto or their respective successors or
assigns, any rights or remedies of any nature or kind whatsoever under or by
reason of this Agreement.
7. Resignation. The Escrow Agent may resign for any reason upon
forty-five (45) days written notice to the other parties hereto. Notwithstanding
the foregoing, such resignation shall not be effective until the date of
appointment of a new Escrow Agent. Upon appointment of a successor Escrow Agent
by the parties hereto, the Escrow Agent shall deliver all cash and other
property in its possession under this Escrow Agreement to the successor Escrow
Agent appointed by the other parties hereto. Upon such delivery, the Escrow
Agent shall be released from any and all liability for events, transactions or
occurrences arising after the date of such delivery under this Agreement. If a
successor Escrow Agent is not appointed within one hundred and twenty (120) days
of Escrow Agent's notice of resignation, the Escrow Agent may deliver all cash
or property in its possession under this Escrow Agreement to a court of
competent jurisdiction in the State of New York.
8. Waiver of Certain Claims; Indemnification of Escrow Agent. Each of
the Company and the Purchasers agrees to make no claim, and to bring no action,
suit or proceeding against the Escrow Agent by reason of any alleged loss,
liability, claim or charge arising out of or in connection with, the Escrow
Agent's acceptance or performance (including acts and omissions), in good faith
and without gross negligence or willful misconduct, of its duties and
obligations under this Agreement. The Company agrees to reimburse and indemnify
the Escrow Agent for, and hold it harmless against, any loss, liability, cost or
expense (including, without limitation, actual attorney's fees and
disbursements) incurred without bad faith, gross negligence or willful
misconduct on the part of the Escrow Agent, and arising out of or in connection
with the Escrow Agent's performance of its duties hereunder, as well as the
reasonable costs and expenses of instituting, prosecuting or defending any
claim, action, suit or proceeding arising out of, or relating to, this
Agreement. Anything in this Agreement to the contrary notwithstanding, in no
event shall the Escrow Agent be liable to any party for
<PAGE> 8
special, indirect or consequential loss or damage of any kind whatsoever
(including but not limited to lost profits), even if the Escrow Agent has been
advised of the likelihood of such loss or damage and regardless of the form of
action. The provisions of this Section 8 shall survive termination of the Escrow
Account and of this Agreement.
9. Miscellaneous Provisions
9.1 Notices. All notices and communications hereunder shall be in
writing and shall be deemed to be duly given if sent by (a) overnight courier,
or (b) facsimile, confirmed by telephone as follows:
1) if to the Escrow Agent, then to the address set forth below its
signature hereto;
2) if to the Company, then to the address set forth below its
signature hereto; and
3) if to any Purchaser, to the address set forth below its
signature hereto (or on any Supplemental Signature Page);
or at such other address as any of the above may have furnished to the other
parties in writing either by (i) overnight courier, or (ii) facsimile, confirmed
by telephone. Any faxed notice or communication shall be deemed to have been
given and received as of the date when confirmed by telephone. Any notice or
communication delivered solely by overnight courier shall be deemed to have been
given and received on the Business Day following its timely delivery to the
applicable courier service, except with respect to the Escrow Agent as to which
date notice shall be deemed to have been given on the date when actually
received by the Escrow Agent. In the event that the Escrow Agent, in its sole
discretion, shall determine that an emergency exists, the Escrow Agent may use
such other reasonable means of communication (e.g., telephone or hand-delivery)
as the Escrow Agent deems advisable.
9.2 Entire Agreement. This Agreement sets forth the entire
understanding of the parties hereto with respect to the subject matter hereof,
and supersedes any prior or contemporaneous understandings with respect to its
subject matter, and may not be waived or modified, in whole or in part, except
by a Supplemental Signature Page signed by both the Purchaser named therein and
the Company, or by another written instrument signed by each of the parties
hereto. No waiver of any provision of this Agreement in any instance shall be
deemed to be a waiver of the same or any other provision in any other instance.
Failure of any party to enforce any provision of this Agreement shall not be
construed as a waiver of its rights under such provision.
<PAGE> 9
9.3 Successors and Assigns. This Agreement shall be binding upon,
enforceable against and inure to the benefit of, the parties hereto and their
successors and permitted assigns, and nothing herein is intended to confer any
right, remedy or benefit upon any other person other than Purchasers who
hereafter become parties hereto by executing and delivering Supplemental
Signature Pages in accordance with Section 4(a). Except as provided in Section 7
hereof, the Escrow Agent may not assign its obligations hereunder without the
prior written consent of each of the parties hereto, such consent not to be
unreasonably withheld.
9.4 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument which shall be binding
upon and effective as to all parties. Facsimile copies of originally executed
signature pages, certificates, opinions and waivers of noncompliance shall serve
for all purposes as originals.
9.5 Construction. Headings contained in this Agreement are for
convenience only and shall not be used in the interpretation of this Agreement.
References herein to Sections are to the sections of this Agreement. As used
herein, the singular includes the plural, and the masculine, feminine and neuter
gender each includes the others where the context so indicates.
9.6 Severability. The invalidity or unenforceability of any
provision of this Agreement shall not affect any other provisions hereof, and
the remainder of this Agreement shall be construed as if such invalid or
unenforceable provision were omitted.
9.7 Choice of Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York as applied to
contracts entered into and to be performed in New York and without regard to the
application of principles of conflict of laws.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 1
EXHIBIT 4.8
AMENDED AND RESTATED STOCKHOLDERS' VOTING AGREEMENT
THIS AMENDED AND RESTATED STOCKHOLDERS' VOTING AGREEMENT (this "Voting
Agreement") amends and restates that certain Stockholders' Voting Agreement
entered into as of November 30, 1995 by and among NextWave Telecom Inc., a
Delaware corporation (the "Company") and certain investors all of whose names
appear on the signature pages to this Agreement and is made and entered into as
of the date the Federal Communications Commission issues a public notice
announcing the high bidders in the C-block auction (the "Effective Date") by and
among the Company and (i) the holders of shares of Series A Common Stock of the
Company (collectively, the "Series A Shareholders" and individually, a "Series A
Shareholder") whose names appear on Exhibit A, as the same may be amended from
time to time, (ii) the holders of shares of Series B Common Stock of the Company
or rights to purchase Series B Common Stock by conversion of convertible
promissory notes (collectively, the "Series B Shareholders" and individually, a
"Series B Shareholder") whose names appear on Exhibit B, as the same may be
amended from time to time, (iii) the holders of shares of Series C Common Stock
of the Company (collectively, the "Series C Shareholders" and individually, a
"Series C Shareholder") whose names appear on Exhibit C, as the same may be
amended from time to time and (iv) such other purchasers of shares of the
Company's Common Stock as may hereafter execute this Voting Agreement pursuant
to Section 1.4. The Series A Shareholders, Series B Shareholders, and Series C
Shareholders shall be collectively referred to herein as "Shareholders" and
individually as a "Shareholder." Capitalized terms not defined herein shall have
the meaning ascribed to such terms in the Restated Certificate of Incorporation
of the Company (the "Restated Certificate"), a copy of which is attached hereto
as Exhibit D and incorporated herein by this reference. This Voting Agreement is
made with reference to the following facts:
A. WHEREAS, the Series A Shareholders hold all of the Company's issued
and outstanding shares of Series A Common Stock. Pursuant to the terms of the
Restated Certificate, the Series A Shareholders have the right to elect a
majority of the members of the Board of Directors at all times prior to the
Termination Date. The Restated Certificate also provides that, upon the
occurrence of a Dilutive Issuance, shares of Series A Common Stock shall convert
into shares of Series B Common Stock and, if applicable, Warrants to purchase
shares of Series B Common Stock.
B. WHEREAS, the Series B Shareholders and the Series C Shareholders
hold, respectively, all of the Company's issued and outstanding shares of Series
B Common Stock and Series C Common Stock. Pursuant to the terms of the Restated
Certificate, the Series B Shareholders and the Series C Shareholders shall have
the right, voting together as a class, to elect a number of Directors of the
Company equal to the total number of Directors of the Company less the number of
Directors to be elected by the Series A Shareholders.
<PAGE> 2
C. WHEREAS, the Shareholders desire to provide for the voting of shares
of (i) the Company's Series B Common Stock, whether now owned or hereafter
acquired (whether issued upon the conversion of shares of Series A Common Stock
or Series C Common Stock or upon the exercise of a warrant to purchase shares of
Series B Common Stock or upon conversion of a convertible promissory note) and
(ii) the Company's Series C Common Stock, whether now owned or hereafter
acquired by the Shareholders in accordance with the terms hereof to induce
certain investors to invest in the Company.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and other good and valuable consideration, receipt of which is
hereby acknowledged, the parties hereto agree that the Voting Agreement is
amended and restated as follows:
1. Representation on Board of Directors.
1.1 Election of Directors. Each Series B Shareholder and
Series C Shareholder agrees that so long as this Voting Agreement remains in
effect, it will vote all shares of Series B Common Stock and Series C Common
Stock, respectively, owned by it (and all other shares the voting of which is
within its control) in the manner set forth below:
(a) to elect and maintain in office, as a
director of the Company, one representative designated by each Series B
Shareholder or Series C Shareholder who holds, on a fully diluted basis, six
percent (6%) of the outstanding equity of the Company. Each Series B or Series C
Shareholder who holds six percent (6%) of the equity of the Company shall be
collectively referred to herein as the "6% Shareholders" and individually as a
"6% Shareholder"; and
(b) for a period of three (3) years from the
date the Company receives a PCS license(s) from the FCC (the "License Grant
Date") unless earlier terminated in accordance with Section 1.5 hereof (the
"Initial Period"), to elect and maintain in office, as a director of the
Company, one representative designated by each of the Shareholders whose names
appear on Exhibit E attached hereto provided that such Shareholder has: (1)
purchased or subscribed for shares of the Company's Common Stock in the amount
set forth on Exhibit B and (2) advanced funds to the Company in exchange for
Series B Common Stock or convertible promissory notes of the Company prior to
completion of the Auction. The investors whose names appear on Exhibit E shall
be collectively referred to herein as the "Early Investors" and individually as
an "Early Investor." Notwithstanding the foregoing, in the event an Early
Investor also qualifies as a 6% Shareholder during the Initial Period, such
Early Investor shall only have the right to designate one representative to
serve on the Board of Directors. Upon termination of the Initial Period and
subject to Section 1.5, an Early Investor shall have the right to designate a
representative to serve on the Board of Directors only if such Early Investor is
a 6% Shareholder.
2
<PAGE> 3
1.2 Resignation. In the event any member of the Board of
Directors designated by (i) a 6% Shareholder or (ii) an Early Investor during
the Initial Period resigns or otherwise ceases to be a member of the Board of
Directors for any reason, the Shareholders agree that they will vote their
shares and otherwise use their best efforts to cause the vacancy to be filled by
a designee chosen by such unrepresented 6% Shareholder or Early Investor during
the Initial Period.
1.3 Absent Shareholder. In the event any Shareholder is not
present in person or by proxy at any meeting of Shareholders of the Company at
which directors are to be elected, the shares of such person shall be voted by
the presiding officer of the meeting in accordance with this Section 1.
1.4 Additional Investors. The parties hereto hereby
acknowledge and agree that certain additional investors may purchase shares of
Series B or Series C Common Stock after the Effective Date of this Voting
Agreement. Any such additional investors shall, upon execution of a counterpart
signature page to this Voting Agreement, be bound by its terms and shall enjoy
the rights and privileges contained herein as if such additional investors had
executed this Voting Agreement effective as of the Effective Date. In the event
any such additional investor is a "6% Shareholder," as defined in Section 1.1
hereof, the Company agrees to take such actions as are necessary to facilitate
the election of a representative of such new 6% Shareholder. The obligations of
the Shareholders to vote for the designee of a 6% Shareholder shall terminate
when such Shareholder ceases to be a 6% Shareholder.
1.5 Termination. This Voting Agreement shall remain in effect
until such time as the earlier to occur of (a) the Company is party to a merger
in which the Company is not the surviving corporation and Shareholders of the
Company hold, immediately after such merger, less than fifty percent (50%) of
the equity securities of the surviving corporation or (b) ten (10) years from
the Effective Date.
1.6 FCC Restrictions. Each of the parties hereto acknowledges
and agrees that, pursuant to FCC rules and regulations, no more than twenty five
percent (25%) of the members of the Board of Directors at any one time may be
aliens.
2. Miscellaneous.
2.1 Binding Agreement. This Voting Agreement shall be binding
upon and inure to the benefit of the respective heirs, executors,
administrators, assigns, transferees and successors in interest of the parties
hereto.
2.2 Legend. In addition to any other legend required by law or
agreement, each certificate evidencing shares of the Company's capital stock
owned by any party to this Voting Agreement shall be stamped or otherwise
imprinted with a legend to the following effect:
3
<PAGE> 4
"The shares represented by this certificate are subject to
certain restrictions contained in a Stockholders' Voting Agreement dated as of
November 30, 1995, as the same may be amended from time to time, a copy of which
is available for examination at the principal office of the Company."
2.3 Final Agreement. This Voting Agreement is intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein with respect to the stockholder voting rights. This Voting Agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
2.4 Governing Law. This Voting Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware, as applied
to contracts between Delaware residents entered into and to be performed wholly
within Delaware.
2.5 Counterparts. This Voting Agreement may be executed in
counterparts, all of which together shall constitute one and the same
instrument. This Voting Agreement may be executed via facsimile with original
signatures to follow via overnight courier.
2.6 Severability. Should any one or more of the provisions of
this Voting Agreement be determined by an arbitrator or court of proper
jurisdiction to be illegal or unenforceable, then such illegal or unenforceable
provision shall be modified by the proper court or arbitrator to the extent
necessary and possible to make such provision enforceable, and such modified
provision and all other provisions of this Voting Agreement shall be given
effect separately from the provision or portion thereof determined to be illegal
or unenforceable and shall not be affected thereby.
2.7 Mandatory Arbitration. In the event of any dispute
regarding the meaning, instruction, or intent of this Voting Agreement, or of
any matter of performance, fact, law, background, circumstance, or other matter
of any kind whatsoever relating to this Voting Agreement, the parties stipulate
and agree that such dispute shall be submitted at the written election of any
party to binding arbitration in the State of Delaware, conducted in accordance
with the commercial rules of the American Arbitration Association ("AAA") in
effect as of the Effective Date of this Voting Agreement. One arbitrator agreed
upon by the parties shall be appointed, or if the parties cannot agree upon one
arbitrator, the AAA will provide a list of three arbitrators with appropriate
expertise and each party may strike one. The remaining arbitrator will serve as
the arbitrator. Such appointment shall be made within 30 days after the election
to arbitrate. Discovery shall be available to the parties subject to the
approval and control of the arbitrator. The decision by the arbitrator shall be
final and binding on all parties, and may be entered in any court of competent
jurisdiction for enforcement. Each of the parties to this Voting Agreement shall
keep confidential all information furnished to it pursuant to or in connection
4
<PAGE> 5
with any arbitration proceeding. Unless provided to the contrary herein, all
costs of the arbitration and the fees of the arbitrator shall be allocated
between the parties as determined by the arbitrator, it being the intention of
the parties that the prevailing party in such a proceeding be made whole with
respect to its expenses.
2.8 Assignment. The rights under this Voting Agreement shall
not be assignable nor the duties delegable by any party without the written
consent of the other parties; and nothing contained in this Voting Agreement,
express or implied, is intended to confer upon any person or entity, other than
the parties hereto and their successors in interest and permitted assignees, any
rights or remedies under or by reason of this Voting Agreement unless so stated
to the contrary. Notwithstanding the foregoing, this Voting Agreement shall be
binding on each party's heirs, executors, successors and assigns.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
5
<PAGE> 1
EXHIBIT 4.9
LOAN AGREEMENT
This loan agreement ("Agreement") is made as of February 23, 1996, by and
between NextWave Telecom Inc., a Delaware corporation ("Company"), and LG
InfoComm, Inc., a California corporation ("Lender"), a subsidiary of LG
Information & Communications, Ltd., a Korean entity.
RECITALS
A. Company and Lender have entered into a letter agreement dated
January 24, 1996, a copy of which is attached to this Agreement as Exhibit A
and incorporated herein by this reference, pursuant to which Lender proposed:
(i) to purchase Six Million Six Hundred Sixty-Six Thousand Six Hundred and
Sixty Six (6,666,666) shares of Series B Common Stock $(.0001 par value) of the
Company at a purchase price of Three Dollars ($3.00) per Share pursuant to the
terms of a Subscription Agreement by and between the Company and Lender (the
"Subscription Agreement") and (ii) to loan to the Company the principal amount
of US $10 Million on the terms set forth in this Agreement, subject to the
approval of the Bank of Korea.
B. Lender and Company desire to provide for a loan pursuant to the
terms of this Agreement.
NOW, THEREFORE, the parties agree as follows:
AGREEMENT
1. The Loan. On the terms and conditions set forth in this Agreement,
Lender will advance to the Company Ten Million Dollars in United States currency
(US$10,000,000.00) (the "Loan"), within forty-five (45) days of the completion
of the Auction (as defined below), by wire transfer to an escrow account (the
"Escrow Account") established pursuant to the terms of that certain Amended and
Restated Escrow Agreement (the "Escrow Agreement") entered into by and between
Company, Chemical Bank, a New York State banking corporation ("Escrow Agent")
and the investors whose names appear on the signature pages thereof, a copy of
which is attached to this Agreement as Exhibit B and incorporated herein by this
reference.
2. Interest Repayment. The outstanding principal of the Loan will
bear interest at a rate equal to Chemical Bank's prime rate. Unless earlier
converted pursuant to Section 3, the Loan and accrued interest will be payable
in full on the first anniversary of the date the Loan is made (the "Repayment
Date").
3. Conversion. Subject to compliance with (i) the Hart-Scott-Rodino
Antitrust Improvements Act, 15 U.S.C. Section 18a (the "HSR Act"), (ii) Section
310(b) of the Communications Act of 1934, as amended, 47 U.S.C. Section 310(b),
and rules or regulations promulgated thereunder by the FCC restricting the
aggregate interest in the capital stock of the Company which may be held by
foreign investors and restricting the percentage of equity any one investor may
hold in
<PAGE> 2
the Company (collectively, the "FCC Restrictions"), at any time during the term
of the Loan, Lender may convert principal of the Loan in integral multiples of
$1,000,000.00, and accrued interest, attributable to the principal amount being
converted, at the Conversion Price defined below into shares of Series B Common
Stock (the "Series B Shares") and/or a convertible promissory note
substantially in the form of Exhibit C (the "Convertible Note"). The number of
Series B Shares, if any, and the amount of any Convertible Note that the
Company may issue to Lender upon conversion of principal and interest pursuant
to this Section 3 will be determined in accordance with Section 4.
In this Agreement, "Conversion Price" means $4.00 per share if the Company has
acquired at least 20 million POPs but less than 30 million POPs in the C-block
Auction (the "Auction") being conducted by the FCC, $5.00 per share if the
Company has acquired at least 30 million POPs but less than 40 million POPs in
the Auction, $6.00 per share if the Company has acquired at least 40 million
POPs but less than 50 million POPs in the Auction, and $7.00 per share if the
Company has acquired at least 50 million POPs in the Auction.
4. Available Shares. Notwithstanding anything in this Agreement to the
contrary, no Series B Shares will be issued to Lender by the Company upon
conversion of principal and interest pursuant to Section 3 if such issuance
would cause the Company to violate the FCC Restrictions. When the Company
receives a request from Lender to convert all or a portion of the Loan (the
"Notice Date") the Company will issue to Lender:
- - a number of whole Series B Shares equal to the lesser of (a) Available
Shares, as defined below, and (b) the total amount of principal and
interest being converted divided by the Conversion Price, and, if
applicable
- - a Convertible Note, dated the Notice Date, with a ten-year term, in a
principal amount equal to: (a) the total amount of principal and interest
being converted LESS (b) the product of the number of shares to be
issued determined pursuant to the immediately preceding clause of the
Conversion Price.
"Available Shares" means the number of Series B Shares the Company determines
it may issue to Lender on the Notice Date without violating the FCC
Restrictions as reduced by Series B Shares issuable: (a) pursuant to
subscription agreements between the Company and the foreign investors who
subscribed for Series B Shares before the commencement of the Auction and (b)
pursuant to subscription agreements between the Company and the foreign
investors who subscribed for Series B Shares subsequent to the commencement of
the Auction but before the completion of the Auction. In the event there are
other foreign lenders ("Foreign Lenders") who loan funds to the Company prior
to 120 days after the completion of the Auction, then each such Foreign Lender
shall, upon conversion of its Loan, have a right to Available Shares in the
order of conversion vis a vis other Foreign Lenders. Company may rely on advice
of FCC counsel to determine the Available Shares.
<PAGE> 3
5. Warrants. As additional consideration for Lender entering into this
Agreement, the Company will deliver to Lender 25,000 Warrants for each
$1,000,000.00 loaned to the Company (the "Warrants"). Each Warrant shall be
exercisable for Series B Shares of the Company, exercisable at Three Dollars
($3.00) per Share and shall be subject to such additional terms as set forth in
the form of the Warrant attached hereto as Exhibit D.
6. Conditions Precedent. Lender's obligation to make the Loan is
subject to the satisfaction of the following conditions:
a. Company will have acquired in excess of 20 million POPs in
the Auction;
b. Company will have entered into a security agreement granting
to Lender a security interest in assets of Company and providing for perfection
of the interest by filing of a UCC-1 Financing Statement;
c. Company, Lender, and other creditors of Company, if any,
will have entered into an intercreditor agreement providing for pro-rata
sharing among Lender and such creditors of their security interests in assets
of Company; and
d. Company will have received waivers of any existing covenants
against incurring additional indebtedness.
7. Repayment Options. By written notice to the Company at least 30 days
before the Repayment Date, Lender will have the option to receive in
satisfaction of all amounts due on the Repayment Date any of the following or
any combination of the following:
a. cash in the amount of all unconverted principal and accrued
but unpaid interest on the Loan;
b. Series B Shares and/or a Convertible Note, calculated as set
forth in Sections 3 and 4 hereof, or
c. the application of amounts due on the Repayment Date to any
funding obligation of Lender in connection with any joint development activity
with Company that Company and Lender have defined and agreed.
8. Representations and Warranties of Company. Company represents and
warrants that the following are true and accurate as of the date of this
Agreement and will be true and accurate as of the date of the making of the
Loan (the "Closing").
a. Legal Power, Right and Authority. Company has the legal
power, right, and authority to enter into this Agreement and to consummate or
cause to be consummated the transactions contemplated by this Agreement.
-3-
<PAGE> 4
b. Corporate Status. Company is a corporation organized and existing in
good standing under the laws of the State of Delaware.
c. Action. All requisite corporate action has been taken by Company in
connection with entering into this Agreement.
d. Individual Executing. The individual executing this Agreement on
behalf of Company has the legal power, right, and actual authority to bind
Company to the terms and conditions of this Agreement.
e. Violation of Laws. To the best knowledge of the Company, no notices
or notifications, written or oral, of violation of any federal, state, local, or
governmental agency law, ordinance, order, rule, regulation, or requirement have
been issued or entered or received by Company or its agents or representatives,
and neither Company nor any of its agents or representatives has any reason to
know that any such notice may or will be issued, entered, or received.
9. Representations and Warranties of Lender. Lender represents and
warrants that the following are true and accurate as of the date of this
Agreement, shall be true and accurate as of the Closing, and shall survive the
Closing.
a. Corporate Status. Lender is a corporation organized and existing in
good standing under the laws of the State of California.
b. Legal Power Right and Authority. Lender has the corporate power,
right, and authority to enter into this Agreement and to consummate or cause to
be consummated the transactions contemplated by this Agreement.
10. Events of Default. If any of the following events of default shall
occur and be continuing:
a. the breach or failure of timely performance of any payment
obligations under this Agreement;
b. the liquidation, termination, or dissolution of Company;
c. the making by Company of any assignment for the benefit of creditors
generally or the voluntary appointment of a receiver, custodian, liquidator, or
trustee in bankruptcy of any of Company's property, or the filing by Company of
a petition in bankruptcy or other similar proceeding under any law for the
relief of debtors; or
d. the filing against Company of a petition in bankruptcy or other
similar proceeding under any law for relief of debtors or the involuntary
appointment of a receiver, custodian, liquidator or trustee in bankruptcy of the
property of Company, if such petition or
-4-
<PAGE> 5
appointment is not vacated or discharged within sixty (60) days after the
filing or making thereof;
THEN Lender may notify Company of such occurrence and if such event of default
continues for 10 days, Lender may, by notice to Company, declare the principal
amount then outstanding of the Loan to be forthwith due and payable, whereupon
such amount shall be immediately due and payable without presentment, demand,
protest or other formalities of any kind, all of which are waived by Company.
11. Miscellaneous.
a. Survival. Except as may be expressly provided to the
contrary elsewhere in this Agreement, the covenants, conditions,
representations, and warranties of this Agreement shall survive the Closing and
the delivery of any documents and instruments necessary to consummate the
transactions contemplated by this Agreement.
b. Further Assurances. Each party to this Agreement shall
execute and/or shall take all reasonable steps to cause any third party to
execute, all instruments and documents and take all actions as may be
reasonably required to effectuate this Agreement.
c. Partial Validity and Severability. If any term,
provision, covenant, or condition of this Agreement is held by a court of
competent jurisdiction to be invalid, void, or unenforceable, the remaining
provisions of this Agreement will remain in full force and effect and will not
be affected, impaired, or invalidated.
d. Successors-in-Interest and Assigns. Subject to any
restriction on transferability which may be contained in this Agreement, this
Agreement shall be binding upon and shall inure to the benefit of the
successors-in-interest and assignees of each party to this Agreement. Nothing
in this Section 11(d) shall create any rights enforceable by any person not a
party in this Agreement, unless such rights are expressly granted in this
Agreement to other specifically identified persons.
e. Notices. All notices or other communications required
or permitted to be given to a party to this Agreement shall be in writing and
shall be personally delivered, transmitted via facsimile to the number and to
the attention of the person indicated below, sent by registered or certified
mail, postage prepaid, return receipt requested, or sent with confirmation of
delivery, to such party at the following respective addresses or to such other
address as the respective parties may from time to time designate by notice
given to each other party:
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<PAGE> 6
If to Lender: LG InfoComm, Inc.
9725 Scranton Road, Suite 140
San Diego, California 92121
Attn: Mr. Eun Young Yu, Ph.D.
Chief Executive Officer
Fax: (619) 623-9922
If to Company: NextWave Telecom Inc.
5355 Mira Sorrento Place, Suite 100
San Diego, California 92111
Attn: Mr. Allen Salmasi
Chief Executive Officer
Fax: (619) 792-9400
Each such notice or other communication shall be deemed given, delivered, and
received upon its actual receipt, except that if it is sent by facsimile
transmission, in accordance with this Section, and followed by the original
sent via the United States Postal Service or commercial courier service, then
it shall be deemed delivered, given, and received upon facsimile transmission.
f. Governing Law. This Agreement is executed in San Diego,
California, and the interpretation, performance, and enforcement of this
Agreement shall be governed by the laws of the State of California as if it
were performed entirely within the State of California.
g. Headings. The headings of the Sections of this Agreement have
been included only for convenience, and shall not be deemed in any manner to
modify or limit any of the provisions of this Agreement, or be used in any
manner in the interpretation of this Agreement.
h. Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original and all of which together shall
constitute one document. This Agreement may be executed via facsimile with
originals to follow via overnight courier.
i. Interpretation. Whenever the context so requires in this
Agreement, all words used in the singular shall be construed to have been used
in the plural (and vice versa), each gender shall be construed to include any
other genders, and the word "person" shall be construed to include a natural
person, a corporation, an association, a partnership, a joint venture, a trust,
an estate or any other entity.
j. Entire Agreement. This Agreement represents the entire
Agreement between the parties with regard to the subject matter hereof, and
supersedes all prior and contemporaneous oral and written agreements and
discussions. This Agreement may be amended only by an agreement in writing,
executed by all parties affected or potentially affected thereby.
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<PAGE> 7
IN WITNESS WHEREOF, the parties have executed this Agreement, as of the date
first written above, at San Diego, California.
Lender Company
LG InfoComm, Inc. NextWave Telecom Inc.
a California corporation a Delaware corporation
By: /s/ Eun Young Yu By: /s/ Allen Salmasi
--------------------------- -------------------------
Mr. Eun Young Yu, Ph.D., Mr. Allen Salmasi,
Chief Executive Officer Chief Executive Officer
-7-
<PAGE> 1
EXHIBIT 10.1
AGREEMENT
This Agreement ("Agreement") is entered into as of the 12th day of
March, 1996, by and between NextWave Telecom, Inc., a Delaware corporation with
its principal place of business located at 991-C Lomas Santa Fe Drive, Suite No.
436, Solana Beach, California 92075 ("NextWave"), and LCC, L.L.C., a Delaware
limited liability company with its principal place of business located at 2300
Clarendon Blvd., Suite 800, Arlington, Virginia 22201 ("LCC").
WHEREAS, NextWave, through its wholly-owned subsidiary NextWave
Personal Communications, Inc. ("NextWave PCI") is actively bidding on the
C-block licenses in the Federal Communication Commission's ("FCC's") auction for
licenses to construct and operate systems in various BTAs to provide personal
communications services ("Licenses"), and
WHEREAS, if NextWave acquires one or more Licenses, NextWave intends to
construct facilities and deploy personal communications systems in those BTAs,
and
WHEREAS, LCC has agreed to make an equity investment in NextWave,
consisting of LCC's purchase of $5,000,000.00 worth of NextWave Series B Common
Stock, in consideration of NextWave's commitment to engage LCC to provide not
less than $50,000,000.00 worth of radio frequency engineering services, program
management services, and software and equipment;
NOW THEREFORE, in consideration of the foregoing and the mutual
covenants and for such other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties, LCC and NextWave,
intending to be legally bound, agree as follows:
1. RF Engineering Services; Engagement. NextWave hereby agrees to
engage LCC, during the five (5) year period commencing on the date hereof, to
provide radio frequency engineering services, of the type generally offered by
LCC ("RF Engineering Services"), required by NextWave and/or its Affiliates in
connection with the design, implementation and/or optimization of personal
communications systems by or for NextWave and/or its Affiliates in the United
States resulting in NextWave's payment to LCC of not less than Fourteen Million
Dollars ($14,000,000.00) (the "Minimum RF Amount") in hourly engineering service
fees ("Engineering Fees"). For the purposes of this Agreement: (A) RF
Engineering Services shall not include microwave relocation services and/or any
other services that the parties agree, by mutual prior written agreement, should
not be included in RF Engineering Services, and (B) Engineering Fees shall
include only hourly engineering service fees (e.g., labor charges) and shall
exclude any amounts paid for expense reimbursements, drive testing, per diems
(in accordance with US government standards) and similar expenses.
2. RF Engineering Services; Exclusivity.
(a) In addition NextWave hereby agrees, until LCC shall have been paid
the Minimum RF Amount, to use LCC as the exclusive provider of all RF
Engineering Services required by NextWave and/or its Affiliates in connection
with the design, implementation and/or optimization of personal communications
systems by or for NextWave and/or its Affiliates in the United States, except
for: (i) those services provided by NextWave's and/or its Affiliate's employees,
(ii) services provided by: (A) small, independent consulting firms and/or
independent contractors on a local basis, from time to time, or (B) services
that may be provided by firms otherwise engaged by NextWave to provide non-radio
frequency engineering services, where the firm's employees are assigned to a
<PAGE> 2
market and may perform incidental radio frequency engineering services, on a
limited basis, when they are unable to perform their principal services due to
lack of work or "down-time," provided that: (1) services provided under (ii) do
not exceed ten percent (10%) of the total RF Engineering Services required by
NextWave and/or its Affiliates, and (II) in no event shall NextWave engage the
services of Mobile Systems International, Comsearch (except for microwave
relocation services and related tools), NIELJ, Celtec, TEC Communications, WFI
or any affiliate thereof.
(b) Following LCC's being paid the Minimum RF Amount, NextWave shall
thereafter use LCC as its "preferred provider" of radio frequency engineering
services required by NextWave and/or its Affiliates in connection with the
design, implementation and/or optimization of personal communications systems in
the United States. LCC shall be an approved provider of RF Engineering Services
required by NextWave and/or its Affiliates in connection with the same
activities outside of the United States, and shall, with respect to all projects
put out to bid, be granted the opportunity to bid for the provision of such
services on terms no less favorable than the terms offered to other service
providers.
(c) Prior to LCC's being engaged to perform RF Engineering Services in
any given market, the parties shall develop a mutually acceptable statement of
work which describes the particular project in terms of work to be performed, a
schedule of project milestones and the expected budget for the work. To the
extent that LCC consistently and materially fails to meet: (i) the pre- agreed
work schedule due to LCC's inability to provide the required staffing for the
relevant market, or (ii) the project milestones for the work, NextWave shall
have the option, unless the non-performance was caused for reasons beyond LCC's
direct and immediate control, to terminate LCC's engagement with respect to the
relevant portion of such services, after having provided LCC with written notice
of default and 30 days to cure, and procure alternative services from another
service provider notwithstanding the provisions of Section 2(a) and 2(b) above.
Nothing in this Section 2(c) (including, without limitation, the party's failure
to agree upon a statement of work) shall operate to limit or reduce NextWave's
obligation to pay the Minimum RF Amount.
3. Program Management Services.
(a) NextWave hereby agrees to engage LCC, during the five (5) year
period commencing on the date hereof, to provide program management services
(including, without limitation, site acquisition and construction management
services, but exclusive of RF Engineering Services), of the type generally
offered by LCC ("PM Services"), required by NextWave and/or its Affiliates in
connection with the design, implementation and/or optimization of personal
communications systems by or for NextWave and/or its Affiliates in the United
States resulting in NextWave's payment to LCC of not less than Thirty Five
Million Dollars ($35,000,000.00) (the "Minimum PM Amount") in program management
service fees ("PM Fees"). Unless otherwise specified herein, for the purposes of
this Agreement: (A) PM Services shall not include network engineering services,
the installation of base station equipment (e.g., BTS, BSC and MSC) and/or any
other services that the parties agree, by mutual prior written agreement, will
not be included in PM Services, and (B) PM Fees shall include only hourly
program management service fees (e.g., labor charges) and shall exclude all
construction costs, contracted labor and materials, expense reimbursements
(e.g., warehousing, local office space, etc.), per diems (in accordance with US
government standards), Engineering Fees and similar expenses. If LCC requires
the use of LCC's CellManager work flow management software in connection with
LCC's provision of PM Services, then the PM Fees shall include any license costs
associated with LCC's use of CellManager to perform such services. In the event
that NextWave desires to license CellManager from LCC (so that NextWave has the
opportunity to use and/or keep
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the software after LCC has completed its services) LCC agrees to extend NextWave
LCC's most favorable pricing for similarly situated customers of LCC.
(b) LCC and NextWave hereby agree that the target average nationwide
cost per cell site of PM Fees for PM Services to be provided by LCC to NextWave
pursuant to this Agreement (until the Minimum PM Amount has been paid to LCC)
shall not exceed $43,000 (inclusive of per diems); provided, however, that for
purposes of this Section 3(b) only: (1) PM Services shall include site
acquisition, architectural engineering, construction management and program
management services; and (ii) PM Fees shall include only hourly program
management service fees and per diems and shall exclude all construction costs,
contracted labor and materials, local market expense reimbursements (e.g.,
warehousing and related asset management systems, local office space and
furnishings, telephone expense, etc.), Engineering Fees and similar expenses.
This target assumes that: (A) the PM Services to be provided will be limited to
those listed in clause (i) of the preceding sentence; (B) that each NextWave
market build-out will have an average length of 18 months commencing upon the
delivery of an executed agreement between NextWave and LCC for PM Services to be
provided in the particular market; and (iii) no unforeseen events shall occur
that cause the provision of PM Services generally within the United States to
become materially more costly to provide.
(c) The parties acknowledge that the average cost per cell site for PM
Fees set forth in the preceding subsection is based upon a nationwide average
for 200 plus cell site build-outs in an average US market, and the parties agree
to work together, in good faith, to control per site costs in accordance with
NextWave's business plans and objectives as communicated to LCC from time to
time during the term hereof.
(d) Prior to LCC's being engaged to perform PM Services in any given
market, the parties shall develop a mutually acceptable statement of work which
describes the particular project in terms of the work to be performed, the
specifications for such work, a schedule of project milestones, and the expected
costs or budget for the work. To the extent that LCC consistently and materially
fails to meet: (i) the pre-agreed work schedule due to LCC's inability to
provide the required staffing for the relevant market, or (ii) the pre-agreed
specifications for the work, NextWave shall have the option, unless the
nonperformance was caused for reasons beyond LCC's direct and immediate control,
to terminate LCC's engagement with respect to the relevant portion of the
services, after having provided LCC with written notice of default and at least
30 days to cure. In the event that LCC's engagement with respect to any services
is terminated under the preceding sentence, then the amount of PM Fees that
NextWave would have paid LCC to complete the relevant engagement shall be
subtracted from the Minimum PM Amount. A failure by the parties to agree upon a
statement of work under this Section 3)(d) shall not operate to limit or reduce
the Minimum PM Fees.
4. LCC Products. NextWave hereby agrees to purchase (with respect to
hardware) and/or license (with respect to software) from LCC, during the five
(5) year period commencing on the date hereof, either: (a) LCC manufactured
field test measurement equipment (excluding third party products), or (b) any
one or more of the CellCAD and/or CellManager software products generally
distributed by LCC, resulting in NextWave's payment to LCC of One Million
Dollars ($1,000,000.00) (the "Minimum Product Amount") in licensing fees and/or
the purchase price of LCC equipment. NextWave shall, however, have the option
(at its sole discretion) to apply the One Million Dollar ($1,000,000.00)
purchase commitment set forth in this Section 4 to the purchase of additional RF
Engineering Services and/or PM Services.
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5. Pricing. LCC hereby agrees that the prices charged to NextWave for
RF Engineering Services and PM Services (excluding third party charges) shall
remain generally competitive with the prices generally charged for the same
services by other comparable (in terms of capabilities, experience, quality,
process and overall service offering) radio frequency engineering / program
management firms for the same (in terms of scope, type and duration) services,
and in all cases such prices shall be no less favorable than the most favorable
prices charged by LCC to any other similarly situated LCC customer. For the
purposes of comparison, the parties shall consider the economics of any other
products, services or other items of value provided to NextWave by the relevant
entity.
6. Performance of Services; Subcontractors.
(a) LCC shall use reasonable commercial efforts to perform RF
Engineering Services and PM Services in accordance with generally accepted
standards and practices for the wireless communications industry and the
mutually acceptable statements of work agreed to between the parties. Except as
otherwise provided herein, LCC's sole obligation, and NextWave's sole remedy,
shall be for LCC to re-perform any non-conforming services at no additional
charge. LCC shall provide NextWave with periodic progress reports concerning the
progress of the RF Engineering Services and PM Services as reasonably requested
by NextWave from time to time.
(b) The parties acknowledge that LCC intends to use certain of LCC's
contractual affiliates to perform site acquisition, construction management and
site engineering services hereunder,such as Trammel Crow Corporate Services,
Inc., CB Commercial Real Estate Group, Inc., Koll Telecommunications Services,
L.L.C., Network Building and Consulting, Inc., etc. ("LCC Contractual
Affiliates"). Unless otherwise agreed between the parties, the service fees
associated with LCC's engaging LCC Contractual Affiliates to perform site
acquisition, construction management and site engineering services shall be
incorporated in the PM Fees.
(c) With respect to local contractors engaged by LCC to perform
construction services on a subcontract basis ("Contractors"), NextWave shall be
responsible for reimbursement of: (i) the costs of Contractors, and (ii) all
other expenses incurred by LCC, to the extent such costs or expenses have been
pre-approved by NextWave, which approval shall not be unreasonably withheld or
delayed. Each statement of work shall identify and set forth, by type or amount,
all out-of-pocket expenses (e.g., construction costs, warehousing and related
asset management systems, local office space and furnishings, etc.) to be
incurred by LCC in the performance of RF Engineering Services and/or PM
Services.
7. Certain Contingencies. The parties acknowledge that, concurrent
with the execution of this Agreement, LCC has executed and delivered to
NeXtWave: (i) a Subscription Agreement (the "Subscription Agreement"), and (ii)
an Amended and Restated Escrow Agreement (the "Escrow Agreement"), pursuant to
which LCC has agreed to purchase shares of NextWave Series B Common Stock (the
"Investment") for a total purchase price of Five Million Dollars
($5,000,000.00), subject to certain rights of withdrawal in the event that
NextWave fails to satisfy the contingencies set forth in Section 3(c) and
Exhibit B of the Escrow Agreement. In the event that LCC totally withdraws the
Investment under one or more of the contingencies set forth in Section 3(c) or
Exhibit B of the Escrow Agreement (and, as a result, fails to become an equity
investor in NextWave), this Agreement shall automatically terminate and neither
party shall have any further liability or obligation to the other party
hereunder. Capitalized terms used in this Section 7 without definition herein
shall have the meanings ascribed thereto in the Escrow Agreement.
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8. Confidentiality. In the event either party hereto (the "Receiving
Party") obtains from the other party hereto (the "Disclosing Party") any
information in whatever form which is confidential or proprietary including,
without limitation, material non-public information relating to the NextWave
system ("Proprietary Information") the Receiving Party: (a) shall treat all such
Proprietary Information as confidential; (b) shall use such Proprietary
Information only for the purposes contemplated in this Agreement; (c) shall
protect such Proprietary Information, whether in storage or in use, with the
same degree of care as the Receiving Party uses to protect its own proprietary
information against public disclosure, but in no case with less than reasonable
care; and (d) shall not disclose such Proprietary Information to any third party
except to such employees of the Receiving Party who need to know such
Proprietary Information for the purpose of effectuating this Agreement and who
have been informed of the confidential nature of such Proprietary Information.
The foregoing restrictions shall not apply to any Proprietary Information which:
(i) was generally available to the public on the date of disclosure or becomes
generally available to the public other than through the fault or negligence of
the Receiving Party; (ii) was lawfully obtained by the Receiving Party from a
third party without breach of this Agreement and otherwise not in violation of
the Disclosing Party's rights; (iii) was known to the Receiving Party at the
time of disclosure as shown by the Receiving Party's records in existence at the
time of disclosure; (iv) was independently developed by the Receiving Party
without making use of any Proprietary Information of the Disclosing Party; or
(v) is required to be disclosed pursuant to the order of any court or
Governmental agency.
9. Intellectual Property. Any and all rights to any patent,
copyright, trademark, trade secret or other intellectual property right: (i)
belonging to one party prior to commencement of the relevant services hereunder,
or (ii) independently developed by such party apart from services provided
hereunder, shall be and remain the property of such party. Any patentable
inventions necessary or required to implement NextWave's personal communications
system(s) that may be developed by LCC in performance of the RF Services or PM
Services shall be owned by NextWave. Any and all rights to any copyrights or
trade secrets relating to NextWave's products or software developed by LCC in
performance of the RF Services or PM Services shall be owned by NextWave, and
any and all rights to any copyrights or trade secrets relating to LCC's products
or software developed by LCC in performance of the RF Services or PM Services
shall be owned by LCC. Each party agrees not to disassemble, decompile or
reverse engineer any product or software of the other party used in connection
with the RF Services or PM Services, or any component thereof, for any purposes.
No provision of this Agreement shall be construed to grant either party, either
expressly, by implication or by way of estoppel, any license under any patents
or other intellectual property rights of the other party, and each party agrees
not to license, sell or distribute any product or services that uses patents or
other intellectual property lights of the other party without a separate license
from the other party under all applicable patents, copyrights, trade secrets and
trademarks.
10. Miscellaneous.
(a) The term of this Agreement shall commence on the date hereof and
shall continue in effect for a period of five and one-half (5 1/2) years, and
thereafter shall automatically renew for additional and successive terms of one
(1) year unless either party provides the other party with written notice of its
intention not to renew this Agreement at least ninety (90) days prior to the
expiration of the then-current term. Either party shall have the option to
terminate this Agreement, immediately upon giving written notice to the other
party, at anytime after the occurrence of any of the following events with
respect to such other party: (i) insolvency, bankruptcy or the filing any
application therefore, or other commitment of an affirmative act of insolvency,
(ii) assignment or
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transfer of that portion of the business to which this Agreement pertains to a
trustee for the benefit of creditors, or (iii) attachment, execution or seizure
of substantially all the assets of such party by a creditor or the filing of any
application therefore. In addition, each statement of work issued under this
Agreement shall set forth mutually acceptable termination provisions with
respect to the particular services and/or products to be performed and/or
provided by LCC thereunder.
(b) For the purposes of this Agreement, the term "Affiliate" shall
mean: (i) any entity that controls, is controlled by, or is under common control
with a party, directly or indirectly, where "control" means the power, right or
authority, by equity ownership, contract or otherwise, to direct the management
and policies, or elect a majority of the board of directors (or similar
governing body of an entity, and (ii) any entity that controls or is controlled
by any entity qualifying as an Affiliate under 7(b)(i) above. In the case of
NextWave, the term Affiliate shall include, without limitation, NextWave
Personal Communications, Inc., and Tele*code, Inc.
(c) The parties agree that the dollar volumes of products and services
set forth in Sections 1(b), 3(b) and 4(b) of this Agreement shall be purchased
by NextWave over the relevant five (5) year period at a rate of not less than
twenty percent (20%) of the obligation per year, on a cumulative basis, e.g.,
(i) not less than 20% of the total by the end of the first year, (ii) not less
than 40% by the end of the second year, (iii) not less than 60% by the end of
the third year, (iv) not less than 80% by the end of the fourth year, and (v)
not less than 100% by the end of the fifth year.
(d) Except as set forth herein, the RF Engineering Services, PM
Services, hardware and software to be provided by LCC hereunder shall be
provided under mutually acceptable terms and conditions of sale. Failure to
reach agreement on commercial terms shall not limit the parties respective
obligations hereunder.
(e) During the term of this Agreement, the parties covenant and agree
that neither party, including its Affiliates, nor any of their respective
directors, officers, agents, subsidiaries, successors or assigns shall,
directly, indirectly or in concert with any other person, solicit the services
or employment of, or employ, any employee of the other party without the other
party's express prior written consent in each instance.
(f) Each party hereby represents and warrants to the other party that:
(i) this Agreement has been duly authorized, executed and delivered by such
party and constitutes a valid and binding obligation of such party, and (ii) the
execution and delivery of this Agreement by such party and the consummation of
the transactions herein contemplated will not violate or conflict with or
constitute a default or breach under any of the terms or provisions of any
contract, agreement, lease, mortgage or their agreement to which such party is
bound including, without limitation, such party's organizational and/or
constituent documents.
(g) This Agreement shall be binding upon and inure to the benefit of
the parties and their permitted successors and assigns. Notwithstanding the
foregoing, no rights, obligations or liabilities of either party hereunder may
be assigned or transferred by such party without the express prior written
consent of the other party, except that LCC may assign this Agreement to: (1)
any successor entity organized in connection with an initial public offering of
LCC's securities, (ii) any entity organized in connection with a merger,
reorganization, consolidation or business combination which does not result in a
change in control, or (iii) any entity acquiring all or substantially all of
LCC's assets or capital stock ("Sale of LCC"). Notwithstanding the foregoing,
however, any transfer or assignment under this Section (g) to an entity
controlled by an operator of system(s) that provide
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wireless personal communications services ("Wireless Operator") shall require
NextWave's prior written approval.
(h) Notwithstanding the provisions of subsection (g) above, in the
event that LCC agrees to assign this Agreement to a third party other than a
Wireless Operator in connection with a Sale of LCC, then: (A) LCC shall provide
NextWave with written notice of such Sale of LCC at least fifteen (15) days
prior to the Sale's closing, which notice shall state the third party's actual
bona fide intention with respect to LCC's continued employment of the members of
LCC's senior management, (B) if the notice sets forth the third party's
intention to terminate the employment of a material portion of LCC's senior
management, then NextWave shall have the option to reduce the Minimum RF Amount
and the Minimum PM Amount (allocating the reduction, to the extent possible,
between the two categories on a pro rata basis based on the current ratio
reflected in this Agreement), in Five Million Dollar ($5,000,000) increments up
to a maximum of Twenty-Five Million Dollars ($25,000,000), recognizing that if
NextWave has, at the time, already paid LCC Engineering Fees and PM Fees
aggregating $25,000,000 or more, then NextWave's remaining minimum commitment
will effectively be subject to being reduced to zero, by payment in cash to LCC
of a termination fee within fifteen (15) days after the closing of the Sale of
LCC. The termination fee shall be One Million Dollars ($1,000,000) times each
Five Million Dollar ($5,000,000) increment that the Minimum RF Amount / Minimum
PM Amount is reduced (e.g., $2,000,000 for a $10,000,000 reduction, $3,000,000
for a $15,000,000 reduction, $4,000,000 for a $20,000,000 reduction, etc.). The
foregoing option shall be exercised by NextWave by providing LCC with written
notice of its intention to reduce the Minimum RF Amount / Minimum PM Amount,
specifying therein the amount of such reduction, within ten (10) days after
NextWave's receipt of LCC's notice under clause (A) of the first sentence of
this Section (h). Such reductions shall become effective only in the event that
the Sale of LCC actually closes (i.e., is consummated) and only upon NextWave's
payment in full of the termination fee provided for herein. In the event that
the Sale of LCC is not consummated and/or closed, then NextWave's notice of
reduction, the corresponding reduction in the Minimum RF Amount / Minimum PM
Amount, and NextWave's obligation to pay the corresponding termination fee shall
all be terminated and of no effect.
(i) This Agreement, together with all exhibits attached hereto,
constitutes the entire agreement between the parties and supersedes all prior
oral or written negotiations and agreements between the parties with respect to
the subject matter hereof. This Agreement may be amended or supplemented at any
time by mutual written agreement of the parties, but neither this Agreement nor
any term hereof may be amended, modified, released, discharged, abandoned or
changed in any manner except by an instrument in writing which refers to this
Agreement and which is executed by each of the parties.
(j) The parties hereby agree to execute and deliver all documents and
instruments and to take or cause to be taken such other actions that are
reasonably necessary or appropriate to consummate the transactions contemplated
by this Agreement.
(k) Neither party may disclose any of the terms, provisions and/or
existence of this Agreement to any third party (except to those officers,
directors and employees of such party having a need to know the same or,
provided prior notice and a reasonable opportunity to object is provided to the
other party, except as required by law) without the express prior written
approval of the other party.
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(l) This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Delaware.
(m) All notices given by either party hereunder must be given in
writing and delivered by certified mail (return receipt requested), overnight
courier, or facsimile with confirmation, addressed to: (i) if to LCC, the
President, and (ii) if to NextWave, the Vice President, Engineering, at the
addresses first appearing above.
(n) This Agreement may be executed: (i) in any number of
counterparts, all of which together shall constitute one instrument, and (ii)
via facsimile with original signatures to follow via overnight courier.
IN WITNESS WHEREOF, the parties, intending to be legally bound, have
caused their duly authorized representatives to execute and deliver this
Agreement as of the date first written above.
LCC, L.L.C.
By:____________________________________
Piyush Sodha
President & CEO
NEXTWAVE TELECOM, INC.
By:____________________________________
Ed Knapp
Vice President Engineering & CTO
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EXHIBIT 10.2
NEXTWAVE TELECOM INC.
AMENDED AND RESTATED STOCK OPTION PLAN
1. PURPOSES.
(a) The purpose of the Plan is to provide a means by which selected
Employees and Directors of and Consultants to the Company, and its Affiliates,
may be given an opportunity to benefit from increases in value of the stock of
the Company through the granting of (i) Incentive Stock Options, (ii)
Nonstatutory Stock Options, (iii) stock bonuses, (iv) rights to purchase
restricted stock, and (v) stock appreciation rights, all as defined below.
(b) The Company, by means of the Plan, seeks to retain the services of
persons who are now Employees or Directors of or Consultants to the Company or
its Affiliates, to secure and retain the services of new Employees, Directors
and Consultants, and to provide incentives for such persons to exert maximum
efforts for the success of the Company and its Affiliates.
(c) The Company intends that the Stock Awards issued under the Plan
shall, in the discretion of the Board or any Committee to which responsibility
for administration of the Plan has been delegated pursuant to subsection 3(c),
be either (i) Options granted pursuant to Section 6 hereof, including Incentive
Stock Options and Nonstatutory Stock Options, (ii) stock bonuses or rights to
purchase restricted stock granted pursuant to Section 7 hereof, or (iii) stock
appreciation rights granted pursuant to Section 8 hereof. All Options shall be
separately designated Incentive Stock Options or Nonstatutory Stock Options at
the time of grant, and in such form as issued pursuant to Section 6, and a
separate certificate or certificates will be issued for shares purchased on
exercise of each type of Option.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary
corporation, whether now or hereafter existing, as those terms
are defined in Sections 424(e) and (f) respectively, of the
Code.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a Committee appointed by the Board in
accordance with subsection 3(c) of the Plan.
(e) "COMPANY" means NextWave Telecom Inc., a Delaware corporation.
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(f) "CONCURRENT STOCK APPRECIATION RIGHT" or "CONCURRENT RIGHT" means a
right granted pursuant to subsection 8(b)(2) of the Plan.
(g) "CONSULTANT" means any person, including an advisor, engaged by the
Company or an Affiliate to render consulting services and who is compensated for
such services, provided that the term "Consultant" shall not include Directors
who are paid only a director's fee by the Company or who are not compensated by
the Company for their services as Directors.
(h) "CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT" means
the employment or relationship as a Director or Consultant is not interrupted or
terminated. The Board, in its sole discretion, may determine whether Continuous
Status as an Employee, Director or Consultant shall be considered interrupted in
the case of: (i) any leave of absence approved by the Board, including sick
leave, military leave, or any other personal leave; or (ii) transfers between
locations of the Company or between the Company, Affiliates or their successors.
(i) "COVERED EMPLOYEE" means the chief executive officer and the four
(4) other highest compensated officers of the Company for whom total
compensation is required to be reported to stockholders under the Exchange Act,
as determined for purposes of Section 162(m) of the Code.
(j) "DIRECTOR" means a member of the Board.
(k) "DISINTERESTED PERSON" means a Director: who either (i) was not
during the one year prior to service as an administrator of the Plan granted or
awarded equity securities pursuant to the Plan or any other plan of the Company
or any Affiliate entitling the participants therein to acquire equity securities
of the Company or any Affiliate except as permitted by Rule 16b-3(c)(2)(i); or
(ii) is otherwise considered to be a "disinterested person" in accordance with
Rule 16b-3(c)(2)(i), or any other applicable rules, regulations or
interpretations of the Securities and Exchange Commission.
(l) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Affiliate of the Company. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.
(m) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(n) "FAIR MARKET VALUE" means the value of the common stock of the
Company as determined in good faith by the Board and in a manner consistent with
Section 260.140.50 of Title 10 of the California Code of Regulations.
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(o) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(p) "INDEPENDENT STOCK APPRECIATION RIGHT" or "INDEPENDENT RIGHT" means
a right granted pursuant to subsection 8(b)(3) of the Plan.
(q) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify
as an Incentive Stock Option.
(r) "OFFICER" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(s) "OPTION" means a stock option granted pursuant to the Plan.
(t) "OPTION AGREEMENT" means a written agreement between the Company
and an Optionee evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of the
Plan.
(u) "OPTIONEE" means an Employee, Director or Consultant who holds an
outstanding Option.
(v) "OUTSIDE DIRECTOR" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
Treasury regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time, and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director, or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.
(w) "PLAN" means this Amended and Restated Stock Option Plan.
(x) "RULE 16B-3" means Rule 16b-3 of the Exchange Act or any successor
to Rule 16b-3, as in effect when discretion is being exercised with respect to
the Plan.
(y) "STOCK APPRECIATION RIGHT" means any of the various types of rights
which may be granted under Section 8 of the Plan.
(z) "STOCK AWARD" means any right granted under the Plan, including any
Option, any stock bonus, any right to purchase restricted stock, and any Stock
Appreciation Right.
(aa) "STOCK AWARD AGREEMENT" means a written agreement between the
Company and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.
(bb) "TANDEM STOCK APPRECIATION RIGHT" or "TANDEM RIGHT" means a right
granted pursuant to subsection 8(b)(1) of the Plan.
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3. ADMINISTRATION.
(a) The Plan shall be administered by the Board unless and until the
Board delegates administration to a Committee, as provided in subsection 3(c).
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(1) To determine from time to time which of the persons
eligible under the Plan shall be granted Stock Awards; when and how each Stock
Award shall be granted; whether a Stock Award will be an Incentive Stock Option,
a Nonstatutory Stock Option, a stock bonus, a right to purchase restricted
stock, a Stock Appreciation Right, or a combination of the foregoing; the
provisions of each Stock Award granted (which need not be identical), including
the time or times when a person shall be permitted to receive stock pursuant to
a Stock Award; whether a person shall be permitted to receive stock upon
exercise of an Independent Stock Appreciation Right; and the number of shares
with respect to which a Stock Award shall be granted to each such person.
(2) To construe and interpret the Plan and Stock Awards
granted under it, and to establish, amend and revoke rules and regulations for
its administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.
(3) To amend the Plan or a Stock Award as provided in Section
14.
(c) The Board may delegate administration of the Plan to a committee
composed of not fewer than two (2) members (the "Committee"), all of the members
of which Committee shall be Disinterested Persons and may also be, in the
discretion of the Board, Outside Directors. If administration is delegated to a
Committee, the Committee shall have, in connection with the administration of
the Plan, the powers theretofore possessed by the Board (and references in this
Plan to the Board shall thereafter be to the Committee), subject, however, to
such resolutions, not inconsistent with the provisions of the Plan, as may be
adopted from time to time by the Board. The Board may abolish the Committee at
any time and revest in the Board the administration of the Plan. Additionally,
prior to the date of the first registration of an equity security of the Company
under Section 12 of the Exchange Act, and notwithstanding anything to
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<PAGE> 5
the contrary contained herein, the Board may delegate administration of the Plan
to a committee of one or more members of the Board and the term "Committee"
shall apply to any person or persons to whom such authority has been delegated.
Notwithstanding anything in this Section 3 to the contrary, at any time the
Board or the Committee may delegate to a committee of one or more members of the
Board the authority to grant Stock Awards to eligible persons who (1) are not
then subject to Section 16 of the Exchange Act and/or (2) are either (i) not
then Covered Employees and are not expected to be Covered Employees at the time
of recognition of income resulting from such Stock Award, or (ii) not persons
with respect to whom the Company wishes to avoid the application of Section
162(m) of the Code.
(d) Any requirement that an administrator of the Plan be a
Disinterested Person shall not apply (i) prior to the date of the first
registration of an equity security of the Company under Section 12 of the
Exchange Act, or (ii) if the Board or the Committee expressly declares that such
requirement shall not apply. Any Disinterested Person shall otherwise comply
with the requirements of Rule 16b-3.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 13 relating to adjustments
upon changes in stock, the stock that may be issued pursuant to Stock Awards
shall not exceed in the aggregate Twenty Million (20,000,000) shares of the
Company's common stock. If any Stock Award shall for any reason expire or
otherwise terminate, in whole or in part, without having been exercised in full,
the stock not acquired under such Stock Award shall revert to and again become
available for issuance under the Plan. Shares subject to Stock Appreciation
Rights exercised in accordance with Section 8 of the Plan shall not be available
for subsequent issuance under the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
5. ELIGIBILITY.
(a) Incentive Stock Options and Stock Appreciation Rights appurtenant
thereto may be granted only to Employees. Stock Awards other than Incentive
Stock Options and Stock Appreciation Rights appurtenant thereto may be granted
only to Employees, Directors or Consultants.
(b) A Director shall in no event be eligible for the benefits of the
Plan unless at the time discretion is exercised in the selection of the Director
as a person to whom Stock Awards may be granted, or in the determination of the
number of shares which may be covered by Stock Awards granted to the Director:
(i) the Board has delegated its discretionary authority over the Plan to a
Committee which consists solely of Disinterested Persons; or (ii) the Plan
otherwise complies with the requirements of Rule 16b-3. The Board shall
otherwise comply with the requirements of Rule 16b-3. This subsection 5(b) shall
not apply (i) prior to the date of the first
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<PAGE> 6
registration of an equity security of the Company under Section 12 of the
Exchange Act, or (ii) if the Board or Committee expressly declares that it shall
not apply.
(c) No person shall be eligible for the grant of an Option or an award
to purchase restricted stock if, at the time of grant, such person owns (or is
deemed to own pursuant to Section 424(d) of the Code) stock possessing more than
ten percent (10%) of the total combined voting power of all classes of stock of
the Company or of any of its Affiliates unless the exercise price of such Option
is at least one hundred ten percent (110%) of the Fair Market Value of such
stock at the date of grant and the Option is not exercisable after the
expiration of five (5) years from the date of grant, or in the case of a
restricted stock purchase award, the purchase price is at least one hundred
percent (100%) of the Fair Market Value of such stock at the date of grant.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise) the
substance of each of the following provisions:
(a) TERM. No Option shall be exercisable after the expiration of ten
(10) years from the date it was granted.
(b) PRICE. The exercise price of each Incentive Stock Option shall be
not less than one hundred percent (100%) of the Fair Market Value of the stock
subject to the Option on the date the Option is granted; the exercise price of
each Nonstatutory Stock Option shall be not less than eighty-five percent (85%)
of the Fair Market Value of the stock subject to the Option on the date the
Option is granted. Notwithstanding the foregoing, an Option (whether an
Incentive Stock Option or a Nonstatutory Stock Option) may be granted with an
exercise price lower than that set forth in the preceding sentence if such
Option is granted pursuant to an assumption or substitution for another option
in a manner satisfying the provisions of Section 424(a) of the Code.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised, or (ii) at
the discretion of the Board or the Committee, at the time of the grant of the
Option, (A) by delivery to the Company of other common stock of the Company, (B)
according to a deferred payment or other arrangement (which may include, without
limiting the generality of the foregoing, the use of other common stock of the
Company) with the person to whom the Option is granted or to whom the Option is
transferred pursuant to subsection 6(d), or (C) in any other form of legal
consideration that may be acceptable to the Board.
In the case of any deferred payment arrangement, interest shall be
payable at least annually and shall be charged at the minimum rate of interest
necessary to avoid the treatment as
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interest, under any applicable provisions of the Code, of any amounts other than
amounts stated to be interest under the deferred payment arrangement.
(d) TRANSFERABILITY. An Option shall not be transferable except by will
or by the laws of descent and distribution, and shall be exercisable during the
lifetime of the person to whom the Option is granted only by such person.
Notwithstanding the foregoing, the person to whom the Option is granted may, by
delivering written notice to the Company, in a form satisfactory to the Company,
designate a third party who, in the event of the death of the Optionee, shall
thereafter be entitled to exercise the Option.
(e) VESTING. The total number of shares of stock subject to an Option
may, but need not, be allotted in periodic installments (which may, but need
not, be equal). The Option Agreement may provide that from time to time during
each of such installment periods, the Option may become exercisable ("vest")
with respect to some or all of the shares allotted to that period, and may be
exercised with respect to some or all of the shares allotted to such period
and/or any prior period as to which the Option became vested but was not fully
exercised. The Option may be subject to such other terms and conditions on the
time or times when it may be exercised (which may be based on performance or
other criteria) as the Board may deem appropriate. The vesting provisions of
individual Options may vary but in each case will provide for vesting of at
least twenty percent (20%) per year of the total number of shares subject to the
Option. The provisions of this subsection 6(e) are subject to any Option
provisions governing the minimum number of shares as to which an Option may be
exercised.
(f) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR
CONSULTANT. In the event an Optionee's Continuous Status as an Employee,
Director or Consultant terminates (other than upon the Optionee's death or
disability), the Optionee may exercise his or her Option (to the extent that the
Optionee was entitled to exercise it at the date of termination) but only within
such period of time ending on the earlier of (i) the date three (3) months after
the termination of the Optionee's Continuous Status as an Employee, Director or
Consultant (or such longer or shorter period, which in no event shall be less
than thirty (30) days, specified in the Option Agreement), or (ii) the
expiration of the term of the Option as set forth in the Option Agreement. If,
after termination, the Optionee does not exercise his or her Option within the
time specified in the Option Agreement, the Option shall terminate, and the
shares covered by such Option shall revert to and again become available for
issuance under the Plan.
An Optionee's Option Agreement may also provide that if the exercise of
the Option following the termination of the Optionee's Continuous Status as an
Employee, Director, or Consultant (other than upon the Optionee's death or
disability) would result in liability under Section 16(b) of the Exchange Act,
then the Option shall terminate on the earlier of (i) the expiration of the term
of the Option set forth in the Option Agreement, or (ii) the tenth (10th) day
after the last date on which such exercise would result in such liability under
Section 16(b) of the Exchange Act. Finally, an Optionee's Option Agreement may
also provide that if the exercise of the Option following the termination of the
Optionee's Continuous Status as an Employee,
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<PAGE> 8
Director or Consultant (other than upon the Optionee's death or disability)
would be prohibited at any time solely because the issuance of shares would
violate the registration requirements under the Act, then the Option shall
terminate on the earlier of (i) the expiration of the term of the Option set
forth in the first paragraph of this subsection 6(f), or (ii) the expiration of
a period of three (3) months after the termination of the Optionee's Continuous
Status as an Employee, Director or Consultant during which the exercise of the
Option would not be in violation of such registration requirements.
(g) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous
Status as an Employee, Director or Consultant terminates as a result of the
Optionee's disability, the Optionee may exercise his or her Option (to the
extent that the Optionee was entitled to exercise it at the date of
termination), but only within such period of time ending on the earlier of (i)
the date twelve (12) months following such termination (or such longer or
shorter period, which in no event shall be less than six (6) months, specified
in the Option Agreement), or (ii) the expiration of the term of the Option as
set forth in the Option Agreement. If, at the date of termination, the Optionee
is not entitled to exercise his or her entire Option, the shares covered by the
unexercisable portion of the Option shall revert to and again become available
for issuance under the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified herein, the Option shall
terminate, and the shares covered by such Option shall revert to and again
become available for issuance under the Plan.
(h) DEATH OF OPTIONEE. In the event of the death of an Optionee during,
or within a period specified in the Option after the termination of, the
Optionee's Continuous Status as an Employee, Director or Consultant, the Option
may be exercised (to the extent the Optionee was entitled to exercise the Option
at the date of death) by the Optionee's estate, by a person who acquired the
right to exercise the Option by bequest or inheritance or by a person designated
to exercise the option upon the Optionee's death pursuant to subsection 6(d),
but only within the period ending on the earlier of (i) the date eighteen (18)
months following the date of death (or such longer or shorter period, which in
no event shall be less than six (6) months, specified in the Option Agreement),
or (ii) the expiration of the term of such Option as set forth in the Option
Agreement. If, at the time of death, the Optionee was not entitled to exercise
his or her entire Option, the shares covered by the unexercisable portion of the
Option shall revert to and again become available for issuance under the Plan.
If, after death, the Option is not exercised within the time specified herein,
the Option shall terminate, and the shares covered by such Option shall revert
to and again become available for issuance under the Plan.
The Option may, but need not, include a provision whereby the Optionee
may elect at any time while an Employee, Director or Consultant to exercise the
Option as to any part or all of the shares subject to the Option prior to the
full vesting of the Option. Any unvested shares so purchased shall be subject to
a repurchase right in favor of the Company, with the repurchase price to be
equal to the original purchase price of the stock, or to any other restriction
the Board determines to be appropriate; provided, however, that (i) the right to
repurchase at the original purchase price shall lapse at a minimum rate of
twenty percent (20%) per year over five (5) years
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<PAGE> 9
from the date the Option was granted, and (ii) such right shall be exercisable
only within (A) the ninety (90) day period following the termination of
employment or the relationship as a Director or Consultant, or (B) such longer
period as may be agreed to by the Company and the Optionee (for example, for
purposes of satisfying the requirements of Section 1202(c)(3) of the Code
(regarding "qualified small business stock")), and (iii) such right shall be
exercisable only for cash or cancellation of purchase money indebtedness for the
shares. Should the right of repurchase be assigned by the Company, the assignee
shall pay the Company cash equal to the difference between the original purchase
price and the stock's Fair Market Value if the original purchase price is less
than the stock's Fair Market Value.
(i) RIGHT OF REPURCHASE. The Option may, but need not, include a
provision whereby the Company may elect, prior to the date of the first
registration of an equity security of the Company under Section 12 of the
Exchange Act, to repurchase all or any part of the vested shares exercised
pursuant to the Option; provided, however, that (i) such repurchase right shall
be exercisable only within (A) the ninety (90) day period following the
termination of employment or the relationship as a Director or Consultant, or
(B) such longer period as may be agreed to by the Company and the Optionee (for
example, for purposes of satisfying the requirements of Section 1202(c)(3) of
the Code (regarding "qualified small business stock")), and (ii) such right
shall be exercisable only for cash or cancellation of purchase money
indebtedness for the shares at a repurchase price equal to the greater of (A)
the stock's Fair Market Value at the time of such termination, or (B) the
original purchase price paid for such shares by the Optionee.
(j) RIGHT OF FIRST REFUSAL. The Option may, but need not, include a
provision whereby the Company may elect, prior to the date of the first
registration of an equity security of the Company under Section 12 of the
Exchange Act, to exercise a right of first refusal following receipt of notice
from the Optionee of the intent to transfer all or any part of the shares
exercised pursuant to the Option. Any Optionee desiring to transfer Shares
subject to the Right of First Refusal will give a written notice (the "Transfer
Notice") to the Company describing fully the proposed transfer, including the
number of Shares proposed to be transferred, the proposed transfer price, and
the name and address of the proposed transferee. The Transfer Notice will be
signed both by the Optionee and by the proposed transferee and must constitute a
binding commitment of both parties to the transfer of the Shares. The Company
will have the right to purchase the Shares subject to the Transfer Notice on the
terms of the proposal referred to in the Transfer Notice, subject to any change
in such terms permitted under Section 6(j)(A), by delivery of a notice of
exercise of the Right of First Refusal within 30 days after the date the
Transfer Notice is received by the Corporation. The Corporation's rights under
this Section 6(j) will be freely assignable, in whole or in part.
(A) If the Company fails to exercise the Right of First
Refusal within 30 days after the date on which it receives the Transfer Notice,
the Optionee may, not later than six months following receipt of the Transfer
Notice by the Company, consummate a transfer of the Shares subject to the
Transfer Notice on the terms and conditions described in the Transfer Notice.
Any proposed transfer on terms and conditions different from those described in
the
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Transfer Notice, as well as any subsequent proposed transfer by the Optionee,
will again be subject to the Right of First Refusal and will again require
compliance with the procedure described in this Section 6(j). If the Company
exercises its Right of First Refusal, the Optionee will immediately endorse and
deliver to the Company every stock certificate representing the Shares being
purchased, and the Company will then promptly pay the purchase price in
accordance with the terms set forth in the Transfer Notice.
(B) The amount payable to an Optionee pursuant to the
Company's exercise of the Right of First Refusal will be paid to the Optionee in
accordance with the terms and conditions of the Transfer Notice or may, at the
election of the Company, be paid in full in cash.
(C) The Company's Right of First Refusal will inure to the
benefit of its successors and assigns and will be binding upon any transferee of
the Shares, other than a transferee acquiring Shares in a transaction with
respect to which the Company's failed to exercise its Right of First Refusal (a
"Free Transferee") or a transferee of a Free Transferee.
(D) Notwithstanding any other provision of this Section 6(j),
if the Common Stock is listed on any United States securities exchange or traded
on any formal over-the-counter market in general use in the United States (i.e.,
the NASDAQ Market System) at the time the Optionee desires to transfer his or
her Shares, the Company will no longer have the Right of First Refusal, and the
Optionee will have no obligation to comply with this Section 6(j).
(k) RE-LOAD OPTIONS. Without in any way limiting the authority of the
Board or Committee to make or not to make grants of Options hereunder, the Board
or Committee shall have the authority (but not an obligation) to include as part
of any Option Agreement a provision entitling the Optionee to a further Option
(a "Re-Load Option") in the event the Optionee exercises the Option evidenced by
the Option agreement, in whole or in part, by surrendering other shares of
Common Stock in accordance with this Plan and the terms and conditions of the
Option Agreement. Any such Re-Load Option (i) shall be for a number of shares
equal to the number of shares surrendered as part or all of the exercise price
of such Option; (ii) shall have an expiration date which is the same as the
expiration date of the Option the exercise of which gave rise to such Re-Load
Option; and (iii) shall have an exercise price which is equal to one hundred
percent (100%) of the Fair Market Value of the Common Stock subject to the
Re-Load Option on the date of exercise of the original Option. Notwithstanding
the foregoing, a Re-Load Option which is granted to a 10% stockholder (as
described in subsection 5(c)), shall have an exercise price which is equal to
one hundred ten percent (110%) of the Fair Market Value of the stock subject to
the Re-Load Option on the date of exercise of the original Option and shall have
a term which is no longer than five (5) years.
Any such Re-Load Option may be an Incentive Stock Option or a
Nonstatutory Stock Option, as the Board or Committee may designate at the time
of the grant of the original Option;
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provided, however, that the designation of any Re-Load Option as an Incentive
Stock Option shall be subject to the one hundred thousand dollar ($100,000)
annual limitation on exercisability of Incentive Stock Options described in
subsection 12(e) of the Plan and in Section 422(d) of the Code. There shall be
no Re-Load Options on a Re-Load Option. Any such Re-Load Option shall be subject
to the availability of sufficient shares under subsection 4(a) and shall be
subject to such other terms and conditions as the Board or Committee may
determine which are not inconsistent with the express provisions of the Plan
regarding the terms of Options.
7. TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK.
Each stock bonus or restricted stock purchase agreement shall be in
such form and shall contain such terms and conditions as the Board or the
Committee shall deem appropriate. The terms and conditions of stock bonus or
restricted stock purchase agreements may change from time to time, and the terms
and conditions of separate agreements need not be identical, but each stock
bonus or restricted stock purchase agreement shall include (through
incorporation of provisions hereof by reference in the agreement or otherwise)
the substance of each of the following provisions as appropriate:
(a) PURCHASE PRICE. The purchase price under each restricted stock
purchase agreement shall be such amount as the Board or Committee shall
determine and designate in such agreement, but in no event shall the purchase
price be less than eighty-five percent (85%) of the stock's Fair Market Value on
the date such award is made. Notwithstanding the foregoing, the Board or the
Committee may determine that eligible participants in the Plan may be awarded
stock pursuant to a stock bonus agreement in consideration for past services
actually rendered to the Company or for its benefit.
(b) TRANSFERABILITY. No rights under a stock bonus or restricted stock
purchase agreement shall be transferable except by will or the laws of descent
and distribution so long as stock awarded under such agreement remains subject
to the terms of the agreement.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to a
stock purchase agreement shall be paid either: (i) in cash at the time of
purchase; (ii) at the discretion of the Board or the Committee, according to a
deferred payment or other arrangement with the person to whom the stock is sold;
or (iii) in any other form of legal consideration that may be acceptable to the
Board or the Committee in its discretion. Notwithstanding the foregoing, the
Board or the Committee to which administration of the Plan has been delegated
may award stock pursuant to a stock bonus agreement in consideration for past
services actually rendered to the Company or for its benefit.
(d) VESTING. Shares of stock sold or awarded under the Plan may, but
need not, be subject to a repurchase option in favor of the Company in
accordance with a vesting schedule to be determined by the Board or the
Committee; provided, however, that (i) the right to repurchase at the original
purchase price shall lapse at a minimum rate of twenty percent (20%) per year
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over five (5) years from the date the Stock Award was granted, and (ii) such
right shall be exercisable only (A) within the ninety (90) day period following
the termination of employment or the relationship as a Director or Consultant,
or (B) such longer period as may be agreed to by the Company and the holder of
the Stock Award (for example, for purposes of satisfying the requirements of
Section 1202(c)(3) of the Code (regarding "qualified small business stock")),
and (iii) such right shall be exercisable only for cash or cancellation of
purchase money indebtedness for the shares. Should the right of repurchase be
assigned by the Company, the assignee shall pay the Company cash equal to the
difference between the original purchase price and the stock's Fair Market Value
if the original purchase price is less than the stock's Fair Market Value.
(e) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR
CONSULTANT. In the event a Participant's Continuous Status as an Employee,
Director or Consultant terminates, the Company may repurchase or otherwise
reacquire , subject to the limitations described in subsection 7(d), any or all
of the shares of stock held by that person which have not vested as of the date
of termination under the terms of the stock bonus or restricted stock purchase
agreement between the Company and such person.
8. STOCK APPRECIATION RIGHTS.
(a) The Board or Committee shall have full power and authority,
exercisable in its sole discretion, to grant Stock Appreciation Rights under the
Plan to Employees or Directors of or Consultants to, the Company or its
Affiliates. To exercise any outstanding Stock Appreciation Right, the holder
must provide written notice of exercise to the Company in compliance with the
provisions of the Stock Award Agreement evidencing such right. If a Stock
Appreciation Right is granted to an individual who is at the time subject to
Section 16(b) of the Exchange Act (a "Section 16(b) Insider"), the Stock Award
Agreement shall incorporate all the terms and conditions at the time necessary
to assure that the subsequent exercise of such right shall qualify for the
safe-harbor exemption from short-swing profit liability provided by Rule 16b-3
promulgated under the Exchange Act (or any successor rule or regulation). No
limitation shall exist on the aggregate amount of cash payments the Company may
make under the Plan in connection with the exercise of a Stock Appreciation
Right.
(b) Three types of Stock Appreciation Rights shall be authorized for
issuance under the Plan:
(1) TANDEM STOCK APPRECIATION RIGHTS. Tandem Stock
Appreciation Rights will be granted appurtenant to an Option, and shall, except
as specifically set forth in this Section 8, be subject to the same terms and
conditions applicable to the particular Option grant to which it pertains.
Tandem Stock Appreciation Rights will require the holder to elect between the
exercise of the underlying Option for shares of stock and the surrender, in
whole or in part, of such Option for an appreciation distribution. The
appreciation distribution payable on the exercised Tandem Right shall be in cash
(or, if so provided, in an equivalent number of shares of stock based on Fair
Market Value on the date of the Option surrender) in an amount up to the
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<PAGE> 13
excess of (A) the Fair Market Value (on the date of the Option surrender) of the
number of shares of stock covered by that portion of the surrendered Option in
which the Optionee is vested over (B) the aggregate exercise price payable for
such vested shares.
(2) CONCURRENT STOCK APPRECIATION RIGHTS. Concurrent Rights
will be granted appurtenant to an Option and may apply to all or any portion of
the shares of stock subject to the underlying Option and shall, except as
specifically set forth in this Section 8, be subject to the same terms and
conditions applicable to the particular Option grant to which it pertains. A
Concurrent Right shall be exercised automatically at the same time the
underlying Option is exercised with respect to the particular shares of stock to
which the Concurrent Right pertains. The appreciation distribution payable on an
exercised Concurrent Right shall be in cash (or, if so provided, in an
equivalent number of shares of stock based on Fair Market Value on the date of
the exercise of the Concurrent Right) in an amount equal to such portion as
shall be determined by the Board or the Committee at the time of the grant of
the excess of (A) the aggregate Fair Market Value (on the date of the exercise
of the Concurrent Right) of the vested shares of stock purchased under the
underlying Option which have Concurrent Rights appurtenant to them over (B) the
aggregate exercise price paid for such shares.
(3) INDEPENDENT STOCK APPRECIATION RIGHTS. Independent Rights
will be granted independently of any Option and shall, except as specifically
set forth in this Section 8, be subject to the same terms and conditions
applicable to Nonstatutory Stock Options as set forth in Section 6. They shall
be denominated in share equivalents. The appreciation distribution payable on
the exercised Independent Right shall be not greater than an amount equal to the
excess of (A) the aggregate Fair Market Value (on the date of the exercise of
the Independent Right) of a number of shares of Company stock equal to the
number of share equivalents in which the holder is vested under such Independent
Right, and with respect to which the holder is exercising the Independent Right
on such date, over (B) the aggregate Fair Market Value (on the date of the grant
of the Independent Right) of such number of shares of Company stock. The
appreciation distribution payable on the exercised Independent Right shall be in
cash or, if so provided, in an equivalent number of shares of stock based on
Fair Market Value on the date of the exercise of the Independent Right.
9. CANCELLATION AND RE-GRANT OF OPTIONS.
(a) The Board or the Committee shall have the authority to effect, at
any time and from time to time, (i) the repricing of any outstanding Options
and/or any Stock Appreciation Rights under the Plan and/or (ii) with the consent
of the affected holders of Options and/or Stock Appreciation Rights, the
cancellation of any outstanding Options and/or any Stock Appreciation Rights
under the Plan and the grant in substitution therefor of new Options and/or
Stock Appreciation Rights under the Plan covering the same or different numbers
of shares of stock, but having an exercise price per share not less than
eighty-five percent (85%) of the Fair Market Value (one hundred percent (100%)
of the Fair Market Value in the case of an Incentive Stock Option) or, in the
case of a 10% stockholder (as described in subsection 5(c)), not less than one
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<PAGE> 14
hundred ten percent (110%) of the Fair Market Value) per share of stock on the
new grant date. Notwithstanding the foregoing, the Board or the Committee may
grant an Option and/or Stock Appreciation Right with an exercise price lower
than that set forth above if such Option and/or Stock Appreciation Right is
granted as part of a transaction to which section 424(a) of the Code applies.
(b) Shares subject to an Option or Stock Appreciation Right canceled
under this Section 9 shall continue to be counted against the maximum award of
Options and Stock Appreciation Rights permitted to be granted pursuant to
subsection 5(d) of the Plan. The repricing of an Option and/or Stock
Appreciation Right under this Section 9, resulting in a reduction of the
exercise price, shall be deemed to be a cancellation of the original Option
and/or Stock Appreciation Right and the grant of a substitute Option and/or
Stock Appreciation Right; in the event of such repricing, both the original and
the substituted Options and Stock Appreciation Rights shall be counted against
the maximum awards of Options and Stock Appreciation Rights permitted to be
granted pursuant to subsection 5(d) of the Plan. The provisions of this
subsection 9(b) shall be applicable only to the extent required by Section
162(m) of the Code.
10. COVENANTS OF THE COMPANY.
(a) During the terms of the Stock Awards, the Company shall keep
available at all times the number of shares of stock required to satisfy such
Stock Awards.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the Stock Award; provided,
however, that this undertaking shall not require the Company to register under
the Securities Act of 1933, as amended (the "Securities Act") either the Plan,
any Stock Award or any stock issued or issuable pursuant to any such Stock
Award. If, after reasonable efforts, the Company is unable to obtain from any
such regulatory commission or agency the authority which counsel for the Company
deems necessary for the lawful issuance and sale of stock under the Plan, the
Company shall be relieved from any liability for failure to issue and sell stock
upon exercise of such Stock Awards unless and until such authority is obtained.
11. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Stock Awards shall
constitute general funds of the Company.
12. MISCELLANEOUS.
(a) Neither an Employee, Director or Consultant nor any person to whom
a Stock Award is transferred under subsection 6(d), 7(b), or 8(b) shall be
deemed to be the holder of, or to have any of the rights of a holder with
respect to, any shares subject to such Stock Award
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<PAGE> 15
unless and until such person has satisfied all requirements for exercise of the
Stock Award pursuant to its terms.
(b) Throughout the term of any Stock Award, the Company shall deliver
to the holder of such Stock Award, not later than one hundred twenty (120) days
after the close of each of the Company's fiscal years during the term of such
Stock Award, a balance sheet and an income statement. This section shall not
apply when issuance is limited to key employees whose duties in connection with
the Company assure them access to equivalent information.
(c) Nothing in the Plan or any instrument executed or Stock Award
granted pursuant thereto shall confer upon any Employee, Director, Consultant or
other holder of Stock Awards any right to continue in the employ of the Company
or any Affiliate (or to continue acting as a Director or Consultant) or shall
affect the right of the Company or any Affiliate to terminate the employment of
any Employee with or without cause the right of the Company's Board of Directors
and/or the Company's stockholders to remove any Director pursuant to the terms
of the Company's By-Laws and the provisions of the Delaware General Corporation
Law, or the right to terminate the relationship of any Consultant pursuant to
the terms of such Consultant's agreement with the Company or Affiliate.
(d) To the extent that the aggregate Fair Market Value (determined at
the time of grant) of stock with respect to which Incentive Stock Options are
exercisable for the first time by any Optionee during any calendar year under
all plans of the Company and its Affiliates exceeds one hundred thousand dollars
($100,000), the Options or portions thereof which exceed such limit (according
to the order in which they were granted) shall be treated as Nonstatutory Stock
Options.
(e) The Company may require any person to whom a Stock Award is
granted, or any person to whom a Stock Award is transferred pursuant to
subsection 6(d), 7(b) or 8(b), as a condition of exercising or acquiring stock
under any Stock Award, (1) to give written assurances satisfactory to the
Company as to such person's knowledge and experience in financial and business
matters and/or to employ a purchaser representative reasonably satisfactory to
the Company who is knowledgeable and experienced in financial and business
matters, and that he or she is capable of evaluating, alone or together with the
purchaser representative, the merits and risks of exercising the Stock Award;
and (2) to give written assurances satisfactory to the Company stating that such
person is acquiring the stock subject to the Stock Award for such person's own
account and not with any present intention of selling or otherwise distributing
the stock. The foregoing requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (i) the issuance of the shares upon the
exercise or acquisition of stock under the Stock Award has been registered under
a then currently effective registration statement under the Securities Act, or
(ii) as to any particular requirement, a determination is made by counsel for
the Company that such requirement need not be met in the circumstances under the
then applicable securities laws. The Company may, upon advice of counsel to the
Company, place legends on stock certificates issued under the Plan as such
counsel deems necessary or
15
<PAGE> 16
appropriate in order to comply with applicable securities laws, including, but
not limited to, legends restricting the transfer of the stock.
(f) To the extent provided by the terms of a Stock Award Agreement, the
person to whom a Stock Award is granted may satisfy any federal, state or local
tax withholding obligation relating to the exercise or acquisition of stock
under a Stock Award by any of the following means or by a combination of such
means: (1) tendering a cash payment; (2) authorizing the Company to withhold
shares from the shares of the common stock otherwise issuable to the participant
as a result of the exercise or acquisition of stock under the Stock Award; or
(3) delivering to the Company owned and unencumbered shares of the common stock
of the Company.
13. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject
to any Stock Award, without the receipt of consideration by the Company (through
merger, consolidation, reorganization, recapitalization, reincorporation, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of consideration by the
Company), the Plan will be appropriately adjusted in the class(es) and maximum
number of shares subject to the Plan pursuant to subsection 4(a) and the
outstanding Stock Awards will be appropriately adjusted in the class(es) and
number of shares and price per share of stock subject to such outstanding Stock
Awards. Such adjustments shall be made by the Board or the Committee, the
determination of which shall be final, binding and conclusive. (The conversion
of any convertible securities of the Company shall not be treated as a
"transaction not involving the receipt of consideration by the Company".)
(b) In the event of: (1) a merger or consolidation in which the Company
is not the surviving corporation or (2) a reverse merger in which the Company is
the surviving corporation but the shares of the Company's common stock
outstanding immediately preceding the merger are converted by virtue of the
merger into other property, whether in the form of securities, cash or
otherwise; or (3) the acquisition by any person, entity or group within the
meaning of Section 13(d) or 14(d) of the Exchange Act, or any comparable
successor provisions (excluding any employee benefit plan, or related trust,
sponsored or maintained by the Company or any Affiliate of the Company) of the
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act, or comparable successor rule) of securities of the Company
representing at least fifty percent (50%) of the combined voting power entitled
to vote in the election of directors, then to the extent permitted by applicable
law: (i) any surviving corporation or an Affiliate of such surviving corporation
shall assume any Stock Awards outstanding under the Plan or shall substitute
similar Stock Awards (including an award to acquire the same consideration paid
to the stockholders in the transaction described in this subsection 13(b)) for
those outstanding under the Plan, or (ii) such Stock Awards shall continue in
full force and effect. In the event any surviving corporation and its Affiliates
refuse to assume or continue such Stock
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<PAGE> 17
Awards, or to substitute similar Stock Awards for those outstanding under the
Plan, then such Stock Awards shall be terminated if not exercised prior to such
event. In the event of a dissolution or liquidation of the Company, any Stock
Awards outstanding under the Plan shall terminate if not exercised prior to such
event.
14. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 13 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the stockholders of
the Company within twelve (12) months before or after the adoption of the
amendment, where the amendment will:
(i) Increase the number of shares reserved for Stock Awards
under the Plan;
(ii) Modify the requirements as to eligibility for
participation in the Plan (to the extent such modification requires stockholder
approval in order for the Plan to satisfy the requirements of Section 422 of the
Code); or
(iii) Modify the Plan in any other way if such modification
requires stockholder approval in order for the Plan to satisfy the requirements
of Section 422 of the Code or to comply with the requirements of Rule 16b-3.
(b) The Board may in its sole discretion submit any other amendment to
the Plan for stockholder approval, including, but not limited to, amendments to
the Plan intended to satisfy the requirements of Section 162(m) of the Code and
the regulations promulgated thereunder regarding the exclusion of
performance-based compensation from the limit on corporate deductibility of
compensation paid to certain executive officers.
(c) It is expressly contemplated that the Board may amend the Plan in
any respect the Board deems necessary or advisable to provide eligible Employees
with the maximum benefits provided or to be provided under the provisions of the
Code and the regulations promulgated thereunder relating to Incentive Stock
Options and/or to bring the Plan and/or Incentive Stock Options granted under it
into compliance therewith.
(d) Rights and obligations under any Stock Award granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the person to whom the Stock Award was
granted and (ii) such person consents in writing.
(e) The Board at any time, and from time to time, may amend the terms
of any one or more Stock Award; provided, however, that the rights and
obligations under any Stock Award shall not be impaired by any such amendment
unless (i) the Company requests the consent of the person to whom the Stock
Award was granted and (ii) such person consents in writing.
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<PAGE> 18
15. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate on a date no more than 10 years from
the date the plan is adopted or the date the Plan is approved by the
Stockholders of the Company, whichever is earlier. No Stock Awards may be
granted under the Plan while the Plan is suspended or after it is terminated.
(b) Rights and obligations under any Stock Award granted while the Plan
is in effect shall not be impaired by suspension or termination of the Plan,
except with the consent of the person to whom the Stock Award was granted.
16. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no
Stock Awards granted under the Plan shall be exercised unless and until the Plan
has been approved by the stockholders of the Company, which approval shall be
within twelve (12) months before or after the date the Plan is adopted by the
Board, and, if required, an appropriate permit has been issued by the
Commissioner of Corporations of the State of California.
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<PAGE> 1
EXHIBIT 10.3
IT IS UNLAWFUL TO CONSUMMATE A SALE OR
TRANSFER OF THIS SECURITY, OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY
CONSIDERATION THEREFOR, WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA,
EXCEPT AS PERMITTED IN THE COMMISSIONER'S
RULES.
INCENTIVE STOCK OPTION
_________________________, Optionee:
NextWave Telecom Inc. (the "Company"), pursuant to its Amended and
Restated Stock Option Plan (the "Plan"), has granted to you, the optionee named
above, an option to purchase shares of the common stock of the Company ("Common
Stock"). This option is intended to qualify as an "incentive stock option"
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code").
The grant hereunder is in connection with and in furtherance of the
Company's compensatory benefit plan for participation of the Company's employees
(including officers) directors and consultants and is intended to comply with
the provisions of Rule 701 promulgated by the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "Act"). The grant of this
option and the issuance of shares upon the exercise of this option are also
intended to be exempt from the securities qualification requirements of the
California Corporations Code pursuant to Section 25102(f) of that code. Defined
terms not explicitly defined in this agreement but defined in the Plan shall
have the same definitions as in the Plan.
1. TERMS OF STOCK OPTION. The details of your stock option are as
follows:
Number of Shares Subject to Option: ____________________
Date of Grant: ____________________
Vesting Commencement Date: ____________________
Exercise Price per Share: ____________________
Expiration Date: ____________________
2. TOTAL NUMBER OF SHARES SUBJECT TO THIS OPTION. The total number of
shares of Common Stock subject to this option is ____________________ (______).
3. VESTING. Subject to the limitations contained herein, twenty percent
(20%) of the shares will vest (become exercisable) on the one year anniversary
of the Vesting Commencement Date and twenty percent (20%) of the shares will
then vest at the end of each full year thereafter until either (i) you cease to
provide services to the Company for any reason, or (ii) this option
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<PAGE> 2
becomes fully vested. The Stock Option may not be exercised in whole or in part
at any time prior to the end of the first full year following the Vesting
Commencement Date. The right to exercise this Stock Option will be cumulative.
Optionee may buy all, or from time to time any part, of the maximum number of
shares which are exercisable under the Stock Option, but in no case may Optionee
exercise the Stock Option with regard to a fraction of a share, or for any share
for which the Stock Option is not exercisable.
4. EXERCISE PRICE AND METHOD OF PAYMENT.
(a) EXERCISE PRICE. The exercise price of this option is
twenty five cents ($.25) per share, being not less than the fair market value of
the Common Stock on the date of grant of this option.
(b) METHOD OF PAYMENT. Payment of the exercise price per share
is due in full upon exercise of all or any part of each installment which has
accrued to you. You may elect, to the extent permitted by applicable statutes
and regulations, to make payment of the exercise price under one of the
following alternatives:
(i) Payment of the exercise price per share in cash
(including check) at the time of exercise;
(ii) Payment pursuant to a program developed under
Regulation T as promulgated by the Federal Reserve Board which, prior to the
issuance of Common Stock, results in either the receipt of cash (or check) by
the Company or the receipt of irrevocable instructions to pay the aggregate
exercise price to the Company from the sales proceeds; or
(iii) Provided that at the time of exercise the
Company's Common Stock is publicly traded and quoted regularly in the Wall
Street Journal, payment by delivery of already-owned shares of Common Stock,
held for the period required to avoid a charge to the Company's reported
earnings, and owned free and clear of any liens, claims, encumbrances or
security interests, which Common Stock shall be valued at its fair market value
on the date of exercise.
(c) Payment by a combination of the methods of payment
permitted by subparagraph 4(b)(i) through 4(b)(iii) above.
5. WHOLE SHARES. This option may not be exercised for any number of
shares which would require the issuance of anything other than whole shares.
6. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary
contained herein, this option may not be exercised unless the shares issuable
upon exercise of this option are then registered under the Act or, if such
shares are not then so registered, the Company has determined that such exercise
and issuance would be exempt from the registration requirements of the Act.
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<PAGE> 3
7. TERM. The term of this option commences on _____________, 199_, (the
Vesting Commencement Date Date) and expires on _______________ (the "Expiration
Date"), which date shall be no more than ten (10) years from date this option is
granted), unless the option expires sooner as set forth below or in the Plan. In
no event may this option be exercised on or after the Expiration Date. This
option shall terminate prior to the Expiration Date as follows: thirty (30) days
after the termination of your Continuous Status as an Employee, Director or
Consultant with the Company or an Affiliate of the Company unless one of the
following circumstances exists:
(a) Your termination of Continuous Status as an Employee,
Director or Consultant is due to your disability. This option will then
terminate on the earlier of the termination date set forth above or twelve (12)
months following such termination of Continuous Status as an Employee, Director
or Consultant. You should be aware that if your disability is not considered a
permanent and total disability within the meaning of Section 422(c)(6) of the
Code, and you exercise this option more than three (3) months following the date
of your termination of employment, your exercise will be treated for tax
purposes as the exercise of a "nonstatutory stock option" instead of an
"incentive stock option."
(b) Your termination of Continuous Status as an Employee,
Director or Consultant is due to your death or your death occurs within thirty
(30) days following your termination of Continuous Status as an Employee,
Director or Consultant for any other reason. This option will then expire on the
earlier of the Expiration Date set forth above or twelve (12) months after your
death.
(c) If during any part of such thirty (30) day period you may
not exercise your option solely because of the condition set forth in paragraph
6 above, then your option will not expire until the earlier of the Expiration
Date set forth above or until this option shall have been exercisable for an
aggregate period of thirty (30) days after your termination of Continuous Status
as an Employee, Director or Consultant.
(d) If your exercise of the option within thirty (30) days
after termination of your Continuous Status as an Employee, Director or
Consultant with the Company or with an Affiliate of the Company would result in
liability under section 16(b) of the Securities Exchange Act of 1934, then your
option will expire on the earlier of (i) the Expiration Date set forth above,
(ii) the tenth (10th) day after the last date upon which exercise would result
in such liability or (iii) six (6) months and ten (10) days after the
termination of your Continuous Status as an Employee, Director or Consultant
with the Company or an Affiliate of the Company.
(e) However, this option may be exercised following
termination of Continuous Status as an Employee, Director or Consultant only as
to that number of shares as to which it was exercisable on the date of
termination of Continuous Status as an Employee, Director or Consultant under
the provisions of paragraph 3 of this option.
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<PAGE> 4
(f) In order to obtain the federal income tax advantages
associated with an "incentive stock option," the Code requires that at all times
beginning on the date of grant of the option and ending on the day three (3)
months before the date of the option's exercise, you must be an employee of the
Company or an Affiliate of the Company, except in the event of your death or
permanent and total disability. The Company has provided for continued vesting
or extended exercisability of your option under certain circumstances for your
benefit, but cannot guarantee that your option will necessarily be treated as an
"incentive stock option" if you provide services to the Company or an Affiliate
of the Company as a consultant or exercise your option more than three (3)
months after the date your employment with the Company and all Affiliates of the
Company terminates.
8. REPRESENTATIONS. By executing this option agreement, you hereby
warrant and represent that you are acquiring this option for your own account
and that you have no intention of distributing, transferring or selling all or
any part of this option except in accordance with the terms of this option
agreement and Section 25102(f) of the California Corporations Code. You also
hereby warrant and represent that you have either (i) preexisting personal or
business relationships with the Company or any of its officers, directors or
controlling persons, or (ii) the capacity to protect your own interests in
connection with the grant of this option by virtue of the business or financial
expertise of any of your professional advisors who are unaffiliated with and who
are not compensated by the Company or any of its affiliates, directly or
indirectly.
9. EXERCISE.
(a) This option may be exercised, to the extent specified
above, by delivering a notice of exercise (in a form designated by the Company)
together with the exercise price to the Secretary of the Company, or to such
other person as the Company may designate, during regular business hours,
together with such additional documents as the Company may then require pursuant
to the Plan.
(b) By exercising this option you agree that:
(i) as a precondition to the completion of any
exercise of this option, the Company may require you to enter an arrangement
providing for the payment by you to the Company of any tax withholding
obligation of the Company arising by reason of (1) the exercise of this option;
(2) the lapse of any substantial risk of forfeiture to which the shares are
subject at the time of exercise; or (3) the disposition of shares acquired upon
such exercise;
(ii) you will notify the Company in writing within
fifteen (15) days after the date of any disposition of any of the shares of the
Common Stock issued upon exercise of this option that occurs within two (2)
years after the date of this option grant or within one (1) year after such
shares of Common Stock are transferred upon exercise of this option; and
(iii) the Company (or a representative of the
underwriters) may, in connection with the first underwritten registration of the
offering of any securities of the Company under the Act, require that you not
sell or otherwise transfer or dispose of any shares of
4
<PAGE> 5
Common Stock or other securities of the Company during such period (not to
exceed one hundred eighty (180) days) following the effective date (the
"Effective Date") of the registration statement of the Company filed under the
Act as may be requested by the Company or the representative of the
underwriters. You further agree that the Company may impose stop-transfer
instructions with respect to securities subject to the foregoing restrictions
until the end of such period.
10. RESTRICTIONS ON TRANSFERABILITY. This option is not transferable,
except by will or by the laws of descent and distribution, and is exercisable
during your life only by you. Notwithstanding the foregoing, by delivering
written notice to the Company, in a form satisfactory to the Company, you may
designate a third party who, in the event of your death, shall thereafter be
entitled to exercise this option. The shares underlying this Option are, prior
to the date of the first registration of an equity security of the Company under
Section 12 of the Exchange Act, subject to a right of first refusal in favor of
the Company pursuant to the terms of the Plan, a copy of which is attached
hereto.
11. OPTION NOT A SERVICE CONTRACT. This option is not an employment
contract and nothing in this option shall be deemed to create in any way
whatsoever any obligation on your part to continue in the employ of the Company,
or of the Company to continue your employment with the Company. In addition,
nothing in this option shall obligate the Company or any Affiliate of the
Company, or their respective stockholders, Board of Directors, officers or
employees to continue any relationship which you might have as a Director or
Consultant for the Company or Affiliate of the Company.
12. NOTICES. Any notices provided for in this option or the Plan shall
be given in writing and shall be deemed effectively given upon receipt or, in
the case of notices delivered by the Company to you, five (5) days after deposit
in the United States mail, postage prepaid, addressed to you at the address
specified below or at such other address as you hereafter designate by written
notice to the Company.
13. GOVERNING PLAN DOCUMENT. This option is subject to all the
provisions of the Plan, a copy of which is attached hereto and its provisions
are hereby made a part of this option, including without limitation the
provisions of Section 6 of the Plan relating to option provisions, and is
further subject to all interpretations, amendments, rules and regulations which
may from time to time be promulgated and adopted pursuant to the Plan. In the
event of any conflict between the provisions of this option and those of the
Plan, the provisions of the Plan shall control.
5
<PAGE> 6
Dated the ____ day of __________________, 19__.
Very truly yours,
NEXTWAVE TELECOM INC.
By_________________________________
Duly authorized on behalf
of the Board of Directors
<PAGE> 1
EXHIBIT 10.4
IT IS UNLAWFUL TO CONSUMMATE A SALE OR
TRANSFER OF THIS SECURITY, OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY
CONSIDERATION THEREFOR, WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA,
EXCEPT AS PERMITTED IN THE COMMISSIONER'S
RULES.
NONSTATUTORY STOCK OPTION
_________________________, Optionee:
NextWave Telecom Inc. (the "Company"), pursuant to its Amended and
Restated Stock Option Plan (the "Plan"), has granted to you, the optionee named
above, an option to purchase shares of the common stock of the Company ("Common
Stock"). This option is not intended to qualify as and will not be treated as an
"incentive stock option" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code").
The grant hereunder is in connection with and in furtherance of the
Company's compensatory benefit plan for participation of the Company's employees
(including officers) directors and consultants and is intended to comply with
the provisions of Rule 701 promulgated by the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "Act"). The grant of this
option and the issuance of shares upon the exercise of this option are also
intended to be exempt from the securities qualification requirements of the
California Corporations Code pursuant to Section 25102(f) of that code. Defined
terms not explicitly defined in this agreement but defined in the Plan shall
have the same definitions as in the Plan.
1. TERMS OF STOCK OPTION. The details of your stock option are as
follows:
Number of Shares Subject to Option: ____________________
Date of Grant: ____________________
Vesting Commencement Date: ____________________
Exercise Price per Share: ____________________
Expiration Date: ____________________
2. TOTAL NUMBER OF SHARES SUBJECT TO THIS OPTION. The total number of
shares of Common Stock subject to this option is ____________________ (______).
3. VESTING. Subject to the limitations contained herein, twenty percent
(20%) of the shares will vest (become exercisable) on the one year anniversary
of the Vesting Commencement
1.
<PAGE> 2
Date and twenty percent (20%) of the shares will then vest at the end of each
full year thereafter until either (i) you cease to provide services to the
Company for any reason, or (ii) this option becomes fully vested. The Stock
Option may not be exercised in whole or in part at any time prior to the end of
the first full year following the Vesting Commencement Date. The right to
exercise this Stock Option will be cumulative. Optionee may buy all, or from
time to time any part, of the maximum number of shares which are exercisable
under the Stock Option, but in no case may Optionee exercise the Stock Option
with regard to a fraction of a share, or for any share for which the Stock
Option is not exercisable.
4. EXERCISE PRICE AND METHOD OF PAYMENT.
(A) EXERCISE PRICE. The exercise price of this option is
twenty five cents ($.25) per share, being not less than the fair market value of
the Common Stock on the date of grant of this option.
(B) METHOD OF PAYMENT. Payment of the exercise price per share
is due in full upon exercise of all or any part of each installment which has
accrued to you. You may elect, to the extent permitted by applicable statutes
and regulations, to make payment of the exercise price under one of the
following alternatives:
(I) Payment of the exercise price per share in cash
(including check) at the time of exercise;
(II) Payment pursuant to a program developed under
Regulation T as promulgated by the Federal Reserve Board which, prior to the
issuance of Common Stock, results in either the receipt of cash (or check) by
the Company or the receipt of irrevocable instructions to pay the aggregate
exercise price to the Company from the sales proceeds; or
(III) Provided that at the time of exercise the
Company's Common Stock is publicly traded and quoted regularly in the Wall
Street Journal, payment by delivery of already-owned shares of Common Stock,
held for the period required to avoid a charge to the Company's reported
earnings, and owned free and clear of any liens, claims, encumbrances or
security interests, which Common Stock shall be valued at its fair market value
on the date of exercise.
(C) Payment by a combination of the methods of payment
permitted by subparagraph 4(b)(i) through 4(b)(iii) above.
5. WHOLE SHARES. This option may not be exercised for any number of
shares which would require the issuance of anything other than whole shares.
2.
<PAGE> 3
6. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary
contained herein, this option may not be exercised unless the shares issuable
upon exercise of this option are then registered under the Act or, if such
shares are not then so registered, the Company has determined that such exercise
and issuance would be exempt from the registration requirements of the Act.
7. TERM. The term of this option commences on _____________, 199_, (the
"Vesting Commencement Date") and expires on _______________ (the "Expiration
Date", which date shall be no more than ten (10) years from date this option is
granted), unless the option expires sooner as set forth below or in the Plan. In
no event may this option be exercised on or after the Expiration Date. This
option shall terminate prior to the Expiration Date as follows: thirty (30) days
after the termination of your Continuous Status as an Employee, Director or
Consultant with the Company or an Affiliate of the Company unless one of the
following circumstances exists:
(A) Your termination of Continuous Status as an Employee,
Director or Consultant is due to your disability. This option will then
terminate on the earlier of the termination date set forth above or twelve (12)
months following such termination of Continuous Status as an Employee, Director
or Consultant.
(B) Your termination of Continuous Status as an Employee,
Director or Consultant is due to your death or your death occurs within thirty
(30) days following your termination of Continuous Status as an Employee,
Director or Consultant for any other reason. This option will then expire on the
earlier of the Expiration Date set forth above or twelve (12) months after your
death.
(C) If during any part of such thirty (30) day period you may
not exercise your option solely because of the condition set forth in paragraph
6 above, then your option will not expire until the earlier of the Expiration
Date set forth above or until this option shall have been exercisable for an
aggregate period of thirty (30) days after your termination of Continuous Status
as an Employee, Director or Consultant.
(D) If your exercise of the option within thirty (30) days
after termination of your Continuous Status as an Employee, Director or
Consultant with the Company or with an Affiliate of the Company would result in
liability under section 16(b) of the Securities Exchange Act of 1934, then your
option will expire on the earlier of (i) the Expiration Date set forth above,
(ii) the tenth (10th) day after the last date upon which exercise would result
in such liability or (iii) six (6) months and ten (10) days after the
termination of your Continuous Status as an Employee, Director or Consultant
with the Company or an Affiliate of the Company.
However, this option may be exercised following termination of
Continuous Status as an Employee, Director or Consultant only as to that number
of shares as to which it was exercisable on the date of termination of
Continuous Status as an Employee, Director or Consultant under the provisions of
paragraph 3 of this option.
3.
<PAGE> 4
8. REPRESENTATIONS. By executing this option agreement, you hereby
warrant and represent that you are acquiring this option for your own account
and that you have no intention of distributing, transferring or selling all or
any part of this option except in accordance with the terms of this option
agreement and Section 25102(f) of the California Corporations Code. You also
hereby warrant and represent that you have either (i) preexisting personal or
business relationships with the Company or any of its officers, directors or
controlling persons, or (ii) the capacity to protect your own interests in
connection with the grant of this option by virtue of the business or financial
expertise of any of your professional advisors who are unaffiliated with and who
are not compensated by the Company or any of its affiliates, directly or
indirectly.
9. EXERCISE.
(A) This option may be exercised, to the extent specified
above, by delivering a notice of exercise (in a form designated by the Company)
together with the exercise price to the Secretary of the Company, or to such
other person as the Company may designate, during regular business hours,
together with such additional documents as the Company may then require pursuant
to the Plan.
(B) By exercising this option you agree that:
(I) as a precondition to the completion of any
exercise of this option, the Company may require you to enter an arrangement
providing for the payment by you to the Company of any tax withholding
obligation of the Company arising by reason of (1) the exercise of this option;
(2) the lapse of any substantial risk of forfeiture to which the shares are
subject at the time of exercise; or (3) the disposition of shares acquired upon
such exercise. You also agree that any exercise of this option has not been
completed and that the Company is under no obligation to issue any Common Stock
to you until such arrangement is established or the Company's tax withholding
obligations are satisfied, as determined by the Company; and
(II) the Company (or a representative of the
underwriters) may, in connection with the first underwritten registration of the
offering of any securities of the Company under the Act, require that you not
sell or otherwise transfer or dispose of any shares of Common Stock or other
securities of the Company during such period (not to exceed one hundred eighty
(180) days) following the effective date (the "Effective Date") of the
registration statement of the Company filed under the Act as may be requested by
the Company or the representative of the underwriters. You further agree that
the Company may impose stop-transfer instructions with respect to securities
subject to the foregoing restrictions until the end of such period.
10. RESTRICTIONS ON TRANSFERABILITY. This option is not transferable,
except by will or by the laws of descent and distribution, and is exercisable
during your life only by you. Notwithstanding the foregoing, by delivering
written notice to the Company, in a form satisfactory to the Company, you may
designate a third party who, in the event of your death, shall thereafter be
entitled to exercise this option. The shares underlying this Option are, prior
to the date of the first
4.
<PAGE> 5
registration of an equity security of the Company under Section 12 of the
Exchange Act, subject to a right of first refusal in favor of the Company
pursuant to the terms of the Plan, a copy of which is attached hereto.
11. OPTION NOT A SERVICE CONTRACT. This option is not an employment
contract and nothing in this option shall be deemed to create in any way
whatsoever any obligation on your part to continue in the employ of the Company,
or of the Company to continue your employment with the Company. In addition,
nothing in this option shall obligate the Company or any Affiliate of the
Company, or their respective stockholders, Board of Directors, officers or
employees to continue any relationship which you might have as a Director or
Consultant for the Company or Affiliate of the Company.
12. NOTICES. Any notices provided for in this option or the Plan shall
be given in writing and shall be deemed effectively given upon receipt or, in
the case of notices delivered by the Company to you, five (5) days after deposit
in the United States mail, postage prepaid, addressed to you at the address
specified below or at such other address as you hereafter designate by written
notice to the Company.
13. GOVERNING PLAN DOCUMENT. This option is subject to all the
provisions of the Plan, a copy of which is attached hereto and its provisions
are hereby made a part of this option, including without limitation the
provisions of Section 6 of the Plan relating to option provisions, and is
further subject to all interpretations, amendments, rules and regulations which
may from time to time be promulgated and adopted pursuant to the Plan. In the
event of any conflict between the provisions of this option and those of the
Plan, the provisions of the Plan shall control.
Dated the ____ day of __________________, 19__.
Very truly yours,
NEXTWAVE TELECOM INC.
By_____________________________________
Duly authorized on behalf
of the Board of Directors
ATTACHMENTS:
NextWave Telecom Inc. Amended and Restated Stock Option Plan;
Section 260.141.11 of Title 10 of the California Code of Regulations;
Notice of Exercise.
5.
<PAGE> 6
The undersigned:
Acknowledges receipt of the foregoing option and the
attachments referenced therein and understands that all rights and liabilities
with respect to this option are set forth in the option and the Plan; and
Acknowledges that as of the date of grant of this option, it sets forth
the entire understanding between the undersigned optionee and the Company and
its Affiliates regarding the acquisition of stock in the Company and supersedes
all prior oral and written agreements on that subject with the exception of (i)
the options previously granted and delivered to the undersigned under stock
option plans of the Company, and (ii) the following agreements only:
NONE __________________
(Initial)
OTHER _______________________________________
_______________________________________
_______________________________________
Acknowledges receipt of a copy of Section 260.141.11 of Title 10 of the
California Code of Regulations.
________________________________________
OPTIONEE
Address: _____________________________
_____________________________
6.
<PAGE> 1
EXHIBIT 11.1
NEXTWAVE TELECOM INC.
CALCULATION OF PRO FORMA NET (LOSS) INCOME PER SHARE (UNAUDITED)
<TABLE>
<CAPTION>
MAY 16, 1995 THREE MONTHS
(INCEPTION) TO ENDED
DECEMBER 31, 1995 MARCH 31, 1996
----------------- --------------
<S> <C> <C>
Pro forma net (loss) income (unaudited):
Net Loss................................................... $ (1,894,000) $ (344,000)
Adjustment to interest expense............................. 309,000 450,000
Adjustment to debt conversion expense...................... -- 150,000
----------- -----------
Adjusted net (loss) income (unaudited)..................... $ (1,585,000) $ 256,000
=========== ===========
Calculation of pro forma common shares outstanding
(unaudited):
Series B Common Stock(1)................................... 92,214,000 92,214,000
Conversion of Series A and C Common Stock into Series B
Common Stock(1)......................................... 112,516,000 112,539,000
Conversion of Senior Subordinated Notes into Series B
Common Stock(1)......................................... 32,587,000 32,587,000
Conversion of Foreign Convertible Notes into Series B
Common Stock............................................ 7,235,000 7,235,000
Options and warrants to purchase Series B Common
Stock(1)................................................ 28,178,000 28,178,000
----------- -----------
Total pro forma common shares outstanding
(unaudited)...................................... 272,730,000 272,753,000
=========== ===========
Pro forma net (loss) income per share (unaudited)............ $ (0.01) $ 0.00
=========== ===========
</TABLE>
- ---------------
(1) Treated as outstanding for the entire period pursuant to Securities and
Exchange Commission Staff Accounting Bulletin No. 83.
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF REGISTRANT
Name State of Incorporation
---- ----------------------
1. NextWave Personal Communications Inc. Delaware
2. NextWave Wireless Inc. Delaware
3. TELE*Code Inc. Delaware
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated June 7, 1996 relating to
the financial statements of NextWave Telecom Inc., which appears in such
Prospectus. We also consent to the reference to us under the heading "Experts"
in such Prospectus.
PRICE WATERHOUSE LLP
San Diego, California
June 7, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 8-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> MAY-16-1995
<PERIOD-END> DEC-31-1995
<CASH> 4,486,000
<SECURITIES> 0
<RECEIVABLES> 93,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,592,000
<PP&E> 156,000
<DEPRECIATION> (14,000)
<TOTAL-ASSETS> 84,834,000
<CURRENT-LIABILITIES> 79,804,000
<BONDS> 24,000
0
0
<COMMON> 6,900,000
<OTHER-SE> (1,894,000)
<TOTAL-LIABILITY-AND-EQUITY> 84,834,000
<SALES> 173,000
<TOTAL-REVENUES> 173,000
<CGS> 114,000
<TOTAL-COSTS> 114,000
<OTHER-EXPENSES> 1,639,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 332,000
<INCOME-PRETAX> (1,894,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,894,000)
<EPS-PRIMARY> 0
<EPS-DILUTED> $0.01
</TABLE>
